Wake up Asian elephants!

My outlook towards current economic situation!

Markets plunging and diving down everywhere in the world with a falling rate in double digit everyday. Markets seeing the new lows that they had not seen in years. Everything looks so gloomy from North America, Europe, Asia to lesser mentioned Latin America and Africa.

The economic crisis began when the biggest economy in the world thought that it is an intelligent move to give loans to people who couldn't afford it. Not just this, the lender themselves were not in a position to afford giving such loans. But then, there were even more intelligent people in other parts of world (read banks in countries like Iceland and other countries in Europe), who thought that it's great to lend money to these lenders. But soon this bubble bursted and started sinking the world economies. And sadly, it has effected other countries more than the United States itself.

While everything may look gloomy but one must realise that US is no fool and with reforms and corrections, it will bounce back to normal state in few years. Nobody is going to take away its status as a developed economy. US will once again lead the way and we hope even Europe will come back to normalcy. However, by the end of this period, there is going to be one big change. The reliance of world on US economy will decrease and US will not have the same global dominance as earlier.

But who is going to steal the show? Western Europe is still struggling to find its golden era when it had edge in all the technology. Whereas Eastern Europe has acquired the upper middle income economy status but with its limitations of resources (both natural and human), it can only grow by specializing in some distinguishing area. They cannot compete in labor intensive areas.

Africa is yet to become mature enough to takeover other economies. Latin American countries are focussed on extremely leftist policies making them less of contributor to world. Once they were the most capitalistic countries of world but they faced repetitive economic crisis, instability and crashes due to their unsustainable consumption promoting economic policies. Probably, Brazil is the only country in South America which has maintained the right balance between regulation and freedom to support sustained growth with stability. In order to have stability, Brazil even decided to satisfy itself with relatively lower economic growth even at times when it could have easily afforded more. Brazil is likely to be important.

Latin American economies are full of paradoxes. They can always sustain themselves as these countries are the world's bread baskets. Most of them have the potential to be self-reliant in food and oil. And yet, petroleum companies have not been able to take advantage due to the unfavorable policies. All these countries belong to the exclusive club of very few countries in world with upper middle income status. Still, all these are economies with unmatchable income inequality. For example, Mexico being one of the top 10 economies in world is responsible for much immigration in US due to widespread inequality in Mexico. Moreover, in the last 30 years, Latin America's GDP share in world remained at 5.7% whereas for Asia it rose from 18% to 29%.

So, that leaves us with Asia. I like to call them as Asian Elephants rather than Asian tigers due to their huge size and population. These are the economies with huge potential and resources, have uncaptured but still developing markets. These are the countries which can fuel the growth by developing their own markets and decreasing reliance on developed countries for the same. Due to the low income status of many of these, it's not advisable to develop market for fancy items like ipods or other high-end sophisticated consumer items. Such development would lead to income inequality and would be unsustainable. Asia still has to develop market of basic requirements which can help them in long run.

Though Asia is likely to steal the show in this century, it is still a distant dream to remove poverty from this region. Even after the economic growth, it seems unlikely that poverty can be eradicated in next 20 years. Let's hope that India and China work together for the wholesome development. Both of these countries can do so. In India, it's democracy which will make government to do something for income distribution. On the other hand, in China, it's the will power of government which can achieve this. If they can regulate news and information, they can easily achieve equal income distribution if they wanted.

Let's see what are the outcomes of ASEM meet in Beijing. Till then, I can only say-
Come on Asia! Wake up! World needs you!

Ghantadhar