Asia's Strongmen Aren't Strong Enough
Across Asia, the world has supposedly been witnessing the return of the strongman. Chinese President Xi Jinping has been grasping more and more control in his own hands since claiming power in 2012. Two years later, Prime Minister Narendra Modi in India and President Joko Widodo (known as “Jokowi”) in Indonesia won office by selling themselves as forceful economic and political reformers. All three were heralded as the firm hands these giant developing nations needed to rejuvenate their promising but troubled economies.
Yet here we are, at the start of 2017, still waiting. Jokowi’s lackluster reform program has produced equally lackluster growth. Xi’s much-hyped pro-market manifesto, approved in 2013, has gone almost nowhere, leaving China to limp along on ever-greater infusions of debt. While India is the best performing of the bunch, Modi has remained reluctant to press ahead on key changes that could lift growth even higher.
The truth is that Asia's strongmen aren't strong enough.
This matters to a world counting on emerging markets in Asia and elsewhere to lift global growth. In October, Capital Economics released a report darkly entitled “The End of the Golden Age,” which predicted that “widespread expectations for a sustained rebound in emerging market growth after the slowdown of recent years will be disappointed.” Emerging economies’ GDP, the research outfit forecast, would grow no more than 4 percent in coming years, sharply slower than the 6 percent notched since 2000.
To be fair, as big economies like India and China advance, eye-popping growth rates naturally become harder to come by. But these countries don’t lack potential -- they lack leadership.
Compare current policies to the bold decision-making witnessed during Asia's go-go years. In India in the early 1990s, Prime Minister P.V. Narasimha Rao and his finance chief Manmohan Singh tore down large swaths of a regulatory raj that had been considered sacrosanct. In the early 1980s, Deng Xiaoping and a team of forward-thinkers discarded the economic irrationalities of Mao. Even Suharto in Indonesia, with his myriad faults, instituted dramatic changes that greatly alleviated poverty in the world’s fourth-most populous country.
Why haven't today's leaders acted as forcefully? Partly it's a problem of success. Though millions of people in these countries remain trapped in poverty, overall they are a lot less desperate than they once were, easing some of the urgency to force through difficult and potentially unpopular changes. Since 1980, GDP per capita in Indonesia has increased more than five times, in India, six times, and in China more than 26 times. Despite the fact that globalization has been the prime driver of these gains, there are still powerful voices who aren’t convinced further opening is necessary or desirable, especially in light of the turmoil in the global economy over the past decade.
Arguably, too, most of the low-hanging fruit has been plucked. Previously, connecting low-cost economies to global trade, services and supply chains was sufficient to spur dramatic gains in productivity and incomes. Today's economies are far more complex and their challenges -- such as spurring innovation -- much tougher. The prospect of opening protected sectors and untangling regulations threatens special interests that benefited from the earlier booms. Xi's reform roadmap, for instance, affects everyone from state enterprises and banks to Communist cadres and coddled tycoons.
True, none of these Asian leaders are free to act as they wish. Modi still must contend with a spirited political opposition, and Jokowi has had to tiptoe through a political minefield even within his own party. Even Xi faces a major Communist Party conference later this year, which may lead to a reshuffling of the country’s top leaders.
At the same time, democracy isn't the roadblock. There seems to be an inverse relationship between Xi’s expanding grip on China and the pace of free-market reform, for instance. The democratically elected Modi has arguably introduced more meaningful reforms in India -- reducing barriers to foreign investors and ushering in a major and long overdue tax reform -- than Xi has. After a slow start, Jokowi, too, has at least sliced red tape and made it easier to start new companies in Indonesia.
For another self-proclaimed economic strongman -- Donald Trump -- the lessons abound. Much like Xi, Modi and Jokowi, Trump’s arrival has boosted the hopes of investors and CEOs for great, business-friendly changes. But high expectations can very quickly turn into even bigger disappointment. Trump's Asian counterparts all allowed political distractions to sidetrack their reform agendas; with his White House in turmoil, Trump may be making the same mistake.
Unless today’s Asian leaders get back on track, their economies won’t either. Modi must resume the campaign for land reform to speed the process of building industry, and launch a sweeping privatization of lumbering state companies. Jokowi needs to push forward with a productivity-enhancing infrastructure program. Both Modi and Jokowi must also reduce barriers to hiring and firing workers to attract the manufacturing that would increase exports and incomes. Xi needs to stop subsidizing zombie enterprises, slim excess capacity and, most of all, allow market forces to have greater sway in financial and capital markets. If they can't act more boldly -- and soon -- Asia’s golden age might truly be over.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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