The Asian Century Won't Begin Until 2040 or so

Pranab Bardhan warns that the Asian twenty-first century--the twenty-first century that is China's and India's--will begin in 2040 at the earliest:

China, India Superpower? Not so Fast!: Pranab Bardhan: BERKELEY: The media, particularly the financial press, are all agog over the rise of China and India in the international economy. After a long period of relative stagnation, these two countries, nearly two-fifths of the world population, have seen their incomes grow at remarkably high rates over the last two decades. Journalists have referred to their economic reforms and integration into the world economy in all kinds of colorful metaphors.... While there is no doubt about the great potential of these two economies in the rest of this century, severe structural and institutional problems will hobble them for years to come. At this point, the hype about the Indian economy seems patently premature, and the risks on the horizon for the Chinese polity – and hence for economic stability – highly underestimated.

Both China and India are still desperately poor countries. Of the total of 2.3 billion people in these two countries, nearly 1.5 billion earn less than US$2 a day.... Of course, the lifting of hundreds of millions of people above poverty in China has been historic....

India is as yet a minor player in world trade, contributing less than one percent of world exports. (China's share is about 6 percent.)

What about the hordes of Indian software engineers, call-center operators, and back-room programmers supposedly hollowing out white-collar jobs in rich countries? The total number of workers in all possible forms of IT-related jobs in India comes to less than a million workers – one-quarter of one percent of the Indian labor force. For all its Nobel Prizes and brilliant scholars and professionals, India is the largest single-country contributor to the pool of illiterate people in the world. Lifting them out of poverty and dead-end menial jobs will remain a Herculean task for decades to come.

Even in China, now considered the manufacturing workshop of the world (though China's share in the worldwide manufacturing value-added is below 9 percent, less than half that of Japan or the United States), less than one-fifth of its labor force is employed in manufacturing, mining, and construction combined.... Nearly half of the country's labor force remains in agriculture (about 60 percent in India). As per acre productivity growth has stagnated, reabsorbing the hundreds of millions of peasants will remain a challenge in the foreseeable future for both countries. Domestic private enterprise in China... is relatively weak... Chinese banks are burdened with "bad" loans... capital is used much less efficiently in China than in India.... Commercial regulatory structures in both countries are still slow and heavy-handed....

China's authoritarian system of government will likely be a major economic liability.... China is far behind India in the ability to politically manage conflicts...

Comments

[Jean-Philippe Stijns]

That's all fine, Professor Bardhan, but how do you argue the need for real wage stagnation in the U.S. and elsewhere (for the median worker and below, that is, not for CEO's, of course!), the scraping of private pension commitments, longer work weeks etc. if you have no overwhelming "strategic competitor" to remain "competitive" against? :-]

[Michael Robinson]

"China's authoritarian system of government will likely be a major economic liability.... China is far behind India in the ability to politically manage conflicts."

As if.

[anne]

What an Asian century might mean I do not know, but I do know that walk down a street in Paris and look at the passers and look to store displays and you will realize how much of an Asian presence there is. New York and Boston are happily filled with Asian arts, with the promise of becoming more so. Look to the students about campus, and notice the Asian presence. We are almost certainly in an Asian century already, if this means a profound influence from Paris to New York or Chicago or San Francisco to Beijing :)

[Michael Carroll]

Is it correct to call the PRC a "poor" country? On a per capita basis its GDP right in the middle and rising fast. Its overall GDP is second only Japan and the US. Yes there are a lot of poor people in the People's Republic but economically speaking China can do things a lot of smaller rich countries can not. Calling China "poor" strikes me as hyperbole.

[Dale]

Is he assuming that the point of economic growth is to build a decent society with a broad-based distribution of wealth and happiness?

That may not be what defines a militarily or economically strong nation. If their elites have access to enough wealth to make them players on the world stage that may be what really counts.

Except for a brief bubble in US and European history, I sometimes think the interests and welfare of ordinary people don't amount to much in this world.

[anne]

http://www.nytimes.com/2005/10/21/business/21consumers.html?ex=1287547200&en=8bdfae11ef7806d0&ei=5090&partner=rssuserland&emc=rss

October 21, 2005

Consumer Demand at Home Keeps China's Factories Humming, and Hiring
By KEITH BRADSHER

GUANGZHOU, China - Until this summer, the Kaierlai Sports Goods Company in Shishi, China, depended heavily on exports of its windbreakers to Germany.

