Bruce Koppel. Foreign Affairs. Volume 77, Issue 1, January/February 1998.
Keeping the Miracle Alive
Asia’s economic miracle is in trouble. Last summer Thailand, famed for its economic growth and macroeconomic stability, witnessed an epidemic of plunging currencies and stock prices-called bahtulism by some-that is now spreading throughout the region. The crisis has forced Thailand, as well as Indonesia and South Korea, three of the Asian miracle’s brightest stars, to seek multibillion dollar bailouts from the International Monetary Fund. Even Japan has taken a hit. Long the vanguard of Asian economic growth, in December it was forced to allow the shutdown of two of its largest financial institutions, which were tens of billions of dollars in debt, sparking fears that the contagion of economic distress would lead to further failures among that country’s troubled banks and destroy its halting attempts at economic reform. Headlines roared, “Thunder Over Asia” and “Asian Economies: More Myth Than Miracle?” as commentators sharpened their pencils, preparing to write the miracle’s epitaph.
But while recent events in Asia are certainly more than mere “glitches in the road,” as President Bill Clinton has called them, the Asian miracle is not necessarily over. The region’s economic troubles indicate only that the easy part of its economic transformation has ended. Asian leaders have guided their countries through rapid economic growth over the last two decades, privatizing state assets, attracting foreign investment, increasing savings, and strengthening exports, but now they must face a more difficult second generation of challenges. These include deepening economic reform, combating corruption, widening political and social inclusiveness, and assuming greater environmental responsibility. These new challenges are primarily those of the “other Asia” that large, excluded sector of the region that has not uniformly benefited from the economic expansion of the Asian miracle. This is where most Asians live: it is rural and poor and suffers from the traditional economic and social problems of the Third World, and it is where policymakers must focus their energies and resources. Bringing the other Asia into the mainstream of growth will require difficult choices-choices that will determine whether historians decide that what happened to Asia in the latter half of the twentieth century indeed was a miracle or merely a myth.
A Miracle Denied
The slightest mention of Asia conjures up images of skyrocketing growth, abundant wealth, and little poverty. While economic development has definitely brought about a decline in absolute poverty in Asia, the rate of decline has only been slightly greater than the rate of population growth, so the number of poor remains very large. Today, half of Asia’s population-1.5 billion people-makes less than $500 per year.
Asia’s poverty can be linked to the traditional problems of its rural areas: high population growth, low labor and land productivity, land shortages, and deteriorating natural resources. But there are also new forms of poverty. People are being displaced by the loss of forest and agricultural land to development projects, there are increasing numbers of migrant agricultural workers, and unemployment even among the more educated is rising. In Asia’s major cities, where 40 to 60 percent of residents lack adequate housing, poverty is spreading. Poor women are suffering the most, often unable to find employment in anything but low-wage jobs in retail trade or in prostitution. While there are growing numbers of women holding factory jobs, they are systematically subject to wage discrimination. And children from poor households are being drawn away from primary education into unsafe employment, such as making matches and fireworks, at very low wages.
Education, health, and social services are not provided to the poor to the same extent as they are to wealthier segments of the population. Five hundred eighty-five million Asians do not have access to health care, and the average level of education ranges from two years for South Asian women to eight years for Filipino men. Each year, nearly 7 million Asian children die before their 5th birthday, and close to 300,000 women die in childbirth, with an additional 9 million incurring injuries, infections, and disabilities during pregnancy. Child malnutrition is more prevalent in South Asia than in subSaharan Africa (51 percent versus 31 percent in 1996). While the lot of Asia’s people has improved over the last three decades, the continent’s poor record reveals a picture considerably different from what one would expect from a region positioning itself to be a competitive player in the global economy.
