NPR today had a book review on the "Rise" of Asia in a multipolar world. The story has the usual platitudes about how the future will be an economically prosperous Asia. The reviewer even praised the "Invididual entrepreneurship without interference from the state" in India. Hello?! India has a lot of "individual entrepreneurship"? Which land has a more vibrant small business scene, India or China? Which one suffers more from bureaucratic redtape in business formation?
But the point of this post today is not about correcting the details of this NPR story. Rather, I want to raise a point on the American public consciousness about Asia.
It appears that most commentators on the "Rise" of Asia forecast the following: China/India/et al becomes ever richer. One day, their GDP exceeds that of the US. Voila, Asia is now a superpower. Warfare/conflict does not enter the narrative except a worry that the American Gung Ho nutjobs will screw it up by fighting the Chinese in the Taiwan Strait.
These commentators generally downplay the economic risks during the "Rise". China and India both faces significant recession risks in the near term. How they, and we the US, deal with their economic downturn will significantly define their future trajectory and our relationships.
When the economy is booming, as it is right now in Asia, everybody is happy, and they have few disputes with the US. People become angry when their heightened expectations do not pan out, as in a recession, and that is when war starts.
China and India's rising demand for oil is driving up the marginal price for oil now. As oil becomes more expensive, their governments will have to decrease their oil subsidies to the consumers, or increase taxation. An oil-driven inflation will easily cause unrest among the urban poor, leading toward widespread social disruption. Anecdotal evidence suggest that inflation is already higher this year in China than last year, though official inflation figures will not be available before year end. India's new car culture is also vulnerable to the rising oil.
The current energy crisis is also driving up food prices. The agricultural revolution that cured India's famine was fueled by fertilizers. As fertilizer prices have gone up across the world (petroleum is a key input to the aritificial fertilizers), food prices have gone up as well. India and China have stopped exporting rice due to expected shortage.
Beyond the current energy crisis, economic growth has also driven up the real estate in China (not sure about India). The real estate prices in Shanghai and Beijing are reminiscent of pre-recession Japan. In such a speculative environment, there will inevitably be a real estate price crash. We are the living proof of that today.
Even now, manufacturers are moving away from China in search of ever cheaper labor.
All this is to say, we should stop thinking about the "Rise" of Asia, or managing the rise of China and India into the multi-polar world. Instead, we need to start working on plans to manage the coming Chinese and Indian Depressions and/or Stagflations. The coming Asian economic crisis will define the 21st Century, just as the Great Depression defined the 20th Century and the rise of the United States as a Superpower.