But when the European Union reimposed import quotas and abruptly halted the shipments this summer, Kaierlai did not miss a beat. It stepped up sales of windbreakers within China so quickly that not only did it not lay off any of its 1,000 workers this autumn, it will hire another 1,000 when a second factory opens next year.

"We are selling to the local market instead," said Cai Hui-zhao, the company's sales manager. "Buying power is stronger than before, and people have more money to spend on clothes."

Kaierlai's success underlines a growing force in China's economy: consumers. During his weekend visit to Beijing, Treasury Secretary John W. Snow shifted the Bush administration's emphasis away from demanding that China let its currency appreciate and toward asking China to encourage consumer spending - including buying goods from the United States.

But the new American stance may be a case of pushing on an open door: consumer spending in China is already surging with considerable government help and approval.

After a quarter-century of growth powered largely by exports, China is showing signs of opening a new chapter of strong growth, this time propelled by domestic spending. If China can make a smooth transition from export-led growth to consumer-driven growth, it will have managed a feat that has eluded many of Asia's earlier rising powers.

Japan, South Korea and Thailand, in particular, all suffered serious economic reversals in the 1990's after achieving remarkable gains through exports. But all three are now showing greater prosperity because of rising domestic demand, providing lessons that China may be able to draw on to avoid a long recession first.

A year and a half after the Chinese government imposed strict bank lending controls and other measures to cool an overheating economy, the authorities in Beijing have begun easing up in other areas and are starting to let the good times roll. They have cut taxes for farmers and hinted at broader tax cuts, except for fuel, which could further stimulate the economy.

"Recent data suggest that domestic demand in China is on the mend," wrote Liang Hong, a Goldman Sachs analyst, in a recent research report, "supported by a quiet easing of monetary policy and other more domestic-demand-friendly policy changes."

Retail sales rose at a robust pace of 12.7 percent in September after August's 12.5 percent. And M2, a broad measure of the money supply, grew 17.9 percent in September and has been accelerating since spring.

At the same time, wages and benefits are finally rising for many industrial workers after a decade of stagnation.

A sharp rise in food prices in 2003 and early 2004 made being a farmer much more attractive and being a city dweller more costly, braking somewhat the migration to cities from farms. Factories, often pushed by regulators, began paying higher wages and offering more benefits.

In interviews at the semiannual Canton Trade Fair here with executives from a range of industries, a picture emerged of a Chinese economy increasingly poised for further growth in spending.

Provincial governments like Guangdong's are requiring more companies to offer at least the simplest medical care for workers and to make some contributions to provincial retirement plans.

A high level of household savings - nearly half of household income for urban residents - has curtailed consumer spending. To the extent that benefits are provided, they reduce insecurity for workers and also the need for very large savings to prepare for retirement or a possible injury, freeing up money to spend.

"Everywhere in China, the benefits costs are increasing," said Bruce Shui, a sales representative here for the Shanghai Dafa Electrical Equipment Company, which has raised the price of its waffle irons 3 percent this year, partly to cover the extra cost of benefits....

[monkyboy]

Car sales in China hit 350,000 in September, up 33% over sales in Sept04.

That's the same number of cars as GM sold in the same period. GM has about 20% of the U.S. market. GM sold 10,000 cars in China in Sept...not bad.

China has over 4 times the U.S. population. It only need 1/4 our per capita income to equal our economy in size...

[anne]

What is increasingly interesting to me is the extent of diversity reflected in contemporary Chinese art. This is not rebellious art of course, but work that reflects various historical and political perspectives nonetheless. There is often a distinct humaneness through a canvas or sculpture. Hmmm...

[anne]

China envy :)

http://www.nytimes.com/2005/07/30/international/asia/30dai.html?hp=&pagewanted=print

July 30, 2005

In China, a Musical Star Is Waiting to Be Born
By JIM YARDLEY

BEIJING

DAI YICHEN is in the third row, far right side, her feet kicking and scraping against the wood floor with other students in her tap dance class. The rehearsal hall fills with a noise as pounding and repetitive as a hailstorm.

