IT is hoped that the recent tete-a-tete between the heads of today’s superpowers at Mar-a-Lago made clear the obvious fact that conflict in today’s world between superpowers and even smaller nations who now have nuclear capability is, to say the least, catastrophic.
China, the world’s second largest economy and largest importer of natural resources is expected to beef up its security. This is the natural flow of history.
It would be wrong, however, for the world to see this development as a precursor to hegemonic tendencies.
These suspicions can only escalate tensions. China is fully aware that the cost of hegemony far outweighs the benefits. China faces Russia in the north; Japan and Korea, with US military alliances, to the east; Vietnam and India to the south; and Indonesia and Malaysia not far away. Indeed, most of these countries have a credible defense force and will not likely succumb meekly to invasion as was the case against the Japanese in the last world war.
Another reason for Chinese hesitancy is the fact that it has yet to consolidate its economic gains given that the interior of China is still largely underdeveloped.
The Sino-US relationship cannot fall into the Thucydides trap which is zero-sum gaming. There is by far a lot of complementarity in their relationship which today could be developed into a win-win situation.
But both sides have the responsibility to take into account each other’s phobias. Obama’s pivot to Asia and the movement of 60 percent of its navy to the Asia Pacific in an obvious containment policy vis-à-vis China can only feed Chinese phobia that an outside power or powers will establish military deployments around China’s periphery capable of encroachments on its territory. Whenever China perceived a threat to its territorial integrity, it went to war –in Korea in 1950, against India in 1962, along the northern border with the Soviet Union in 1969, and against Vietnam in 1979.
On the other hand, America’s fear is of being pushed out of Asia and losing its dominance of the Asia Pacific which she enjoyed after World War II.
Both the US and China have expressed time and time again their determination to have a modus vivendi in the Asia-Pacific region and to respect each other’s vital interests. They are joined in these aspirations by other Asian countries, many of them significant powers in their own right, like Japan, South Korea and Taiwan. These countries will insist on developing their capacities for their own national reasons, not as part of a contest of outside powers. They do not regard themselves as favoring US containment policy, nor of a revived Chinese tributary order. They will aspire to good relations with both China and the US and will resist pressure to “choose” between the two.
Can the fear of hegemony of the US and the nightmare of military encirclement of China be reconciled?
The concept of a Pacific Community whereby the US and China could co-evolve, wherein their two societies could progress on parallel, albeit on different tracks, would ensure that the US and China pool efforts, with each other and with other states, to bring about a more stable world order.
This year the Philippines is hosting the Asean summit which raises the hope that the contentious issue of the South China Sea, claimed by some countries, including ours, will finally be resolved with the signing of a Code of Conduct in the South China Sea that will cease to be just a lofty aspiration and become an enforceable document.
MOU between PCFR and the CPIFA
Last Monday in Manila, the Philippine Council for Foreign Relations, an organization established in 1985 by some of our most distinguished diplomats, signed a memorandum of understanding with its Chinese counterpart, the Chinese Peoples Institute of Foreign Affairs, to cooperate in advancing Track 2 diplomacy, or people-to-people dialogue, as distinguished from Track 1 diplomacy which involves government-to-government negotiations. The MOU initiates Track 2 diplomacy between this country and China
The advantage of this mechanism is that policy options and possible solutions to crisis situations can be derived from public discussions away from the negotiating table where oftentimes hardline positions are already cast in stone without the benefit of public scrutiny, at least in this country.
In the history of international relations, many Track 2 positions have resulted in Track 1.5 diplomacy where state and non-state actors cooperate in conflict resolution. This is only proper given that foreign policy is an extension of domestic policy which is not only concerned with foreign policy but also with development issues, be they be socio-economic or even cultural.
In the case of the PCFR given its broad membership which include retired members of the foreign service, the military establishment, academia and the business sector, it is well positioned to propose for consideration by the government balanced foreign policy initiatives which will be the product of extensive workshops, in-depth analysis and dialogues with partners like its Chinese counterpart..
The first activity following the signing of the MOU was a roundtable discussion held at the Development Academy of the Philippines. The undersigned opened up the forum with an observation which was framed as a question, the gist of which was the following:
Given the good relations between this country and China which spans some 1,000 years and has produced a few million Chinese-Filipinos, why are we now engaged in territorial disputes and how can we overcome this which I agree is not the sum total of our relations?
The opening statement was followed by a lively discussion which we hope will be the precursor of even more productive interactions in the near future.
