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Article
The Asian Century: Plausible but not
Preordained
Emerging Economy Studies
1(1) 1–8
© 2015 International
Management Institute
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/2394901514562311
http://emi.sagepub.com
Rajat M. Nag1
Abstract
Asia’s economic growth in the past several decades has been stellar. Asia today accounts for over a
quarter of the global GDP and three of the five largest economies in the world are in Asia. This share is
growing and by some accounts could well account for over half the global output by 2050. Some have
dubbed the twenty-first century as the Asian Century. Hundreds of millions have been lifted out of poverty. Asians today are richer, healthier, more educated, and live longer than they did a generation back.
However, the region also faces many severe development challenges. Continuing poverty (two thirds
of the world’s poor still live in Asia), rising inequality, social deprivations, environmental degradation,
gender biases, food, energy and water security, poor physical and social infrastructure, limited reach of
the formal financial sector, poor governance and weak institutions are among such pressing challenges.
If these challenges go unmet, could Asia get caught in a ‘middle income’ trap thus rendering the dream
of an ‘Asian Century’ just that: a dream. This article examines the phenomenon of ‘Two Faces of Asia’.
It analyzes the challenges that Asia must confront, the opportunities that it must exploit and concludes
that an Asian Century characterized by Asian prominence in a globalized world is ‘plausible but not preordained’.The article also argues that the Asian Century should not be cast in a narrow, parochial sense
as ‘Asia’s Century’. Rather, it offers the promise of a century of shared global prosperity in which Asians
take their rightful place among the ranks of the affluent—on par with those in Europe today.
Keywords
Asian century, middle-income trap, inequality, the Two Faces of Asia, inclusive growth, good governance
Introduction
Asia’s ongoing economic and social transformation has captured the global imagination. Many
marvel at the speed at which an expansive and
diverse region once mired in poverty has laid the
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groundwork for future prosperity. Asia’s rapid rise
over the past four decades and its increasing influence in the global economy has prompted many to
say that the twenty-first century belongs to Asia
and could indeed be dubbed as the ‘Asian Century’.
Visiting Professor, Stephen Zuellig Graduate School of Development Management, Asian Institute of Management, Manila;
Distinguished Fellow, National Council of Applied Economic Research, Delhi & Senior Fellow, Emerging Markets Forum,
Washington.
Corresponding author:
Rajat M. Nag, B-3/602, World Spa West, Sector 30, Gurgaon, India.
E-mail: [email protected]
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No doubt, the transformation has been dramatic.
Millions have been lifted out of grinding poverty
and provided with the opportunity to participate in
and benefit from the region’s many successes.
But, can the ‘Asian Century’ be taken as a given,
as if the region were on autopilot, and the future simply a linear extrapolation of the recent past? This
article argues, ‘not so’, and concludes that while an
‘Asian Century’ is plausible, it is not preordained.
The article also argues that the Asian Century
should not be cast in a narrow, parochial sense as
‘Asia’s Century’. Rather, it offers the promise of a
century of shared global prosperity in which
Asians take their rightful place among the ranks of
the affluent—on par with those in Europe today.
Historical Perspective
Asia’s meteoric rise in the past four decades is in
many ways the re-emergence of the region. Prior
to the Industrial Revolution, Asia accounted for
about two-thirds of the world economy dropping
to about 58 percent by 1820, and precipitously to
about 19 percent by 1950 as Asia lagged behind an
industrially surging Europe.
Asia’s transformation began with the post-World
War II reconstruction and Japan’s rise as a global
economic powerhouse. Since Japan’s emergence,
similar patterns of explosive growth began to occur
in the ‘Asian Tiger’ economies of Hong Kong,
Taiwan, Korea, and Singapore during the 1960s to
1970s as these countries began to pursue ambitious
national agendas establishing open trading regimes
and moving up the technological ladder.
Countries such as Malaysia, Thailand, and
Indonesia then began to join in soon to be followed
by the dramatic growths of China and India and the
more recent growth acceleration in Vietnam.
