The Next Asia: Opportunities and Challenges for a New Globalisation
By Stephen Roach
Wiley $39.95 (£26.99)
Stephen Roach, Morgan Stanley’s perennial bear, had long predicted a terrible reckoning for a supercharged US economy, hopped up on private consumption and propped up by savings-surplus countries willing to fund US debt. When, finally, in 2007, Morgan Stanley sent him to live in his beloved Asia, about which he had always been bullish, his thoughts on that region quickly turned gloomier, too.
In The Next Asia, a collection of essays on the region’s place in the world, Roach could not fairly be described as bearish. “Don’t get me wrong,” he says at one point in a typically down-to-earth interjection. “I am a long-standing optimist on Asia.”
But he does challenge, and in forthright terms, any notion that the world can go back to business as usual. If Asia, particularly China, thinks that it can simply wait for the west to recover before merrily recommencing its export-dependent growth strategy, it is kidding itself, he argues. Only if it can rebalance its economy towards greater domestic consumption will it fulfil its enormous promise. “It may be premature to crack open the champagne. The Asian century is hardly as preordained as most seem to believe.”
So far, Roach has been disappointed by the Asian, particularly the Chinese, response. In the section on Chinese rebalancing, he concludes: “There are worrisome signs that China just doesn’t get it, that it is clinging to antiquated policy and economic growth strategies that presuppose a classic snapback in global demand.” He cites as evidence the make-up of the $585bn two-year stimulus package that, he says, is biased towards old-fashioned infrastructure projects and too light on pro-consumption measures such as bolstering national health insurance, the absence of which encourages people to make precautionary savings.
He welcomes China’s willingness to engage more actively in debate about the global financial system. But for Roach, Beijing’s emphasis on the US deficit and on seeking alternatives, such as special drawing rights, to the dollar as a reserve currency betrays a complacency towards its own problems. China’s massive holdings of US Treasuries, he contends, are the flip side of America’s: they reveal a dependence on exports and the need to recycle foreign currency reserves abroad for fear of putting upward pressure on the renminbi.
Roach’s writing is always clear, opinionated and fun. In other sections, he lays much of the blame for the financial crisis at the feet of Alan Greenspan, whom he criticises for encouraging a series of asset bubbles by concentrating on overly narrow definitions of inflation. On globalisation, he swipes at what he calls the “win-win mantra” of rigidly applying Ricardo’s theory of comparative advantage. Globalisation is asymmetrical, he says, arguing for example that the addition of 1.5bn workers from China, India and the former Soviet Union has put downward pressure on wages in the US and other rich countries, forcing the labour share of national income to a record low of 54 per cent. Yet he is equally forthright in rejecting what he says would be a ruinous attempt either to impose protectionist barriers or to force China to revalue.
Put simply, both the US and China must look in the mirror: the US must save more and better educate its workers to compete in a flatter, IT-enabled world. China must save less, spend more and shift to a form of growth that is less energy and commodity intense. Above all, the huge transfer of savings from the poor world to the rich one, what he calls a “reverse Marshall Plan”, is no longer sustainable.
If the book has a fault, it is that it is not really a book at all, rather a collection of essays cobbled into themes. Written over a four-year period, the format does bring immediacy and progression of thought as Mr Roach reacts to events – the reprinted FT blogs from Davos are a good example of this intellectual excitement. But the book lacks a fully satisfying narrative and suffers from repetition. Even some of Mr Roach’s best lines – “You either believe in decoupling or globalisation: but not both” – begin to wear thin the fourth time around.
Still, the collection is bristling with ideas and bold calls. What it lacks in narrative thread it makes up for in intellectual coherence. The strongest theme is the link between the US consumer and Asian growth. From 2001-07 the export share of China’s output rose from 20 per cent to 36 per cent, a surge that coincided with a rise in the global export share of world output from 24 to 31 per cent. China rode globalisation to perfection. But that is over. Asia, says Roach, must come up with something else.
The writer is the FT’s Asia editor