Yichen is lanky and a little awkward. She sidesteps and thrusts her shoulder in a suggestive move that no one in the class gets quite right. But she keeps trying. As the teacher calls forward different lines of dancers, Yichen stands off to the side, practicing her footwork. She watches herself, unsmiling, in a floor-to-ceiling mirror that betrays every stumble.

Her dream is to one day perform on a Chinese equivalent of Broadway, though one does not yet exist.

Yichen, 17, is one of 30 students at a private fine arts school on the outskirts of Beijing who are far removed from the days when Mao demanded that culture serve the Communist Party. They are studying how to perform in American-style musicals, an academic major about as improbable as American teenagers dedicating themselves to Beijing Opera.

It is an example of the changes engulfing China that a teenager like Yichen has been far more influenced by the musical ''Cats'' than by the Communist Youth League. While China is far too vast and divided between rich and poor for any one teenager to be considered typical, Yichen is representative in that her generation is expected to have opportunities unlike any before them.

But those opportunities bring pressure. Yichen's parents are among the new class of urban professionals who can afford to indulge their daughter's passion. Her mother is a journalist at a cultural newspaper. Her father is a businessman. The fine arts boarding school Yichen attends is an unimaginable chance for the overwhelming majority of Chinese students, whose families cannot come close to paying the annual tuition of $4,000, almost four times China's per capita income.

''It is hard for me to describe how I feel when I sing, but I'm completely devoted to it,'' she said of why she wanted to enroll. ''My teacher says I'm always lost in my song.''

Her mother, Gao Xiaoli, who unwittingly sparked her daughter's interest by bringing home videos of ''Cats'' and other Broadway shows, understands that China, even as it becomes more affluent, is not an indulgent country. The transition to a market economy has brought rising incomes and choices, but also fierce, unblinking competition. ''There are so many singers studying in this country now,'' Ms. Gao said. ''You have to be very good.'' ...

[Charles]

I think this century will belong to no nation.

China is riven with ethnic conflict, and accumulating environmental problems. The business and political culture is authoritarian and distrusting.

The whole world will need innovative thinking to deal with the environmental and social crises that industrialization has created.

This century will belong to visionaries of every nation.

[Jean-Philippe Stijns]

And then I recall the late eighties and how Japan was about to take over America, blah blah blah :-D Oh, don't get me wrong, that meme was very good business for countless journalists, business practice consultants and book authors...

[anne]

China is developing at a furious pace, and for all the problems that development in a land of 1.4 billion people will entail China's leadership has made decision on decision that has turned out right. There are problems of suddenly vast inequality, there are problems of a social safety net that is being rent, health care is a special problem, there are enviornmental problems, there are logistical difficulties as infrastructure is constructed and modernized, there are evee limits to rural education, but what China has accomplished is stunning and as successful as our development surge from about 1875 to 1900.

[anne]

Japan's development has been wonderfully successful and though growth markedly slowed for more than a decade the Japanese live well are industrially and artistically productive and humane and beginning to regain a growth impetus. What is remarkable is how Japanese households were protected during the slow growth period. I find ample strength in Japan.

[anne]

http://www.nytimes.com/2001/11/11/arts/design/11SOLO.html

November 11, 2001

An Ancient Garden Youthfully Abloom: Chinese Art Today
By ANDREW SOLOMON

AT an exhibition of early Picasso last year at the National Gallery in Washington, a woman in a red dress stood in front of a beautifully drawn nude and said with surprise: ''Glory be! He was perfectly capable of painting people the way they look.''

Savvier viewers know that Picasso's abstractions came of seeing reality so clearly that he could see past it; to them his literal early material is unsurprising. He had to be able to do some sort of realism in order to invent cubism. Realism was the point of origin.

Yet realist painters in the West are in an awkward position: for more than 100 years, many of them have chosen not to practice the form. A gift for representation is usually what gets them going as artists in the first place, when they are children. Later on, they ignore this physical talent or put it in the service of larger and often more intellectual goals. This seems to us normal: we see realism as the natural and only starting place for art. We therefore expect all other art to be derived from it. In other cultures, however, the starting point is very different.

