Two centuries ago, in 1820, Asia accounted for two-thirds of world population and more than one-half of world income. The subsequent decline of Asia was due largely to its integration with the world economy shaped by colonialism and driven by imperialism. By 1962, its share in world income had plummeted to 15%. Even in 1970, Asia was the poorest continent in the world. Its demographic and social indicators of development, among the worst anywhere, epitomized its underdevelopment. Gunnar Myrdal, who published his magnum opus Asian Drama in 1968, was deeply pessimistic about the continent’s development prospects.
In the half century since then, Asia has witnessed a profound transformation in terms of economic progress of nations and living conditions of people. By 2016, it accounted for 30% of world income, 40% of world manufacturing, and over one-third of world trade, while its income per capita converged towards the world average. This transformation was unequal across countries and between people. Even so, predicting it would have required an imagination run wild. Indeed, Asia’s economic transformation in this short time-span is almost unprecedented in history.
It is essential to recognize the diversity of Asia. There were marked differences between countries in geographical size, embedded histories, colonial legacies, nationalist movements, initial conditions, natural resource endowments, population size, income levels and political systems. The reliance on markets and degree of openness in economies varied greatly across countries and over time. The politics too ranged widely from authoritarian regimes or oligarchies to political democracies. So did ideologies, from communism to state capitalism and capitalism. Development outcomes differed across space and over time. There were different paths to development, because there were no universal solutions, magic wands, or silver bullets. Despite such diversity, there are common discernible patterns.
For Asian countries, political independence, which restored their economic autonomy and enabled them to pursue their national development objectives, made this transformation possible. Economic growth drove development. Growth rates of GDP and GDP per capita in Asia were stunning and far higher than elsewhere in the world. Rising investment and savings rates combined with the spread of education were the underlying factors. Growth was driven by rapid industrialization, often export-led, associated with structural changes in the composition of output and employment. It was supported by coordinated economic policies across sectors and over time.
Rising per capita incomes transformed social indicators of development, as literacy rates and life expectancy rose everywhere. Rapid growth led to massive reduction in absolute poverty. But the scale of absolute poverty that persists, despite unprecedented growth, is just as striking as the sharp reduction therein. The poverty reduction could have been much greater but for the rising inequality. Inequality between people within countries rose almost everywhere, and the gap between the richest and poorest countries in Asia remains awesome.
Governments performed a vital role, ranging from leader to catalyst or supporter, in the half-century economic transformation of Asia. Success at development in Asia was about managing this evolving relationship between states and markets, complements rather than substitutes, by finding the right balance in their respective roles that also changed over time.
Governments in South Korea, Taiwan, and Singapore coordinated policies across sectors over time in pursuit of national development objectives and became industrialized nations in just fifty years. China emulated these developmental states with much success, and Vietnam followed on the same path two decades later, as both countries have strong one-party communist governments that could coordinate and implement policies.
It is not possible to replicate these states elsewhere in Asia. But other countries did manage to evolve some institutional arrangements, even if less effective, that were conducive to industrialization and development. In some of these countries, the institutionalized checks-and-balances of political democracies were crucial to making governments more development-oriented and people-friendly.
Economic openness performed a critical supportive role in Asian development, wherever it has been in the form of strategic integration with, rather than passive insertion into, the world economy. While openness was necessary for successful industrialization, it was not sufficient. Openness facilitated industrialization only when combined with industrial policy. Clearly, success at industrialization in Asia was driven by sensible industrial policy that was implemented by effective governments.
The countries in Asia that modified, adapted, and contextualized their reform agenda, while calibrating the sequence of, and the speed at which, economic reforms were introduced, did well. They did not hesitate to use heterodox or unorthodox policies, or experiment and innovate, for their national development objectives.
The rise of Asia represents the beginnings of a shift in the balance of economic power in the world and some erosion in the political hegemony of the West. The future will be shaped partly by how Asia exploits the opportunities and meets the challenges and partly by how the difficult economic and political conjuncture in the world unfolds. Yet, it is plausible to suggest that by 2050, a century after the end of colonial rule, Asia will account for more than one-half of world income and will be home to more than one-half the people on earth. It will thus have an economic and political significance in the world that would have been difficult to imagine fifty years ago.