Ambassador Jose V. Romero Jr is the chairman of the Philippine Coun
THERE are those who want to assert our sovereignty over our exclusive economic zones handed to us by the United Nations Convention on the Law of the Sea (UNCLOS). They want to confront the alleged Chinese intruders who have been loitering around the area and are putting up structures in the same. This has been denied by the Chinese.
Before we lose our cool over the issue, let us first understand what exclusive economic zones are all about. These vast areas are not part of the territorial waters of this country which is only 12 miles from land. It does, however, grant the country less than sovereign rights to exploit resources thereto without preventing other nations from doing the same. In short, UNCLOS by awarding us an exclusive economic zone is not making the area part of the archipelago. It merely awards sovereign (not territorial) rights for the purpose of exploring and exploiting, conserving and managing the natural resources of the area. It does not, however, in any way, allow this country to restrict freedom of navigation or right of innocent passage (even of warships) or prevent other nations from fishing and doing things enumerated below.
In sum, under UNCLOS all states enjoy the rights of innocent passage which include: a) freedom of navigation; b) freedom of overflight; c) freedom to lay submarine cables and pipelines; d) freedom to construct artificial island, and other installations permitted under international law and conditions laid out by the convention; e) freedom of fishing, subject to conditions; and f) freedom of scientific research
It is important to note that these freedoms are exercised by other states with due regard for the interests of other states in their exercise of the freedom of the high seas, and also with due regard for the rights under this convention with respect to activities in the area.
Given the above, assuming that a Chinese ship was seen in the area, this is no big deal since under convention rules anybody can pass through our EEZ. It is said that the ship lingered in the area for some time. Why not find out from the Chinese what they were doing instead of speculating because as said earlier there are legitimate things that are allowed by the convention by other states as enumerated above.
Before calling in the Yanks and invoking the Mutual Defense Treaty as proposed by no less than an associate justice of the Supreme Court, which could place our troops in harm’s way, why not sit down with the Chinese – cuentas claras!
When I led a delegation to Beijing a few months ago on Track 2 (back-channeling) negotiations, the Chinese invoked their historic rights over the South China/West Philippine Sea while our group insisted on the Hague decision. But, at the end of the day, the Chinese agreed to place the issue in the backburner which they say did not represent the sum total of our relations with them. As a result, they promised not to harass our fishermen in Scarborough who continue today to fish in the area. This is what I call creative diplomacy – a win-win solution.
Not only that, the Chinese have plowed in billions of investment funds which will among other things connect Southern Luzon to Northern Luzon by rail and Western Mindanao with Eastern Mindanao and even the northern to southern part, surely we do not want to upset the apple cart at this time.
It is a good thing, however, that we assert our rights. We should have done this when our former colonizer grabbed hundreds of thousands of land in Luzon to convert into US bases which enjoyed extra-territorial rights – such as keeping out Filipinos who I recall had to get a pass to enter Subic and Clark and Camp John Hay. I also recall when US sentries shot young Balugas of the Aetas who were mistaken for wild boars and US servicemen who raped Filipinas being bundled off to the US to escape Philippine justice.
Thanks to the magnificent majority in the Senate in the 1990s we got back our land from the Americans. By the way, we seem to have given up our rights over Sabah whose legitimate owners the Sultanate of Sulu passed on to this country? It hurts me to read in the papers about Filipinos being “deported” from Sabah and our countrymen maltreated in Malaysian jails. This does not seem to bother our nationalists who want to confront China.
Back to Benham Rise. First off, let us sit down with the Chinese. As a diplomat, my knee jerk reaction is to sit across the table. Secondly, let us form a group that will develop the area since we say that it is ours, period.
Incidentally, territorial claims have been there since time immemorial and in many cases these have been resolved peacefully. If space permitted I could discussed these one by one.
In the meantime, to preserve our rights over Benham Rise, it is expedient that we heed the advice of Congressman Lito Atienza and pass a bill that would establish a Benham Rise Protection and Development Authority which could be consolidated with a pending bill in the Senate, the Benham Rise Development Authority Act of a similar nature as proposed by Senator Gatchalian. Having set up the organization, let us now occupy the place, even put up structures as in Pag-asa. Remember that occupancy is 99 percent of the law. Incidentally, we should have done this with Scarborough and the others.
