Talking about Growth Miracle and Emerging Quadripolar Economic Construct
ECONOMICS, 15 May 2023
Kedar Neupane - TRANSCEND Media Service
Background and the Context
12 May 2023 – Post-pandemic economic recovery is staggering in industrialized economies with lower growth rate projections as these are trapped in stagflation. On the other hand, emerging economies of the East are showing moderate growth, albeit lower, than in the pre-pandemic period. Growth compacts of the East still appear more optimistic than in the west despite popular hype of mixed picture of global economy is about despairs only.
Expansive globalization of past decades has altered the consumer economy and market clusters. It created immense wealth across countries, spectacularly benefiting China, India, Vietnam, Indonesia, Thailand, Ethiopia, Rwanda, the USA, Russia, Mexico, and Brazil, for example, for they could anticipate future economic dividend and market dimension and associated merits of this economic phenomena. This is why policy makers and economic planners need to explore innovative novel approaches at creating simple but pragmatic ways to sustainable growth momentum, aligned with people’s prosperity, aspiration, and global peace.
In fact, globalization of market economy era has done miracles for China and India for it has broken most domestic trade barriers by bringing out the best in comparative production advantages in manufacturing and trading environment and accessing larger markets. Economic protectionism cannot bring out the advantages of comparative productivity in isolationism without taking advantages of the advancing technology, innovation, knowledge, free flow of capital, and markets in growing middle-class consumer-base. This is evidenced by the emergence of the orient in global economic domain of the past decades.
Astounding as it may sound, the global economy has provided excellent opportunities for China and Vietnam to grow economically as astute and smart players in the international marketplaces. They have re-oriented policy priorities and restructured institutions for spurring economic growth modules. Of late, India, Bangladesh and Indonesia have geared up along with trend, albeit slowly. During the past three decades, China’s GDP grew by fifty-five times to US 19.9 trillion (2022) from US$ 361 billion (1990) over the period and produced 535-dollar billionaires. India’s GDP grew by ten times to US$ 3.5 trillion (2022) from US$ 321 (1990) and produced 166-dollar billionaires. Vietnam’s GDP grew by fifty-five times to US$ 1.12 trillion (2021) from US$ 6.472 billion (1990) over the past period and produced 7-dollar billionaires.
Likewise, Indonesia’s GDP grew to US$ 1.18 trillion (2021) from US$ 106 billion in (1990) and produced 30-dollar billionaires. Bangladesh grew by ten times to US$416.4 billion (2022) from US$ 31.6 billion (1990) over the decades when ambivalent Nepal followed a path to GDP level of US$ 36.4 billion (2022) from US$ 6.5 billion (1990) during the same period. Neighboring India has already overtaken most industrialized countries of Europe and Asia and according to Forbes and has become a haven for 166-dollar billionaires, more than industrialized countries. China is now the home of 535-dollar billionaires, only behind the USA (735), and the second largest economy in the world.
During the past decades, the South-Asian economies failed to register similar GDP growth rates what China and Vietnam have achieved. Why is that? Are the business models of China and Vietnam being better than those of the western ‘laisse-faire’ economy? This spectacular growth of China and Vietnam raises critical question about the policy pragmatism, strategies, and business practices in the region. Does it mean economic models of China and Vietnam are more realistic and efficient than other countries? Time to re-think?
Many experts predict Asia Pacific will grow and become a significant consumer market. China, India, and Southeast Asian countries are expected to growth over the coming decades, leading to sustained consumer demand over the period. If this trend is sustained, PwC, in a 2017, predicts China will be the number one economy of the world in 2050 (some others predict this date may come sooner than this), followed by India in number 2, USA (3) and Indonesia (4). The other top economies will include Brazil (5), Russia (6), Mexico (7), Japan (8), Germany (9) and the UK (10). If this is not an economic miracle, then what is it? The industrialized G-7 grouping, representing the largest economies of the west plus Japan, will be reconfigured by new economic players from a mix of countries from the Global South in coming decades.
The truth of the matter is: the consumer is the king of the market economy. The market is where the consumers are. Presently, they are found in large economies with stronger purchasing power. This phenomenon is gradually shifting towards China, India, Indonesia, ASEAN countries and Brazil where growing middle-class is expanding and can capitalize on population dividends. Brazil and Mexico are the largest growing markets in Latin America. The Middle East is catching up with growing, and Nigeria and Ethiopia are in the lead in Africa.
