Contemplating the future
Contemplating the future
Abstract and Keywords
This chapter concludes. It outlines the contours of change to recapitulate the essentials of the transformation in Asia, and highlights the major analytical conclusions that relate to contemporary debates on development. It considers prospects, in terms of opportunities and challenges, for countries that have led the process so far and for those that might follow in their footsteps. It reflects on the future, with reference to the past, to speculate how the changed international context, and new challenges on the horizon, might shape, or be influenced by, development in Asia over the next twenty-five years, addressing specific questions. Do recent changes in the global political economy have any longer-term implications for Asia? What is the likely impact of the profound technological changes on the horizon for development in Asia? How would the leading industrialized countries respond or adjust to the erosion of their economic dominance and political hegemony? Is this going to be an Asian century?
Keywords: analytical conclusions, balance of power, challenges, contours of change, development prospects, erosion of hegemony, global political economy, multipolar world, opportunities, resurgent nationalisms
The objective of this book is to analyse the phenomenal economic transformation of Asia, which would have been difficult to imagine, let alone predict, fifty years ago. In doing so, it provides an analytical narrative of this remarkable story of economic development, situated in historical perspective, and an economic analysis of the underlying factors, with a focus on critical issues in the process of, and outcomes in, development. Given the size and the diversity of the continent, the aggregate level is not always appropriate. Thus, the study disaggregates Asia into its four constituent sub-regions, and further into fourteen selected economies: China, South Korea, and Taiwan in East Asia; Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam in Southeast Asia; Bangladesh, India, Pakistan, and Sri Lanka in South Asia; and Turkey in West Asia. These economies, described as the Asian-14, account for more than four-fifths of the population and income of Asia.
This chapter concludes. Section 1 outlines the contours of change to recapitulate the essentials of the transformation in Asia, and highlights the major analytical conclusions that relate to the debates on development. Section 2 considers prospects, in terms of opportunities and challenges, for countries that have led the process so far and for those that might follow in their footsteps. Section 3 reflects on the future, with reference to the past, to speculate how the changed international context, and new challenges on the horizon, might shape, or be influenced by, development in Asia over the next twenty-five years.
1. Asian transformations: some lessons
The underdevelopment and development of Asia has its historical context. In 1820, two centuries ago, Asia accounted for two-thirds of world population and almost three-fifths of world income, where just two countries, China and India, accounted for one-half of world population and world income. The colonial era witnessed a precipitous decline in this economic significance. By 1962, the share of Asia in world population diminished to 50 per cent, while its share of world income plummeted to 15 per cent. For China and India, taken together, these shares plunged to 35 per cent and 8 per cent respectively. The outcome was the ‘Great Divergence’. Income per capita in Asia, as a proportion of that in the West, dropped from one-half in 1820 to less than one-tenth in 1962. This was associated (p.223) with the ‘Great Specialization’, which meant that Western Europe produced manufactured goods while Asia produced primary commodities. Consequently, the share of China and India in world manufacturing production collapsed from 47 per cent in 1830 to 5 per cent in 1963. The decline and fall of Asia was attributable to its integration with the world economy, through trade and investment, shaped by colonialism and driven by imperialism. The industrialization of Western Europe and the deindustrialization of Asia were, in fact, two sides of the same coin, which had a devastating impact on China and India.
The transformation of Asia over the past fifty years, reflected in its demographic transition, social progress, and economic development, has been phenomenal. In 1970, it was the poorest continent in the world, marginal except for its large population. By 2016, there was a striking change in its relative importance. Its share of world GDP rose from less than one-tenth to three-tenths, while its income per capita surpassed that of developing countries and converged towards the world average income level, although the convergence was at best modest compared with industrialized countries because the initial income gap was so enormous. Growth in GDP and GDP per capita in Asia was much higher than in the world economy, industrialized countries, and the developing world, both Africa and Latin America. Over this period, the share of Asia in world industrial production jumped from a miniscule 4 per cent to more than 40 per cent. Its share of world merchandise trade rose from one-twelfth to one-third. East Asia was the leader and South Asia was the laggard, with Southeast Asia in the middle, while progress in West Asia did not match its high income levels.
