The story of Asia’s recent economic success is not one of elite leadership and brilliant strokes of policy from the top. Rather, it is a blooming of ideas and innovations from the large middle ground, from an empowered marketplace of people and their animal spirits. Associate Professor Razeen Sally believes that an open market economy is the way forward for societies to progress because free trade leads to wealth, freedom and stability
Asian economies have been liberalising at a faster pace than at any time in history. One thinks of the big opening of China from 1978, the market reforms of India from the early 1990s, while ASEAN countries started earlier.
I think the hunger to catch up to living standards and freedoms in the West was a catalyst for change in Asia. For a long time, most of Asia fell behind the rest of the world, particularly the West, because markets were suppressed by heavy-handed government interventions, and people’s life chances were constrained in all sorts of ways.
What this meant was that Asians were much poorer with far fewer opportunities than their counterparts in the developed world. This was a gap that kept widening over most of the 20th century, having started quite considerably from the early 19th century.
Many societies had hit points of crisis and it was clear not only to the elite, but also to the masses, that something had to be done. So they started to open up and then they looked for models from outside to copy – “best practice” examples as it were.
Asians found some of those better practices in the West, particularly in the United States, but they also found examples closer to home, such as Hong Kong and Singapore. These had been free ports since the British set them up in the 19th century. They also drew inspiration from other countries in East Asia, which were liberalising and doing clearly better than elsewhere in the developing world.
So out of sheer necessity and armed with pragmatism, Asian leaders opened up their economies. But I don’t think that the reforms originated from intelligent people with far-sighted strategies.
The real story has been under-reported. The real story is that young and hungry populations are making use of their possibilities and their economic freedom to do interesting and creative things, making Asia probably the most interesting part of the world today.
It is not the miracle of the top – rather, I think things worked in the opposite way. Governments, out of necessity, have introduced more space for markets because the alternative failed. And as a result, individuals, companies and so on, have taken advantage of those opportunities and markets have expanded across borders.
That progress has seen the emergence of a larger middle class, which is now one of the big phenomena in Asia: a middle class which not only demands more goods and services but also civic rights, political freedoms and for governments to be more accountable.
All those things are happening in Asia but there are worldwide ramifications because we are talking about 60% of the world population. What happens here inevitably reverberates elsewhere.
To me, free trade is a trinity comprising an economic imperative (the pursuit of prosperity), a moral imperative (the quest for freedom) and a geopolitical imperative (the search for stability).
Hong Kong and Singapore exemplify the trinity more than anywhere else. Both city-states have a rags-to-riches story because their economically-empowered citizens and residents have used their liberty in all kinds of interesting ways. This also ties back to the moral imperative of individual freedom. You are expanding the individuals’ space, which is morally good as they could do interesting and useful things with their lives–for themselves, their families and their communities. In diplomacy and international politics, having borders as open as possible, especially to commerce, is perhaps our biggest insurance policy that governments and armies are not belligerent and don’t make war with each other.
One criticism of globalisation is that it has created inequality as more rewards go to more talented or educated individuals. This is one of today’s challenges.
At one extreme, small, open economies like Hong Kong and Singapore are well off but they are finding it difficult to get reasonably high rates of growth while relying disproportionately on immigrants and foreign workers, creating unequal growth and social tensions.
But then, we should not conclude that we should have more restrictions, more government intervention and less globalisation– that would close off opportunities for many people.
In fact, the solution might be to open up even more.
Hong Kong for example, has a land market that is essentially controlled by the Government and which supports a cartel of property tycoons. A welfare state for the super-rich coexists with a basic safety net for the relatively poor. Singapore has the government-linked companies and the Government intervenes quite heavily in capital and land markets. Private-sector SMEs are squeezed between the GLCs on the one side and MNEs on the other. Decades-long policies of social engineering have resulted in all sorts of unanticipated distortions – not least in housing. All the above restricts competition, disproportionately benefiting small minorities of “insiders” at the expense of “outsiders”. But these are the mildest examples: every other country in Asia, and indeed beyond, is worse to a greater or lesser degree.
Asia’s prospects are endangered by hidebound governments and institutions that have not been reformed sufficiently to liberate individuals and markets. That could seriously compromise Asia’s future.
So we should have more competition and a limited role for the government. Government as “umpire” should do fewer essential things better in the public interest, rather than doing lots of things badly as a “player”.
But the optimist in me says that, given what’s happened so far and the animal spirits unleashed in this most dynamic part of the world, there’s momentum building up for more openness and individual freedom. That process has every chance of changing the world.
Razeen Sally is Visiting Associate Professor at LKYSPP. He is also Director of the European Centre for International Political Economy (ECIPE), a global-economy think tank in Brussels, which he co-founded in 2006.