The Hindu Business Line : Asia in sharper focus

India and China must motivate and incentivise their vast stock of intellectual capital, and demonstrate that they are as capable as Japan and Korea of bridging the emerging technology gap with the US. This requires more than investment in buildings and equipment. India's institutions of learning should change their emphasis from rote learning to rewarding enquiry and technical and scientific innovation.

Strength in numbers: China and India have an abundance of skilled manpower. But this vast stock of intellectual capital must be adequately motivated and incentivised to acquire the edge in technical innovations.

SOMETIME back, we had occasion to review the Goldman Sachs' prediction that the countries belonging to the BRIC group (Brazil, Russia, India and China) would turn out to be dominant powers in the world economy.

The BRIC prediction became the basis of many panegyrics to the emergence of a new economic power group, mostly of developing countries. Now, we are coming nearer to a sharper focus on Asia.

The distinguished economist, Jeffrey Sachs, currently a Professor at University of Columbia, New York, and a keen student of global trends, has recently come out with a provocative article in Fortune dated January 26, 2004, titled: "Welcome to the Asian Century". His conclusion is that the age of American dominance in world economy is coming to an end. "Asia Shining" seems to be Sachs' message.

The logic of Professor Jeffrey Sachs' conclusion is built on two arithmetical facts. First is the higher rate of growth of per capita incomes of the Asian economies, particularly India and China. Second is their higher population compared to the US.

The combined effect of both these factors tends to drive down the margin between the US, on the one hand, and India and China, on the other, thanks to the continued effect of faster growth of per capita GDP and higher population of the Asian countries.

Sachs notes that China has been growing on an average at 10 per cent since 1970 and India at around 6 per cent per year since the 1991 reforms. This compares with US annual economic growth of 3.5 per cent. China's per capita income is at present around 13 per cent that of the US.

The per capita GNP is growing in China at around 4.6 per cent points per year. Given current rates of growth by both countries, China would reach the US' per capita income levels by 2050. Its estimated population at that time would be 1.4 billion — higher by 3.4 times than the US population of about 400 million.

At this point, China's GNP would be about 75 per cent larger than that of the US. India's annual per capita income growth is higher than the US' by four percentage points. India's per capita income would reach a little more than 25 per cent of the US' by 2050. Its population will be nearly four times.

By 2050, therefore, India's overall economy would be about the same size as that of the US as compared with China's economy, which would be 75 per cent higher than that of the US.

Together with India and China, the entire South-East Asian region as well as North Asia will also be growing, as an integrated economy.

The Asian economy with 60 per cent of the population would rise to about half of the world's GNP, up from the current one-third.

The US will have only about 5 per cent of the world's population with its economic weight sliding from more than the current 20 per cent of the global GNP to 10 per cent by 2050.

Mr Sachs points out that the higher differential in economic rates of growth of developing Asia is itself a function of the ability with which poorer countries will continue to access "capital" and technology from the US. Of course, FDI flows from the US to the Asian economies are, in a sense, a mirror image of the forex flows, which currently go out of Asia towards the US.

FDI in its present form from the US does carry with it new technologies as well as new marketing and management skills. But this may not be sustainable. Asia must also increase its R&D expenditure and hone its human resource skills to catch up with the US.

The very fact that the US itself is continuously scurrying for Asia's technical brain-power to strengthen its R&D armoury shows that the gap will not be difficult to fill, in two-way traffic.

The rise of Japan, Korea and Taiwan in the cutting edge industries of semi-conductors and bio-technology indicates that India and China also can make it, provided there is a will and a conscious plan to exploit the countries' pool of technical manpower.

China and India have an abundance of such skilled manpower. However, it is necessary to adequately motivate and incentivise this vast stock of intellectual capital. Korea and Japan have shown remarkable ability to adapt and independently push forward technical innovations.

China and India have to demonstrate that they are as capable as Japan and Korea of bridging the emerging technology gap, which can get worse as the US finds its dominance threatened.

This requires much more than mere investment in buildings and equipment. India's institutions of scientific instruction are mostly driven by a pursuit of "rote" learning. They should change their emphasis to rewarding enquiry and technical and scientific innovation.

The examination system itself, which emphasises rote-learning, has to be changed to emphasise innovation. The task is difficult, but both doable and essential. It has to be at the centre of governmental attention if the Asian century forecast by Jeffrey Sachs is to become a reality, instead of Asia being a copycat of the developed West.

This requires a change not only in the approach of educational institutions but that of corporates, which have to encourage generic R&D in a truly pioneering spirit.

Sachs' analysis primarily builds on the fact that there is at present a significant difference in the rates of growth between Asia and America. But to depend on the difference is tricky. Much depends on the continued willingness of the US to transfer R&D and Asia's ability to adapt.

There are some hopeful signs in the area of biogenetic research dealing with stem cells, where the US's ideological inhibitions are apt to block further research, and Asia with its freedom from such restriction can score a march. This is already evident from Korea's recent advances in this area.

So too, the wealth of herbal medicine available in traditional societies like China and India, which Sachs cited, gives room for spectacular advances in pharmaceutical research. These are only two of the promising areas.

Whether Asia will dominate the 21st Century and the US will decline in relative terms, as Sachs has foreseen, will, however, depend on how successfully the political leaderships manage to avoid settling down in a morass of regional conflict or war and mis-governance. Asia's advances of the last two decades on which Sachs makes his predictions are reflective of relative peace and good governance in Asia.

Asia has, above all, to stay clear of conflict. We have also to avoid problems inflicted by unforeseen pestilences, such as SARS. This involves a massive upgrading of health services and environmental conditions. Barring these unforeseen and unfortunate developments, the prospects of Asia Shining are indeed bright, as Sachs forecasts. As a result, the US will necessarily have to shed its imperial ambitions. It will no longer be the sole monarch of all its surveys. It will no longer be in a position to tell the rest of the world how to behave.

True, such a turn of events seems extremely unlikely in the near future given the current stance of George W. Bush and company. But, once Asia's century arrives, it will no longer be the age of American hegemony. Asian dominance and American imperialism cannot co-exist. The Americans will have to learn to live as the children of a lesser God.

All this will call for a radical transformation of global financial and political management. Once Asian dominance arrives, the international financial institutions will no longer be the monopoly of the US and Europe with Japan allowed to peep in, as it is at present.

The lesser mortals from Asia will also have to be given a higher voice in governing these institutions. The World Bank has been managed by a Chief Executive nominated by the US President. This practice will have to cease once Asia asserts itself.

The IMF will also very likely have an Asian MD, to replace the convention under which at present an European is as its head. There will also be corresponding changes in the functioning of WTO, which will have to reflect the dominance of Asia rather than that of the US in its governance, its procedures and policies. All this is a far cry from today's tawdry world, dominated by the poster boys of Texas. Sachs' arithmetic has highlighted the need for a radical change. The world has to realise that a massive change in relative balance will soon be on us.

To quote him: "We got a small glimpse of the coming US eclipse this fall, when President Bush travelled to Asia for an Asia-Pacific economic meeting. The US tried to find Asian allies to bash China over its exchange-rate policies but found no takers, as the other Asian countries sided with China. China's economic diplomacy has already trumped that of the US, since China's Asian neighbours clearly understand that China is their engine of growth"

Asia will soon be shining and the US' sheen will be less, at least by comparison. Asia's dominance will change the world's power equations.

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