20 april 2011

iToys won’t fix Asia’s broken growth model

By Chandran Nair, Financial Times, April 19 2011

Asian leaders face fast-rising inflation, strong currencies and unwanted influxes of capital. But behind these they face a more profound choice. Either they pursue the consumption-fuelled capitalism that has driven world growth in recent decades. Or they can take a deep breath, change direction and find a sustainable new path.

Under the orthodoxy that held sway until the financial crisis, Asia had no options. Intellectually subservient to the west, it followed the consensus of freer markets and smaller states. But if this continues, the region will face a bleak future of unbalanced export-dominated growth, food and water shortages, and major environmental degradation.

On the face of it, it seems as if most Asian nations are still emulating this western model. But the truth is more complex. Governments are waking up to the social and environmental consequences of their growth. The dilemma now is what to do about it, while retaining power – be that in democratic India, or one-party China.

Indeed, changes are happening. For instance, China is exploring carbon and resource taxes, while India’s environment minister is challenging conventions about the links between development and the fair use of resources. Even before Laos deferred a decision to build a dam on the lower Mekong River, there was also a growing recognition that recent decades of growth had been based on underpricing many resources and especially water – and new pollution pricing mechanisms are overdue.

Some experiments in different models of capitalism are also beginning. Again in China, plans are developing to build a new network of smaller cities and towns, served by improved roads, railways, schools and irrigation. These aim to stop the flow of rural workers into large cities, while addressing growing concerns about food security and safety. If China shows it can create more prosperous rural communities, other densely populated countries, such as Vietnam and Indonesia, may follow.

However, these worthy actions will not be enough to put Asia on a new path. Instead, China and India in particular need to raise taxes on energy and financial transactions, while slashing taxes on salaries, particularly for the poor. Beijing’s city government recently imposed restrictions on private car ownership; similar measures are needed elsewhere, along with rules to improve energy efficiency in rich cities such as Hong Kong and Singapore.

In agriculture the priority is to mitigate the effect of industrial agriculture on water and land use, paving the way for a less chemical- and petroleum-dependent food production. Technology can play a part too, but only if effort is redirected away from producing more iToys and back towards smart public transport networks and efficient water management. Resource conservation and recycling measures must also be encouraged.

Of course, a radical plan to put the accurate pricing of resources at the centre of policymaking will present considerable political challenges. These measures would make car ownership, air travel and meat consumption more expensive, by revealing their true economic and social cost. But actions of this type will actually benefit the majority of poorer citizens; those billions of farmers and countryside dwellers who are now largely disenfranchised. Thus they will, in the long run, make governments more legitimate.

In the interim, however, such actions will upset many people – not just the companies and countries with vested interests in today’s model, but also the billions of Asians who have been told that they too can aspire to a western way of life. But the choice remains stark. If Asia acts now, and accepts the resource constraints that confront it today, it has a bright future. But if by 2030 no alternative is adopted, Asia will say goodbye not just to the goal of achieving prosperity for all, but also to achieving any form of prosperity at all.

The writer is chief executive of the Global Institute For Tomorrow, and author of Consumptionomics: Asia’s Role in Reshaping Capitalism and Saving the Planet

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