The historical experiences of the United States and Western Europe are frequently raised to argue that Asia’s poverty and excessive inequality will ultimately be solved by continued economic growth. But this analogy is not entirely appropriate. In the West, economic development proceeded slowly enough so that traditional social problems such as high infant and maternal mortality, rampant infectious diseases, short life expectancy, limited access to primary education and health services, and female exclusion from education were reduced before modern problems such as urban unemployment, cardiopulmonary diseases, lack of access to higher education, family instability, and questions of social security and aging emerged on a large scale. Few people were exposed to both kinds of social problems at the same time, and governments did not need to make fundamental choices between committing resources to address modern problems or using them to solve traditional ones.
Asia presents a very different picture. Large numbers of people are exposed to both traditional and modern problems. This is especially true of the urban poor, who experience health and education problems comparable to those faced by the rural poor but who are also increasingly exposed to problems specific to the contemporary urban environment-unsafe water, inadequate sanitation, and exposure to high levels of pollutants such as lead and carbon monoxide. Middleclass urbanites who want sophisticated hospitals, universities, mass transit, and a cleaner environment find themselves pitted against the rural and urban poor who share many of those aspirations but who also need investment in basic heath care, education, social services, and affordable housing. Asia’s leadership faces difficult choices.
A Difference That Matters
The human costs of economic growth have been greater in Asia than they were in the West because Asia’s economies have evolved differently. It is common to think of economic development as proceeding through a transition from the predominance of primary (agriculture, fisheries, forests) to secondary (construction and manufacturing) to tertiary (retail, financial, education) enterprises. But Asia’s economy has followed this pattern only in part. Since 1975, as expected, the share of agriculture in GDP has declined. The share of industry in GDP has risen, also as expected. But contrary to expectations, the share from services has risen even more rapidly. This trend would not be so alarming if the proportions of the labor force involved in each of these enterprises followed these growth patterns, but they have not. In fact, 60 percent of the labor force remains in the agricultural sector, while only 10 to 11 percent is employed in manufacturing. The service sector claims another 25 percent of the work force, the majority of which is involved not in the lucrative, maledominated, white collar services jobs like banking and finance, but in non-wage employment such as street commerce, transportation services, and casual labor. This part of the service sector exhibits a predominance of women and children, low education, pay, and job security, and is growing, accounting for the sharp growth of the service sector as a whole.
In addition to the limited structural change, productivity has declined. In India, for example, between 1977 and 1991 productivity as a percentage of the national average decreased in the primary sector from 59 percent to 49 percent, and in the services sector, it fell from 204 percent to 191 percent. Only in the manufacturing sector did productivity rise-from 8 percent to 231 percent, but this increase was largely based on worker exploitation, low wages, restrictions on labor activism, and rampant corruption. In fact, throughout Asia the manufacturing sector has exhibited a high degree of “casualization,” as laborers work on a day-to-day basis without reliable employment, insurance benefits, or minimum wage coverage. In the Philippines’ Mactan Export Processing Zone, for example, employment increased by 12 percent during 1996, from 29,000 to almost 33,000 manufacturing jobs. However, at the same time over 28,000 workers in small manufacturing enterprises outside the zone lost their jobs because of shutdowns and retrenchments. Analysts of the Philippines, Thailand, and Vietnam call this jobless growth.”
It is clear that Asia’s substantial economic gains have been squeezed from minimal structural change. The region’s leaders must now invest in the human resources and infrastructure needed to improve productivity across the entire economy, particularly in the agricultural and services sectors that employ 85 percent of the work force. As the experience of Japan, Korea, and Taiwan suggests, increased agricultural productivity and consumption lay the foundation for a successful industrial growth strategy, since productive rural households have more cash to purchase agricultural equipment, invest in their children’s education, and purchase consumer goods. The result is sustainable growth driven not only by exports, but by healthy, domestic demand.
The Corruption Eruption
Corruption is a serious and growing problem throughout Asia. As many observers have noted, the low transparency and extreme centralization of economic policymaking have created an environment where corruption can thrive. In the past, officials in charge of licensing and permit decisions found their positions ideal for soliciting bribes and discovered that there was a lot of money to be made from smuggling. With liberalization and economic diversification, the opportunities for corruption have grown. Today it is tied to the movement of large amounts of investment funds (through kickbacks and bribes), the allocation of land and facilities for industrial parks or golf courses, and the assurance of labor stability (by clamping down on unions and labor activism). For families living in upland and forest areas, workers trying to organize to protect their rights, and entrepreneurs trying to start and sustain small enterprises, corruption remains a fact of life.