There were pronounced structural changes in the composition of output and employment, which led to a sharp decline in the share of agriculture, a significant increase in the share of the industrial sector, and a much greater increase in the share of the services sector everywhere. The increase in the share of the manufacturing sector was less than that of the industrial sector and not uniform across countries. Even so, industrialization was impressive. During 1970–2016, for Asia, and the Asian-14, the share of the manufacturing sector in GDP rose from one-tenth to one-fourth. There was also a marked increase in the degree of openness of economies in Asia, reflected in their growing engagement with the world economy through international trade, investment, and finance.
Rising per capita incomes were associated with a transformation in social indicators of development, as infant mortality rates fell sharply, while life expectancy and literacy rates rose sharply, everywhere. Rapid economic growth also led to a massive reduction in absolute poverty across countries in Asia. However, the absolute number of people below the specified international poverty lines remained large, while the number of people between the two poverty lines, who are vulnerable, rose to more than 1 billion. The scale of absolute poverty that persists, despite unprecedented growth, is just as striking as the sharp reduction therein. The poverty reduction could have been much greater but for the rising (p.224) inequality. Inequality between people within economies rose everywhere, except for South Korea and Taiwan. Inequality between economies also rose. There was, in fact, a widening gap in per capita income levels within the Asian-14, while the gap between the richest and poorest countries in Asia was awesome.
Development outcomes were unequal not only for people but also for countries in Asia. Among the Asian-14, in just fifty years, South Korea, Taiwan, and Singapore joined the league of industrialized economies. China was a star performer throughout, making impressive strides in development from 1990. The economic dynamism of Indonesia, Malaysia, and Thailand waned after the Asian financial crisis. The growth performance of India, Bangladesh, and Vietnam was most impressive during the past quarter century, although the South Asian countries were laggards in poverty reduction and social indicators. In comparison, the performance of Sri Lanka was respectable, while that of Turkey was average, but that of Pakistan and Philippines was relatively poor.
This book suggests some important analytical conclusions that contribute not only to our understanding of development in Asia but also to the debate on development. A few are highlighted here.
It is, of course, necessary to recognize the diversity of Asia. There were marked differences between countries in geographical size, embedded histories, colonial legacies, nationalist movements, initial conditions, natural resource endowments, population size, income levels, and political systems. The reliance on markets and the degree of openness in economies varied greatly across space and over time. The politics, too, ranged widely from socialism through State capitalism to capitalism, from authoritarian regimes to political democracies, and from one-party states to multi-party systems. Outcomes in development, which differed not only between countries at any point in time but also within countries over time, were diverse. There were different paths to development, because there were no unique solutions, or magic wands. Hence, there were choices to be made, which were shaped by a complex mix of economic, social and political factors in the national context, where history mattered. Yet, despite such diversity, there are discernible patterns, pointing to substantive analytical lessons that emerge from the Asian development experience.
The economic transformation of Asia in the past fifty years provides a sharp contrast with the decline and fall of Asia in the colonial era during the preceding 150 years. Unlike Latin America and Africa, most Asian countries did have a long history of well-structured states and cultures, which were not entirely destroyed by colonialism. Thus, for Asian countries, political independence, which restored their economic autonomy and enabled them to pursue national development objectives, was an important underlying factor and driving motivation in their quest for catching up.
In a radical departure from the stagnation in colonial times, over the past fifty years, rates of economic growth in most of the Asian-14 were unprecedented in (p.225) history. Investment and savings, which rose rapidly and were much higher than elsewhere in the developing world, were drivers of growth on the supply-side. The spread of education in society and the provision of healthcare for people, which contributed to human capital formation, along with the creation of a physical infrastructure, which eased constraints on the supply-side, were also sustained drivers of growth in countries that were success stories. On the demand-side, growth was primarily investment-led and private-consumption-expenditure-led. The interaction between the supply-side and the demand-side in the Asian-14 suggests that there was a virtuous circle of cumulative causation, where rapid investment growth coincided in time with rapid export growth, leading to rapid GDP growth. But this did not happen in countries where rapid investment growth and rapid export growth did not coincide, or where growth in both was slow.
