In July 1601, a major riot broke out in the city of Suzhou, the boom town of late Ming Dynasty China. By the beginning of the seventeenth century, Suzhou had become the capital of China’s silk industry and a major financial centre, with a population of over half a million people – a global mega-city by the standards of the time. Suzhou’s rise had been built on the unceasing demand in Europe, Japan and the Americas for Chinese silks, porcelains and cottons, and their willingness to pay for these goods with galleons full of silver bullion. Silver was the commodity that drew Ming China inexorably into the emerging global economy.1 The digging of new mines in the mountains of Saxony, Bohemia, Hungary and the Tyrol in the 1450s had reawakened Europe’s desire for the luxuries and spices of the Orient, and with the discoveries of massive silver seams in Spanish America and the invention of new refining processes using mercury, Europeans had something the Chinese wanted, which they could trade for the riches of Cathay.
Ming China’s insatiable thirst for precious metals had its roots in the decision of the first Ming emperor to institute a paper currency throughout his empire. The value of this new currency soon collapsed because it was not convertible to precious metals, copper coins or silk. Despite the emperor’s ban on mining or importing precious metals, silver rapidly became the de facto currency. Eventually, in 1436, the Ming court acquiesced – ultimately demanding payment of all taxes in silver – but the failure of its paper currency had left the legacy of a chronic silver shortage in China.2
Silver money and a rising international demand for silks and porcelains transformed imperial Chinese society. The hitherto agrarian economy specialised and commercialised; the silk, cotton and porcelain industries boomed; people streamed into industrial and financial centres such as Suzhou; and a market economy emerged, driven by an expanding and increasingly powerful merchant class and burgeoning regional trade. The flow of silver into China encouraged business speculation and price inflation, but failed to staunch the shortage of precious metals in that rapidly expanding market economy.3 By the time of the great Suzhou riot in 1601, the Ming economy had come to rely heavily on large imports of silver from Peru, Mexico and Japan to increase the money supply at a rate that would maintain business and consumer confidence.
The riot began when a silk weaver named Ge Xian led a protest, symbolised by a palm-leaf fan, against new taxes levied on silk artisans and dealers. He was particularly enraged by the leading imperial official in Suzhou, Sun Long, a local representative of the corrupt eunuch class that had gained control of the imperial court in Beijing. Ge Xian and the other rioters were careful to exempt merchants and their families from the violence but they beat to death every official and tax collector they could find. After three days of mayhem, Sun Long fled Suzhou and most of the remaining officials were dead. As order returned to Suzhou, Ge Xian was arrested and sentenced to death but perhaps in recognition that there had been some justification to the rioters’ anger, the sentence was not carried out. He lived to a ripe old age.4
By the time Ge Xian died, the tensions that had led him to pick up the palm-leaf fan of protest had become chronic throughout China. The diarist Song Yingxing, a minor Ming official, could not help but despair at the rising corruption and anarchy of Chinese society.
For the state, the conflagration set by the eunuchs blazed out of control; for the merchants, misfortunes were brought by spendthrift sons; in various localities profit-seeking bullies assembled; officials became increasingly corrupt; and clerks and runners devised new, wicked techniques. All of these problems grew worse each day. Just as the merchants were about to maneuver their way out of their straits, the new tax levy order fell down upon them and they were afflicted by bandit invasions.5
Song’s account tells the story of the growing crisis of the Ming Dynasty at ground level, but he was probably unaware of the deeper roots of the crisis in the sudden global shortage of silver. The seemingly endless river of bullion across the Pacific slowed to a trickle in the 1620s as production slumped at the Potosí mine in Upper Peru (now Bolivia) and the Mexican silver mines were hit by chronic mercury shortages. To make matters worse, Dutch and English raiders had started to take a toll on the silver galleons, and Philip IV of Spain decided to crack down on the smuggling of New World silver across the Pacific. The Tokugawa expulsion of Portuguese merchants and prohibition of foreign trade in the 1630s ended Japanese bullion exports. Growing instability in China led to widespread hoarding of silver, while government taxes – in silver – rose in the course of a desperate struggle against invaders from Manchuria. The powerful merchant class, alienated by Ming taxes and restrictions, began to switch its allegiance to the Manchus. The price of silk, cotton and porcelain plummeted, while the price of grains rose by over 200 per cent. Starvation, rioting and banditry became widespread.6 By the time Manchu forces captured Beijing in April 1644, they found the imperial treasury empty.