In China, Vietnam, India, Indonesia, Japan, and Korea public suspicion about the large fortunes amassed by powerful politicians and highranking bureaucrats has tested the stability of regimes, the credibility of reform programs, and the patience of foreign investors. In Asia those with political power are also those who own the banks, real estate development firms, and mining operations. For example, many of Indonesia’s largest banks are owned by relatives of President Suharto, and in South Korea, the economy has long been anchored by large, secretive, family-run businesses called chaebols, which government regulators permitted to take on excessive debt without disclosure to investors. There has traditionally been no challenge to the elites’ stranglehold over the economy. While this is certainly changing, especially in domestic markets for consumer goods, there is considerably less room for competition in the more vital industries that drive economic growth. Without competition, there is no incentive to increase efficiency, invest in research and development, upgrade technology, or train the labor force. Enhancing competition and reducing corruption requires challenging the upper echelons of Asia’s elites, which will be difficult. South Korean President Kim Young Sam has already taken the first step in his country by instituting a rule requiring bank depositors to maintain accounts in their own names, in an effort to help his country’s financial institutions regain some much-needed credibility. But as long as the economic and political landscape is so seriously unbalanced, there will be little opportunity for the other Asia to join in the economic miracle.
The thick haze that hung over much of Southeast Asia during the summer and fall of 1997 created a sense of environmental crisis. However, the real crisis did not begin with forest fires in Indonesia-it was a slowly accumulating consequence of high population growth, rapid urban development, and industrialization. For years, nongovernmental organizations (NGOs) throughout Asia have been confronting governments and corporations for misappropriating, misusing, and destroying critical forest, water, and land resources. Environmental degradation has put the sustainability of Asia’s economic transformation increasingly at risk-in terms of economic costs, human health, and continued access to the basic resources required for economic development.
Consider Cebu, the booming industrial city in the central Philippines. In the watershed above the city, few trees remain. Although large parts of the watershed are supposedly protected by the state, land rights are still bought and sold by powerful business and political interests for luxury residential developments, golf courses, and industrial parks. Today, Cebu faces a water crisis, not so much because of expanded demand, but rather because of diminished supply due to the destruction of the watershed. Flooding on the streets of the city, never a problem before except in the worst typhoons, is now a common occurrence after rain because the watershed simply cannot hold water. With flooding comes problems for health and business-rising incidence of infectious diseases, enterprise shutdowns, property destruction, and lost jobs. What is happening in Cebu-the undermining of the environmental requisites of urbanindustrial development-can be seen in many other places, from Bandung to Chiang Mai to Bangalore. And it is the poor and powerless in the cities and in the surrounding uplands-who pay the highest price.
It is not just the urban areas that are suffering from environmental degradation. Rural environments are being torn between popular demands for more agricultural land and a variety of commercial pressures to take land out of agriculture and use it for industrial and real estate projects. The result is not only the degradation of agriculture lands, but also the destruction of forest areas and watersheds. Many of the fires in Indonesia are the result of burning off virgin forest land to develop export-oriented palm oil plantations. And in India, Thailand, and Vietnam, mangrove forests are being rapidly destroyed to develop commercial prawn exports. The mangroves are the natural nurseries for many edible aquatic species, including those that poorer people rely on for nourishment. These kinds of changes affect the security of the food supply and exacerbate unemployment as landless farmers are forced to join roaming troops of migrant workers in search of employment at abysmal wages.