It is clear that many of the Asian-14 did not follow orthodox prescriptions of balanced budgets and price stability for macroeconomic management. In fact, they were heterodox in their objectives and policies. Their primary macroeconomic objectives were economic growth and employment creation. Their macroeconomic policies were also much broader and more versatile in their use of policy instruments. Their success in maintaining high growth rates increased their degrees of freedom, which enabled them to finance government deficits and raise sustainable levels of government borrowing, while making higher inflation rates politically more acceptable, none of which would have been possible if economic growth was slow.
The transition from a situation, circa 1970, when the agricultural sector was dominant to a situation, in 2016, when the services sector was dominant, was far from uniform in the Asian-14. In earlier stages of development, such labour transfer between sectors was growth-promoting. In later stages of development, productivity increase within sectors was growth-promoting. The relative importance of these two drivers differed across countries, as well as sectors, and changed over time. However, apart from South Korea, Taiwan, Singapore, and perhaps, Malaysia, the process of structural transformation in the Asia-14 is uneven and incomplete. The share of agriculture in employment far exceeds that in output in most countries, while its productivity levels are much lower than those in non-agricultural sectors. There is a loss of dynamism in manufacturing for industrialization in some countries and premature deindustrialization in others. It is necessary to address the neglect of agriculture and renew the emphasis on manufacturing, just as it is essential to exploit the synergies and complementarities between manufacturing and services. Economic growth cannot be sustained and structural transformation cannot be completed even if one of three sectors is a weak link in the chain.
Economic openness has performed a critical supportive role in Asian development, wherever it has been in the form of strategic integration with, rather than passive insertion into, the world economy. However, analysis of the industrialization (p.226) experience in the Asian-14 shows that openness, while necessary, was not sufficient. It was conducive to industrialization only when combined with industrial policy. Clearly, success at industrialization in Asia was driven by sensible industrial policy that was implemented by effective governments. In future, however, technological learning and technological capabilities are also essential to provide the foundations for sustaining industrialization.
Governments performed a critical role, ranging from leader to catalyst or supporter, in the economic transformation of Asia spanning half a century, while their willingness and ability to do so depended on the nature of the state, which in turn was shaped by politics. The state and the market are complements rather than substitutes and the two institutions must adapt to each other in a co-operative manner over time. Success at development in Asia was about managing this evolving relationship between states and markets, by finding the right balance in their respective roles, which also changed over time. Countries, where governments did not, or could not, perform this role, and were unable to evolve their role vis-à-vis markets, lagged behind in development. The Asian experience suggests that efficient markets and effective governments, in tandem, provided the way forward to development.
The developmental states in South Korea, Taiwan, and Singapore, for whom Japan was the role model, which could co-ordinate policies across sectors over time in pursuit of national development objectives using the carrot-and-stick to implement their agenda, led the economic transformation of these countries, enabling them to become industrialized nations in just fifty years. However, the nature of these states was an outcome of circumstances in history and conjuncture that were very specific to them. China emulated these developmental states, in an altogether different political context with much success, and Vietnam has followed, two decades later, on the same transition path, as both countries have strong, one-party communist governments, with clear objectives, that could co-ordinate and implement policies. It is not possible to replicate these states elsewhere in Asia. Even so, for the other countries in the Asian-14, where states were less effective in implementing their agenda, governments did manage to introduce economic policies and evolve institutional arrangements that were conducive to industrialization and development. In these countries, it is only institutionalized checks and balances that can make governments more development-oriented and people-friendly. There are possibilities within political processes. There are also non-state institutions, or state institutions other than governments, that can perform this role. This is obviously more feasible in democracies than in authoritarian regimes.
Among the Asian-14, rising per capita incomes and improving social indicators—life expectancy and literacy rates—were related and the causation ran in both directions. However, the well-being of people is crucial because it is both constitutive of, and instrumental in, development. Thus, social progress for people and economic development for countries, together, can reinforce each other in a (p.227) virtuous circle. But unequal opportunities and unequal outcomes, together, can also accentuate each other over time, making matters worse both for the well-being of people and for the development of nations.