Ink painting is the realism of China. It is the beginning and the end; it is the grand objective around which artistic practice is built. Calligraphy is the religious art of China. It carries value beyond what it conveys to the untutored eye. The verbal and the visual are much more richly entangled in the Chinese tradition than anywhere else, and realism, or what we would perceive as accurate depiction, is associated not with high art but with low-level court painting.

Indeed, classical Chinese artists trained not by working from nature or models but by imitating the work of past masters. The third dimension was not introduced into images. So artists trying to grapple with their past either had to make reference to the great calligraphic tradition or participate in it. A classical Chinese scholar would learn early to express himself with the brush; for such scholars, painting was not one step away from seeing but one step away from writing.

Just as literal realist technique enters into contemporary work by such diverse artists as Chuck Close, David Salle and Gerhard Richter, classical calligraphic technique -- guohua, or national painting -- enters into the work of many contemporary Chinese artists. There, it mixes with recent ideas, Eastern and Western. Some contemporary Chinese artists are uninterested in the guohua tradition, but most are, and theirs is the more interesting work: it is historically engaged, acknowledging its predecessors in one way or another....

[aretino]

And then I recall the late eighties and how Japan was about to take over America

and if not for being browbeaten into revaluing the yen in the early 90s, they very well might have. China and India, needless to say, won't be so vulnerable to political pressure from the United States. They haven't outsourced their national security to us.

[anne]

Though we cannot know with certainty, the Plaza Accord of September 1985 which allowed for a pronounced increase in value of currencies in Europe, Canada, and Japan strikes me as having had pronounced adverse effects in Germany and Japan. Japanese deflation has long seemed to me to be a difficult gradual adjustment process to the 50 percent increase in the value of the yen against the dollar from 1986 to 1989.

[anne]

Paul Krugman stressed how unexpected the Japanese slow growth period was, how much of a jibe at economic theorists, and how important to understand. What Japan did that was evidently right was use fiscal policy to maintain employment through the period. This use of fiscal policy was often severaly criticized by American economists. I believe Japan was right, but I do not understand the stasis well nor do I understand why Japan looks to be almost fully healthy again.

[anne]

Can Japan be in any a useful model for Germany? If Japan is stringly emerging from a decade of slow growth, with markedly little social structure damage, what can we learn? I wonder. Again, I have long been struck by the extent to which Nelson Mandela looked to Asia, Singapore especially, as a development model for South Africa. I do not for a moment intend to underestimate Asia's development path.

[Adam]

How about a "new American Century"-- how's Brazil doing?

I don't think that anyone expects China and India to become superpowers. Regional powers, yes.

[J Thomas]

I have a reasonably coherent story about japanese stagnation. Unfortunately it's built entirely from the sort of news stories that we're seeing here are so unreliable.

At the beginning of the story the japanese work force was willing to work very hard for relatively low wages, and saved a big part of their personal income. And japan had utterly inadequate natural resources and must import raw materials. So they were forced into a mercantilist doctrine. They had to import cheap raw materials and export expensive finished goods.

They improved their technology and they treated their home population as a captive market. They could produce at essentially a guaranteed profit, and use the home population for product testing. Once the products were perfected they could sell them overseas cheaper. They had to sell to foreigners. They had to have market share.

They had a lot of capital available and a culture that let them concentrate capital into giant projects that would be hard for others to match. They got much-improved steel-making. Much-improved shipbuilding. Much-improved automobiles. They got roughly 100% market share in various computer components. All this made them look strong.

The tremendous savings required them to invest. They ran out of safe japanese projects to invest in. They invested in a collection of things that didn't work out. Steel. Ships. Fith-generation computing. Etc. Some of it was projects with high fixed cost and low variable cost. If they got into a battle for market share, they could drop prices way way down and still pay their variable costs. Lose investment money, but keep market share and maybe get it back later.

So then japanese workers looked around. Japan was great. They worked hard and saved their money and what they got for it was high prices and invsetments gone bad. They wanted a change.

Japanese labor wasn't that cheap any more, and japanese investment possibilities didn't look great, so the guys who invseted the money started invseting it in foreign countries. They put japanese auto factories in canada, the USA, and mexico etc. They made computer parts in malaysia etc. This was fine for japanese investors but waht about the japanese labor force? Not so good. Well-off japanese started spending more money. Poorer japanese had trouble getting by and didn't save so much. People who wanted to invest in japan found themselves investing a lot in real estate and construction, things that can't be imported.

