No Free Lunch
An East Asian economic powerhouse
By Cielito Habito
Philippine Daily Inquirer
First Posted 21:18:00 08/24/2008
Filed Under: Macro Economics, ASEAN, International (Foreign)Trade
IT IS NOW widely acknowledged that the focal point of the world economy has shifted to the Asia-Pacific region. For most of the 20th century, it was North America, while prior to that, Europe dominated the scene. All eyes are now on Asia as current global economic trends, including rising oil and food prices, are being shaped largely by developments in this part of the world.
Asia, after all, is host to rapidly growing China and India, both huge economies in both physical size and population.
The 10 countries making up the Association of Southeast Asian Nations (Asean) have also become a formidable economic bloc that can stand up to their giant neighbors and the traditional economic giants of the world. Not surprisingly, other neighbors--especially the more traditional powerhouses of Japan and Korea--would like to get in on the action by pushing for a wider integration that includes the rest of East Asia.
Unity in diversity
Integrating the East Asian economies may well be more challenging than the experience undergone by Europe and North America, given so much more diversity in this continent. The diversity lies not only in the economic sphere, but in the social, physical, political, cultural spheres as well. Average incomes range widely from about $300 to more than $42,000 per person. Rankings in the UN Human Development Index (HDI) that measures social and economic well-being range from 8th (Japan) to 150th (Timor-Leste) in the list of 177 ranked countries. The physical geography varies widely from mountainous and landlocked on one extreme, to archipelagic and island countries on the other. All the world's major religions may be found in the region, reflecting the wide cultural diversity therein. And the region possesses the extremes of political systems, from authoritarian rule to free-wheeling democracy.
Is it really possible to achieve an integrated East Asian economy, then? That Asean has made significant progress at such integration provides some confidence. And the recent collapse of WTO negotiations further boosts the impetus for stronger integration at the regional levels, notwithstanding the challenges.
Boosts and challenges
Among the things going for East Asia is that it has had the fastest-growing economies in the world. This has been accompanied by a marked decline in poverty. Whereas 69 percent of East Asians (about 500 million people) lived on less than $2 a day in 1990, the proportion was down to 27 percent as of last year. This, by the way, makes it both interesting and puzzling that the Philippine experience of worsening poverty amid (supposedly) accelerating growth has been so unlike the experience around us.
But the rapid growth of East Asian economies has not come without cost. There may be less poverty, but income gaps have also widened. More than 90 percent of East Asians who live on less than $1 a day are rural dwellers. The gap between rural and urban incomes has actually grown, with the ratio of rural-urban poverty having increased from 2:1 in 1993 to 3.5:1 in 2000. There has also been widespread degradation of marine, inland water and forest resources, and of soil, water and air quality coming with rapid urbanization.
Why integrate?
What makes greater East Asian economic integration a desirable goal? One, a unified East Asian market is a formidable force in the global economy, and individual countries can benefit from this collective clout. This was proven during the Asian financial crisis, when depressed incomes in the region--and thus depressed demand--caused global grain prices to fall to historical lows. Two, one could argue that the diversity described above actually offers rich opportunities for complementation and synergy, and therefore mutual benefits among the individual East Asian economies. And three, concerns with food and energy security provoked by the surge in oil and food prices worldwide have underscored the value of cooperation and mutual support within the region.
What challenges face such integration? First, there can be tremendous social and political costs from needed sectoral adjustments as trade is liberalized among the member economies, especially with China's dominating presence. Second, as indicated above, widely divergent income levels, industrial structures, human resource capacities, level of development of institutions and maturity of financial markets also make integration moves extremely challenging. Third, suspicions of hidden motives on the part of more powerful members (e.g., control of natural resources, toxic waste dumping), along with perceptions of lopsided benefits, lead many to question specific initiatives, especially bilateral ones, for greater integration (Jpepa is a case in point). This suggests that greater economic integration would be better pushed in a multilateral context, i.e. Asean with its East Asian neighbors, where the likelihood of lopsidedness can be better avoided.
We must, by all means, work to benefit from being part of the emerging East Asian economic powerhouse. But we need to be mindful of the minefields along the way.
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The next Ateneo Eagle Watch Economic and Political Briefing will be held on Sept. 10 at the Ateneo Rockwell campus. For reservations and more information, call Joannie Tongol at 494-8472 or 0917-804-7740 or e-mail eaglewatch@gmail.com.
(Comments welcome at chabito@ateneo.edu)
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