Asia in a messy world

Simon Tay, Singapore | Thu, 08/18/2011 7:00 AM A | A | A | - Klipping the Jakarta Post

Problems in public finance in the US and Europe have spooked markets. The debt ceiling debacle in Washington DC shows how divided politics has become.

Riots first in Greece and now in the UK dramatically signal how governments struggle as downturns upend the expectations of citizens. Even as order is being restored, the outlook is for a potential recession in the West, and an accompanying political malaise.

Coming in the wake of uprisings in the Arab world, there are reasons to worry that for too much of the world, Spring is turning into a long and torrid Summer. What of Asia?

For most countries for much of the past year, the region has withstood contagion from revolutionary politics, and continued to grow rapidly. Some may trumpet this as another step in the decline of the West and the rise of Asia. These relatively favorable conditions are however subject to change.

Global interdependence continues and many exports from Asian factories still seek a final consumer in the West.

Countries like the Philippines and India bank considerable remittances from workers abroad. A prolonged slump in Europe and the US will impact exports, industries and jobs across Asia.

What has buoyed Asian economies has been the China factor but now signs from the Asian giant must be closely watched. Economic growth is slowing, even as inflation rises and wage demands spiral. Rapid growth has been a lubricant for social and political frictions in the country, so this is more than an economic question.

Protests by the Uighur minority in early August may be a special case. But recent anger over the tragic train crash in China shows a restive public sentiment.

Since the turning point of the Foxconn protests in mid 2010, labor costs and fewer jobs have also been a specter.

China’s intensely domestic issues matter more today than ever before. If Beijing cannot maintain economic growth and political stability, then bereft of the economic engines of the West, the impacts will be outsized across the region and for many multinationals.

Yet even if China is stable internally, its external influence is not always benevolent. Tensions have risen with others Asians over political and security issues like the South China Seas, Senkaku islands and Korean peninsula.

Thus even as some are concerned about an unstable Chinese economy, others fear an assertive Middle Kingdom attitude, especially if the USA is sidelined.

In a messy world, Asians are not inured.

Many hope the West is going through only temporary disruptions, and that their economies soon will recover, and polities heal. Few are prepared if the West is in sharp decline, for a global economic downturn and more political ruptures.

If governments cannot keep inflation down, problems can flare easily not only in the streets of Beijing, but in Jakarta or Kuala Lumpur. If they give in to populist gestures and do not discipline subsidies and stimulus spending, macroeconomic conditions can change quickly in a world of financial turmoil.

If protests break out in Asian cities, government use of force may be tougher than some think legitimate, as seen in the crackdown on the Bersih demonstration in Malaysia. Protests may be exploited by rival elite groups, in attempts to unsettle each other, as seen in Bangkok. Violence and casualties can therefore spiral, as easily as we have seen across the UK — if not worse.

Social cohesion and political compromise will be key factors to avoid such scenarios. For some countries, religion or nationalist institutions can provide such cohesion. Asia’s elites as well as ordinary citizens must be prepared to cooperate and indeed make sacrifices. Such elements are neither unknown nor alien to Asia.

In times of downturn, workers in Singapore and elsewhere were not summarily laid off but instead cooperated with companies by staying at home until economic conditions improved.

In the Asian financial crisis of 1997, many Thais followed the example set by monks to make donations of gold to the Bank of Thailand. Now again, many will look to Thailand under new Premier Yingluck Shinawatra to see if promises of a minimum wage and infrastructure spending can be paired with some political accommodation.

Where finances allow, Asians should construct policies to provide better wages, safety nets of basic welfare and healthcare. Regionally, economies should open up more to each other.

This is not only for the benefits of free trade and investment but can help Asians collectively deal better with global shocks than any one can do alone.

If the world will get messier, Asia cannot presume its continuing rise. There are things that can and should be done, now in these relatively good times, to prepare for potentially worse days ahead.

The writer is chairman of the Singapore Institute of International Affairs and author of Asia Alone: The Dangerous Post Crisis Divide from America.