The founder of the Ming Dynasty, the Hongwu emperor (who reigned from 1368 to 1398), would have attributed the downfall of his dynasty to his successors’ folly in allowing the influence of foreign bullion to distort and disrupt the harmony of Chinese society. A deeply religious man, the Hongwu emperor came to power determined to purify Chinese society from the foreign influences that the Mongol Yuan Dynasty had allowed, to bring it back into harmony with the cosmic order. In 1397 he initiated the Great Ming Code, a constitution designed to reassert traditional values, eradicate foreign influences and extend the virtues of Chinese civilisation to outer barbarians.7 His issue of inconvertible paper money was designed to cut the Chinese economy off from corrupting foreign trade. From 1371, the Ming Empire had prohibited travel abroad or contact with foreigners on pain of death; ports were blocked and the construction of ships outlawed; foreign goods were to be destroyed. Only foreigners who acknowledged the virtue of Chinese civilisation by paying tribute were granted access to China’s market and products – and even then the Hongwu emperor made clear his distaste for foreign trade:
Foreign merchants … are attracted by our morality and righteousness, not by profit. How shameful of us to make profit out of them. Even if we do levy duty on them, how little will that be? We lose more dignity than profit!8
Haijin – the urge to shut out the world for fear that it would disrupt the harmony and integrity of society – was a constant factor in Chinese history after 1371. Periodic liberalisation of contact was soon followed by reimposition of controls. Strict prohibition of contact with foreigners and regulation of foreign trade inevitably provoked piracy, smuggling and corruption at the Empire’s borders, only deepening Beijing’s prejudices against the defiling influence of the outside world. The Ming Xuande emperor cracked down even harder on outside contact in 1433, despite having authorised the fabulous Indian Ocean expeditions of his eunuch admiral Zheng He. Official records of Zheng’s voyages were destroyed. With the opening of the Grand Canal between Beijing and Hangzhou in 1411, the Chinese economy was made independent of ocean trade between the northern and southern empire. The Qing Dynasty, which followed the Ming, reinstated haijin in 1647 after the Ming Dynasty had lifted it in 1567. By Qing regulations, all settlements within 30–50 li (15–20 kilometres) of the coast had to be evacuated and all boats were to be burned. Later the Qing began to allow closely regulated and taxed foreign trade through a small number of trading ports.9
China was not alone in shutting itself off from the corrupting influence of the outside world. With his crushing victory in the Battle of Sekigahara in 1600, Shogun Tokugawa Ieyasu instituted a strictly hierarchic bakuhan system of control over provincial daimyos in Japan. Japan’s era of tenka taihei (the great peace) under the Tokugawa shogunate relied on keeping Japanese society inwardly focused and tightly regulated. Fearing the influence of Christian missionaries and the enrichment of provincial daimyos through foreign trade, in 1633 the shogun announced the policy of sakoku, prohibiting all travel abroad by Japanese, restricting all foreigners to the port of Nagasaki and banning foreigners from learning the Japanese language. Sakoku was designed also to withdraw Japan from the Chinese tributary system and to build the sophistication and prestige of Japan’s own social and cultural system.10 By the nineteenth century, sakoku had developed into an ideology of seclusion and superiority among Japan’s elites.
Korea’s Choson Dynasty took seclusion from outside influences even further than the Chinese and Japanese. Following devastating invasions by the Japanese and Manchus in the seventeenth century, the Choson emperors forbade any travel abroad by Koreans, the building of ocean-going boats or any contact with foreigners.11 Contact with Japanese traders was limited to the island of Tsushima, and the few Chinese embassies that visited were confined to a walled compound and allowed no contact with Koreans. An intensely negative attitude to foreigners accompanied silhak, a period of intense innovation and development of Korean culture.
For all three societies, seclusion ended at the barrel of a cannon. The Qing Dynasty’s attempts to control the inflow of opium and the outflow of silver provoked a violent response from the British in 1840. Thereafter, China was forcibly opened to merchants, missionaries and mercenaries, triggering rising chaos in the decaying Qing empire. An explicit threat of the same fate accompanied Commodore Matthew Perry’s black ships into Tokyo Bay in July 1853, sparking a revolution in Japanese society based on an intense hunger to learn the secret of western power. Korea’s turn came in 1871 when an American marine expedition against Ganghwa Island killed 243 Koreans; soon after the Choson emperor opened trade relations with the United States and Japan.
For Asia’s societies, the age of imperialism brought globalisation at gunpoint. Asian economies were reshaped by the rhythms and appetites of Europe’s industrial revolution: whatever Europe’s factories and middle classes wanted came to determine what Asian economies produced, but anything that competed with what Europe exported soon withered. Expansion and contraction in Asian economies followed the business cycles of Europe and America, and as they became appendages of their colonisers, Asian societies’ economic fragility increased. Periodic famines killed millions and poverty rose steadily. For many Asian countries, the period of economic domination also brought sustained social and political upheaval.
It was little wonder that governments that came to power after independence or revolution closed their economies to the global market and relied heavily on the state to build unity and development and forestall social unrest. In each, the formula was slightly different, but the broad outlines were remarkably similar across very different societies. In state after state – whether communist, authoritarian or democratic – single-party governments held power for long decades. The governing party became the symbol of independence; of national ideals, unity and identity; of justice and redress; of pride, defence and development – in the case of the Congress Party in India, the Liberal Democratic Party in Japan, China’s and Vietnam’s communist parties, military regimes in Pakistan and Korea, Malaysia’s United Malays National Organisation, Singapore’s People’s Action Party and Taiwan’s Kuomintang. At the slightest sign of social unrest – whether urban activism, ethnic rivalry or rural revolt – the dominant party tightened its control.12
Asia’s states each assumed a central role in guiding and developing the economy also. The full powers of the state were bent towards building self-sufficiency and fostering the development of local industry. In some of Asia’s states, such as Japan, Taiwan, Korea and Singapore, the state played a technocratic role. Economic bureaucrats were carefully selected and trained and given great latitude to play a decisive role in development through powerful planning agencies. They set targets in terms of growth and competitiveness, closely regulated the financial system to maximise investment, and exercised influence through institutionalised elite networks. In other countries, such as Indonesia, Malaysia and Burma, state involvement was patronage-based. More informal networks connected entrenched elites with government institutions to channel the benefits of rapid development towards favoured groups. In each case, governments explicitly linked legitimacy with the capacity to deliver economic growth, improve living standards and maintain social stability.
