Geopolitical fragmentation, reengineered supply lines and renewed emphasis on sovereign manufacturing suggest de-globalisation is underway. With potentially fewer opportunities in developed country markets and a slower growing global economy, what's the new model for ambitious developing country administrations?
Emulating Japan’s export-led growth strategy was relatively straightforward for South Korea, Taiwan and later even China and the Southeast Asian ‘tiger economies’. These countries embraced open economic policies, specialised in producing what they’re good at – initially labour intensive manufacturing and later capital and technology intensive manufacturing. Governments provided stability and substituted for institutions and well functioning markets to help exporters. As countries got richer, governments retreated from the market. The success of East Asia brought hundreds of millions out of poverty, delivered prosperity to many and transformed the global economy. Political differences took a back seat to economic cooperation in pursuit of common prosperity.
East Asia’s success was premised on an open multilateral trading system. That system is under threat from rising protectionism that’s only intensifying after the pandemic-induced global recession and strategic competition between China and the United States. Multilateral rules have not kept up with deeper global integration.
East Asia and its neighbouring South Asia cannot afford for the East Asian development superhighway to close. The less developed Cambodia, Laos, Bangladesh and others are on the path of rapid catch up growth. Many middle income countries are struggling to reform their institutions to reach the technological frontier and higher incomes. Global uncertainty is making it harder to maintain open economies. A loss of confidence in the multilateral trading system would unravel economic integration and political amity.
A welcome breakthrough at the WTO and Asian economic agreements like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) bring much needed hope and momentum.
Shiro is an economist who has published extensively on East Asia, South Asia and Japan in particular. Shiro argues not only for stronger economic and security relations with Japan but also working where we can with China - for example on repairing the multilateral trading system. At the Lab, we admire Shiro for his erudite, accessible and sometimes provocative writing, as well as his prolific supervision of PhD students at ANU.
East Asia’s export led growth strategy forged a superhighway, transporting capital and technology into Asia with low-cost products transported out. This successful highway was built on sound macroeconomic policies and acceptance of the World Trade Organisation (WTO) rules for trade and investment. However, even before the pandemic, the authority of the WTO was being eroded by geopolitical competition and rising protectionism. This protectionist sentiment in advanced economies stems from growing inequality and the hollowing-out of manufacturing jobs (although this was due as much to technology as to trade). The pandemic has amplified these anti-globalisation tendencies.
As the world recovers from the pandemic, the digital revolution makes the free flow of capital and products is even more important. Digital technologies are increasingly embedded in production processes, goods, and services. This makes universal standards and cross-border flows of data essential for high growth in productivity in Asia and elsewhere. Economic decoupling arising from geostrategic tensions between China and the United States would likely impose unwelcome restrictions on data and technology sharing, particularly for East Asian countries.
Decoupling is also problematic for developing countries in Asia (and elsewhere), which need capital, technology and access to markets to take advantage of their young and underemployed populations. Global and regional prosperity depends on restoring and extending the superhighway so that capital, technology, goods, services, and data can flow freely between countries and regions across the world.
Jenny is an expert in international economic policy and the former Chief Economist for Australia’s Department of Foreign Affairs and Trade. At the Lab, we’re big fans of Jenny’s sharp questions and ‘suffer no fools’ approach. We admire people with experience across the public, academic and private sectors – Jenny is one such gem.
East Asia has been the most successful development experience in the world. Globalisation has played a critical role. Hence, at a time when globalisation is under threat and talk of deglobalisation is commonplace, the ability of the region – specifically the developing economies of Southeast Asia – to stay on the superhighway of development is openly in question.
Yet, for all the hyperbole and concern, globalisation is not about to unravel. Unless the world economy actually splinters into competing geopolitical blocs (still an unlikely scenario given the incredible costs this would impose on all parties), Southeast Asia still has decent prospects for continuing to reap significant benefits from being economically open to both China and the West. That is, if the region can play its cards right in navigating between the two. There are also important opportunities. For instance, Southeast Asia remains well placed to benefit as a leading destination for international supply chains and investment looking to diversify out of China.
The real challenge is pushing forward on the array of difficult next generation policy and institutional reforms required to keep moving up the developmental ladder. The long list includes deepening economic liberalisation (particularly in investment and services), improving governance, strengthening legal and regulatory institutions, mobilising greater tax revenues, delivering better public services (especially in health, education, and infrastructure), and putting in place stronger social safety nets – all while increasingly decarbonising development.
Progress in all these areas is technically challenging and politically difficult – but essential for sustaining rapid growth and development.
Deglobalisation may get the headlines. A world of less – rather than more – globalisation will certainly crimp the region’s growth prospects. Charting a course between competing superpowers will be critical, difficult and uncertain. But for now, the greatest challenge to staying on the East Asian development superhighway is still more domestic than external.
Roland is an expert in international economic policy and the economies of Asia and the Pacific. At the Lab, we enjoy Roland’s analysis of China and the Pacific, his cautious optimism and interest in collaborating. We’re looking forward to seeing Lowy’s development work grow under Roland’s guidance in the coming years.