Far-reaching market reforms in these countries,
particularly China and India, introduced millions
of low-cost workers to the global labor pool, maximized comparative advantage and globalization to
ignite economic growth, and plant the seeds of
prosperity across the region. Asia’s share of global
Emerging Economy Studies 1(1)
GDP has consequently reached its current levels of
about 35 percent and rising.
The Two Faces of Asia
In 1970, one in every two Asians was poor, living
on less than one dollar a day. By 1990, this had
come down to about one in every three, and by
2010, it was less than one in five. Asia has achieved
in 40 years what some other regions of the world
took a century or even longer. The PRC and India
have gained status as global economic powerhouses, while countries such as Indonesia,
Thailand, and Vietnam are progressing toward
middle-income status.
Compared to a generation back, Asians today
are more prosperous, more educated, healthier,
and they live longer. That is a very significant
achievement in just one generation and one that
Asia can justifiably be very proud of.
But there is another Asia just as real, but much
less shining. Two-thirds of the world’s poor still
live in Asia. About 740 million people in Asia live
on $1.25 a day. This is more than the population of
the United States and Europe combined. If the bar
is raised just a little higher to $2 a day (which is
less than the cost of a cup of coffee even in many
Asian cities), about 1.6 billion people would fall
below this mark. About 360 million people do not
have access to clean drinking water; 1.7 billion
people have no access to improved sanitation. So
amidst all the wealth and prosperity that Asia
enjoys, there is this ‘other’ Asia, the poor Asia.
Asia is also becoming more unequal. From the
early 1990s to the late 2000s, the Gini coefficient—
a common measure of inequality—worsened from
0.32 to 0.43 in PRC, from 0.33 to 0.37 in India, and
from 0.29 to 0.39 in Indonesia. Treating developing
Asia as a whole, its Gini coefficient rose from 0.39
to 0.46 over that same period.
This is the phenomenon often referred to as the
‘Two Faces of Asia’ which co-exist simultaneously: a shining and a not so shining face. Asia’s
major challenge in the years ahead is to get these
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two faces to converge rather than diverge that
unfortunately is currently the trend.
Two Possible Scenarios of Asia’s
Future Growth
A seminal study undertaken by the Emerging
Markets Forum and Asian Development Bank in
2011 (Kohli, Sharma & Sood, 2011) offered a
long-term perspective on where Asia could be if it
makes the right policy choices in meeting its multigenerational challenges.
This study develops plausible scenarios of
where the region could be in the next four
decades; identifies drivers of change and policy
choices the region must make; and provides
guidance on the implementation of national,
regional, and global agendas.
Based on a critical evaluation of the main drivers and risks which are expected to shape Asia’s
path in the next 40 years, the study sketches two
plausible scenarios of how Asia’s future might
unfold up to 2050, depending on how policy
choices are made and implemented.
The ‘Asian Century Scenario’ presents a picture
wherein some 3 billion more Asians would become
more affluent and enjoy living standards comparable to that in Europe today. Under this scenario,
Asia could account for about 52 percent of the
global output by the middle of this century and
have a GDP per capita of $40,800 (in PPP terms)
higher than the global average of $37,300.
An alternative scenario, dubbed the ‘middle
income trap scenario’ presents a bleaker future in
which the region’s GDP per capita would be only
half of what could be achieved under the Asian
Century Scenario.
The middle-income trap refers to a situation in
which a country’s growth plateaus and eventually
stagnates after reaching middle-income levels (of
about $8,000 to $12,000).
The problem arises when such economies find
themselves unable to compete with advanced
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economies in high-skill innovations or with lowincome, low-wage economies in the export of
cheaper manufactured goods. As wages rise and
cost competitiveness declines, middle-income
growth strategies need to introduce new processes
and find new markets to maintain export growth.
Domestic demand is also important in sustaining
growth as an expanding middle class begins to use
its increasing purchasing power to buy high-quality innovative products.