With very few exceptions, Asian governments vigorously protected their domestic markets from external influence. Through a mixture of high tariffs, strict import quotas and outright import bans, Asian states sought to eliminate the impact of western multinational firms on their domestic markets while boosting the development of their own industries. Running through all of these policies was a potent suspicion of unrestrained capitalism and a determination to seek other means of economic development. Communist China opted for Soviet-style planning which nationalised and collectivised every aspect of the economy. Rapid economic development would be delivered through an act of the collective will as the party mobilised the people in a series of mass campaigns targeting high growth targets. Non-communist India tried to steer a path that was neither capitalist nor communist, marrying Gandhian communal action with Jawaharlal Nehru’s preferences for socialist industrial transformation. Some institutions were nationalised while others were subjected to close state regulation, and centralised five-year plans set the economic agenda. In the Asian ‘tiger’ economies, starting with Japan, governments sought economic growth through boosting exports into open western markets while strictly controlling investment and trade access into their own domestic economies. Whatever their development strategy, most Asian governments instituted strong capital and exchange controls as another line of defence against the global economy.
But through the 1970s and 1980s, as developed economies entered a protracted period of instability and low growth, Asia’s economies began to open up. The reasons were varied – the need to access resources, energy and technology; threats of trade retaliation from the western markets they so relied on; a growing interest in the integrity of the global trading system – but the results were remarkably parallel. The Asian state was retreating from its prominent role in directing and managing the economy, dominating the private sector and boosting the public sector, in favour of a more facilitative and regulatory role. The sharpest departure came in China, where Deng Xiaoping and his supporters ditched Mao’s focus on production relations and heavy industry in favour of productivity and efficiency and boosting consumption. Key to Deng’s plans was opening the Chinese economy to the outside world, through special economic zones, encouragement of investment and technology imports and emulation of the Asian tigers’ export-oriented growth strategies. India’s liberalisation followed a severe balance-of-payments crisis in 1991, dismantling stifling controls on industry, imports and foreign exchange, and more gradually removing capital controls.13 Eventually, the momentum behind opening up Asia’s economies gave rise to a distinctive form of regionalism through APEC, in which each member economy unilaterally pledged to dismantle its barriers to trade and investment. Asia’s successful economies had become part of an increasingly open global economy, and the international economy had become an essential part of their own success and dynamism.
From the outside, the success of Asia’s boom economies is stunning. The doubling of per capita income, a feat that took Britain half a century and America three decades, was achieved in under ten years by Japan, the Republic of Korea, Singapore, China and India. In the thirty years after Deng’s liberalising reforms, the Chinese economy grew by a factor of fourteen to become the second largest in the world, and China became the largest holder of foreign reserves and the world’s largest trading nation. In the two decades following its market reforms, India’s economy quadrupled in size and entered the world’s top-ten largest economies. Just ten years after the Asian financial meltdown, Indonesia’s economy had doubled in size from its pre-crisis high. From the perspective of Asia’s citizens, too, there is much to applaud about the rise of Asian economies. Across Asia, over one million people progressed out of the World Bank’s poverty range each week during the decades leading to and following the turn of the millennium. Consumer items that were unknown or tantalisingly rare in the era of self-sufficiency became widespread: televisions, computers, mobile phones, refrigerators, cars. Ways of life that had seemed impossibly distant became increasingly within reach with each passing year.
But for governments, the reality of rapid economic growth has been much less glamorous. ‘Development’ – a benign, optimistic term easily bandied about by economists and activists – unleashes powerful forces that reshape a society, paying little heed to the wishes of rulers, elected or not. For governments that had for decades seen themselves as the shapers and enablers of their own societies, the process of development has been by turns baffling, exhilarating, confounding and terrifying. No country that has undergone industrialisation and modernisation has escaped profound churn in its society, economy and politics, but those that developed earlier seem to have been more lightly affected. For countries of the scale of Asia’s rising powers, experiencing the fastest rates of economic development in human history, the social, political and cultural consequences of growth have been very unsettling.
The first troubling symptom was urbanisation. Societies that had been predominantly rural and agriculture-based started to experience the unregulated flow of millions of people into cities. As it started in England 350 years ago, so it continues today in Asia, where India and China are experiencing the fastest rates of urban growth in history. Since 1978, over half a billion Chinese have flowed into China’s cities; a country that was less than one-fifth urban in 1978 is now over one-half urban. China’s urbanisation rate is five times its population growth rate – and the process of urbanisation is accelerating. In the last decade alone, over 100 million people have moved to the teeming cities. In the forty years to 2010, one-quarter of a billion people moved to India’s cities; it is estimated that the next quarter-billion increment will take half as long.14 India’s and China’s Asian neighbours have experienced similarly high rates of urbanisation. Over the thirty years of its most intensive industrialisation, the Republic of Korea’s urban population increased by 45 per cent (1960–1990), Japan’s by 40 per cent (1950–1980), Malaysia’s by 30 per cent (1970–2000) and Indonesia’s by 28 per cent (1970–2000).15 By contrast, during the three decades of its most intensive industrialisation, Britain’s urban population grew by 17 per cent (1850–1880) and America’s by 18 per cent (1880–1910).
