Asia is at a crossroads. The region has achieved remarkable economic success in recent years, and now accounts for 27 percent of global GDP. The Asian Development Bank expects Asia’s GDP will increase nine-fold, from $16 trillion in 2010 to $148 trillion in 2050, to account for half of global GDP by the middle of this so-called ‘Asian Century.’
This prosperity is the result of a combination of successful integration into the world economy, high saving rates, and capital accumulation. Yet realization of the Asian Century isn’t guaranteed, and there are three major challenges to attaining the ADB’s expected growth numbers:inflation, the burdens of population growth, and growing wealth disparities. These factors could, according to the ADB, see Asia’s share of global GDP stall at 32 percent.
The ADB warns that inflation will remain one of the biggest policy challenges, noting that it could create worrying social tensions. Inflation typically involves rising food prices and exacerbatesinequality. Two-thirds of the world’s poor are concentrated in developing Asia, and they are particularly susceptible to price changes. The recent turmoil in the Middle East has pushedup oil prices further. In addition, inflation makes it difficult for Asian countries to keep labour cheap, something that has helped the region’s economic growth. Bangladeshi, Chinese, and Indian workers are demanding higher wages, which will in turn increase production costs. Central banks in Asia therefore need tighter monetary policy as well as more flexible exchange rates.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Second, continued population growth will eventually lead to food and energy shortages as well as environmental degradation. Asia’s population is expected to continue to increase until 2065. Extended life expectancies have accelerated population aging, requiring countries to bolster social security systems. Meanwhile, the UN Food and Agriculture Organization expects that Asia will face food shortages by 2050, and that the region will have to import 25 percent of the crops it needs. It’s therefore essential to introduce effective irrigation systems and increase food production.
The growth in the region’s population and economy will intensify competition for natural resources and heighten tensions. Asia consumes 30 percent of the world’s energy, which will increase to 40 percent in 2030, and it’s heavily dependent on oil and gas imports, a trend that will continue. For example, 70 to 80 percent of Chinese crude oil needs will come from overseas at least until 2030. The energy race among Asian countries has already produced confrontation in the East and South China Sea, while rising energy consumption has exacerbated strains through air and soil pollution, accelerated global warming and expanded deforestation.
All this will encourage Asian countries such as Indonesia and Vietnam to introduce nuclear power, which creates dangers of its own, as the Japanese nuclear crisis showed. The safety of reactors is as critical asensuring there is no proliferation of materials and knowhow. Such dangers mean it is essential that Asian nations cooperate to provide more financial support,improve energy efficiency and introduce clean energy, as was discussed at the 6th Asia Clean Energy Forum in Manila in June.
Finally, there’s growing inequality within countries. Cities and coastal areas tend to benefit first from development as interior regions lag. For instance, the urban-to-rural income ratio is 3.33:1 in China, according to the National Bureau of Statistics. As technological progress puts more emphasis on skills, the poor, with less access to education,are suffering from a widening income gap between skilled and unskilled labour. Literacy is another problem: according to a 2008 UNESCO survey, literacy in Southeast Asia is just 61.9 percent overall, and only just over half for females. Rising income disparities heighten social tension and unrest, as has been evident in Latin America.
If Asia’s developing countries fail to overcome unequal income distribution and access to education, they won’t be able to survive in competition with other emerging countries using cheap labour. Per capita income will plateau and the Asian Century will remain unrealized.
To overcome thesethree challenges, Asia has to take a comprehensive approach that covers not only the economy, but also education. There’s concern that higher education can actually raise the cost of labour and decrease competitiveness in the global market. But as globalization has gradually necessitated a more sophisticated skillset, cheap labour no longer guarantees a comparative advantage. Governments, especially those in Southeast Asia, need to provide basic education for both genders, as well as professional training such as in information technology.
It’s also imperative that budgets are raised for research on energy, environmental protection and improving crop yields – it’s essential that the public and private sectors pursue practical research on pollution clean-up, more efficient agricultural practices and introduce alternative energy sources such as nuclear power. If they can, then Asian governments will have truly earned their century.