It is important not to get too caught up in the
exactitude of the numbers being referred to here
(as per the Asia 2050 Study ). The key point is that
if Asia were to be able to avoid getting caught in
the middle-income trap, its economic and social
conditions would be far better than otherwise
would be the case.
To avoid the middle-income trap, it is important
to recognize that Asia would have to not simply
focus on the quantity of economic growth but its
quality as well. Growth would have to be sustainable. For growth to be sustainable, which in turn
implies that it would have to be inclusive, green
and clean (good governance) and the following
sections discuss some of the pressing challenges,
which Asia would have to face and overcome if it
were to be able to achieve the true potentials of an
Asian century.
Fostering Inclusive Growth
Asia’s success story over the last several decades
has been driven by stellar economic growth. Sound
macroeconomic management and significant
investments in physical infrastructure will continue
to be critical preconditions to ensure continued
high economic growth in the region.
Economic growth is a necessary condition for
reducing poverty but not a sufficient condition to
ensure increased welfare of a country’s or the
region’s population. While growth is obviously
essential, the quality of growth is just as important
and has to be sustainable.
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As noted earlier, there are currently worrying
disparities of well-being and wealth within and
between countries in the region that must be tackled. Inequalities not only limit the opportunities to
which every human being is entitled but they also
pose threats to social cohesion and political stability, and particularly hurt the poor.
The region’s progress toward achievement of
the Millennium Development Goals (MDGs) has
also been largely uneven, particularly those relating to sanitation and childhood and maternal
health-related outcomes.
For growth to be sustainable, it has to be inclusive which implies that it is a growth process in
which everybody, particularly those at the bottom
of the pyramid, can participate in and benefit from.
Inclusive growth cannot follow from just growing
the size of the pie and assuming the trickle-down
effect would automatically work. Instead, it
requires that policy choices on social investments
are made such that people are healthy enough,
educated enough, and skilled enough to participate
in the process of growth.
For growth to be inclusive, there needs to be an
emphasis on education and health. The assertion
made by many that a rising tide lifts all boats,
implicitly assumes that none of the boats have
leaking hulls. But if they do, they cannot rise with
the other boats or benefit from the process of
growth. Inclusive growth requires conscious
efforts to enhance the capability set of people,
particularly the disadvantaged and the poor to
participate in the general economic growth process.
Asia thus needs to pursue a development strategy
that promotes inclusive growth, using policy
instruments focused on human capital development
and improvement of infrastructure services. This
will require targeted interventions in areas such as
health care, nutrition, and sanitation.
Asia is a young continent, with about 41.8
percent of its population being less than 25 years
old in 2012. Its working age population (between
15 and 64) is similarly high at 68.2 percent.
Emerging Economy Studies 1(1)
However, Asia is also an ageing continent as most
countries in the region, particularly in East Asia, are
in the middle or advanced stages of a demographic
transition from high fertility and high mortality
levels to low fertility and low mortality levels.
Asia can thus be said to be enjoying a shortterm demographic dividend but even this could
turn into a curse if the cohort of the youth does not
have enough job opportunities or the skills to capitalize on the opportunities which might arise.
Policy makers thus need to emphasize job creating growth for the young population to reap the
benefits of the region’s demographic dividend.
But, they also need to simultaneously invest in
health and education to help the poor build the
skills needed for higher paying jobs as essential
elements of inclusive growth.
Increasing access to finance for the poor and
vulnerable is another important element.
Government redistribution policies and social
safety nets, including those pertaining to labor
market policies and social insurance, must be
carefully designed and implemented to ensure
that the most vulnerable groups are provided targeted assistance.
Encouraging Quality Education,
Entrepreneurship, and Innovation
Asia’s rapid growth has been based on and needs
to be sustained through continuous improvement
in quality of education and overall human capital.