There is no great mystery behind this largest movement of humans in history. The urban–rural wealth disparity widens rapidly during the process of economic development. Between 2000 and 2010, the average income of a resident of Shenzhen in China climbed from RMB 35,000 to 82,000 and for the average Shanghainese from RMB32,000 to 66,000. In comparison, the average rural income was RMB7900 in 2010. China’s cities of over 2.5 million people have been estimated to generate 95 per cent of its wealth.16 Cities promise not only money, but also opportunity. One recent study estimates that 70 per cent of all new employment in the Indian economy will occur in the cities over the next 30 years.17 Of course, urban–rural disparities even out over time. Economic history shows that as people leave the land, agriculture becomes more productive. Unburdened by millions of underemployed people living semi-subsistence lifestyles, the agricultural economy is freed to make use of larger units of cultivation and to invest profits from selling produce on the open market in seeds, livestock, fertilisers and machinery. Over time, developed countries have found that the initial widening disparities in urban–rural income have narrowed and vanished as the rural sector becomes more productive.
But that prospect seems a long way away to societies in the early stages of rapid economic development. The reality of millions of their citizens each year autonomously deciding to leave traditional self-sufficient rural communities and move to cities is deeply unsettling to governments. Indonesia’s cities are growing by 4.2 per cent each year, the Philippines’ by 3.4 per cent and Vietnam’s by 3.1 per cent. The pattern is clear in country after country: it is the largest cities that are growing fastest. People seeking a better future crowd into slums and packed tenements; the World Bank estimates that between one-third and one-fifth of the urban population of developing countries live in slums. New Delhi’s population has grown from 1.4 million to 15.6 million since 1950 and, over that time, its identifiable slum clusters have mushroomed from 200 to 1160. No government on earth has been able to cope with the uncontrolled growth of its cities during industrialisation. Problems of crime, pollution, public order and disease grow and spread. Infrastructure building by definition is inadequate, but, with a perverse logic, those cities that are more effective at building infrastructure are penalised with even higher rates of population growth.
Recently, the World Bank surveyed the attitudes of developing-country governments to the process of urbanisation that their countries were undergoing: three-quarters of respondents saw urbanisation as dangerous and wished to slow or reverse the process.18 China has actively sought to stem and redirect the flow of urbanisation. In the late 1970s, it instituted the hukou system of household registration with the intention of making the decision of citizens to move to the cities dependent on the approval of the government. Those living in cities without the authorising hukou would be denied access to services and social security.19 The system has not worked. Today there are an estimated quarter of a billion Chinese living in cities without hukou or access to services. The system is being scrapped. Another stratagem tried by the Chinese government is to build new second- and third-tier cities to absorb rural migration. Again, the policy has not worked. In the five years to 2005, Beijing’s population increased by 6.6 per cent per year and Shanghai’s by 9.1 per cent.20
The next worrying trend of development is a pronounced change in the structure of the economy. Developing economies become less agricultural and more heavily invested in manufacturing and services. In 1978, 70 per cent of China’s labour force worked in agriculture, 17 per cent in manufacturing and 12 per cent in services; by 2007 just 28 per cent of Chinese workers were agricultural, while 26 per cent were industrial and 32 per cent worked in the service sector. Over the same period, India’s agricultural workforce fell from 71 to 51 per cent, while its manufacturing workforce increased from 13 to 18 per cent and its service sector workforce jumped from 16 to 25 per cent. Indonesia’s trends have been similar across the same period: agricultural employment has dropped from 61 to 46 per cent, while manufacturing has expanded from 8 to 12 per cent and services from 24 to 42 per cent.21 Unsurprisingly, nearly all of the growth in manufacturing and services employment in Asia’s developing societies has occurred in their expanding cities.
What’s so worrying about the growth in a country’s urban industrial and services workforce? Take a look at history. People working in manufacturing and services no longer produce what they personally need to survive. They become totally reliant on their jobs to obtain enough money to buy food, accommodation and energy. And they come to rely on different forms of food, accommodation and energy than their counterparts back on the farm. Between 1980 and 2010, the average calorie intake of Chinese people increased by nearly 50 per cent to reach similar levels to those of Japan and the Republic of Korea. Over that thirty years, the average protein intake in China doubled and the average fat intake tripled. Similar consumption changes are occurring in other fast-developing Asian economies.22 As people urbanise, their energy consumption increases rapidly and changes in form. Cities are, on average, three times as energy-intensive as rural dwellings. And whereas traditional agricultural society relies on traditional energy – wood, wind, water and muscle power – urban living relies on modern energy: electricity, petrol and gas. Cities become teeming centres of constant dependence suspended in webs of supply and demand: demand for what they produce, providing residents with money to buy what they need to survive; supply, delivering a constant stream of the necessities of life. People who move to cities have to improve their lot in order to survive; the safety net of subsistence has been permanently cast aside.
