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.