For Asia to avoid the middle-income trap and
improve the lives of millions, it will need to
efficiently absorb technology and appropriately
accumulate human capital so that skills–technology
mismatches are avoided. This would in turn require
significant increases in investments in education to
expand both the quantity but more importantly the
quality of education at all levels.
In this, Asia faces two simultaneous challenges: (i) provide access to basic education to all
and (ii) bridge the digital divide that allows the
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benefits of technological changes to be tapped to
improve productivity. Human capital requirements for tomorrow’s knowledge economy are
very different from the past. Knowledge-driven
growth not only requires the workforce to acquire
new higher level skills but also internalize the
skills for life-time learning.
The continuing rapid growth of Asian economies over the next 40 years will require harnessing
the full potential of technology, innovation, and
critically entrepreneurship. The model in Asia so
far, with few exceptions, has been catching up
with the more advanced economies and updating
the technologies developed there to produce for
western markets. That is no longer adequate. More
Asian countries need to emulate Japan, Singapore,
and Korea and come closer to, or preferably
become, the global best practice.
At the same time, it is very important to
maintain and improve the quality and relevance of
higher education, which need to properly catch up
with the rapid change in labor market needs and
economic development.
Human capital development should also be
aligned with more focus on encouraging and
promoting innovation. Without efforts for constant
innovation and strengthened entrepreneurship,
Asia will not be able to build and maintain
sufficient soft and intellectual assets which are a
key to generating, multiplying, and securing
economic values in the fast changing digital and
technological era.
Managing Urbanization
By 2050, Asia will make up 52 percent of the
global population, a little smaller than its 57 percent share in 2010, but with nearly 822 million
more people than today. This demographic change
has significant implications at two levels: (i) its
impact on urbanization and (ii) the aspiration of
the growing middle class and its demand for better
quality of life and governance.
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Asia is going through a historic demographic
transformation from a rural to an urban society,
and China for example now has more people living
in urban rather than rural areas.
Between now and 2050, Asia will be transformed
as its urban population nearly doubles from 1.6
billion to 3.1 billion. Asia’s cities, expected to
account for more than 80 percent of economic
output, will be the centers of higher education,
innovation, and technological development.
Even small, poor Asian economies will
experience significant shifts. Cambodia’s urban
population, for example, is forecast to be 44 percent
of the national total in 2050 against the current
20 percent. Similarly, the towns and cities of Lao
PDR, must find space for an additional 3.6 million
people as its urban population expands from 33
percent to 68 percent.
Asia’s city-centric future implies huge increases
in energy consumption and carbon emissions. The
region’s long-term competitiveness—and its social
stability—will depend in large part on the quality
and efficiency of its urban development.
Massive urbanization will also create added
pressure as cities will experience growing energy
consumption and carbon emissions; the quality
and efficiency of urban areas will thus increasingly
determine Asia’s long-term competitiveness and
social and political stability.
Asia must take advantage of being early in its
urbanization growth curve, managing its coming
rapid urbanization by promoting compact, energy
efficient, safe, and livable cities—more reliant on
mass transit than on cars, for example, on public
rather than private transportation. It must also
manage some significant risks, particularly those
associated with inequality, and a breakdown of
social cohesion.
Urbanization will also lead to an increase in
environmental risks associated with natural disasters and other effects of climate change. This
would require renewed attention to the urgent need
for investments in urban planning, infrastructure,
health, and sanitation. Asia needs to adopt a new
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approach to urbanization by building more compact and eco-friendly cities. It also needs to rely
much more on mass transit and changes in lifestyles to alleviate pressures on finite resources.
Leveraging Finance
Despite Asia’s vast savings, its own financial markets are still relatively underdeveloped.
All other things being equal, as Asia’s share of
global GDP rises to 50 percent or more, Asian
investors should also hold about the same share of
global financial assets in the banking sector and
equity, bond, and other financial markets. But this
potential cannot be fulfilled if its financial systems
cannot efficiently recycle the region’s vast savings
within the region and do not support the real sector. Asia thus needs a financial system that efficiently intermediates its savings to meet the
region’s massive investment needs in infrastructure, urbanization, climate change mitigation, and
adaption, as well as technological development
and business creation. Inclusive finance should be
a particular priority. A poorly managed financial
system will be highly disruptive to trade, investment, and economic growth.