History also shows that the rapid accumulation of people into cities and wage labour can be socially and politically disruptive. The escalating rate of social change experienced by developed societies over the past two centuries could not have occurred without the crowding of people into cities. Urbanisation removes people from the traditional structures of meaning and social control that surround them in their rural villages, and places them in the constant stream of opinion, expectation and aspiration that flows through any city. Political demands and ideologies take root and spread. In the cities the roles and shortcomings of governments are most apparent, inequities and corruption are most clearly drawn, and failures in infrastructure and services snowball into causes of public anger.
For governments, the dilemmas of development are constant and escalating. High rates of growth need to be maintained to keep rapidly growing urban populations employed, fed, housed and powered. Economic growth crowds out other social goals. It is at the heart of the political compact in Asia’s rising societies: governments unable to provide continuing high growth rates can feel their mandates to govern crumbling. What’s more, the demands of further growth seem to progressively strip away any control that governments once had over their own economies. There is no going back to self-sufficiency. The wrenching changes brought to economy and society by each phase of development in turn generate their own challenges, many of which can only be addressed by embracing further change. The efficient operation of each sector of the economy demands the reform and opening up of allied and associated sectors. Development resembles a fish trap – once a society has begun the process it can’t back out. Survival depends on moving forward, stripping back government control, wading deeper and deeper into the rhythms and strictures of the hyper-globalising world economy.
It’s not long before an industrialising economy butts up against the limitations of its domestic market. Its own consumers are poor and have very basic needs; its systems of research and innovation are shallow; its supply of investment and infrastructure meagre. Once the process of manufacturing, profit and reinvestment has been uncorked, the momentum is unstoppable. The search for profits and scale soon outstrips the demand produced by domestic consumption and accumulation. Beyond the domestic economy’s limits lies salvation. The global market can provide the necessary momentum, the depth and scale of demand necessary to build a modern industrial society. The Atlantic economies, in Europe and North America, offer almost one billion cashed-up and willing customers. Only that vast sea of consumption can provide the market niches and specialisations, the profits and bottomless acquisitiveness, the constant churn of shifting tastes and fashions that can challenge and reward the nascent industries and service-providers of Asia.
The outside world also provides the money and technology needed to take an industrialising economy up the development ladder. A modernising economy needs extensive and increasingly sophisticated infrastructure: roads, railways, ports, communications networks, power grids. Making more valuable and elaborate goods while keeping prices down requires specialist knowledge, from research to engineering to management. Economists estimate that from 1978 to the mid-1990s, China’s growth was largely internally driven, mainly through accumulation and the growth of internal consumption. Since then, it has been predominantly externally driven, spurred by the growth of its merchandise exports and inward flows of foreign direct investment.23 Many of the Asian tiger economies wasted little time on domestic consumption, hitching their industrialisation to export markets almost from the start.
At the same time, a rapidly developing society finds itself decreasingly self-sufficient in terms of food, resources and energy. The change in consumption towards high-protein, heavily processed diets quickly outstrips the capacity of the domestic agricultural sector to meet demand. The loss of rural land to cities and lags in agricultural productivity further decrease self-sufficiency. Even with its abundance of land, China is now under 98 per cent self-sufficient in food and 92 per cent self-sufficient in grains.24 Many Asian states have become exporters of staples such as rice but major importers of other foods as their populations make the transition away from traditional diets.
Energy soon becomes another vector of deepening external dependence. Modern energy, unlike traditional energy, is unevenly spread through the earth’s crust. Even industrialising countries with reasonably large energy reserves soon find that demand outstrips supply: such was the case with the United States by 1962 and with China by 1993. The scale of Asia’s societies, and the velocity of their growth, has hypercharged their need for energy way beyond the capacity of their reserves. Asian states dominate the rankings of the world’s largest oil importers. Even though it has the largest oil reserves in Pacific Asia, China currently imports over half the oil it consumes, with imports projected to rise to three-quarters of its oil consumption by 2035. Japan, South Korea and India have much smaller indigenous reserves than China and are even more dependent on imports – now and into the future.25
Mineral resources are often another widening external dependency. Heavy and light industry demand a range of minerals, while infrastructure needs vast supplies of concrete, steel and other metals. Even countries with sizeable reserves, such as India’s iron-ore fields or China’s coal beds, often lack the technology and logistics to exploit the reserves more cheaply than they can buy the resources from more-efficient producers overseas. As we have seen, developing Asian economies also heavily depend on the outside world as part of extensive production networks: without the steady supply of component parts or the ability to supply components to other parts of the chain, significant parts of their manufacturing sectors would become moribund.
As an industrialising economy internationalises in search of markets, investment, food, energy and minerals, its financial system comes under pressure to deregulate and internationalise. A closed or highly regulated financial system places important obstacles in the way of rapid development. Industry can be restricted in its access to capital and technology, while domestic investors are hampered in their ability to invest in other countries. Capital controls increase financing costs, reduce the amount of available investment funds and encourage corruption and rent-seeking. Companies buying and selling in the global market with a currency that is not freely convertible to other currencies pay significant costs in money and efficiency to do so. All these factors can have a significantly retarding effect on an emerging economy’s growth rate.
The urge for Asia’s new developers to join the international economy is not new. The same internationalising imperatives were as irresistible for the first economies to industrialise in Europe and North America. Britain and France, the Netherlands and Belgium, Germany and Italy, the United States and Japan all found their burgeoning industrial economies soon hitting the limits of their domestic markets, causing regular boom-and-bust cycles. These gyrations of economic instability had worrying political implications. With each lurch of the economy, thousands of their citizens joined the ranks of revolutionary movements: Chartists, Jacobins, liberals, socialists, anarchists, communists. The internationalising imperative was therefore doubly acute for the governments and elites of industrialising economies.