Asia’s economic growth has not only been rapid, it has been poorly regulated. Factories and roads were built with little regard for the environmental havoc they would wreak on the surrounding urban areas. Toxic wastes and emissions from industry and motor vehicles have made Asia’s cities some of the most polluted in the world. In combination with the tenuous supply of basic resources-notably safe water and reliable power-many questions arise about what it will cost to maintain Asia’s cities as sites for the industries of the next century. In Bangalore, India, there is a sign of what may be coming. Led by investors from Singapore, several major industrial parks are being built outside the city that are completely self-contained in terms of housing, water, communications, and electricity. This will be fine for the software companies in these parks and the families of their employees, but where does that leave the four million people in the Bangalore area, many of whom lack reliable access to safe water and power?
As pressures from the other Asia mount, especially as economic growth begins to slow, there is a danger that corporate, bureaucratic, and military elites will see their own interests threatened and will justify repression in the interest of preserving stability. In fact, the identification of pluralism with instability and insecurity is already a well-known practice throughout Asia. For example, the July 1996 political protests in Jakarta, Indonesia, described as the country’s worst civil disorder in a decade, were met with an aggressive military response, including an order that rioters be shot on sight. Such developments are problematic for Asia’s economic growth since they tend to reinforce the traditional politics of privilege, as besieged elites move to further consolidate their control over power and resources at the expense of the rest.
The precious little democracy that does exist in Asia is becoming increasingly partisan, and politicians are mobilizing support along ever narrower lines of political identity. As in the electoral victories of the Hindu extremist Bharatiya Janata Party in India in 1996, there is a growing danger that populist and even chauvinist appeals will resonate with the excluded masses. Class differences are at play as well, as the poor find themselves pitted against the middle and upper classes in a competition for scarce resources. For example, in Southeast Asia and India, the burgeoning urban middle classes are demanding reduced government corruption, greater transparency in policymaking, and political stability. At the same time laborers, farmers, women, and minorities are clamoring for a greater share of Asia’s growth, with demands for asset reform (such as agricultural land reform, certification of ancestral or community property rights in forest areas, urban land reform for housing) to various political reforms (such as voting at their place of work rather than their place of residence and expanding women’s representation in government). Different interest groups and varying political views are being brought into increasing confrontation. Those trying to clean up corruption confront the advocates of traditional patronage politics. Those trying to maintain political stability confront demands for political reform from the disenfranchised. Those who believe economic growth requires strong political leadership may be impatient with the advocates of broader democratization. As can be seen in China, Indonesia, Korea, and Thailand, even where there is rising income, perceptions of a significant imbalance between who benefits from and who pays for economic growth can converge with other fault lines in the political landscape and become the source of significant frustration and instability. Democracy is not always strong enough to withstand these differences.
Getting the Question Right
There are many who argue that growth begets growth, that Asia need only continue its current level of economic development for the problems of the other Asia to go away. East Asian countries like Japan, South Korea, and Taiwan are proposed as models because they were able to achieve economic growth with a measure of social equity. But that view is more hopeful than realistic, since the scale of the problems in Southeast Asia, South Asia, and China is qualitatively different from what was encountered in East Asia. The rest of Asia has bigger, faster-growing populations, lower levels of education and health care, and poorly distributed agricultural land, and faces an international environment that encourages export-oriented development at the expense of domestic demand. The question is not whether the existing growth trajectories can be continued, but rather what happens if these trajectories are continued.
The 1997 Asian Development Bank report, Emerging Asia, concluded that if the future relationship between economic growth and poverty “resembles that of the past, the poverty in Asia will continue to fall.” The percentage of the total population that lives in poverty may very well decline, but it is important to keep in mind that Asia’s population, and hence the absolute number of its poor, will continue to grow-40 percent by 2020. Moreover, while reducing the proportion of the population below some minimal poverty line is certainly important, it is hardly an adequate measure of social progress and economic inclusion.
In Asia, poverty still appears to be accepted far more than it is questioned. Policymakers focus too much on the brightest parts of the economy, too little on the poor and excluded and their problems. For example, property development in the Philippine cities of Manila and Cebu is booming, yet an estimated four million Filipinos must find work overseas-mostly in services and construction-because there is not enough work at home to go around. Policymakers confidently predict that these workers’ remittances will prevent a current account deficits problem, but at the same time they argue that issues of poverty have to wait until the economy’s takeoff is assured. The Filipino poor who cannot find overseas employment are caught in the middle. Other economies have comparable problems of imbalance: Thailand’s growth and investment is heavily concentrated in the Bangkok area, China’s in the coastal provinces.