2. Opportunities and challenges
Is it, then, possible to speculate or hypothesize about the prospects of Asia in the world economy over the next twenty-five years? The past is relevant. And so is the present. But the future is not just about linear extrapolations. Yet, growth scenarios for the future are based on assumptions about growth rates, even if adjusted over time, based on the past. In attempting such projections, most exercises, at different levels of sophistication, are based on models of capital accumulation and productivity growth combined with demographic scenarios, allowing for inter-country differences in economic and institutional factors.1
Long-term macroeconomic forecasts of GDP at market exchange rates, by the Economist Intelligence Unit, suggest that the top ten economies in the world, in 2050, in descending order would be China, United States, India, Indonesia, Japan, Germany, Brazil, Mexico, Britain, and France. The same forecast estimates that, by 2050, the GDP at market exchange rates for each of the top three (China, United States, and India) will be larger than that of the next five (Indonesia, Germany, Japan, Brazil, and Mexico) put together.2 Of course, GDP per capita in the Western countries will remain far higher than that in the Asian or Latin American countries.
There are long-term projections, by OECD, of GDP in constant 2010 PPP US dollars, for major countries, which show that the share of Asia (excluding Japan) in world GDP will be 50 per cent in 2030, 53 per cent in 2040 and 55 per cent in 2050.3 This suggests that the share of Asia (excluding Japan) in world GDP in 2050 will return to its level in 1820 when it was 56 per cent.4 The same OECD projections are available for China and India. The share of China in world GDP will be 27 per cent in 2030, returning to its level around 1850, as it was 33 per cent in 1820 and 17 per cent in 1870. The share of India in world GDP will be 16 per cent in 2040, returning to its level in 1820, when it was 16 per cent.
It might be instructive to extend such comparisons of the future with the past to per capita income levels in Asia. Maddison statistics provide information on the share of Asia in world GDP and world population during 1820–2008, while OECD projections provide statistics on the share of Asia in world GDP and UN projections provide statistics on the share of Asia in world population during 2030–2050. The share of Asia in world GDP divided by its share in world population, is the equivalent of the ratio of Asian GDP per capita to world GDP per capita. This ratio was 0.87 in 1820, 0.63 in 1870, 0.43 in 1913, 0.30 in 1950, where it stayed until 1973, rising to 0.54 in 2001 and 0.66 in 2008.5 This ratio will (p.228) rise to 0.88 in 2030, 0.98 in 2040, and 1.04 in 2050.6 Therefore, in 2030, per capita income in Asia, relative to the world, will return to its level in 1820. By 2040, Asian per capita income would be the same as world per capita income, returning perhaps to the situation circa 1750.7
It is no surprise that such exercises project a much higher share for Asia, or China and India, in world GDP, in 2030, 2040, and 2050. Of course, these projections suggest broad orders of magnitude rather than precise predictions. Even so, such statistical exercises highlight the power of compound growth rates. Rates of growth do indeed matter. If GDP grows at 7 per cent per annum, national income doubles in ten years. If GDP per capita grows at 5 per cent per annum, per capita income doubles in fourteen years. In fact, growth rates have been in this range for many countries in the Asian-14 for the past twenty-five years. Even if somewhat lower growth rates are sustained, their cumulative impact over time can only accelerate the catch-up process. However, growth is not simply about arithmetic. Indeed, it is about more than economics. Therefore, in reflecting on the economic prospects of Asian countries in the next twenty-five years, it is necessary to consider the opportunities they could exploit and the challenges that they might face.
The economic determinants of potential growth suggest that several countries in Asia may be able to sustain high rates of economic growth for the next twenty-five years, perhaps longer, for the following reasons. Their large population size is expected to increase further, which makes labour a source of growth, and their income levels are low, which means that the possibilities of growth are greater. Their demographic characteristics, in particular the high proportion of young people in the population, which would mean an increase in their workforce and savings rates for some time to come, are conducive to growth, provided these countries can harness the demographic dividend through education that creates capabilities among people. Their wages are significantly lower than in the world outside, which is an important source of competitiveness for some time to come. Their social infrastructure for education and healthcare, as well as their physical infrastructure, remains less than developed despite the progress so far, so that further improvements are bound to reinforce the momentum of growth. However, these sources of growth will not be available for economies that have led the transformation of Asia, particularly South Korea, Taiwan, and Singapore. China might reach that stage soon. In fact, East Asia, including China, will witness a contraction in its labour force, so that growth will have to be sustained by a more efficient utilization of capital through technological progress based on investment in R&D. The potential for growth, in terms of the above-mentioned factors on the supply-side, will be greater in South Asia than in Southeast Asia or West Asia. Among the Asian-14, India, Indonesia, Vietnam, and Bangladesh could realize this potential. Turkey and Sri Lanka are at a much later stage in their demographic transition but are better endowed in terms of social indicators and human (p.229) resource development. Malaysia and Thailand need to revive their economic dynamism, which has not recovered since the Asian financial crisis.