Improving Governance and
Institutions
As the region seeks to cement the gains from a
decades-long economic boom and sustain its
growth momentum, Asia will need to take bold
action to address the wide range of governance
challenges facing the region. Prominent among
these challenges is the scourge of rising corruption
in many countries that has widened governance
deficit in government, businesses, and institutions.
While corruption is not a new phenomenon nor it
is just confined to the region, but if left unchecked
it will weaken institutions, corrode the fabric of
governance, and unravel the hard-won gains of
Asian economies.
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Policy prescriptions for good governance
abound, but true change will need to come from
within the region. There is no short-cut to building
good governance. Endogenous factors—changing
demographics, increasing urbanization, an expanding middle class—will drive demand for good
governance in the region. These drivers are not
mutually exclusive and, in fact, can reinforce each
other in accelerating the demand for reform.
There is a general consensus that good governance is the bedrock of sustainable, broad-based
development, and there is no dearth of policies
supporting reforms for more effective, transparent,
and accountable governance. However, enforcing
of rules and compliance with reforms is not the
sole responsibility of the state—full observance of
good governance will rest with the general public
in the everyday choices that they make to either
support or undermine effective reform.
Enhancing Cooperation
Regional cooperation would provide Asia the
means to pursue regional commons and maximize
synergy through greater collaboration. Pursuing
regional cooperation will allow the region to consolidate its hard-won economic gains, provide a
bridge between Asia and rest of the world, reduce
widening cross-country disparities, lead to positive spillovers in areas of technological development, energy security, managing public commons
and, above all, ensure peace and stability.
Asia needs to pursue an ‘open regionalism’: a
market-driven, bottoms-up and pragmatic approach supported by an evolving institutional
framework that facilitates free regional trade, and
investment flows throughout Asia. Asia’s regional
cooperation agenda must be based on two key
principles: openness and transparency. Asia’s embrace of open regionalism means that it will not
allow the region to turn into ‘Fortress Asia’. Instead, it will adopt global rules and strengthen institutions to ensure prosperity for all.
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Acting on Climate Change
As Asia grows economically, so would its environmental foot print in terms of increased green house
gas emissions and other environmental impacts.
Ensuring green growth would be as important as
ensuring inclusive growth to avoid the middleincome trap. The region needs to reconcile stable
and robust economic expansion with the growing
challenges of energy security, climate change, and
massive urbanization.
The burden on Asia to take responsibility in
addressing climate change will only intensify in the
next four decades. Asian economies face very serious consequences if they fail to act decisively and
collectively and make significant efforts to mitigate
climate change. Take sea-level rise, for example. A
global temperature increase of 4.4°C could lead to
sea levels rising by as much as 46 cms by 2100.
Such a rise would threaten a large number of Asian
cities. Measured by the size of the population that
would be exposed to such a rise in sea levels, 15 of
the 20 most exposed cities, and 9 out of the top 10,
will be in Asia. Under a business-as-usual scenario
wherein current trends in climate change persist,
developing Asian economies could suffer economic losses estimated at 1.2 percent of GDP.
Estimates show that the damages are lessened
significantly if Asian economies act to reduce
their carbon emissions jointly with developed
countries in other regions as the economic losses
associated with the resulting temperature increase
become significantly smaller. Clearly, concerted
effort from all Asian economies is necessary to
create an important impact on the outcome of the
global climate and it is in Asia’s own interest to
act accordingly.
Asia also needs to increase energy efficiency
and reduce its reliance on fossil fuels. Asia needs
to adopt a new approach to urbanization by building more compact and eco-friendly cities. It needs
to rely much more on mass transit and Asians must
change their lifestyles to alleviate pressures on
finite resources.