Japanese banks were strong. Japanese invsetments paid off. It's just that the money wasn't being made in japan so it didn't look like the mapanese economy was doing well.

All of this might be sheer bullshit. I got it from the media.

[liberal]

IIRC the female literacy rate in India is about 60%.

Pathetic.

[scottynx]

Anne writes:
[but what China has accomplished is stunning and as successful as our development surge from about 1875 to 1900]

You mean during the mean Robber Barron era? Isn't relatively unbridled capitalism the common theme?

Sorry I couldn't resist :)

[Movie Guy]

Pranab Bardhan needs to brush up on the Economic Hydrology Theory and model. Not sure he fully understands the rate of growth that is ramping up.

I would say that he missed the mark by a good ten years.

Try 2030.

[Randall]

J Thomas

Look over the Japan articles on the Paul Krugman archive as Anne mentioned. There is a Japan file noted on the left headings.

http://www.pkarchive.org/

[anne]

http://www.nytimes.com/2005/10/28/international/asia/28universities.html?ex=1288152000&en=8419c68b39fbbf82&ei=5090&partner=rssuserland&emc=rss

October 28, 2005

China Luring Foreign Scholars to Make Its Universities Great
By HOWARD W. FRENCH

SHANGHAI - When Andrew Chi-chih Yao, a Princeton professor who is recognized as one of the United States' top computer scientists, was approached by Qinghua University in Beijing last year to lead an advanced computer studies program, he did not hesitate.

It did not matter that he would be leaving one of America's top universities for one little known outside China. Or that after his birth in Shanghai, he was raised in Taiwan and spent his entire academic career in the United States. He felt he could contribute to his fast-rising homeland.

"Patriotism does have something to do with it, because I just cannot imagine going anywhere else, even if the conditions were equal," said Dr. Yao, who is 58.

China wants to transform its top universities into the world's best within a decade, and it is spending billions of dollars to woo big-name scholars like Dr. Yao and build first-class research laboratories. The effort is China's latest bid to raise its profile as a great power.

China has already pulled off one of the most remarkable expansions of education in modern times, increasing the number of undergraduates and people who hold doctoral degrees fivefold in 10 years.

"First-class universities increasingly reflect a nation's overall power," Wu Bangguo, China's secondranking leader, said recently in a speech here marking the 100th anniversary of Fudan, the country's first modern university.

The model is simple: recruit top foreign-trained Chinese and Chinese-American specialists, set them up in well-equipped labs, surround them with the brightest students and give them tremendous leeway. In a minority of cases, they receive American-style pay; in others, they are lured by the cost of living, generous housing and the laboratories. How many have come is unclear.

China is focusing on science and technology, areas that reflect the country's development needs but also reflect the preferences of an authoritarian system that restricts speech. The liberal arts often involve critical thinking about politics, economics and history, and China's government, which strictly limits public debate, has placed relatively little emphasis on achieving international status in those subjects.

In fact, Chinese say - most often euphemistically and indirectly - that those very restrictions on academic debate could hamper efforts to create world-class universities.

"Right now, I don't think any university in China has an atmosphere comparable to the older Western universities - Harvard or Oxford - in terms of freedom of expression," said Lin Jianhua, Beijing University's executive vice president. "We are trying to give the students a better environment, but in order to do these things we need time. Not 10 years, but maybe one or two generations." ...

[Monte Davis]

There are more ideological axes being ground, and more suspect historical analogies being advanced, on this topic than on any other I can think of in world affairs today. Yes, I remember our frenzy about Japan in 1975-1985. I also remember that compelling "this can't go on" arguments about Chinese economic growth have been advanced for 20 of the 25 years since the rates took off.

We simply don't know enough about how economics, politics and society interact to say what the numbers portend. Some of us retreat to the minimalist, analysis-free position that they are freaking *amazing* numbers.

I've been peripherally involved in a mata-analysis and sensitivity analysis of many projections (all since 2000) of global energy demand out to 2050. What's emerging is that a 1% upward or downward tweak for Chinese growth over a decade or two, or a bit more for India, simply swamps the effect of all other assumptions this side of cold fusion or the Four Horsemen.