There is also an opportunity on the demand-side. Rising income levels and improving living standards in Asian countries, particularly those with relatively low per capita incomes, will drive domestic demand that could act as a stimulus to growth within these economies. At the same time, it would also create expanding markets for developing Asia as a whole. The economic integration of Asia over the past twenty-five years, through trade and investment fostered by global value chains, facilitated by the internationalization of Asian firms and institutional arrangements for trade liberalization, might enable the rest of the continent to benefit from such rising demand. This opportunity might be enhanced further if there is an economic recovery in the industrialized countries.
The opportunities are, however, juxtaposed with formidable challenges. The most important among these, perhaps, is the combination of persistent poverty, rising inequality, and jobless growth. Economic growth in Asia has led to a massive reduction in absolute poverty. During 1984–2012, the number of people below the poverty lines of PPP $1.90 per day and PPP $3.20 per day were reduced by 1.1 billion and 0.7 billion respectively. Yet, in 2012, there were 0.5 billion and 1.5 billion people, respectively, still below these poverty lines. Poverty reduction would have been much greater were it not for rising inequality between people within countries. The problem was accentuated by growing disparities between regions within countries. Employment that provides livelihoods is the only sustainable means of reducing absolute poverty. However, in the Asian-14, during 1991–2016 as compared with 1971–1990, both GDP growth and employment growth were significantly slower, while the relationship between them was weaker as productivity rose. Slower GDP growth was always associated with even slower employment growth, but rapid economic growth was not always associated with commensurate employment growth. Apart from the success stories—South Korea, Taiwan, and Singapore—the poverty–inequality–unemployment nexus persisted in many of the Asian-14. Of course, absolute poverty in Asia might be minimal by 2030. But the problems of rising economic inequality and inadequate employment opportunities, unless addressed, will mount. This challenge is not simply economic. It is also social and political. And, ultimately, economic growth can be sustained if it eradicates poverty, reduces inequality, and creates employment. Such inclusive growth is the only sustainable way forward for Asian countries lagging behind the leaders, because it would enable them to mobilize their most abundant resource, people, for the purpose of development, and reinforce the process of growth through cumulative causation.
There is another challenge that Asian countries might face in their continuing quest for development, which is the middle-income trap. It describes a situation where a country makes the transition from low-income to middle-income status but gets stuck there, unable to move from middle-income to high-income status. (p.230) The first stage in this transition is driven by abundant cheap labour and high investment rates. Growth slows down as these factors wane in their impact. And industrialization stops at labour-intensive goods as wages rise. The second stage in the transition requires higher productivity levels and a capacity to innovate. This, in turn, requires nurturing managerial and technological capabilities, fostering vertical diversification in production processes, encouraging technological-upgrading, inducing technological-learning, and creating R&D capacities. The attainment of these strategic long-term objectives depends on the quality of industrial policy and of human resources. Among the Asian-14, South Korea, Taiwan, and Singapore have already made this transition. China is on the way. Turkey has a potential. But Malaysia, Thailand, and Indonesia, success stories until the late 1990s, have not managed to move to the next stage yet. India, together with Vietnam and Bangladesh, in the low-income stage at present, which have the potential for continuing rapid economic growth, must begin to address this potential constraint now in a strategic long-term perspective.