The off-the-shelf form of internationalisation for the early industrialisers was imperialism. Colonies and economic satellites promised a cure for most of the agonies of industrialisation: deep and extensive markets providing steady demand for industrial products, capital repatriated through taxation and profits for investment and infrastructure, luxury consumables to satisfy refined domestic tastes, reliable supplies of raw materials at rock-bottom prices, and a resettlement safety valve for booming populations and crowded cities. The first movers’ colonies hedged the risks and absorbed the turmoil of their industrialisation. By the time they acceded to their colonies’ independence, the colonisers were mature economies and stable advanced societies. Most had well-established stable constitutional and democratic systems of government. Order had been imposed on urbanisation, mainly through extensive infrastructure and services. Their societies became extremely wealthy and well educated, with well-established innovation cultures, economic equality restored, generous social safety nets and high degrees of social cohesion.
The imperial option no longer exists for Asia’s late-mover industrialisers. Colonialism has acquired a bad reputation, not least among those who so recently experienced it. As they emerge into the international economy, Asia’s economies have found themselves in a phenomenally crowded global marketplace. The world’s consumer markets are large and dynamic, but also saturated with consumer goods of astonishing range, quality and sophistication. Global capital markets are deep and liquid, but highly volatile. The scale of global demand for food, energy and minerals has driven their prices higher and made their supply subject to unpredictable fluctuations. The option of owning huge reserves of the energy and minerals an economy needs or the agricultural produce its expanding cities consume is no longer on the table. Decades of exploration and exploitation have sewn up most of the high-yield, low-cost resource real estate on earth. Most production of minerals or energy on the planet is now tightly controlled by state-owned companies or highly restrictive foreign-ownership regulations. What’s left is the unconventional, the high risk, the expensive or hard to access. To those new to the process, it seems a very lopsided bargain. A global economy that is so insistent about gaining access to every corner of emerging Asian economies seems implacably unsympathetic to their own internationalising imperatives.
Western societies that anxiously watch the challenge of Asia’s industrialising giants will be surprised by these anxieties. China’s rise as the world’s largest trading state, Taiwan’s and Korea’s vaulting to the lead in the global technology economy and the astounding success of India’s service industries all seem to belie the difficulties of operating in a crowded global marketplace. But what looks to be an inexorable rush to success from the outside looks much less certain from within.
Governments overseeing large, rapidly developing economies are like first-time water-skiers. Tempering the exhilaration of the ride is the fear of the death wobbles, or a basic mistake or an unseen obstacle or current that brings the whole experience to a painful and humiliating end. Development has changed their societies irreversibly, unleashing demands for even greater economic success and improvement. For an urbanising economy rapidly expanding its manufacturing and services sectors, the rapid slowdown of economic growth would leave millions without work and income – and likely to blame the government for their fate. Few Asian governments have forgotten the effects of the Asian financial crisis, when high rates of economic development went into abrupt reverse in 1997 and 1998: the Indonesian economy shrank by 13 per cent, the Thai economy by 10.5 per cent and the Republic of Korea’s and Malaysia’s by 7 per cent. Indonesia’s poverty rate almost doubled to over one-fifth of its population, Korea’s more than doubled to almost one-fifth, and Malaysia’s and Thailand’s climbed well into double figures. In Indonesia the average household income fell by 40 per cent at a time when food prices rose by 81 per cent. Public anger and frustration with the government spilled onto the streets and the spectre of ethnic and communal violence flared for the first time since the 1960s. The long-running, stable rule of the autocratic President Suharto came to an end amid a humiliating International Monetary Fund (IMF) intervention and growing protest movements.26
Interruptions to the supply of reasonably priced energy and food can have similarly devastating effects on developing economies and, in turn, destabilise their governments. A decade after the Asian financial crisis, a simultaneous and sustained worldwide increase in energy and food prices caused severe disruption across the developing world. As wheat, milk and meat prices doubled, and rice and soybean prices rose to ten-year highs in the space of months in 2008, serious rioting broke out in scores of developing countries, including Bangladesh, Brazil, Egypt, Indonesia and Yemen. By December 2010, persistently high food prices contributed to the self-immolation of street vendor Mohamed Bouazizi in Tunis, sparking sustained unrest that ultimately toppled the regime of President Zine al-Abidine Ben Ali. The Tunisian protests were taken up across the Arab world, felling dictators in Libya and Egypt and destabilising others in Syria, Iran and Bahrain.
Growth in developing Asia has become not a luxury but a matter of social stability and regime survival. By the mid-1990s, economists estimated that the Chinese economy had to deliver an annual growth rate of at least 7 per cent in order to employ the flow of people entering China’s cities and absorb the workers laid off from reforming state-owned corporations.27 The unspoken ‘or else’ proposition was the renewed popular protests akin to those leading up to the 1989 Tiananmen massacre, and the Chinese Communist Party’s worst nightmare: an unravelling of its rule similar to what happened in the Soviet Union. Even democratic governments are not immune to being dismissed for producing below-par growth rates. In May 2014, the ruling Congress-led coalition in India suffered a landslide defeat in national elections, having been judged harshly for presiding over a sustained sag in India’s growth rates to below 5 per cent.
