Is the 'Asian Century' merely a mirage?

Those hoping for a crazy rich future are too focused on GDP as a metric for economic well-being

The Singapore skyline. Asia as a whole has made much progress, but is its future as rosy as we think? AFP

How do you measure how well a country is doing? The most obvious way is to look at trends in its Gross Domestic Product (GDP). The IMF defines the term as “the monetary value of final goods and services – that is, those that are bought by the final user – produced in a country in a given period of time”. But it has become so ubiquitous as a rough and ready synonym for “what a country earned in one year” that it barely needs to be explained.

Looking too much at GDP, however, may be a mistake. Governments that concentrate overly on GDP do so at their peril, as Vasuki Shastry, author of a provocatively titled new book Has Asia Lost It? argues. "If you just focus on economic growth and on GDP," he says, "you're going to end up feeling very, very good about Asia's economic prospects." This is true. Although growth has slackened in the past few years, the narratives that this is the "Asian Century" and of the "East Asian economic miracle" that has seen billions brought out of absolute poverty remain prevalent.

The theory put forward by Mr Shastry, a former Asia-Pacific spokesperson for the IMF and global head of public affairs at Standard Chartered Bank, is that decades of strong GDP growth conceal a host of problems that may see some countries endlessly stuck in the “middle-income trap”, some storing up all sorts of trouble for the future, and that a “wake-up call” is needed. So much so that he says: “When I look at this part of Asia, I can't help but think the future is dystopian.”

The Nobel Laureate Joseph Stiglitz believes GDP is leading us to make the wrong inferences about what is a good economic system. Bloomberg

Strong words; but the sentiment is not novel. Nearly 10 years ago, I commissioned the distinguished Hong Kong-based commentator Philip Bowring to write an essay on the future of the region. As a firm believer that the future lay in the Asia-Pacific, I was surprised by his response. “As one who has followed the rise of East Asia over the past 40 years, rejoiced in it and benefited from it,” he wrote, “I cannot say that I share the assumption that the 21st century belongs to the region.” In fact, he concluded, by 2012 the “Asian Century” may already have been half over.

Mr Bowring, a former editor of the Far Eastern Economic Review, pointed to the demographic challenge – that many countries faced ageing populations and fertility declining below replacement rates. The middle-income trap meant that countries such as Malaysia and Thailand were finding it difficult to gain the higher productivity and skill sets necessary for them to become advanced economies such as South Korea. Poor income distribution – ie inequality – limited demand for mass market consumer goods, thus placing a cap on industrial development. And few countries were able to develop their own indigenous brands that could take on world markets.

These problems were being overlooked, according to Mr Bowring, because of the overly narrow definition of GDP, which does not take into account key issues including education, health, longevity, gender equality, good governance and, indeed, competitiveness.

Mr Bowring was not alone. In the same year, the Nobel Laureate Joseph Stiglitz declared in his book The Price of Inequality: How Today's Divided Society Endangers Our Future that GDP was recording the "wrong thing" – missing out, for instance, sustainability and the cost of environmental degradation – leading us "to make the wrong inferences about what is a good economic system". Mr Stiglitz, a former chief economist of the World Bank, had been asked by then French president Nicolas Sarkozy to chair an International Commission on the Measurement of Economic Performance and Social Progress. "We unanimously agreed not only that GDP was a bad, and potentially badly misleading, measure," wrote Mr Stiglitz, "but that it could be improved on."

But there seems to be something very "sticky", as economists say, about GDP. It didn't go away, and it wasn't "improved on". And from my perch as a senior fellow at Malaysia's national think tank from 2015-19, I was able to observe the damage that focusing on GDP could do to a government – in this case the Barisan Nasional administration of Najib Razak, which lost power in 2018.

As prime minister, Najib Razak could justifiably be proud of his economic record, but the impressive GDP rates meant little to many Malaysians. Reuters

Decades of GDP growth conceal a host of problems that may see some countries stuck in the 'middle-income trap'

Mr Najib could justifiably be proud of his economic record. From negative growth of minus 1.5 per cent in the Great Recession year of 2009, when he became prime minister, Malaysia under him bounced back spectacularly in 2010 with a rate of 7.4 per cent, and maintained growth at 6 per cent in 2014 and 2017. In a speech that year, Mr Najib boasted of creating more than two million jobs, of low unemployment and inflation, and “unprecedented levels of Foreign Direct Investment". “But no wonder,” he added. “For our growth has been the envy of the advanced economies, even during years of turmoil for the global economy.”

The statistics bore him out. The headline figures were good, and the executive summaries delivered by the IMF and World Bank were so positive whenever they visited that I used to joke that the government must ask them to come more often. But I was also aware the impressive GDP rates meant little to poorer people struggling with rising costs, to graduates forced to take low-paying jobs, and to the many who felt the wealth created by this growth was not filtering down to them.

As far back as 2015, I warned a friend working for Mr Najib that they could face a “voteless recovery” – an economy that nominally improves greatly, but which voters do not reward at the ballot box because they do not feel better off. There were many factors in the 2018 election, but the gap between the GDP rhetoric and the self-perception of many on lower incomes – despite the many programmes Mr Najib rolled out to assist his people – was undoubtedly one of the reasons the Barisan Nasional lost.

Extrapolate this to the wider region, and the warnings of pessimists such as Mr Shastry and Mr Bowring must be taken seriously. Asia optimists such as myself will hope they are proved wrong. But it is incumbent upon governments to rely on metrics far beyond GDP to show that “Look East” remains a clarion call, and not an empty one, for the decades to come.

Sholto Byrnes is an East Asian affairs columnist for The National