[shah8]

dudes, this is all wrong...

Japan, China, and to a lesser extent, India, are all mercantilist in economic nature.

That means they can only grow or maintain status through the presence of some great large market to sustain their policies. Any predictions of economic/political supremacy must make some predictions of *where* the markets for their goods will be.

There are three scenarios...
US and Europe keeps growing, and their home business are continuing in the trend in not capturing all domestic demand. Think about it, how *likely* is that to exist a couple of decades down the road, without huge protectionist urges present?

There are new, huge, growing markets for these guys to sell to. Perhaps Brazil, Austrailia, Middle East countries, whatever... So think of this, do you figure that there will be an emerging, unprotectionist, market available for these guys to sell to? Brazil, Argentina, Chile, and Venezuela seems to be the most likely countries that might have growing markets that aren't protected. Maybe they will provide the fuel.

Or lastly, they develope their own internal markets. I don't have to remind people that this is a pretty hard thing to do...Japan has halfheartedly tried for about 25 years without real success. China and India would have to address wealth inequity, as well as education inequality as well. The best consumer are the educated ones. Not only that, it takes a totally different legal and commercial infrastructure when changing from an exporter frame of mind to domestic market frame of mind. There would be a long transitional time, when these countries would be pretty weak. --anything can happen then to change fate...

[RT]

I'd phrase it like this: it may be an Asian Century in the rest of the world, well before it's an Asian Century in China and India.

Why? Because you've got 2.3 billion people in China and India, and a fairly small increase in the capabilities of their workforce on the scale of those countries is big compared to any other economy. When the number of IT workers in India goes from 1 million to 5 million, that won't change the lives of many people in India, but it'll take away bargaining power from a hell of a lot of us number crunchers and computer jocks here in the U.S.

Similarly for China and manufacturing. Both nations' economic rise will make bigger waves in the Western and East Asian worlds than they will in their own countries for some time to come.

[anne]

The emphasis on education in China is especially impressive, and the emphasis is being extended at all levels through the country. English is being taught everywhere, and technical education while drawing large numbers of students has not been to the neglect of the arts.

[anne]

A household saving level in China that shades about 50%, tells me that the domestic market as suggested can and will develop. Japan, by the way, has a robust domestic market, but Japan has and does rely on exports for a considerable amount of employment. This is why I believe it was a mistake for Japan to allow a 50% increase in the value of the Yen against the dollar from 1985 on. China is not about to make such a mistake.

[Winslow R.]

In regards to reason for Japanese recovery...

Makin wrote:

Japan Moves toward Sustainable Recovery

...But these days are over. Now, as existing postal service deposit instruments come due, Japanese savers will be able to select from a broader range of outlets for their funds. Beyond that, the post office is no longer empowered to offer such unusually attractive terms, since the lengthy period of deflation and poor economic performance has meant far lower yields on postal service deposits.

Since the 1990 stock market crash, which was followed by years of deflation and poor, fee-laden service from shaky banks on deposits paying virtually no interest, Japanese households have accumulated trillions of dollars worth of cash held literally under the mattress or in what have become very low-yielding (below 0.5 percent annually) deposits at the post office. Over the last three years, cash and deposits (mostly cash) of Japanese households averaged about $7 trillion or about 54 percent of total personal financial assets of $13 trillion. Stock holdings in 2004, at about $700 billion, amounted to just 10 percent of the cash and deposits category and constituted only 5.4 percent of personal financial assets--up from a mere 3.8 percent in 2002....

http://www.aei.org/publications/pubID.23383/pub_detail.asp

[anne]

There is a general problem with lack of consumer or investor response by financial companies in America, Europe and Japan. The absense of benign price and service competition among financial companies has been a legitimate complaint of John Bogle for many years and increasingly of David Swensen.

What protected Japanese households from the stock market crash in 1990, was the limited holding of stock by households. The crash may count as the worst of the century, a market decline from 39,900 to 13,000 15 years later with little in the way of protective dividends. But, again, Japanese households held little stock. Japanese saving and investment was protected, especially by the postal service, because though interest rates were increasingly lowered there was general deflation month after month after month. Low interest rates in a deflation can be high real interest rates.