For developing states, the prospect of their growth booms tapering away is not hard to imagine. Asia is dotted with economies that initially grew quickly but settled into sluggish rates of growth long before reaching the developed-country gold standard of stability and comfort. The term for this tendency is the ‘middle-income trap’ – an economy grows quickly while its wages are comparatively low, but fails to transition to a high-tech economy as its labour costs rise. It becomes wedged between competition from low-wage economies and the continued dominance of high-tech production by developed countries. The Asian Development Bank records that thirty-three of its Asian economies have transitioned to the middle-income stage but just five have broken through to high-income status. Countries such as Malaysia, the Philippines and Thailand have remained in the middle-income range for over fifty years.28
The danger of growth slowing too quickly has had a galvanising effect on Asia’s rising economies. The Asian economies that transitioned to high-income status – Japan, South Korea, Taiwan, Singapore – all relied on high rates of education and research to do so. Many who want to emulate them have taken up the education challenge, but the problems are complex. Indonesia’s rate of tertiary education is so low that it currently produces 40 per cent fewer engineers than its economy needs – and on current trends that shortfall will rise to 70 per cent by 2025.29 Realising that its rate of enrolment in tertiary education sits at around half the global average, India has set forth an ambitious goal of lifting its enrolment rate to 30 per cent by 2020. But to reach this target, it will need to create 25 million new tertiary education places, or the equivalent of 10,510 technical institutes, 15,530 professional colleges and 521 universities – by 2020.30 China leads the pack in terms of the energy of its response to the education challenge. Since focusing on education in 1998, it has tripled the proportion of its gross domestic product dedicated to education, doubling the number of tertiary institutions and quintupling the number of tertiary students. Its tertiary education enrolment rate has leapt to 60 per cent of high-school graduates from just 20 per cent in the 1980s. Whereas China’s colleges and universities produced 870,000 graduates in 1998, they are currently graduating over 6 million each year.31
But China’s achievement in boosting education, and India’s and Indonesia’s aspirations towards the same, is no guarantee of success or stability. The experience of South Korea, where 70 per cent of high school graduates go to university, suggests a worrying scenario. In a country where 43 per cent of the population has a tertiary degree – up from 6 per cent in 1970 – there are simply not enough professional jobs for tertiary graduates. In 2010, just 55 per cent of graduates found professional jobs, down from 74 per cent in 2005. With an estimated excess of 50,000 tertiary graduates to appropriate-level jobs produced every year, the South Korean economy has developed a debilitating skills surplus and problems of underemployment, producing an escalating drag on economic growth and mounting social problems. Already, China is registering similar worrying symptoms. Between 2003 and 2009 the wages of tertiary graduates in China declined in real terms, compared to a nearly 80 per cent rise in manufacturing wages. In the local slang, underemployed tertiary graduates are called the ‘ant tribe’ because they settle in crowded urban centres and compete for low-paying and unsatisfying jobs.32
As they start to rise through middle-income status, developing economies become ever more slaves to the need to produce economic growth. Even those that succeed in educating their growing urban populations must then find the jobs to employ them when they graduate. The desperation of these graduates to find rewarding and appropriate employment – many of them are educated by virtue of their parents emptying their bank accounts to pay for their education and require a well-paying job to acquire the accoutrements of the middle-class lifestyle they aspire to – could quickly flip into frustration and resentment.
Confronted by the daunting scale of their future growth challenge, it is unsurprising that Asia’s rising powers are intensely sensitive to any and all perceived obstacles to their success. While rapid economic development in Asia has benefited greatly from relatively open global markets, a ready supply of investment and expertise, stable systems of property rights and risk management, and highly developed logistics and transport infrastructures, there is no abundance of gratitude towards the outside world in Asian societies. For most people who think about international affairs in these societies, the way the world works appears to be very unfair. When they look at today’s world, they see an oligopoly: a set of institutions, properties and understandings designed to preserve the privileges of the western elite that originated them. And despite the west’s protestations to the contrary, global institutions and settlements seem to be used regularly to advance the interests of developed nations.
One global verity that has come in for major recent criticism is the US dollar, which has overwhelmingly dominated as the global trading currency for more than half a century. In 2009, the governor of the People’s Bank of China, Zhou Xiaochuan, publicly criticised the dominance of the greenback, arguing that it delivered enormous privileges to the United States while exporting the instability of the American economy to the rest of the world. Zhou’s critique was joined by others as the US Federal Reserve embarked on successive rounds of ‘quantitative easing’, whose sudden tapering off caused serious problems in several emerging economies.33 India’s top central banker, Raghuran Rajan, and his Indonesian counterpart, Muhamad Chatib Basri, were savage in their criticism of the selfishness and irresponsibility of American monetary policy, given the US dollar’s role in broader international finance.34
Seen from a developing country’s perspective, global institutions also look heavily skewed towards preserving the interests of the privileged minority that live in western countries. Decision-making structures in the UN Security Council, the IMF, the World Bank and the Group of Twenty (G20) seem lopsidedly weighted in favour of America and Western Europe. The English language and western systems of international and public law are slowly gaining universal application. The global economy is dominated by American, European and Japanese companies. The world military balance is overwhelmingly slanted in favour of the United States and its allies. Western education and popular culture appear to be an implacable, unchallengeable global citadel.