3. An Asian century?
The whole is different from the sum total of the parts. The future prospects of Asia in the world economy are likely to be influenced by, just as they are likely to shape, the international context. Five questions arise. Do recent changes in the global political economy have any longer-term implications for Asia? What is the likely impact of the profound technological changes on the horizon for development in Asia? What are the possible environmental consequences of the rise of Asia? How would the leading industrialized countries respond or adjust to the erosion of their economic dominance and political hegemony? Is this going to be an Asian century? These are complex questions that could have important implications for how the future unfolds. But it is difficult to provide answers, let alone predict outcomes, in a world with so many uncertainties and imponderables. In any case, such a task is beyond the scope of this book. Even so, these are touched upon briefly if only to recognize their significance.
As the second decade of the twenty-first century draws to a close, it is an awkward if not difficult economic and political conjuncture for the world, which makes the future uncertain. It provides a sharp contrast with the preceding three decades, when the transformation of Asia gathered momentum. The world economy in that era of markets and globalization, which was conducive to economic development in Asia, was very different from what it seems now. The strains are beginning to surface as the world is confronted with mounting economic problems and political challenges. These have begun to disrupt the smooth sail of globalization. Economies might have become global. But politics remains national. There is a political backlash in the form of resurgent nationalisms riding on (p.231) populist or chauvinist sentiments. In industrialized countries, nationalist-populist political parties, or far-right xenophobic populist leaders, exploit fears about openness in immigration and trade as a threat to jobs. In developing countries, nationalist-populist political parties or leaders, challenge or oust incumbent governments, exploiting religious beliefs, ethnic divides, or rampant corruption. Such toxic nationalisms are attempting to create identities with divides, whether insider–outsider or majority–minority, seeking to exclude the perceived other. This identity politics is often just a disguise for populist leaders or dominant groups seeking to capture or retain political power. It is no surprise that they also fuel protectionist sentiments. There is an irony in this situation. The political backlash in industrialized countries, in the perceptions of people excluded from prosperity, might be partly attributable to the rise of Asia in the world economy. The political backlash in Asia might be partly attributable to the rising economic inequalities within and between Asian countries. The future prospects of Asia in the world economy will be shaped, inter alia, by how this economics and politics of discontents unfolds. In this changed world, more of the same might be difficult, even unlikely, for Asia. The future, then, might not be shaped by the past. It will be shaped, in important part, by how Asia responds to these challenges.
There are technological changes, already on the anvil or on the horizon, which include advanced robotics, artificial intelligence, 3-D printing, and the Internet of Things, which could have far-reaching implications for the location of production, manufacturing-led development, the future of manufacturing, employment possibilities, especially for low-skilled labour, and the future of work. This could be particularly important for Asia in the next twenty-five years, as latecomers attempt to follow in the path of the early-birds hoping to use labour-intensive manufactured exports as a springboard for their industrialization and development. Global value chains that have engaged in offshoring production through assembly operations or component manufacture in Asia, could be partly replaced by a re-shoring or relocation of production in the United States or Western Europe. Thus, developing countries in Asia might lose employment either if activities are moved out or if labour is displaced by the adoption of new technologies. It is too early, and there is not enough evidence yet, for any systematic judgement. Recent research suggests that robots are likely to replace labour in the manufacturing or assembly of consumer electronics, computers, and automobiles, but are not likely to do so in traditional labour-intensive manufactured exports from Asia such as textiles, clothing and footwear, or resource-based manufactures.8 The latter are a significant proportion of manufactured exports from Asia. It must also be recognized that such technological changes are nothing new, and have been part of the process of evolution of the world economy over the past two centuries. In the past, such game-changing technical progress, dubbed as industrial revolutions when they occurred, led to similar fears, but outcomes turned out to be much better than expected. The contraction of employment in some sectors (p.232) was followed, with time lags, by an expansion of employment in other sectors. In the long run, technological progress extends both production-possibility frontiers and consumption-possibility frontiers. The appropriate response, then, is reskilling workers and rethinking goods. If some existing opportunities are lost because of technological change, Asia will need to create new opportunities in their place.
