(Bloomberg Opinion) — Asia is the future of the world economy! The growth is so impressive, the opportunities so marvelous! If I had five Indonesian rupiah for every time an executive or investor has asserted these sentiments, I could retire in comfort tomorrow.
While this view has some truth, it misses important shifts in business and politics. Indeed, increases in gross domestic product the past several decades have been impressive. The pace of expansion has slowed since the 1990s, however, and never fully recovered from the financial crisis that struck Asia in the latter part of the decade. More recently, trade conflict between Washington and Beijing is eroding one of the key pillars of Asia’s success: the manufacturing supply chains centered on China and fed by components from around the region, especially Southeast Asia. Birth rates are plummeting, the ranks of seniors are swelling, and rulers appear increasingly distant from the ruled.
This is a recipe for decline, if not deep trouble, argues Vasuki Shastry, author of a new book, “Has Asia Lost It?” Shastry is no bomb thrower. He worked at the Monetary Authority of Singapore, the International Monetary Fund, Standard Chartered Plc, and is now a fellow at Chatham House. Coming from so deep in the establishment makes his views all the more sobering. Below is a lightly edited and condensed version of our exchange.
DANIEL MOSS: Many countries in Asia, prior to the pandemic at least, had growth rates that surpassed those of the West and Japan. Those rates of expansion, however, had been slackening for quite a while. How big a problem is that?
VASUKI SHASTRY: It should be a wake-up call. This reality has been the case for the past decade. The problem with developing Asia is some countries are getting high rates of economic growth, like Bangladesh and Vietnam, whereas many others are struggling. Indonesia has gotten stuck in this 5% growth-mode over the past decade. That isn’t translating into income gains or social mobility. Arguably, even if developing Asia can sustain high rates of growth well into the future, social mobility is stalling. One of the marvels of the old “Asia miracle” story was that, within the space of a generation, people were able to move up the income ladder and become middle class, upper middle class. But it’s evident there is a very large segment of the lower middle class, an aspirational class that are not benefiting from growth. You can place blame for that squarely on political leaders.
DM: You write that discussion of the region has been hijacked by the Asian “thought-leadership mafia?” Who are they, where do they live and how do we recognize them?
VS: I used to be a proud member of this mafia for many years! It comprises business leaders, journalists, folks who work in think tanks and the academic community. The U.S. has a huge interest in retaining its superpower status in the Pacific. So you have this routine where every leader visiting from the U.S., and Europe for that matter, recites this mantra about Asia being the most dynamic region of the world. They are all in a bubble. Once you get out of this bubble — I have had the opportunity to step out of it — and speak to people in the street, like in Mumbai, their concerns, thoughts, aspirations and desires just don’t get through the bubble and aren’t being satisfied. So you have this very self-satisfied elite that talks about high growth. They are not listening to voices from the street. The usual transmission mechanism for voices to be heard is the political class. But in many instances, the political class is in cahoots with the business and academic elite. You have this loop where things get stuck.
DM: It was popular once to talk about the demographic dividend as one of Asia’s strongest attributes. What’s happened to populations and does that matter?
VS: Demography matters both in terms of how China manages its aging population and how India and Indonesia are going to manage this sweet spot, because they still have a young population and happen to have a demographic bulge opening up for them. Many people are getting degrees, but are unable to find meaningful jobs. What is the point of hitting sweet spots but then you can’t find jobs because of a massification of higher education? This is an aspirational class, and if you look at the Arab Spring in 2011, it was precisely this bulge of educated youth that revolted. Don’t force everyone to get a graduate degree. You need to invest in vocational training. Ultimately the objective is for the aspirational class to move up the ladder.
DM: What are the consequences of declining fertility rates in Asia and the ascendancy of graying societies?
VS: This is a fiscal shock. You have seen the shock in Japan with debt-to-GDP of more than 200%. Even under Shinzo Abe, Japan wasn’t willing to openly acknowledge that the only way to build the population is through immigration. Mainly for cultural reasons, this was an impossible sell. We have got to worry equally about South Korea and, to a more limited extent, Singapore, Hong Kong and Taiwan.
One way to address this is to move surplus labor to countries like China, Korea and Japan, but there isn’t any political scenario that allows for this mass transfer of labor. Foreign labor has become a source of controversy lately. Look at Singapore’s worker dormitories, which became hotbeds of Covid-19 infection. This sort of thing will give pause to governments who think they can get high economic growth by importing labor.
DM: I am surprised to hear you say that Asia has been ill-served by leaders. Political systems, in some ways, appear more open than ever. An outsider like Joko Widodo can be elected president of Indonesia. In Malaysia, the party that ruled since independence lost an election in 2018. Singapore now has its first formal leader of the opposition.
VS: We should separate developed Asia from developing Asia. I agree that in Indonesia, it represented a lot of hope that you can get an outsider to become a bold political entrepreneur, as Jokowi was in 2014. But is the electoral system today still open enough to allow for the rise of another Jokowi? The evidence we see is that dynastic rule is beginning to set in. Long-time political families seem more entrenched and generals want their kids to be in politics. To be fair, Indonesia has had a remarkable 20-year run in achieving political and economic stability. It’s still a good example of what can go right.
If you look at Malaysia, the fact that it took a 92-year-old Mahathir Mohamad to disrupt politics says a lot! All these leaders are from the radio and telegraph era. Young people shouldn’t be taken for granted. The political class is completely distant and removed from this key demographic group.
DM: How damaging has the U.S.-China trade conflict been? It’s become very trendy to talk about supply chains being rerouted from China, but equally tricky to quantify. China might lose; places like Vietnam are supposed to be winners.
VS: It is deeply corrosive for the region. There is a reality of the here and now and then there is the probability of something going horribly wrong that could lead to decoupling and, indeed, could lead to conflict. Ask where we are now, if you ask any business person how easy is it for you to move your final assembly point that you have had in China for 30 years? You know the suppliers, you have perfected the system of everything showing up in China and then being assembled and shipped to the U.S. and Europe. That is very hard to dismantle in practical terms. Sadly, public discussion of this has been hijacked by the geopolitical experts who see everything in terms of regional security.
DM: For all the talk about American decline, the dollar and Federal Reserve are entrenched at the heart of Asian finance. Nobody counts down breathlessly to People’s Bank of China decisions, as they do meetings of the Federal Open Market Committee. What’s going on?
VS: America has been through a rough four years with Trump, high profile cases of racial injustice and the January insurrection when crowds stormed Congress. These have all damaged America’s brand, no doubt about it. But in early 2020 when the pandemic broke out, many Asian central bankers naturally gravitated toward the Fed rather than the IMF because dollar liquidity is what well-managed countries want most in a crisis.
There has been talk about the Chinese yuan being a viable alternative to the dollar, though this is a long-term game. In pure economic and financial terms, we still need a vibrant America. Privately, people express concern about a rising China and what it means, but at the other end there is this sense that it is OK to talk about America’s terminal decline. People who do this either don’t know the data or are ignoring it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.