[anne]

Japanese households are in remarkable shape given a stock market crash, deflation and slow growth, but there is need for a competitive financial industry for investors from Japan to Germany. If Yale's David Swensen grumbles about finding a benign investment company beyond Vanguard in America, then it is harder to do so in Europe and harder still in Japan. Though we gave little attention to the problem, Britain found a 20 year program of private pension plan investment riddled with abuse that has made a mockery of the privatizing.

[Winslow R.]

Japan's underclass is a nation of 'savers' through the postal system. The ruling class are the 'investors'. That may be changing. Not necessarily a good idea if it increases wasteful consumption without an increase in innovation.

America's underclass has a large pool of 'investors'. Treasury Direct with its easy access website may turn a few of us into 'savers'. Not necessarily a bad idea if it can reduce wasteful consumption without slowing innovation.

[anne]

Another change that is needed is taxing interest income at the rate of dividend and capital gains income, 15%. "Savers" are at a tax disadvantage. Beyond that, this is not a bond buyer's market :)

[shah8]

most far eastern countries have high savings rates because there is a lack of safe places to invest, and that their governments prevents easy access to unapproved places to invest.

It's also very hard to invest in building small businesses beyond your street corner stuff like grocers and tailers. Connections matter.

So in response to Anne, to me, what is really crucial to inspect in government figures is finding how much growth in citywide and regionwide sized small businesses in these countries.

[anne]

Interesting thought :) Connections matter in China according to the business families there to whom I write, but connections appear to be fairly readily made. I must ask them questions along your line, but I am hearing all sorts of enthusiasm for quite a while.

[vin]

Shah8,
I don't know much about China (or Japan), but I am not sure that India is a mercantilist economy. India depends less on exports than China, and a bulk of its economy is internal. I also think that the way India's economy is growing, it is going to be less mercantilist than China is, at the moment. I will also point out that India, unlike China is not terribly interested in challenging American supremacy, except to the extent that such supremacy interferes with Indian national security (Pakistan, access to energy). Personally, as an Indian citizen, I would prefer the Indian govt secure greater prosperity for its people over the quest for "great power" status. Unfortunately, though, the two may be linked together.

I think Prof Bardhan is right, in that it will take quite a while for the Indian population at large to reach levels of prosperity comparable to more developed nations. The sheer number of people whose economic level has to be improved guarantees this.

Adam,
India and China are already regional powers. As far as India is concerned, any attempt towards great power status will primarily be dictated by economic neccesity. As an example, India has been forced to try and project power in the Indian ocean region and in Afghanistan and Central Asia for economic reasons (energy access and protection of its sea lanes of trade & communication).

[jahnon]

shah8

> Japan, China, and to a lesser extent, India, are all mercantilist in economic
> nature. That means they can only grow or maintain status through the
> presence of some great large market to sustain their policies. ...

> Or lastly, they develope their own internal markets. I don't have to remind
> people that this is a pretty hard thing to do... Japan has halfheartedly tried
> for about 25 years without real success.

Trade does matter but I think you largely underestimate the importance of domestic demand or internal markets.

And regardings your scenarios, are you not underestimating the internationalisation of supply? (cf EU-China textiles Aug-Sept 2005)
Trade is two-way and this will argue strongly against protectionism. It would take serious political and economic dislocation for a significant change from the current status quo.

[anne]

Reasons for high savings levels in Japan or Singapore or Korea or China seem based on less of a societal emphasis on consumption and more of a tendency for families to save as a unit. An absence of small business investment opportunites would not seem a significant issue, though less investment in stock would be an issue.

[anne]

What strikes me as more significant than all else about the development cycle in Asia that has rapidly and I think conclusively widened with the remarkable inclusion of China, is the grounding of development in education at all levels. Notice of what education can mean in China serves as a model through Asia. India has always has fine elite education, but she must now radically broaden education opportunities as China is broadening.

[anne]

http://www.ikat.org/articles/new/New%20York%20Times%2005-24-02.htm

May 24, 2002

To Build a Country, Build a Schoolhouse
By AMARTYA SEN - New York Times

CAMBRIDGE, England

Isaiah Berlin has argued: "Men do not live only by fighting evils. They live by positive goals." The advice was not aimed at the leaders of the war on terror: Berlin was speaking more than 40 years ago. But his idea is worth the attention of current world leaders. And one of the most important positive goals has already been identified by the United Nations: universal primary education by 2015.