The environmental consequences of rapid growth in Asia are bound to be significant. This issue has not been discussed in the book. And there is a vast literature on the subject.9 Given the complex issues, it would mean too much of a digression to enter into a discussion here. Yet, it is essential to recognize the problem. The energy needs of the two mega-economies, China and India, are enormous. This is not surprising, as levels of consumption per capita are low and income elasticities of demand are high. Much the same is true for Indonesia and the many medium-size countries in the Asian-14. The negative potential is obvious as CO2 emissions rise, which could turn into a constraint on growth. But there is also a positive spin that is possible. Growing consciousness about environmental stress and climate change, among people and countries in Asia, could lower thresholds of tolerance on what are acceptable levels of pollution. It may also increase the availability of clean technologies. There could, then, be some shift from energy sources that use fossil fuels to those that reduce carbon emissions. Thus, the environmental constraint on growth may not turn out to be binding. Even so, the problem of developing sustainable non-carbon energy sources does present a major challenge to patterns of economic growth in the long term. History is not much help in thinking about this dilemma. The Industrial Revolution transformed production possibilities and social relations but it was based on a shift to fossil fuel energy sources.
The rise of Asia, beginning circa 1970, which gathered momentum after 1990, has slowly chipped away at the economic dominance and political hegemony of the United States and Western Europe. It was reinforced, for some time, following the collapse of communism in the USSR and Eastern Europe in 1991. But the triumph of the new unipolar world was diluted, if not shaken, in the aftermath of the global financial crisis. The shift from the G-7 (sometimes G-1) to the G-20, in 2008, even if symbolic, was an implicit recognition of change. Just one decade later, the geopolitics of the world has changed profoundly because of unexpected developments. Under President Donald Trump, it would seem that Pax Americana is in voluntary decline. Indeed, a withdrawal syndrome is discernible, as the Unites States appears to be relinquishing its leadership role in the world. This could, of course, change. At the same time, however, the decline of Western Europe, in a relative rather than absolute sense, is discernible. There is an irony in this emerging situation, juxtaposed as it is with the rise of Asia, when compared with the past of Western Europe and Asia in history over the past two centuries. But that is not all. The globalization of Islam is also seeking to challenge Western hegemony. There is an important lesson that emerges from history. Dominant (p.233) powers are reluctant to cede economic or political space to newcomers. But the emergence of new centres of production in economics and new centres of power in politics does have a profound effect on hegemonic powers in terms of political economy. Such processes are always slow and the present conjuncture represents an interregnum because the resurgence of Asia, except for China, is not large enough to shift the hegemonic balance. Asian countries together could, even at this stage, exercise some collective influence through co-ordination and co-operation. For this purpose, however, China and India would need to set aside their rivalry and find ways to work together. Yet, the beginnings of change with some erosion of Western hegemony are visible. This is a complex phenomenon that will be played out over a long period of time. Both the duration and the outcome of this process are unpredictable.
The answer to the four questions posed above depends, in significant part, on how Asia responds to its challenges, which would also shape the answer to the fifth question. The past, and the present, both suggest that Asia will perform well in terms of economic growth over the next twenty-five years. Its share in world GDP will continue to rise, and its GDP per capita will converge to the world average, but the income gap in relation to industrialized countries will narrow slowly and persist much beyond 2050. Of course, this growth can be sustained for long only if it is inclusive, and its benefits accrue a much larger proportion of populations. In contemplating the future, we can learn from experience. In the late 1960s, pessimism about the development prospects for Asia was widespread. Yet, the past fifty years turned out to be so completely different from what was expected. Surely, then, the present conjuncture, difficult as it might seem, should not lead to the conclusion that the future for Asia, and the world, is dark. On the whole, there is more reason for optimism than for pessimism. If there is turbulence ahead, it will not go unchallenged. In fact, Asia is much better placed to confront challenges than it was fifty years ago. Its responses now, as much as then, will shape its future. In this process, the accountability of governments to their peoples will make a real difference. Political systems in Asian countries that are diverse do not often pass this litmus test. All the same, there are many more countries with democratic systems than there were fifty years ago. Democracies in Asia are flawed. Even so, they are democracies, with some institutionalized checks and balances that could function as self-correcting mechanisms. The growing political consciousness among people as citizens, together with their aspirations for better lives, empowered by digital technologies and demonstration effects, will make governments more accountable over time. In sum, even if the future is uncertain, the past and the present provide reason for optimism.
