As finance ministers from Southeast Asia and elsewhere around the world gathered in Manila last week for the annual meeting of the Asian Development Bank (ADB), the stated focus was on “inclusive growth,” including how to help ensure the region’s future economic development better reaches all people in the Asia-Pacific region – still home to the vast majority of the world’s poor.
There were seminars on Asia’s response to the global economic crisis, on disaster risk management and on climate change. There was also a clamoring by some at the ADB to figure out a way to resume lending and other assistance to Myanmar.
With the recent naming of Dartmouth University president Jim Yong Kim, a Korean-American, as the head of the World Bank, there is also the first real challenge to the United States’ effective 66-year lock on that institution’s presidency, and whether one day, change might also come to Japan’s 45-year lock on the ADB presidency and other key posts at that institution.
One thing we sdid not hear about though is the simple truth that the path to more sustained economic growth, whether among the members of the Association of South East Asian Nations (Asean), or elsewhere, will mean a focused battle against a rising tide of bureaucracy, regulation, interventionism and cronyism – not the now famous acronym for large emerging economies Brazil, Russia, India and China, but a new, lower-cased “bric” if you well.
Some 10 years ago, Goldman Sachs economist Jim O’Neill helped coin the acronym “BRICs” for the large, high-growth emerging economies of Brazil, Russia, India and China, and spurred on an industry of American pessimists and Asian optimists. On one side of the Pacific, in the midst of the US’s slow-to-no growth economy, some pundits argue that the rise of the BRICs means the inevitable decline of the US and the leading European economies, as well as of the open trade and rules-based system that they have long advocated for and benefited from. Here on the other side of the Pacific, others argue that a new, more balanced Asia-driven economic model will lead the way forward to future growth, out of the ashes of the most recent global financial crisis.
Yet, it is not the rise of the BRICs or some expanded iteration – South Africa has officially joined the club, with the fourth summit of the BRICS taking place this March in Delhi – that policy-makers meeting in Manila concerned about jobs and anaemic economic growth need worry about the most. Ironically, while the Asia-Pacific region has survived the global financial crisis relatively well so far, this bureaucracy-regulation-interventionism-cronyism juggernaut may well in the long run stymie the sustainable rise of the BRICs and other emerging economies in developing Asia.
Already we are seeing the continuing slowing of the Chinese economy, and continued constraints on India’s growth. The ADB’s “Asian Development Outlook 2012” projects China’s 2012 GDP growth rate at 8.5 per cent and India’s at 7 per cent, still well below historical highs. Overall growth for developing Asia is projected at 6.9 per cent for 2012, with tremendous variation from Fiji, at 1 per cent to China. Inflation is also seen as posing a particular challenge in Vietnam, Bangladesh and Pakistan.
Truth be told, when it comes to the new “bric”, national leaders from the US to the Asia-Pacific have not set the best example for the rest of the developed and developing world. Policy-makers should ponder the following:
Bureaucracy: While Singapore and Hong Kong generally receive strong positive assessments for the performance of their high-paid civil servants, the track record is much less positive elsewhere in the region, with continued calls for the dismantling of large government bureaucracies. Yet, whether in Asia or outside the region, a real fight against bureaucracy is less about new organisation charts, but about assessing what works and what doesn’t, and getting rid of the latter. It’s not just the size, but also the quality, of the bureaucracy that matters.
Regulations: In many an Asia-Pacific nation, businesses and investors are not simply challenged by too many regulations, but also by unequally applied and unevenly enforced regulations. Clearly, not all regulation is bad, but policy-makers must ask if we are at a point where ill-timed or excessive regulations are getting in the way of economic progress by imposing too high an economic cost. In a recently released report, “Red Tape Rising: Obama-Era Regulation at the Three Year Mark”, James Gattuso and Diane Katz noted that in the last year some 32 regulations have been added that together impose more than US$10 billion in annual costs and $6.6 billion in one-time implementation costs on the US economy. Near-term job creation and growth in Asia may likewise be losing out to red tape and regulatory excess.
Interventionism: From the questionable effectiveness of the US Federal Reserve in short-term job creation – recall, the critics in Asia and elsewhere of the US’s so-called quantitative easing, which may well have contributed to inflation elsewhere around the world – to the US and European bailouts and interventions in industries from automotives to banking and insurance, government involvement in business seems to be increasingly accepted as par for the course. In the Asia-Pacific region, particularly in economies such as China and India, we also continue to see the increasing hand of government in picking winners and losers, often distorting the market in favour of national players. Policy-makers need to ensure such interventions, if any, are limited and a matter of last resort. Too often, government interventions and inefficiency go hand in hand.
Cronyism: In much of developing Asia, crony capitalism and corruption are unfortunately associated with too many an emerging economy, with perpetrators often free from any accountability under relatively weak judicial systems. The Occupy Wall Street movement, for all its detractors, brought needed attention to the US’s own version of crony capitalism. The Occupy movement in Asia, hunger strikes by Indian activitists and the efforts of Transparency International and others have sought likewise to bring attention to shortcomings in our region. Clearly, in the US, allegations of favouritism or leniency in cases ranging from now bankrupt solar company Solyndra to failed futures broker MF Global must be investigated and people held accountable if the American Main Street is to regain confidence in US systems of governance. That same principle must apply in Asia.
Amidst all the talk in Manila at the ADB annual meeting of the relative growth of Asean members, the BRICs, and other emerging economies – growth that should be welcomed by all – there will no doubt be understandable pride in the international financial institution’s having approved some $14 billion in financing operations last year for developing Asia – much of it for core infrastructure projects. The figure jumps to some $24 billion if the figure includes money from partners.
Sometimes though, the debate needs to be more than about the money. Policy-makers should be focused first and foremost on helping put an end to growing constraints on business innovation and on stopping capital misallocations driven by bureaucracy, regulation, interventionism and cronyism. That would be welcome news from the ADB and do more than anything else to get people back to work and help position the region as a leader in sustainable, economic growth.
It would also be a powerful message and example to the development experts who too often dare not speak the truth about the real constraints to growth.
Curtis S Chin served as the US ambassador to the Asian Development Bank under presidents George W Bush and Barack Obama. He is now a senior fellow and executive-in-residence with the Asian Institute of Technology, and a managing director with RiverPeak Group. –Curtis S Chin, http://www.nationmultimedia.com/opinion/Asean-needs-to-focus-on-the-real-challenges-to-gro-30181697.html
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