Such perceptions feed intense sensitivity to how rising Asian states’ interests are treated outside their borders. People in South Korea still remember the lack of sympathy for their plight of their longstanding ally the United States and the western-dominated IMF during the Asian financial crisis. Many Indians recall the humiliation of the 1991 currency crisis, when its gold-obsessed society had to airlift a significant proportion of its gold reserves to the Bank of England and the IMF before any relief was forthcoming. Some in Japan question their country’s long record in providing large slabs of funding to the UN, as Tokyo’s longstanding bid for a permanent seat on the Security Council seems as unlikely to be successful as ever. China’s business elites concentrate not on their foreign investment successes but on their failures: the rejection of the China National Offshore Oil Company’s bid for the Union Oil Company of California in 2005, the Aluminum Corporation of China’s failed bid for Rio Tinto in 2009, the American and Australian blocking of Huawei’s telecommunications deals on national security grounds. In a 2010 report, China’s Ministry of Commerce surveyed all of China’s recent failed investment deals and reported that 65 per cent of these were due to unfair foreign regulations.35
One effect is to inculcate an outsider mindset towards the institutions and norms of the international system. Asia’s rising powers tend to be reticent and self-interested in multilateral settings: willing to go along with the rules when these coincide with their interests, but determined to evade or oppose anything that threatens to impede their progress or impinge on their prerogatives. To those in the west who hope they will become ‘responsible stakeholders’36 in the evolving rules of global affairs, Asia’s powers appear frustratingly unwilling to invest in global governance.
The combination of an intense focus on their future growth challenges and a conviction that the world is weighted against them breeds a distinct form of strategic claustrophobia among several of Asia’s powers. It is a pervasive underlying concern that, whether intentionally or not, the way the world works will frustrate their continuing economic growth and rise to power and status. It is a suspicion that the global system built by the age of imperialism, with all the power and wealth disparities that defined it, will be defended at every turn by those it favours.
Another compounding anxiety is that the global economy on which Asia’s growing economies are becoming increasingly dependent is more and more unstable. Whereas in the 1970s and 1980s a major economic crisis occurred somewhere in the global economy every three or four years, after the 1990s the frequency of major instability has tightened to every two years.37 Memories of the Asian financial crisis and the economic, social and political devastation it wrought across the region are still very fresh in Asia – including in countries that largely escaped its worst effects.
Asia’s rising powers are caught in a bind. Worry about the internal fragilities that accompany economic development is making them more dependent on an unstable and unsympathetic global economy. They no longer have the option of cutting themselves off from turbulence beyond their borders – they have long passed the threshold of no return. A sudden seclusion would cause the massive disruptions and dislocations they fear most. The only solution is to try to use their growing wealth and power to restructure the world around them in ways that are more conducive to predictability and stability and more compatible with the needs of their own economies. Recently, Chinese president Xi Jinping spoke of the need for China to secure its growth by creating ‘a more enabling international environment’.38
It is little wonder, then, that the countries of Asia have spent the years since the Asian financial crisis trying to build resilience at home and collective mechanisms among themselves to try to defend against what they see as an unstable and unsympathetic global economic system. In 2010, the countries of Southeast and Northeast Asia launched the Chiang Mai Initiative, a currency-swap arrangement worth US$240 billion to be placed at the disposal of any member country facing a currency crisis. They persisted with the initiative despite the objections of the United States and other western countries that it constituted an alternative to the IMF and thus diluted the IMF’s discipline on member economies. In 2014, Brazil, Russia, India, China and South Africa announced the formation of a US$100 billion New Development Bank to provide relief for liquidity pressures in times of crisis and investment for infrastructure in emerging economies. They explicitly tied the formation of this new ‘BRICS bank’ to frustration with the lack of reform of the Bretton Woods institutions, such as the IMF, and the need to ‘rebalance’ the global economy from dominance by Europe, America and Japan. More recently, China’s announcement of a new multilateral Asian Infrastructure Investment Bank has rightly been seen as a challenge to existing institutions such as the World Bank and the Asian Development Bank. The arrival of new institutions proposed and bankrolled by Asia’s claustrophobic rising powers heralds the beginnings of major change to the governance and functioning of the global economy.
Asia’s rising powers have found that economic growth brings with it real vulnerabilities. At home it brings worrying social and economic restructuring that seems only resolvable with further development – but this can only be purchased at the price of further integration with an unstable and unsympathetic global economy. The result is strategic claustrophobia, the worry that as the countries rise, space, access and empathy are in increasingly short supply beyond their borders. This breeds an obsessive dissatisfaction; despite having benefited from the existing global economic order, Asia’s rising powers feel little investment in or loyalty to the rules and conventions of that order. People in the west see a ruthlessness and exploitativeness, in business practices, intellectual property, the information commons and international law and security, that appears to them both unjustified and unconscionable. The result is a global economy of increasing interdependence but declining trust, of collective concern about instability but eroding consensus on what to do about it. As Asia’s powers continue to rise, so will their sense of claustrophobia; despite their worries about domestic fragility, they will become more obsessively, but selfishly, internationalist.