The common view that the twenty-first century will be defined by the economic rise of Asia is based on the assessment that two-thirds of the world’s middle classes will reside in this region by the mid-2030s. It is the region with the most rapidly growing middle classes in the world. Currently, more billionaires are emerging in Asia than anywhere else. It is widely predicted that this century will be known as the Asian Century—a return to the early 1800s when Asia accounted for well over half of global GDP.
The basis for optimism about Asia’s economic future is founded on its impressive growth in productivity over several decades An alternative possibility is Asia resembling the economies and societies of South America over the next decade and beyond. These are countries characterized by immense inequality, declining productivity, ongoing problems with managing debt, as well as poor governance, institutions, and high levels of corruption.
At first glance, this seems unlikely. About half of all global manufacturing occurs in Asia. Asian economies are becoming more technologically adept. Citizens are becoming much more educated. Currently at about 55 percent of global GDP, Asia’s share is projected to grow to about two-thirds of global economic output by the mid-2030s.
The problem is that there are underappreciated headwinds that place the Asian Century in jeopardy. The most serious is an economic growth model that was pioneered in the 1950s and 1960s is running out of steam. This is based on Asian economies creating political economies that prioritize production over consumption. The problem is that there is now a global structural problem in which consumers in advanced economies, especially in North America and Europe, cannot absorb the excess production that has driven economic growth and the rise of the middle classes in Asia. It is also extremely difficult to change decades-old policies that prioritize production over consumption, as this needs structural adjustments that are not just economic but political and social. Doing so will cause immediate economic, social, and even political turmoil that Asian governments would rather avoid.
Moreover, and apart from high-income Asian economies such as Japan, South Korea, Taiwan, and Singapore, many developing Asian nations have governance practices and institutions that resemble the promising but flawed ones in South America in the previous century. In much of Asia, as in South America, inequality is accelerating because well-connected elites have disproportionate access to economic and career opportunities. Corruption is becoming more rather than less entrenched. These trends are worsening as overall national wealth increases.
The rise of Asia in an absolute sense is likely to occur. But unable to escape the middle-income trap, with institutions becoming less resilient and reliable and societies becoming more divisive and fragile, the future for the region might be troubled rather than thriving in the 2030s and beyond.