Population size counts in the consumer economy for growth potential in market dynamics. Growth miracles of China, Vietnam, and India are good evidence of this, for example. Countries without a sizeable consumer base must expand their economic collaboration or economic integration with large market economies. Both Switzerland and Singapore, smaller than Nepal in population and territory and with little or no natural resources, have substantial number of middle classes and wealth creations. Switzerland with GDP of US$ 806 billion (2021) and about eight million people is an important economic player in Europe and engages freely with countries in the European Union and rest of the world. Switzerland’s prominence in world affairs is primarily due to its power of wealth and superior technology base.
Similarly, Singapore’s GDP of US$ 397 billion (2021) with a population of 5.5 million plays vital role in the ASEAN and global affairs. It is due to its economic prominence and integration into the ASEAN economy. Both Switzerland and Singapore are highly respected and valued in regional and globe affairs due to their economy-powered diplomacy. It establishes a fact that economy is the real strength for influence, nothing else. Is it not high time for decision-makers and people of Nepal for rethinking? Why is this country with some thirty million people with abundant human and natural capital resources lost in transition to development pathways and economic transformation? Just imagine, during the past three decades Communist Vietnam’s economy grew to over a trillion-dollar economy from US$ 6.5 billion (1990) whereas Nepal continues to struggle at the bottom of the platform with US$36 billion GDP (2022) also from US$ 6 billion during the same period.
In growth strategy, it is important for a nation-state to play an inspirational role as driving force of development and collaborative partner. Open market platform is the only sustainable platform where entrepreneurship, ideas, creativity, capital, labor, and goods flow freely ‘sans- frontier.’ In short, gone are the days of economic sovereignty verbose and super-protectionism if we are to make a country economically strong and prosperous, and lift the population higher up on the economic ladder.
Impact of Globalization and Access to International Market Economy
The positive impact of trading and market liberalization processes are irreversible. It has created higher economic inter-dependency between the countries and comparative awareness of benefits of development across continents. This is the reality of the present-day political economy. It is uncertain what political-economic construct would emerge from the current geo-political tension involving three economically powerful countries, and India at the center-stage. This tension could hamper global growth momentum. There are, however, indications that current polarization is developing into the de facto creation of a new economic construct.
With pragmatism, ASEAN has shown that growth is possible. Collaboration between them is in motion (Regional Comprehensive Economic Partnership is an example) with increased intra-region trading, continued flow of capital and goods across the region, visa-free movement of people for enhancing people-to-people contacts, entrepreneurship and business collaboration is expanding. Positive vibes are visible and appear intact despite signs of fissures at the geo-political arena. Challenges and fear, however, remain for there are politically strong maneuverings emerging at de-coupling multilateral structure, rule of law, trading practices, and restrict market access in the pretext of ‘national security’ because of security construct emanating from the ongoing rivalries between the economic and military powers and Russo-Ukraine conflict.
The consequences of COVID-19 pandemic have affected the labor market, private consumption, innovation, technology. It is changing work profile, human behavior and having profound effects on work culture and business environment. Any transformation will impact both on the market environment and business relationships although they may appear intact at the macroeconomic level. Global doctrines of multinational cooperation, rule base law, human rights, and democracy, massively popular during the aftermath of World War II and invented by the west for political and economic influence, are now under stress. This doctrinal international alliance has, over the years, unfortunately failed to mitigate increased social disparities, economic inequalities and contributed to political divide in several countries.
The major consequence of the coronavirus pandemic was that it demonstrated trust deficit between richer and poorer countries prompting rethinking in the Global South psychic. This trust gap was swiftly filled in by China and India through high impact vaccine diplomacy in the middle of pandemic. Both countries have created an aura of reliability and trust with recipient partners across the continents. The impact and political dividends of this may not be known yet precisely but it did create a favorable atmosphere for economic cooperation and instill mutual trust.
The global economy in the past century was under the dominance of industrialized countries of the west. The emergence of new economic players in the level playing ground of world marketplaces is gradually transforming the scene. This has created a sense of fear and insecurity in the old establishments. This scenario has, without realization, shrunk the market play and dominant influence on economics and other global issues unconditionally.
On the other hand, it also has produced unlikely cooperation and alliances between the nations of diverse political ideologies of the past. This phenomenon will contribute to rebuilding beneficial collaboration in economic fields and enhance inter-dependency between the parties over time. This transformation can be sensed in shifting international relations which is working favorably for countries like China, India, and other emerging economies.