I am aware that when I argue that basic education for all can transform the miserable world in which we live, I sound a little like a Victorian gentlewoman delivering her favorite recipe for progress. As it happens, however, extensive empirical studies have demonstrated the critical role of basic education in economic and social development in Europe and North America as well as in Asia, Africa and Latin America.

When Japan set out in the 19th century to catch up with the Western nations, its Fundamental Code of Education, issued in 1872, expressed the public commitment to make sure that there must be "no community with an illiterate family, nor a family with an illiterate person." Kido Takayoshi, one of the leaders of Japanese reform, explained the basic idea: "Our people are no different from the Americans or Europeans of today; it is all a matter of education or lack of education." By 1910 Japan was almost fully literate, at least for the young, and by 1913, though still very much poorer than Britain or America, Japan was publishing more books than Britain and more than twice as many as the United States. The concentration on education was responsible, to a large extent, for the nature and speed of Japan's economic and social progress.

Later on, China, Taiwan, South Korea and other economies in East Asia followed similar routes. Explanations of their rapid economic progress often cite their willingness to make good use of the global market economy, and rightly so. But that process was greatly helped by the emphasis all of these countries placed on basic education. Widespread participation in a global economy would have been hard to accomplish if people could not read or write — or produce according to specifications or instructions.

The contribution of basic education to development is not, however, confined to economic progress. Education has intrinsic importance; the capability to read and write can deeply influence one's quality of life. Also, an educated population can make better use of democratic opportunities than an illiterate one. Further, an ability to read documents and legal provisions can help subjugated women and other oppressed groups make use of their rights and demand more fairness. And female literacy can enhance women's voices in family affairs and reduce gender inequality in other fields, a benefit to men as well as women, since women's empowerment through literacy tends to reduce child mortality and very significantly decrease fertility rates....

[shah8]

Okay, I didn't do my second comment all that well...

I believe that the far eastern countries have high savings rates because
a) They are more prone to disasters. Remember in all of the far eastern countries aside from Taiwan have experienced major disasters in the lifetimes of the major fraction of people there. It is probably ingrained from parent to children to save alot for that rainy day.
b)The lack of transparency in legal and economic systems in most of these places also has an impact. The Japanese stock market is routinely manipulated to benefit the key players. East Asia legal traditions focuses mainly on getting confessions rather than any search for the truth. Hence, what I'm getting at is that it is more difficult to protect *assets* in East Asia, as opposed to liquid and hideable *savings*. This is very true for anyone not in the upper class. It is also difficult to liquidate assets, in china, even housing, as people are not supposed to do travel easily within China.

[DOR]

shah8,
When it comes to what’s important to the leaders of large Asian countries, it turns out that domestic issues take precedence. Ouch.

Very useful comment on major disasters. Most Asians over the age of 40 remember a time when they (or their parents) didn’t have enough to eat.

As for stock market manipulation, this stuff goes on everywhere . . . Enron wasn’t Asian.

RT,
As long as people in the OECD continue to do what they’ve been doing for the past 30 or 50 years, the increase in productivity in China and India will be highly disruptive.

It is time to stop doing the low value-added stuff, and move on to the Next Big Thing. Why in the world does the US still make garments?

anne,
Connections matter in Asia, just as they do everywhere. As China has deregulated, connections have become less critical: although still culturally important, they are far less important to business than 5 or 10 years ago.

Small businesses are the backbone of the East Asian economy; they are the employers and investors. There is no shortage of people willing to take a risk and start their own businesses, but they usually aren’t very visible (trading companies or local retailers).
.

[Chamkor Singh]

Respected Sir/Mam
i am studend of Management College. I am doing MBA. I nead some help from ur side there is a competiton at our College the subject is NEP(National Economy Profit)we r formed a group of 7 student and our topic is Asian Century Hope or Hype.And we are agenst the motion.So i need that can u send me some data on this topic as soon as possible or tell me from where to reffer.I hope i am not disturbing u. our presentation is on feb last month. Reply a soon as possible.
your senciourly
Chamkor Singh.