Many analysts are putting trust in Asia to pull the West up from the slump into which it has fallen due to its profligate appetite for credit. In addition to production and trade, The Economist recently hoped that Asian consumers would become shopaholics, like their Western counterparts. Never mind that rampant credit-fueled consumerism was a major part of the problem facing the West.
But a dose of reality was injected recently by Minxin Pei, who doubted Asia’s ability to fill in for the West. Pei wrote in an article in Foreign Policy: “Even at current torrid rates of growth, it will take the average Asian 77 years to reach the income of the average American.”
The problem with most economist-driven expections of Asia’s ability to pull the world out of a slump is that such analyses ignore the crucial part that politics, and states, play in economic globalization.
But if lack of ability is one issue, so is a possible lack of willingness.
Political scientists and political risk analysts for decades have pointed out that international financial movements take place only within parameters allowed by states. Ian Bremmer of the Eurasia Group recently restated that observation, from the angle that post-financial-crisis state capitalism is now the main decision-making prism.
What this means is that competition between states will inevitably dampen Asia’s ability and willingness to clean up the mess left by the West. As I have argued in my book, India’s Open-Economy Policy, India’s political rivalry with China, whether in securing energy or in inward foreign investment, will be the first influence on its international economic policies. China’s assessment of the US and Japan will determine its foreign acquisitions. US interpretation of Chinese influence in the Middle East and Africa will also temper cooperation toward free markets.
On top, you have respective Buy American and Buy Chinese policies. These have stayed below maximum so far — but put all of these together and the expectation that Asian consumerism or dynamic growth will be West’s savior is just economic optimism, not political reality.
I would like to add to Pei’s comment that it would take an average Asian 77 years to achieve American’s avg. income. It seems that, in some parts of Asia, some of the huge global congmerate firms are the only ones making profit, not the average citizens. This will lead to an increased GDP and per capita income, on statistics, but does this mean your average next door neighbors are making it up to the average income?
I base my comments on observing South Korea. Samsung and Hyundai, for example, take dangerously high portion of nation’s income and export amount, that a small crack in the firms will actually shake the whole country. Second, the firm’s income are not being “spread around” – they are not investing, according to some protesters, and they are not hiring. If they hired someone, it will be at the lowest pay possible, maybe $10k a year. Therefore, average citizens – they are the ones actually “spending” – do not see the income level that the statistics might represent. Japanese are in better conditions, because although the situations are similar, they have many more conglomerates that one firm’s downward results will not affect overall economy as bad.
United States, on the other hand, seem to be away from this. Although there are global conglomerate firms much bigger in size, they do not take up significant proportion of America’s income and export (this is purely my observation), and therefore the stats of American GDP and per capita income sounds correct.
Maybe this could be the reason why “Asians should spend” sounds a bit unrelatable for me.
Oh, by the way, I hope you’re enjoying your vacation, professor.
“Thank you for shedding light on this factor that most economists do not adequately account for while advancing their theories. However, it may be matter of opinion to assert that state capitalism, particularly in today’s climate, will take root in India such that its economic policies will be defined by competition with China. Many argue, to the contrary, that trade between these two countries is in each players’ best interest, and that these benefits may amplify–and not cancel each other out, as you suggest–with time.”