Asia's post-Tsunami future

Asia's post-Tsunami future

Fan Gang, Michael Garrett and Jean-Pierre Lehmann, Project Syndicate

There can be no underestimating the scale of the human
devastation wrought by Asia's horrific tsunamis. Family members
have been lost, homes destroyed, and livelihoods ruined. As is
often the case in natural disasters, the poor are suffering the
most.

And yet, even with damage to infrastructure such as road and
rail links, the tsunamis' overall economic impact is expected to
be minor. In the worst hit parts of India, Indonesia, Sri Lanka,
and Thailand, the immediate interior was unaffected, while the
tourism and fishing industries -- the lifeblood of wrecked
coastal areas -- account for only a tiny share of these
countries' GDP, as liberalizing reforms have fueled economic
diversification and rapid growth.

It was not always this way. Historically, it has been
difficult to convince Asians that international trade is not a
zero-sum-game, with Asia invariably the losers. This is one
reason why, after Mao Zedong's communists triumphed in China in
1949 and other Asian nations gained independence, most Asian
countries adopted protectionist inward-looking economic policies
aimed at building domestic strength, keeping the "imperialists"
out, and achieving self-reliance.

Historical experience incites this suspicion. In 1820, Asia's
share of global GDP was 60 percent, with China accounting for
slightly more than half. That was two decades before the first
Opium War. With the emergence of truly global world trade over
the ensuing century and a half, Asia's economic dominance
withered. By 1950, China's share of world GDP had fallen to under
5 percent, while all of Asia accounted for just 18 percent, the
biggest chunk of which was attributable to Japan, despite its
defeat in World War II.

The winds of global change began sweeping through Asia roughly
two decades ago, first in East Asia, then engulfing China, and in
the course of the 1990s blowing on to South Asia, most
importantly India. What we are witnessing is thus not "emerging"
Asia, but the "re-emergence" of a continent that comprises 60
percent of humanity. Its two giants, India and China, are
especially determined, as Indian author Ashutosh Sheshabalaya
recently put it, "to return to their nineteenth-century status,
when they accounted for well over half of world economic output."

One result of this is that China and India are seeking to make
a bigger impact on global economic policy. Both countries were
signatories of the General Agreement on Tariffs and Trade (GATT,
the precursor to today's World Trade Organization) in 1948, but
China under Mao subsequently left. Although India remained a
member, it was often a recalcitrant one.

Asia's current share of global GDP (about 38 percent) is still
far from what it was in 1820, but both countries feel that they
can -- and must -- participate in calling the global shots. It
took China's government a protracted sixteen years to negotiate
its re-entry into the GATT/WTO, but it soon showed its mettle by
assuming joint leadership (along with Brazil, India, and South
Africa) of the G-20, a group of primarily dynamic developing
countries that threw down the gauntlet to the industrialized
powers at the Cancun WTO ministerial meeting in September 2003.

So the Asians are coming: As markets, as states, as consumers,
as financiers (Asian central banks, for example, are responsible
for financing America's whopping budget deficits), as scientists
and engineers, and as corporations. Is the West ready? In an
article in the Financial Times in July 2004, Standard Chartered
CEO Mervyn Davies wrote, "westerners are realizing how big Asia's
corporate ambitions are." There is, however, a large difference
between recognizing that change may be coming and making the
necessary adjustments.

In contrast to the emergence of the West in the nineteenth
century, which proved such an economic disaster for most of Asia,
the continent's re-emergence can have an immensely positive
effect on the twenty-first century's global economy, including,
needless to say, the West. But this requires careful preparation,
adjustment and management.

This is of vital importance, especially in light of the fact
that Asia's populations are still booming: India, Pakistan, and
Bangladesh will see an increase in the next fifteen years from
1.4 billion to 1.73 billion inhabitants, while China's population
will grow from 1.3 billion to 1.42 billion. Little wonder, then
that these countries accept the imperative of a dynamic, open,
growth-oriented, and job-creating global environment.

Yet despite these gales of change, institutional atavism
prevails. Global economic policy-making remains very much a
Western game. It beggars belief that China and India are not
members of the G-7. The Bretton Woods organizations -- the IMF,
the World Bank and the WTO -- remain heavily Western in
structure, leadership, and mentality.

This is especially true of the WTO, where Washington and
Brussels seem more concerned at settling old scores and
protecting their respective turfs than in engaging with the new
players. China will soon be the world's biggest trading power.
Yet euroatlantic introversion still permeates the WTO.

This mindset is also pervasive in Western governments,
industry, business schools, and the media. None of these
institutions in the West is ready for Asia's re-emergence.

History is not particularly encouraging when it comes to
adjusting to profound changes -- new actors and shifting balances
of power -- as the twentieth century tragically and repeatedly
demonstrated. The tsunami that so devastated much of Asia has
provided an opportunity for all key players -- in government,
industry, academia, the media, and civil society -- to look at
Asia anew, at both the challenges and the opportunities that have
arisen from Asia's resurgence. These opportunities need to be
seized with as much alacrity as the world has responded to Asia's
sorrow.

Fan Gang, Director of the National Economic Research Institute
at the China Reform Foundation in Beijing, is a member of The
Evian Group Brains Trust; Michael Garrett is Chairman of The
Evian Group and Executive Vice President of Nestli SA for Asia,
Africa, and Oceania; Jean-Pierre Lehmann is Founding Director of
"The Evian Group" and Professor at IMD, Lausanne, Switzerland.