Asian countries need to begin preparing for the challenges of the future. This was the overarching theme of a public forum on Prosperity in Asia: the intergenerational dimensions hosted by the East Asian Bureau of Economic Research at the Australian National University in Canberra on 17 March, featuring international academic experts and policymakers. This followed a high-level roundtable discussion on 16 April.
The keynote speaker, former Indonesian Minister of Finance Dr Muhamad Chatib Basri, said that with twin deficits in advanced economies, Asian demand will play a substantial role in boosting global growth in the near to medium future. Asia’s growing middle class has a growing taste for consumption, but regional economies like Indonesia will need to adjust to the next stage of growth by weening themselves off a reliance on capital accumulation and natural resource exploitation, investing in human capital instead.
A panel discussion on the ‘middle income trap’ faced by some Asian economies, led by Professor Peter Drysdale, explored how countries like China can undertake the kind of industrial upgrading that is necessary to transition to high-income status. Professor Kevin Mumford recommended thinking about stocks of wealth rather than simply aiming to boost GDP growth if it comes at the expense of long-term investment in or preservation of productive assets, while Dr Shekhar Shah spoke about how India can prepare for a middle-income future at the same time as it tries to escape from ‘low-income traps’. Professor Yiping Huang explained that the middle income trap arose when real wages rise, making low-skilled manufacturing uncompetitive, while productivity growth is insufficient to allow a country to move into high value-add production. Industrial upgrading and investment in human capital are the keys to avoiding such a trap, he argued.
A second panel, chaired by Dr Ken Henry, examined how countries should invest for future prosperity while maintaining fiscal sustainability. Professor Alan Auerbach of the University of California, Berkeley examined the longterm fiscal outlook for developed and developing countries, while Dr Lu Yang argued that the end of the ‘demographic dividend’ in China means that a new focus on productivity is required. Dr Jenny Gordon, an advisor at the Productivity Commission, said that productivity growth in Australia was becoming harder to analyse, with difficult-to-quantify improvements in the quality of goods and services becoming more important. Jungsoo Park, Professor of Economics at Sogang University, said that in developing countries, governments essentially play a coordinating role, and that they should take care to nurture a strong institutional framework that promotes growth into the future.
The papers presented at the roundtable and the discussion at the forum will form the basis of a special issue of the Asia Pacific Policy Studies journal as well as an issue of the East Asia Forum Quarterly.