We all love keenly contested battles. Isn’t it? Such contests can take place on the sports ground, in the academic setup, on the battlefield etc. The one such battle that I am going to talk about, is taking place on the global scale. It’s the battle to become the next economic superpower of Asia. In this blog I’ll discuss the three countries that look set to stake their claim for the Numero Uno tag. The great thing about this contest is that we could have three different leaders at three commonly classified points of time i.e. the Past, the Present & the future. So, let me break the suspense on the trinity (if there was ever one). They are Japan, China & India. Let’s us analyze their strengths, weaknesses and the possible road ahead.
Japan is the country that kept the Asian flag flying high at the global economic forums. It maintained its position as the second largest economy in the world since1968. It’s commendable for a country that was literally ravaged during the World War-II. As they say in strategy that the three common turfs of war are cost (you can produce the cheapest good), quality (your product quality makes you stand apart) or innovation (you make the most innovative products). Japanese products have symbolized quality for decades now. The car firms namely Toyota and the Japanese electronic goods are the testaments of that glorious past. Its export focused industries, helpful government policies and skilled manpower made it a role model for various other nations. Absence of cosmopolitan culture meant that it didn’t have to suffer an onslaught of cheap labour and thus could chug along merrily as a closed economy. “Protectionism” worked wonders for this nation.
Now let us focus on the weaknesses. Unless and until your system has developed some structural flaws, you can’t be surpassed by an economy that was half your size five years ago. That’s exactly what happened to Japan. Japan has an ageing population which means decreasing productivity and increasing dependence. The debt to GDP ratio is highest among the developed nations. After propelling the business growth in the past, the government in the form of bureaucracy has been responsible in infusing inertia whereas change is the need of the hour in the new global set-up. Protectionism leads to infusion of funds in loss making government units. For now it seems that seems that the system has become “too big to fail”. Remember the TBTF concept in our earlier blog. So we can say that Japan for now is the “Past” of Asia.
It’s the turn of the dragon now, the People republic of China, the economy that dethroned the Japanese. If quality was the hallmark of Japan then cost has set the Chinese apart. Increasing Chinese efficiency and cost-consciousness of the manufacturing firms round the world have proved to be the shot in the arm for China. Even if Japan committed mistakes, there is general consensus that China does deserve the number two position nevertheless. Its export led growth (visible in its positive balance of payment (BoP)), focused government, pragmatic business policies and ruthless foreign policies have been instrumental in its growth. It has shown to the world that doing what “one is best at” is the best model. The famous book, “The Beijing Consensus” rightly credits their success to the unique qualities of China’s culture, demography, geography and governing philosophies.
But even the Chinese have their share of flaws. One important one is “the one-child” policy. This has meant that its population is ageing faster and the portion of dependent population is increasing. It might hurt them in the long run. The one-party rule or the lack of democracy can lead to an inflexible system. The reforms that initially reduced the rich-poor divide have a different story to tell now. Wealth distribution has not been that equal. Even corruption and environmental issues have been in the news lately. The relative lack of transparency in its policies vis-à-vis other superpowers can too play spoilsports. But there is no doubt whatsoever that China is the Present Asian superpower.
Now let’s consider India, the erstwhile golden bird. Its strength lies in a relatively young population, cheap skilled labour force especially for the service sector, large English speaking population and a vibrant democracy that’s more open than Japan or China. Technical education nowadays attracts the best talents in India thus tech giants now see India as a R&D hub. India also has competitive advantage in key sectors like pharmaceuticals. The economic set up, even though under-developed, is more transparent and has shown flexibility. It has made giant strides in the recent past to open up and liberalize. Add to that more and more Indian firms are now acquiring firms globally and successfully running them thus enhancing India's economic clout. Even in the global forum, it has tried to assert itself on various issues. Growing proximity with the reigning superpower i.e. US could also help. The Indian version of innovation i.e. jugaad is admired the world over.
Even with impressive strengths, India has a long list of weaknesses. The poor performance on most Human development index because of poverty, illiteracy and high child mortality does its image no good and corruption too irks. Unlike Japan and China, India is not very competitive in exports so its a net importer i.e. it imports more than it exports. The unequal distribution of wealth and inadequate credit penetration haven’t helped the poverty figures. So India may not have the past success stories of Japan or the present success that’s as magnificent as China but with its fundamentals and underlying strengths, India could well be the Future of Asia.
Do post your comments on this royal Asian contest. (By the way you can find an exhaustive coverage of Indian Financial Markets in The Money Manager-8, the finance magazine I am closely involved with.)