Experiences of the recent decades suggest economic pathways of developing economies may need to be re-configured their models and programs pragmatically rather than working on idealistic and dogmatized super nationalistic euphoric models of governance delivery. Emphasis on market expansion, innovation, creativity, automation, intra-regional collaboration and high-tech are gaining grounds for development and sustainability. This is a developing trend in economic diplomacy. China is a sparkling gold in Asia and has become attractive destination, being the largest global manufacturing hub and supplier of household goods globally. This glitter is enhanced by being a big lender under the Belt and Road Initiative strategy and AIIB (Asian Infrastructure Investment Bank). Presently, China is the most influential economic partner of the ASEAN. Relationships will grow for it lends political stability, reassurance, and sense of economic sustainability despite political fissures emanating from external shocks.
During the economic globalization period partnerships between the trading nations have resulted in collaboration across countries and enhanced opportunities in manufacturing, trade, innovation, creativity which created immense new wealth worldwide. In this pathway, Nepal missed out avenues leading to economic growth synergies when both neighbors became dominant economic players by overhauling their past policy failures, adjusting to new reality, and working pragmatically. China and India are the magnets for investors, and both countries continue to maximize on opportunities and gaining economic growth. They are on their way forward, and unlikely to be deterred by hiccups ahead. Both neighbors have mobilized investments in manufacturing, global supply chain diversification, innovation, and comparative production efficiencies by taking advantage of technology, international market, and economies of scale. Unfortunately, policy and decision makers in Nepal appear blinded by political power play and unable to see the transformative changes which have been occurring in the neighborhoods.
China has created a broader space in the international arena and significant economic influence in Asia for it is a top trading partner of emerging markets of ASEAN. Simultaneously, recognizing market potentials in Africa, China quietly moved in the region to the annoyance of colonial powers for it is heavily investing in infrastructure and agriculture which were ignored by the west. In coming years, there is going to be fierce competition between the industrialized colonial powers of the west and China, to a lesser extent with India. The ‘Belt and Road Initiative (BRI)’ is China’s ‘softly-softly’ approach to economic diplomacy towards building trust and bonding relationship and ascending export market reach.
China’s successful creation of economic leverage and influence in the absence the western nation’s policy failures is paying the dividends in political domain. India is far behind in this due to its economic absenteeism in the region and inward-looking domestic political outlook. It is astonishing that within just over two decades some one billion people have been lifted out of the abject poverty in China. This is unprecedented in the economic history of human civilization. This success story of economic miracle has sparked an intense debate in academia and political domain influenced by laisser-faire geo-economic philosophy.
We must not forget the global growth and wealth creations have, however, failed to ensure fair and equitable distribution and sharing. It has widened the economic gulf between the needy people and the ruling elites and has created political fissures across the industrialized world contributing to the rise in political populism. The long term social and economic impact and the dimension of this phenomenon in politics are yet to be realized fully. This does not mean we ought to dump wealth creation and the creators, and their ingenuity otherwise the economy will go flat and remain stagnate or sink with the growth ebb and flow.
Changing Scenario and Emergence of Quadripolar Economic Construct
Since 1871 the USA has dominated the world economy. But, with the fall of the Iron Curtain in 1989 and the collapse of the Soviet Union in December 1991, the world became more interconnected and modern-day economic globalization shrouded in the doctrine of international free trading picked up. Over the past four decades, global economic growth from GDP of about US$ 23 trillion (1990) rose to US$ 96.5 trillion (2021). All regions have benefitted from this, although disproportionally.
Dominant economic powers of the 20th Century the USA, European Union, and the UK are currently growing slower than countries in Asia. Growth will be further compromised if Russo-Ukraine conflict were to prolong further, and economic ramifications appear uncertain. Economic growth, however, are shaky, unstable, and mired by stagflation. In this scenario, India has transformed into the largest benefactor of the western belligerent foreign policy chauvinism. India, the fourth largest global economy, has become a major political player without being permanent member of the UN Security Council or a formal member of G-7. India’s influence has grown significantly with its well-thought-out and pragmatic mainstream foreign policy of strategic autonomy, rather than clinging on to the outdated and defunct non-aligned bi-polar dogmatic world. It should be obvious that prosperity, creativity, innovation, quality, knowledge enhancement, productivity cannot flourish in the super-nationalistic compartmentalized environment. This means, there is no ‘soft power’ dividends in the current geo-political complex.
In the changing global landscape, unprepared India is outmaneuvered by China’s unstoppable Silk Road myth popularized by One Belt One Road (OBOR) initiative backed up by trillion of dollars of state funding for the program. It is no accident that India’s ‘Look East’ policy for expanding strategic influence in East Asia converged with ASEAN desire for creating reliable security umbrella at a time when ambivalent USA was retreating from pivot in Asia. India’s induction to ASEAN gambit as a strategic partner reflects alliance’s pragmatism for creating economic, political and security umbrella. The continued Russo-Ukraine conflict will have economic implications and uncertain political ramifications requiring regional structures and reconfiguration of existing compacts. This will have altered narrative and redefinition of relationships amongst the USA, EU, China, and India. This is leading to the emergence of a quadripolar global structure. By default, it turns in favor of India’s foreign policy alignment of strategic autonomy to have a stronger foothold globally and attain aspirations.