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The ability to mitigate the adverse effects of
climate change including economic damage and
social disruption makes economic, political, and
social sense. Fortunately, larger economies like
China and India are already pursuing technological
development and innovations needed to promote
green economies. The examples set by Japan and
Korea are both an inspiration and a competitive
challenge for both China and India. Further, despite
their expressed reservations about a binding treaty
at global negotiations in Copenhagen and Cancun,
over the past two or three years, major Asian
economies have already accelerated their actions
on climate change and clean energy. During the
recent global and economic crisis, several countries
in Asia led the world in terms of the percentage of
economic stimulus devoted to green measures.
The economic stimulus plans of Korea and China
for example during that period allocated about 80
percent and 38 percent of their respective totals to
investments consistent with stabilizing and then
cutting emissions of greenhouse gases.
Policy makers recognize that there is close synergy between energy security and the climate
change agenda. Energy efficiency offers the greatest and most economical potential for improving
energy security and reducing carbon emissions. By
taking proactive actions to mitigate climate
change, major Asian countries are also demonstrating that they are willing and able to play a
constructive role in tackling this pressing common
global challenge.
Playing a Global Role
Asia’s growth and larger global footprint will
bring along new challenges and responsibilities
that have significant implications for the region,
particularly the larger economies. Asia has to
assume greater ownership of the global commons,
including an open global trading system, a stable
global financial system, climate change mitigation
measures, and peace and security. It must gradually
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Emerging Economy Studies 1(1)
transform itself into a rule maker and thought
leader on global issues, instead of being a rule
taker and thought follower.
Conclusions
For Asia to successfully sustain high growth rates,
address widening inequities, and pursue strong and
sustainable development, Asia must fundamentally
change the way it grows—‘business as usual’ will no
longer do. There is much work ahead to ensure that
Asia does not stray from the path of robust long-term
economic growth.
As Asia moves forward, it is important to recognize that this is not the story of Asia alone. As
the center of gravity of the global economy shifts
eastwards to Asia, it will be in Asia’s own interest
that the rest of the world also does well—conversely, countries outside the region have a stake
in the region’s success as well. The Asian Century
should not be exclusively Asia’s but the century of
shared global affluence.
Clearly, Asia faces daunting challenges in its
march toward shared and sustainable long-term
prosperity. There is much work to be done. The
changes in policies and strategies proposed have
long gestation periods spanning many decades.
Specific steps must also be designed to fit each
country’s unique conditions and policy needs. Asia
must act with utmost urgency in developing and
implementing new policies and strategies while
national leaders must take ownership of their
respective action plans to ensure that they are seen
through and effectively implemented.
Success is not guaranteed, but if the necessary
steps to ensure high, but inclusive, clean (corruption free) and green growth are taken by the Asian
countries, the dream of an Asian Century can
indeed be plausible, even if not preordained.
Acknowledgements
The author gratefully acknowledges the work of Mr
Harinder Kohli and other colleagues at the Emerging
Markets Forum on this and related subjects on which this
article draws heavily on. Their intellectual contributions
and many discussions have been major inputs to the
author's own evolution of views on the subject.
Reference
Kohli, H.S., Sharma, A., & Sood, A. (Eds). (2011). Asia
2050: Realizing the Asian Century. New Delhi, India:
SAGE Publications.
Author’s Biography
Rajat M. Nag is an international development professional with extensive experiences and
in-depth knowledge in development issues, strategic visioning, infrastructure financing, and
regional cooperation. He is currently a Distinguished Fellow, National Council of Applied
Economic Research, New Delhi, India. He is also a Senior Fellow, Emerging Markets Forum,
Washington, DC, USA, since 2014.
At both these think tanks, Rajat has been leading and participating in policy-related issues
on various development challenges facing emerging Asian economies, particularly related to
sustainable growth, governance and institutions, and regional cooperation and integration.
He is also a Visiting Professor, Strategy and Development Issues, Asian Institute of
Management, Manila, Philippines.