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Asian Century

The high priests of capitalism seem to be in a perpetual state of denial since 2007-08 when the so-called global financial system simply collapsed all of a sudden catching them by surprise. They have since kept refusing to believe that capitalism as they know it does not exist anymore.

The original authors of the principles of capitalism and its early promoters had perhaps never thought that by early 21st century the idea that was to have strengthened and promoted democracy would have turned into something totally unrecognisable, something totally dead -set against democracy. Indeed, a system that enables only eight individuals to own the wealth that should have been spread over half of world’s population can only promote imperialism, not democracy.

With Communism knocking at the doors of Western Europe soon after the World War II and socialism making inroads into American academia at the same time, crass capitalism or what was then called laissez-faire an economic system in which transactions between private parties were free from government interference such as regulations, privileges, tariffs, and subsidies) was abandoned and capitalism was reined in with public welfare programs and its free-for-all business model was contained with strict regulations.

This created the enabling circumstances for promoting democracy by expanding the population of middle classes in Europe and the US and containing the ‘haves’ with strict regulations while making them pay for the welfare and well-being of the ‘have-nots’ in the shape of super taxes and reallocating incomes through heavy subsidies for the not so rich.

The advent of Thatcherism in the UK and Reaganomics in the US along with globalisation ‘greed’ started getting universally accepted as ‘good’ and resultantly within a matter of 35 years we see Brexit in Britain and Trump in the US. Of course, this did not happen overnight. In the first phase of about 20 years political parties in the West and the US were overtaken gradually by the big business and in the next phase of 15 years the big business used the very globalisation that they had used to enrich themselves to demolish the middle classes and thereby do away completely with both social capitalism and democracy.

But this is not end of history. The world had been dominated over the last several centuries by the 12 per cent of its population located in the West and the US. At the same time as the decline and fall of this population began, there has emerged a new resurgence in 88 per cent of the population that resides in Asia and Africa.

Indeed, the human condition of this population has never been better. Poverty in Asia and Africa is declining steadily because of which in 2015, the world far exceeded the UN’s Millennium Development Goal of halving global poverty.

The global middle classes, emerging mostly in countries far away from Europe and the US are exploding, from 1.8 billion in 2010 to 3.2 billion in 2020 and 4.9 billion in 2030. The world’s infant mortality rate, for the same reason, has decreased from an estimated 60 deaths per thousand live births in 1990 to 32 in 2015. This translates into more than 4 million fewer infant deaths per year.

According to Kishore Mahbubani, Dean, Lee Kuan Yew School of Public Policy, National University of Singapore, the decade of 2010 to 2020 is probably the best decade Asia has ever experienced as the Asian middle class population is going to jump from 500 million in 2010 to 1.75 billion in 2020. In short, Mahbubani opines Asia is going to add 1.5 times the total population of the West to the global middle class population in one decade.

He attributes these positive changes in Asia to the spread of Western science and technology. At the most basic level, in his opinion, humans around the world could see the benefits of modern Western medicine. As a result, he says, reason is replacing superstition. In all spheres of human life, from economic policies to environmental management, from education to urban planning, as he sees, Western best practices are being almost universally adopted by all societies.

He holds what he calls the flawed strategy that the West has pursued since the collapse of the Soviet Union for the emergence of the so-called populism in the US and Europe.

“China decided to re-join the world economy in the 1980s. India did so in the 1990s. The return of 3 billion Asians was obviously going to shake up the global economy.

“The most important event in 2001 was not 9/11. It was China’s entry into the World Trade Organisation. The entry of almost a billion workers into the global trading system would obviously result in massive “creative destruction” and the loss of many jobs.

“While the West was distracted, China emerged. According to IMF statistics, in 1980, in PPP terms, America’s share of global GDP was 25% while that of China was 2.2%. In 2016, America’s share has shrunk to 15.5% while that of China has risen to 17.9%.”

Quoting RW Johnson he describes how American workers suffered: “Between 1948 and 1973, productivity rose by 96.7% and real wages by 91.3%, almost exactly in step. Those were the days of plentiful hard-hat jobs in steel and the auto industry when workers could afford to send their children to college and see them rise into the middle class. But from 1973 to 2015 – the era of globalisation, when many of those jobs vanished abroad – productivity rose 73.4% while wages rose by only 11.1%. Since 2000 the wages paid to college graduates have fallen.”

In the opinion of Mahbubani the West can benefit from the surge of the rest. 12% of the world’s population can be pulled along by the remaining 88%. To achieve this, he believes, Western leaders and pundits need to make many significant psychological adjustments.

“Instead of constantly trying to retain control of the world, the West should learn to share power. Asians should be allowed to run the IMF and World Bank. Equally importantly, Western pundits must drop their traditional condescension when speaking about the rest. Emerging Asian entities, like China, India and ASEAN, should be treated with more respect.”

However, instead of looking at the causes of stagnation in the West and the US, in the Davos last week world’s best brains were seen trying to tackle its symptom-inequality.

It’s hard to say that the world didn’t see it coming: as far back as 2009, researchers were already drawing attention to the link between inequality and a whole host of other ills. And according to Christine Lagarde, the IMF chief, she also attempted to ring the alarm bells – to no avail.

She said that a whole host of IMF research had indicated that unequal growth could never be sustainable. The latest IMF World Economic Outlook has also reached the same conclusions.

Addressing world leaders in Davos four years ago, Lagarde quoted Franklin D. Roosevelt to warn them of the dangers of rising inequality. “Franklin D. Roosevelt once said, ‘The test of our progress is not if we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.'” Lagarde also had some prescient points to make about the rise of nationalism and populism:

“You can be absolutely sure that nations will revert to their natural tendency of hiding behind their borders, of moving towards protectionism, of listening to vested interests, and they’ll forget about transcending those national priorities.”

This year at Davos she had one final message for leaders: “That they don’t listen to my opening speech back in 2013 is fine. But if they receive the feedback from the voters, then they really have to think it through.”

Among emerging economies, China remains a major driver of world economic developments. China growth upgrade for 2017 is a key factor underpinning the coming year’s expected faster global recovery. This change reflects an expectation of continuing policy support.

Social dislocation due to globalisation and, even more, to technology change is a major challenge that will only intensify in the future. One result has been wider inequality and wage stagnation in many countries. Rolling back economic integration, however, would impose aggregate economic costs without reducing the need for government investment in well-trained, nimble workforces, along with policies to promote better matching of available jobs to skills.

M Ziauddin, "Asian Century," Business Recorder. 2017-01-25.
Keywords: Economics , Income Tax , Political parties , Business Planning , Public policy , Population forecasting , Information technology , Environmental management , Economic policy , Population , Democracy , Imperialism , Superstition , Singapore , China , India , US , UK , IMF , PPP , GDP , ASEAN