The Other Side of Asia: Why a Rising Asia May NOT Be a Changed Asia?   

The Asian Development Bank (ADB), along with Indonesian ministries, including the Trade Ministry and the National Development Planning Ministry, held a symposium on "Asia's Development Agenda in Regional and International Fora" on January 18, 2011, and a consultation meeting on "Asia 2050" on January 19, 2011. These themes are timely since Asia still faces development challenges despite its growth miracles while Asia's stake on the global economic recovery is high.

Take for example India. Eight Indian States (Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, West Bengal) have more poor people than the poorest 26 African nations, according to Multidimensional Poverty Index, UNDP 2010. Corruption becomes systemic, including "the corrupt mess of the commonwealth games, the scandalous nexus of the powerful in brazenly grabbing prime land in Mumbai in the name of the country's martyrs in the Adarsh housing society case; and to top it all the most audacious, gigantic and `in your face' flouting of all governance norms in the case of the 2G spectrum allocation," according to an Indian senior analyst, Rajiv Kumar (East Asia Forum, 01/09/2011).  In the meantime, India has been the global limelight with a projected growth rate of close to nine per cent in 2011.              

Asia's success is not pre-ordained, according to Shigeo Katsu, a senior associate of the Centennial Group, at the Asia 2050 meeting. He proposed three possible scenarios of Asia in 2050. The worst possible scenario is if India and China are trapped as middle-income countries with poor institutions and governance as well as growing inequality. Avinash Dixit (2004) discusses the issues of "middle-income trap". At some middle level of development, information network that sustain small economic activities in non-contractual and relation-based societies could no longer support contract enforcements in large economies.  Although state institutions are needed, the scale of activity is not yet large enough to justify the cost of establishing them, rendering the formation of contractual and rule-based societies a failure.  Moreover, there are political obstacles associated with people who have sunk stakes in the old system, preventing the establishment of a new system.                

Emil Salim, Chairman of Indonesia's Presidential Board of Advisors, foresees an unbalanced Asia in 2050 between the Asia 8 - India, Indonesia, Japan, Malaysia, China, South Korea, Thailand, and Vietnam - and the rest of Asia, dictated by market-based economy. Growing inequality within country - between a highly developed urban-based West Indonesia and an underdeveloped East Indonesia, the rapidly modernized coastal areas of East China and poverty-stricken Western-most region of China, and among Indian States with strikingly diverse poverty rates - is also foreseeable. So, is Asia moving in the wrong direction? Or should Asia look more into an equitable and environmentally sustainable trajectory? 

Taking other elements, other than economic growth, into account, we are also facing "two faces" of Asia - the first face consists of Newly Industrialized Economies (including Hong Kong, South Korea, Malaysia, Singapore, Taipei, and Thailand) plus China and India, while the second face consists of resource-rich, low-income, and less developed countries as well as small states of Asia. The "Asia's Development Agenda" symposium stressed three agendas to bring a more equitable development between the two faces of Asia, and within country: AID for Trade, financial inclusion, and social safety net.

On top of these, the geopolitics in Asia has not been favorable, according to Jusuf Wanandi at the Centre for Strategic and International Studies. There are threatening tensions surrounding the East China Sea between China and Japan and the North-South Korean border, as well as increasing assertiveness of China in the South China Sea that urges a conclusion to the code of conduct.       

What I would like to bring to the surface here is the institutional issues of a rising Asia. The meaning of institutions is multiple. But, what I believe is true about what shapes institutions that often is being played down by many economists is social norms and culture. Kaushik Basu in his new book Beyond the Invisible Hand (2010) correctly argues that culture and social norms are as important as law. This can be easily understood if we accept the fact that human beings are social beings - we react to what others do instead of just following our innate feelings and most of the things we do are dictated by automaticity shaped by culture and social norms in which we are brought up. This leads to the fact that "equilibrium differences" are bigger than "innate differences". This is why the Asia's jewels - China, Indonesia, and India - may be trapped in the "low equilibrium" with people's bad behaviors reinforcing each other, and rise as a market-based country with economic prosperity but poor institutions, governance, and even political environment. So, the threat of "middle-income trap" is justifiable.

One other important issue to add to the above contentions is the regional and global cooperation to build a more equitable and sustainable Asia. The Asia's jewels' foreign policies have been outward-looking and their stakes on the high tables are big: India hosted leaders from all five permanent members of the United Nations Security Councils last year; Indonesia will host the first expanded East Asian Summit this year with two new members, Russia and the U.S., and with a possibility of hosting the G20 Finance Ministerial and Central Bank Governors' Meeting in 2013; and China's Hu Jintao 2011 visit to the U.S. will set the basis for the coming decades of bilateral relationship, whose stability is also of the global countries' interests. Soft-power policies coming from the region is necessary. Mahendra Siregar, Indonesian deputy Minister of trade and the Indonesian G20 Sherpa, correctly reminded us that Asia's outward looking strategies should be geared towards re-orienting our focus to how Asia can contribute to the global economic recovery, and not vice versa.                       

On January 18, 2011, Jim Yardley wrote an article in The New York Times titled "Lauded Abroad, Indian Leader is Besieged at Home" and on January 20, 2011, another article titled "Influential Abroad, but Under Fire in New Delhi" appeared in International Herald Tribune.  Similarly, in Indonesia, while foreign observers gleefully watch the rise of an unlikely star, Indonesian citizens despondently suffer from the continued widespread and corrosive corruption at all levels of the government, the judiciary, and the legislature.      

Unless all these reforms are being pursued, a "rising Asia" hidden behind high economic growth figures seems to be a misnomer.

Maria Monica Wihardja is a researcher at the Centre for Strategic and International Studies and a lecturer at the Department of Economics, University of Indonesia.