The Hindu Business Line : The Sun rises in East, again

After the economic sunset of the East in the 18-19th century, it is rising again in this part of the world. More and more people are veering round to the opinion that the future of the world lies in the East, especially India and China, though the problems confronting this part of the globe are immense, says Paranjoy Guha Thakurta.

FOR MOST of the 18th century and till the beginning of the 19th century, Asia was considered to be the most developed part of the world in every respect — economic strength, political sagacity, social tolerance and cultural effervescence. As the pendulum of development subsequently swung in the opposite direction, the poor and the miserable came to be concentrated in the East while the West prospered rapidly. It is today acknowledged by most that the fastest growing part of Planet Earth comprises the two most populous nation-states, India and China, which together account for 40 per cent of the world's population of around six billion.

The success stories of the "Tigers" of South-East Asia were much talked about during the 1980s and the 1990s. It has now become evident that the lumbering "elephants" of Asia too have begun picking up pace. In terms of its demographic profile, South Asia is the youngest area anywhere in the world. What is more, its peoples save more and invest more than most others.

Given low levels of income and wealth, the potential for faster growth obviously exists. This potential had remained dormant and unrealised for many decades. But the scenario has changed and continues to change.

In a sense, the future of the planet is critically dependent on the ability of China and India to expeditiously transform the lifestyles of its peoples for the better. Perhaps only then would there be a marked improvement in the economic conditions prevailing in the poorest part of the world, namely, much of the continent of Africa.

It is still fashionable in certain circles to talk about a unipolar world — a world that is economically and militarily dominated by the United States. There are some who are firm in their belief that after the disintegration of the former Soviet Union in the early-1990s, the so-called Washington Consensus on free-market based development strategies would continue to dominate economic policies in most countries. This section of opinion would have us believe that alternative paradigms of development would not emerge out of the collective thinking of the large and more populous nation-states, in particular, Russia and Brazil besides India and China. However, the number of proponents of this world-view is not increasing fast.

On the contrary, more and more people seem to be veering round to the opinion that the future of the world lies in the East. This viewpoint seems to be finding a growing number of adherents in the US too, not merely among academics, global investment bankers and fund managers but also among the best-known management gurus. Consider, for example, what was recently stated by Peter Drucker, who is credited with coining commonly used words and phrases such as "privatisation", "knowledge workers" and "management by objective" and who had predicted in the early-1950s how the use of computer technology would transform the economy of the world. Now 94, Mr Drucker told Fortune magazine that the dominance of the US was already a thing of the past.

"What is emerging is a world economy of blocs represented by NAFTA (North American Free Trade Agreement), the European Union (and) ASEAN (Association of South East Asian Nations). There is no one centre in this world economy. India is becoming a powerhouse very fast," said he. Mr Drucker is more upbeat about the future of India than about China for a number of reasons. One reason is that India's institutions of higher education are today comparable with the best in the world — he singled out the "medical school in New Delhi" (meaning the All India Institute of Medical Sciences) and the Indian Institute of Information Technology, Bangalore, for lavish praise.

Mr Drucker added that India's becoming a knowledge centre was being facilitated by the fact that there are 150 million in the country conversant with the English language. He said that unlike China, Indian cities had been able to absorb surplus people from the hinterland. "You don't have that problem in India because they have already done an amazing job of absorbing excess rural population into the cities — its rural population has gone from 90 per cent to 54 per cent without any upheaval... Everybody says China has 8 per cent growth and India only 3 per cent, but that is a total misconception. We don't really know. I think that India's progress is far more impressive than China's."

One wonders how Mr Drucker would react if he was told that the Indian economy is expected to grow by 8 per cent this fiscal year. Be that as it may, a report entitled United Nations World Economic Situation and Prospects 2004, released in mid-January, said that while overall world economic growth is expected to accelerate by roughly 1 per cent to 3.5 per cent in 2004, the average growth in South and East Asia — led by India and China — would be the fastest and should increase to 6.5 per cent. After three very bad years since 2000, Latin America would grow by more than 3 per cent in 2004 while growth in Africa may exceed 4 per cent, the report said.

The UN report cautions that employment generation continues to a major problem in most countries. Nearly all countries experienced a rise in unemployment or under-employment the last few years when the global economy slowed down and employment always lags behind other aspects of a recovery. International imbalances manifested in the large US external deficit pose a serious threat, the UN report states, adding: "A particularly adverse possibility would be a rapid depreciation of the US dollar and an abrupt reversal of its trade deficit... If the consequent adjustment mainly involved a substantial cut in consumption, investment and import demand in the US, the global economic recovery would probably be aborted, reverting to another slowdown."

The UN Economic and Social Commission for Asia and the Pacific said in late-December that the economies in the Asia-Pacific region displayed "unexpected strength in 2003 despite the war in Iraq, the SARS outbreak in Asia and geopolitical tensions in West and East Asia." At the same time, the countries in this region would "have to confront major development challenges that go beyond short-term economic management and embody structural change" such as tackling rising domestic debt and faster eradication of poverty.

Closer home, the Research and Information System (RIS) for the Non-Aligned and Other Developing Countries, a New Delhi based think tank, has projected that economic growth in South Asia would go up to 7.2 per cent in the next fiscal year from an expected 6.9 per cent in 2003-04. "India and China are likely to emerge among the world's three largest economies by 2050 enabling Asia to regain her place in the world economy... ," the RIS said, adding that even certain least developed countries in the region such as Bangladesh are showing industrial dynamism and competitive performance.

Having offered evidence of the shift in the economic power balance towards the East, it would be foolish to argue that there is a certain inevitability about the process.

The problems confronting this part of the globe are immense — a majority of the 1.2 billion people in the world struggling to survive on less than one dollar a day lives in China and India. It would not be easy to achieve the Millennium Development Goal of halving the proportion of people living below this arbitrarily defined poverty line by 2015 — a target that has been agreed to by all the countries of this still very unequal world of ours.

(The author is Director, School of Convergence, International Management Institute, New Delhi and a journalist with over 25 years of experience in various media - print, Internet, radio and television. He can be contacted at paranjoy@yahoo.com.)