The year end is not a bad time to reflect where we are likely to proceed in a year of huge uncertainties. At the beginning of the year, the major headline events, such as Ukraine, ISIL, oil crash and Occupy Central were not on most people’s radar screen. As the year proceeded, there was realization that we are heading towards a period of slower growth and higher volatility, without much inflation as commodity and oil prices tanked to record levels not seen since the 1990s.

The Global Citizens Foundation has just published a book, “Towards a Better Global Economy,” detailing its research project involving some of the top development thinkers on how to achieve better growth amidst globalization. This is an important book, because it surveys the orthodoxy and re-examines how to achieve better growth. In his survey of “The Past, Present, and Future of Economic Growth, Princeton Professor Dani Rodrik, arguably the most influential development economist today, suggests that a key phase of past economic growth, when East Asian-led growth allowed catch-up with the advanced countries and brought billions out of poverty, may be ending.

This point was also argued by Larry Summers and Lant Pritchett in their paper “Asiaphoria Meets Regression to the Mean” that China and India’s growth spurt may sputter back towards the mean of slower growth.

Is the alarm about Asiaphoria (bullish about Asia) really coming from Asia-phobia ― the fear of the rise of Asia? After all, it is the rise of the billions of poor that threaten the entrenched position of the rich West.

Rodrik’s fundamental recommendations for emerging markets struggling with growing headwinds in the global environment are to focus on “a stable macroeconomic framework, incentives for economic restructuring and diversification (both market-led and government-provided), social policies to address inequality and exclusion; continued investment in human capital and skills; and a strengthening of regulatory, legal and political institutions over time.” In other words, there should be greater complimentarity between growth strategy and social policy.

Rodrik and his colleagues recognize that a world that is more diversified and hetereogenous would be more stable and sustainable than one that is being made more “harmonized and coordinated” in trade and finance ― the old model which drove globalization under the Washington Consensus.

Because there is a gap between the demand for desired amount of global public goods (such as clean air and water, reduction in depletion of natural resources) and its supply, governments need to take into consideration the feedback from citizens and civil society that inevitably will push for some “deglobalization” and diversity of views and action.

Nothing illustrates this decline in the global peace dividend than in the economic costs of the Iraq and Afghan war for the U.S. The Financial Times reported this week that the two wars combined cost $2.7 trillion, excluding future costs in terms of military pensions, medical services and disability costs, according to a Harvard study. Costs to date already account for 16 percent of U.S. GDP in 2013, which arguably has not solved the civil unrest in the Middle East.

No single country can afford to maintain global peace and unrest anymore. That inevitably means that local conflicts and unrests will escalate. Such local wars will inevitably rewrite the artificial borders that were written in the colonial era. Rising global and local conflicts would inevitably change the growth game.

Even though it is true that the future will not look like the past, there is no doubt that competition for resources, including human talent, will be global in nature. The network effects of globalization mean that a few (hubs or winners) can benefit from global business. But at the same time, such winner-take-all effects will hurt the under-privileged that cannot compete at the same scale.

The new wealth and income is being created in very different forms in the future. Alibaba create market capitalization of over $250 billion, vaulting founder Jack Ma ahead of wealth than Mr. Li Ka Shing, who made his name from real estate, trading and energy. Obviously, national wealth and income originates from being in the forefront of innovation and creativity. The trouble is that not many people or companies will enjoy that wealth creation, because as we have seen in the case of Nokia and Kodak, wealth franchises do not last long in the face of disruptive technology.

The new knowledge-based economy means that inequality must worsen because the few with special knowledge will benefit, but the unskilled masses face huge insecurity about their future jobs and income.

Occupy Central in Hong Kong is a manifestation of the frustration of many youth, who see that their opportunities of jobs and wealth creation are no longer the same as those of their parents’ generation. You may not necessarily agree with the way the protests were vented, but the core rationale of frustration over inequality is not fundamentally wrong.

If it is seen as a protest against the status quo, it is because the status quo is not sustainable.

Thomas Piketty’s diagnosis about the inequality generated by capitalism where the rate of return over capital is higher than economic growth is not wrong. What is missing is the public debate on what is the solution in correcting that inequality.

If governments have not historically proved adept at addressing inequality, perhaps it is time that families and communities step up to create more opportunities for their young. This generation of wealth was created by many parents who delegated education of their young to the state and nannies. Family and community values got sidelined in the rush for free market ideology plus increasing welfarism.

If the future of national growth comes from vibrant cities, then city growth must thrive on vibrant families and communities. After the protests, the process of healing and binding must inevitably require more dialogue with the young. The protests are symptoms of deeper issues that the young cannot solve because they are not in the driving seat. But they will inherit the consequences of our actions and decisions today. 

By Andrew Sheng

Andrew Sheng is writing on global issues from an Asian perspective. ― Ed.

(Asia News Network)