The relationship between economic growth and social improvement needs to do considerably more than just resemble the past if sustainable, high quality growth is to result. The fundamental problem with resembling the past is that it maintains the false premise that the issues of the other Asia are simply transitional difficulties. They are not.
Finding the Leader
Arguments that the other Asia’s predicament is simply a transitional phase absolve policymakers from responsibility for focusing on many of the problems directly: they need only ensure growth, and poverty and exclusion will disappear. Addressing the second-generation challenges of the Asian miracle is primarily a political problem. Leadership must focus on how to broaden participation in growth, not simply as a serendipitous consequence of what they are already doing, but as a necessary condition for continued growth.
First, leaders must recognize that while growth matters, what matters even more is the type of growth. For example, focusing on the share of export manufactures in GDP can divert attention from the fundamental point that far more can be gained by strengthening productivity in agriculture and services than by attracting a few more computer assembly plants. Economic growth may generate jobs, but it does not necessarily generate the political will to improve access to education, health, and social services. So far, Asia’s economic development has revealed the region’s infrastructure problems far more than it has generated the commitment to solve them.
Under recent economic and administrative reforms in the region, there has been significantly less reliance on central planning to confront key issues, and increased dependence instead on market forces. In the resulting vacuum, a new kind of politics is evolving. It is characterized by heightened labor, media, and judicial activism, entry into electoral politics by women, minorities, and in some instances former insurgents, and the concerns of the middle class. Their agendas vary, of course, but they share strong commitments to sustainable development, job creation, and greater opportunities for women. They support government decentralization but seek increased roles for community organizations and NGOs. For example, the Philippines’ Citizens Action Party and a number of NGO consortia in India and Thailand are encouraging women and the poor to compete for local electoral positions. However, it remains to be seen whether this type of leadership can ascend from local to national arenas.
Whatever kinds of politics are in place, what is needed is a new social contract between politics and society that establishes a clear understanding of how the costs and benefits of growth will be shared. Since labor is abundant, it is often argued that the region’s policymakers should concentrate on developing labor-intensive export-oriented manufacturing industries. But this effort will only result in low-wage, unskilled or marginally skilled employment. It may work for the short term, but it is useless as a long-term strategy; a large unskilled labor force cannot be the basis for a technologically advancing society. While Asia’s leaders trumpet their economies’ high GDP growth rates, what is often not emphasized is that in many instances these rates are substantially higher than the growth in literacy. And it is arguably the latter that is a more accurate indicator of overall, sustainable development.
Will more widespread and consistent leadership emerge at both the national and local level that is oriented to national growth rather than simply economic growth? These are pivotal times throughout Asia, with issues of succession and turnover arising in national political leadership over the next few years, but also in terms of ideas about the exercise of leadership.
Will the organizations of civil society-notably NGOs, the media, legal professions, labor organizations, chambers of commerce, and education-take responsibility for encouraging political investment in the national good? Or will they merely continue the politics of grievance that leave underlying problems essentially untouched? While there may be strong support for the idea of more open economies, there is considerably less agreement about the desirability and even the meaning of more open politics. That does not bode well for the difficult choices of the second-generation challenges.
Established trends will not be good enough for Asia’s future, however attractive they were in the past. Hard choices need to be made, but by rather than simply for the people who will have to live with the outcomes of those choices. That is why addressing the second-generation challenges of Asia’s economic transformation depends upon the quality of politics and leadership within Asia. The prerequisites for making these hard choices are to recognize that there is an other Asia, that the only future for national growth that is sustainable and fair lies with the other Asia becoming a beneficiary, and that the costs of bringing this about must be clearly understood. Until Asia’s leadership understands these requirements, the promise and the reality of Asia’s economic growth will continue to diverge for the majority of its people.