Business Environment: Letter from Davos - Asia Rising

Forty years ago, when the first Davos Summit was held, a good deal of Asia was in the deep dumps. The Vietnam war was raging, the Cultural Revolution was devastating China, and the Swedish Economics Nobel Laureate Gunnar Myrdal had only recently published his three-volume tome entitled Asian Drama: An Enquiry into the Poverty of Nations. Paradoxically, the countries of Asia that seemed the most promising to international investors were in West Asia, such as Iran, Syria, and Iraq. Today the Davos consensus is that Asia will lead global growth into the 21st century and increasingly assume global leadership. Asian themes are prominent in the programme as Asian political leaders are conspicuous by their presence. The president of Korea, Lee Myung-Bak, gave a special address. Korea will be hosting the G20 summit in November this year. As President Lee reminded the audience, 50 years ago Korean GDP per capita was USD40. I first visited Korea in 1967, when it was still one of the world's poorest countries, not having yetrecovered from the devastation of Japanese colonialism, World War II and the Korean War, all of which occurred in the first half of the 20th century. Few stories can compete with that of Korea in illustrating Asia Rising. Of course, currently the most rising Asian power is China. In Davos last year, when the impact of the crisis was at its profoundest, premier Wen Jia-bao confidently asserted to a sceptical audience that China would grow by 8%. Today, Chinese leaders are pleased to report that actually the figure was 8.7%. The sense of confidence of the Chinese contrasts with the US still licking its wounds. And just as Asian political leaders are conspicuous by their presence in Davos this year; American political leaders are conspicuous by their absence. While Asia is rising, however, the US clearly remains the world's biggest economy and will be so for some time no matter how badly its debt and deficits afflict it. Rising China and giant US will determine growth in the world. The great concern, however, is that the established power and the rising power may, perhaps by inadvertence than deliberately, engage more in conflict than in collaboration. At a session on the US and China, there was a very strong sense of apprehension that trade relations could seriously deteriorate. Indeed the protectionist spectre is prominent in Davos. A serious US-China trade conflict would dramatically affect the whole world. With the stunning growth of the early rising Asian economies of a few decades ago, Taiwan, Korea, Hong Kong and Singapore, the current awesome performance of China, the fast growth of India since the early 1990s, and the equally stellar performance of a few other Asian economies, such as Vietnam, there is a problem with the concept of Asia Rising. For one thing, the erstwhile Asian champion and economic colossus, Japan, is rapidly declining. The Davos view is that it will have the worse performance among OECD countries. So it is not all up and up in Asia, but also some quite precipitous down!Furthermore, Asia encompasses an immense territory, an immense population, and greater heterogeneity than any other continent from every view point. In terms of religion, between, for example, predominantly Muslim Indonesia, Buddhist Thailand and Catholic Philippines. Economically, though there are differences in many continents, eg between Albania and Germany in Europe, they pale in comparison with the gap between, say, Laos and Singapore. There are also significant tensions within Asia, including, among many others, betweenSaudi Arabia and Iran, India and Pakistan, and of course the two Koreas. China and Taiwan seem to have found a modus vivendi, but an inadvertent spark could light a dangerous fuse.At a working dinner meeting on Asia, the moderator frequently referred to "Asian values". The underlying assumption when the term is used is that it refers to Confucianism. But only about half of Asia (in population terms) claims a Confucianist heritage, while another 50% or so is Muslim. Indeed about 75% or more of the world's Muslims are to be found in Asia. The Taliban would be surprised to be told that their values are Confucianist!The images of Asia Rising notwithstanding, there is also a great deal of poverty and misery in Asia. Bangladesh, an Asian country with a population of some 160 million, has 70% of its population living below the poverty line and has one of the world's lowest GDP per capita. There are more illiterate women in India than in the whole rest of the world put together. Asia may be rising, but there are still many "Asian dramas". Finally, one of the major forces that will be driving a wedge in Asia is demographics. The populations of East Asia, the most dynamic region of Asia in recent decades, are going to experience serious and rapid ageing. Japan is on course for becoming the oldest country in the world. China's 30 year old one child policy means that its population will soon age and decline. Korea, Hong Kong and Singapore are all in the same situation. The picture in South and Central Asia is dramatically, but really dramatically, different. In this coming decade, between 2010 and 2020, the population of Iraq will grow by 9 million, Iran also by 9 million, Afghanistan by 10 million, Pakistan by 38 million, Nepal by 6 million, Bangladesh by 21 million and India by a whopping 155 million! So what conclusions can one draw? The term "Asia" is not a useful analytical concept. It defines nothing and in no way compares with the relative homogeneity (compared to Asia) of Africa, Latin America and Europe. Asia Rising is positively misleading. The confusion about Asia is a caricature of the general confusion that globalisation has spawned. Among many other things we should seek in analysing the global environment and drawing policy lessons is far greater clarity and rigour.

Professor Jean-Pierre Lehmann is:- Professor of International Political Economy at International Institute for Management Development, Lausanne & - Founding Director of The Evian Group, an international coalition of corporate, government and opinion leaders.www.eviangroup.org