India’s economic strength is projected to surpass countries in the European Union in coming decades. This will re-confirm India’s place in the world stage as major player at the economic and military fronts. US Administration’s sudden withdrawal from Trans-Pacific Partnership (TPP) and desire to terminate NAFTA did not appear pragmatic in terms of global policy ramifications. The inclusion of India into the QUAD club created a sense of security in East-Asia at a time of China’s maritime muscle display in South-China Sea which appears overwhelming. Although India’s allure in the Indo-Pacific Alliance has created a tectonic shift in regional security frame and political calculus. It is difficult to speculate what role India would play if there were future military confrontations in the Taiwan Strait. This uncertainty has not altered the economic landscape in the region yet.
It is hard to speculate India’s future course of action at the Regional Comprehensive Economic Partnership (RCEP), the largest trading block in the world, despite earlier in principle agreement of the concept. India’s ambivalent but cautious reluctance sign up for this grouping is attributed to domestic political concerns and fear of overwhelming economic influence of China. RCEP is an important cooperation platform that could transform India’s ambition to become dominant power which is presently held by China for reason of its incomparable economic strengths and wealth. One cannot deny the fact that sustaining economic supremacy will also require display of military muscles for enforceability of its strategic goal.
The regional and sub-regional alliances between emerging and developing nations, including the Gulf and Middle Eastern countries, may produce new political construct and alter relationships involving the USA, EU, BRICS, Arab League, Shanghai Cooperation Organization (SCO), and the rest of the Global South. The wealthy Gulf and Middle East countries are looking east towards cooperation. This would reset regional compact with new narratives creating economic collaboration previously unthinkable. This compact with the Gulf and Middle East countries, led by Saudi Arabia’s ambition, the major player, is instrumental in forging partnerships with Asian economic power houses like China and India. This will be an important shift in the regional political calculus if it materializes and could alter the regional cooperation structure. This is in the direction of the emergence of a new quadripolar economic construct within the multipolar framework.
Implications
One should not be surprised in this development because it is being projected that Asia Pacific and the Latin America’s GDP share would exceed by more than half of the total GDP of US$120 trillion (2022 estimates) of world economy. The quadripolar economic construct is comprised of the USA, China, European Union, and India. It is crucial for developing countries to re-configure economic strategies in the changing construct. Such alignment can help leverage opportunities presented by emerging development conundrum and may reduce economic vulnerabilities and external shocks. One way forward argument for Global South is to have constructive collaboration in regional economic construct keeping in view of new realism and pursue pragmatic steps capitalizing on growing market expansion. This will ensure access to larger markets, create growth opportunities for investments, and a sense of economic security and stability through trade and other benefits concomitant with development across the region and beyond. This can help economically poorer countries like Nepal and others’ integration into regional structure, attract fresh capital investment and benefit from global value chains which will spur economic development and job creation.
Developing countries must also be mindful of the potential risks which might come with political polarization and economic de-globalization possibilities, income disparity, social inequality, and environmental degradation. Countries need to implement policies that mitigate these ongoing challenges and ensure that the benefits of economic gains are shared equitably and pragmatically across all societies. The Global South should maximize growth potential to economic prosperity of the nation by aligning policy strategies in the reality of quadripolar economic construct. This will, nonetheless, require balancing trade relations between countries in the regions while being cognizant of fallouts in the political domain. This means strictly adhering to pragmatic political economy strategies which are deliverable, by stopping building political castles in the air. Policymakers in developing economies should rethink and prepare for recalibration of policy compatibility in the emerging geopolitical quadripolar economic construct. This may be the beginning of a new World Economic Order. I leave it to the readers to re-thinking beyond this and the best way forward.
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Kedar Neupane is a founding, executive board member of the Nepal Policy Institute, an independent think-tank , a retired senior UN official, and president of ‘We for Nepal’ association based in Geneva, Switzerland where he lives. He has worked in several countries in Africa, the Middle East, Asia and Europe in his 38 years of service with the UN system and was Senior Change Management Advisor to UN High Commissioner for Refugees. Views expressed are his personal analysis and do not represent of institutions. neupanek1950@gmail.com
This article originally appeared on Transcend Media Service (TMS) on 15 May 2023.
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