Our place in the worldGreece is a relatively small economy with an 11 million population generating a gross domestic product that accounts for less than 0.4 percent of the global economy. But its recent parliamentary election was closely watched by global leaders and financial markets worldwide as a kind of referendum on whether Greece will remain in the euro zone. It shows how intricately the world economy is connected today.
Until the meltdown of Lehman Brothers in September 2008, the terms — globalization and economic integration — had been more rhetorically and theoretically used by politicians and economists. In early 2008, many believed the chain bankruptcies of U.S. investment bank Bear Stearns and British bank Northern Rock were restricted to core financial cities in America and the UK.
There was even a slight shadow of schadenfreude, or guilty pleasure, on the faces of Europeans as they watched the worst financial meltdown since the Great Depression wreak havoc on the lofty financial districts of Wall Street and London. But smirks were quickly wiped out. In less than a month, the European Union’s rotating French president Nicolas Sarkozy and European Commission president Jose Manuel Barroso rushed to Washington to meet President George W. Bush and discuss concerted efforts to contain the crisis. They later formed the Group of 20 summit meeting to come up with international coordination on the issue.
With such a backdrop of intricate economic consolidation, we must examine a desirable path for the Asian economy, which relies so heavily on external trade and the global economy.
As industrialization and modernization led by the West panned out, the share of China’s and Asia’s economy in the world, which peaked at 60 percent in 1820, sagged to under 20 percent by 1950. But since then, the Asian economy turned around at staggering speed and scope first led by Japan and later followed by South Korea, Taiwan, Hong Kong and Singapore. From 1970, Southeast Asian countries, China and India took up the baton to push and expand the economic size of the Asian continent. The economic share of the Asian bloc now takes up around 30 percent of the world economy.
The resurgence of Asia was driven by its export-focused growth strategy, mostly targeting American and European consumers. China, backed by immense labor forces and resources, has turned itself into an industrial powerhouse and in less than 30 years the country leaped to the status of the world’s second largest economy.
The Asian Development Bank in a recent outlook predicted that Asia’s economy will continue to expand to occupy more than half of the global economy by 2050. To do so, however, the regional economy must restructure to balance growth with domestic as well as external demand rather than adhering to its export-oriented growth policies.
China and Asian countries owe much of their success in export to American consumers, whose private spending accounts for 70 percent of the U.S. GDP. However, consumer spending in the U.S. has slowed remarkably over the last four years after Americans were forced to end borrowed spending sprees and tighten their belts following the debilitating burst in housing and jobs. With unemployment rate still running high, spending won’t likely pick up any time soon.
The ongoing crisis in Europe cannot be solved over a short period because the euro zone is suffering intrinsic side effects from a forced consolidation of its currency without incremental financial, banking and political integration. Moreover, the region is lacking strong leadership to steer the divided economies out of the turbulent stage. Europe may stagger for some time battling one crisis after another with makeshift measures and without effectively coming up with a fundamental solution. The regional economy, therefore, will likely remain depressed for quite a long period of time.
Taking into account recent developments on both sides of the Atlantic, China has included measures to stimulate domestic consumption in the 12th five-year plan (2011-2015) in March last year. Under such circumstances, we should come up with actions in sync with China’s shift in focus. Korean companies must beef up efforts to target China’s massive consumer market along with making an effort to diversify our exports gradually away from China to other areas. Through such endeavors, Korea must reduce its over-reliance in trade with China.
At the same time, the government must bolster steps to stimulate the services sector such as medical supplies, health care, tourism, logistics, and exhibition/conventions that can help create jobs. It should do away with regulations so that the services sector can thrive as actively as the manufacturing industry.
On the foreign front, Asian governments should play a more active role in global public affairs for a sustainable global economy through consistent efforts in financial stability, climate change and environmental issues, as well as anti-protectionism.
Asian countries should also enhance their regional cooperation and coordination in policy and economic areas. They should work on concrete ways to create a regional monetary fund by further advancing the Chiang Mai Initiative Multilateralization platform.