The answer to the fifth question needs to be contextualized in history. The early nineteenth century was a turning point in the world. It was the beginning of the end of Asia’s overwhelming significance in the world economy. And it was the beginning of the rise of Europe, in particular Britain, to dominance in the world. The early twentieth century was the next turning point. It was the beginning of the (p.234) end of Britain’s dominance. And it was the beginning of the rise of the United States to dominance in the world. This process spanned half a century. The early twenty-first century perhaps represents a similar turning point. It could be the beginning of the end of the dominance of the United States in the world. The recent rise of Asia and the emergence of its powerhouse economies, which constitutes a striking transformation, has led to a belief, voiced by some, that this could be the Asian century.10 The parallels drawn are with Britain in the nineteenth century, and the United States in the twentieth century, when the dominance of these countries in the world was reflected in politics, economics, and even culture. This belief is hyperbole.
There can be little doubt that, circa 2050, a century after the end of colonial rule, Asia will account for more than one-half of world income, and will be home to more than one-half the people on earth. It will, thus, have an economic and political significance in the world that would have been difficult to imagine fifty years ago, even if it was the reality in 1820. In terms of income per capita, however, it will be nowhere as rich as the United States or Europe. Thus, Asian countries would emerge as world powers, without the income levels of rich countries. China will be large and influential. And so might India. But, as a continent, Asia will not have the dominance that Britain had in the past or the United States has even now. The most likely scenario, in 2050, is a multipolar world, in which dominance might not be so striking. The United States and China will most probably be the leading countries with an economic and political significance in this world. But it is likely that this group will be larger, including India, Indonesia, and Japan from Asia, Brazil and Mexico from Latin America, with Germany, France, and possibly Britain from Europe. The presence of what are now developing countries in this group will depend, in large part, on whether they can transform themselves into inclusive societies where economic growth, human development, and social progress move in tandem. Even in such a multipolar world, a shift in the balance of power towards Asia is discernible. And the past of Asia could be a pointer to its future.
(1.) Among the earliest was the frequently cited Goldman Sachs study (O’Neill et al. 2004) that attempted to project GDP and GDP per capita for Brazil, Russia, India, and China (BRICS) in 2050. There were more sophisticated exercises that used simple convergence equations to make projections about GDP and GDP per capita for China and India in PPP terms and at market exchange rates (Rowthorn, 2008).
(2.) Of these, in 2014, China—ranked second, Brazil—ranked seventh, and India—ranked ninth were among the top ten, whereas Italy—ranked eighth and Russia—ranked tenth lose their place to Indonesia and Mexico in 2050. See Economist Intelligence Unit (2015).
(3.) See OECD Stats, Long-term Baseline Projections, Economic Outlook Number 103, July 2018 (https://stats.oecd.org). These projections are available for thirty-five OECD member-countries (which include Japan, South Korea, and Turkey) and eleven non-OECD countries (which include China, India, Indonesia, and Saudi Arabia). Taken together, these forty-six countries account for more than 80 per cent of world GDP. Thus, the share of Asia would be correspondingly lower if such projections were available for all countries. Even so, these shares represent reasonable approximations.
(4.) For the shares of Asia, China, and India in world GDP, see Table 1.1. Of course, Maddison PPP statistics are not strictly comparable with OECD projections, although (p.263) both are similar insofar as their country-coverage is not complete. However, they do provide a plausible basis for a rough comparison over a period that spans more than two centuries.
(6.) UN population projections for the share of Asia (excluding Japan) in world population are 56.4 per cent in 2030, 54.7 per cent in 2040, and 52.7 per cent in 2050. See World Population Prospects: 2017 Revision, Population Division, United Nations. The OECD projections for the share of Asia (excluding Japan) in world GDP, cited above, are 49.7, 53.0, and 54.6 per cent respectively.
(7.) There are no reliable estimates of per capita income prior to 1820. In comparing per capita incomes of Asia and Western Europe circa 1750, Kuznets (1971) suggests that Asia was clearly lower, while Bairoch (1981) suggests that Asia was slightly higher. But differences in per capita income between different parts of the world were not large then (for a discussion, see Nayyar, 2013). Therefore, it is plausible to suggest that, around 1750, per capita incomes in Asia and the world were roughly the same.