Manila Times, January 7, 2017
THE end of the Cold War has seen tectonic changes in the architecture of international foreign relations. With the Obama pivot to Asia the deployment of United States diplomatic and security initiatives has shifted from NATO nations to SEATO allied countries, specifically the rising superpower, China, which in the eyes of cold warriors is now in the crosshairs of US gunboat diplomacy but in the eyes of realist doves provides a huge window of opportunity for American business. In Cold War days, the Soviet threat threw the US and China together. With the balkanization of the Soviet Union, however, Russia is perceived to be less of a threat than an emerging economic and military dragon in Asia. Accordingly, the US-China mutual defense entente cordial aimed at Russia is no longer a strategic option, even as the geo-economics interplay between the two superpowers continue gaining from strength to strength.
Zero sum or win-win?
Verily, with the dawning of the Asia-Pacific century, the relationship between these two countries will determine the security and development prospects of one-third of the global population. This in turn will depend on the choice between zero-sum or win-win gamesmanship by the two superpowers. Indeed, the Trump administration policy toward China, and the latter’s adherence to the rule of law and international norms of conduct co-optation in international institutions and norms, will determine whether the region will experience political stability or turbulence.
Hawks favor confrontation
The great divide in the US with regard to China is between those who want “peaceful evolution” and “cooperative engagement” by trade, investment, and interdependence, and those who favor a “pre-emptive confrontation” through diplomatic means, alliance formation and military conflicts. For our purposes, let us call them hawks and doves.
The hawks seriously believe that China’s growing economic power and military modernization efforts will seriously diminish United States power and influence in Asia and especially North Asia and upset the power equilibrium and destabilize the continent. Accordingly, this group favors a containment policy. They argue that China is gaining more than the United States in bilateral trade because of its huge trade surplus. Instead of declining, China’s trade surplus is increasing every year for a long time. They argue further that over the long run, such an imbalanced trade relationship and unequal gains from trade might create a real threat to America’s economic welfare and military security. According to them, China is not a democratic country and ally of the United States and that both nations will inexorably engage in major competition and conflict from the first decades of the21st century. They therefore propose the containment of China at any cost and by any means as soon as possible.
The security concerns of the hawks are fueled by the following perceptions:
The United States and China have different views about the desired character of the emerging international order. While the United States prefers a unipolar world under its thumb, China wants a multi-polar world which gives her room to maneuver and the ability to manipulate one superpower against another.
US security analysts, particularly those who have not overcome the ingrained Cold War mentality are fearful that China’s rapid economic growth can rapidly translate into military might–-the classical Thucydides mindset that allegedly brought Athens and Sparta to war. They further posit that China’s authoritarian political system and lack of transparency about its military affairs, dismal human rights record and the Taiwan issue do not warrant a modus vivendi between the countries.
Hawkish scholars also submit that since the US and China are desperate to control the key strategic areas of energy resources, China’s growing presence in the Middle East, Central Asia, Africa, Russia, Latin America and other places could ultimately lead to confrontation with the US, the largest oil consumer in the world.
They suggest that China is an ambitious power, not a status quo power. China will therefore, in their mind, try to redress historical grievances and seek new positions in, and especially, East Asia, not by occupying or invading neighboring countries, but by political and military influence. They even go so far as to argue that there are some similarities between the rise of China and the rise of Nazi Germany, post-Meiji Japan and the former Soviet Union which had authoritarian political systems, and rapid industrial growth and military modernization processes.
Citing that China has fought more border wars with its neighbors than any other country in the world since it independence in 1949, they strongly suggest that it is better to contain authoritarian China as early as possible, warning that China might be far more powerful and dangerous than any of the potential hegemons
that the United States confronted in the 20th century.
Finally, they conclude that if China emerges as a single dominant country in Asia, the US interest will definitely collide with Chinese interest because of Asian economic and strategic importance. Most of the scholars of this school of thought believe that engagement is a modern form of appeasement that will give China more leverage to become a potential aggressor, arguing that interdependence and institutional means are inefficient and insufficient methods to change the behavior of China. They therefore suggest power and pressure to contain and constrain China. In short rather than engagement, they want to contain China by traditional means: arms build-up, unilateral diplomacy, balance of power, and alliance formation.
Doves favor modus vivendi
The doves on the other hand consider a rising China will not be a security threat. They look at a growing China as a huge market for the rest of the world’s and be a fillip to global economic growth. They argue that China will not be hegemonic, firstly, because it is historically non-expansionist. Moreover, growing trade interaction and economic interdependence will enhance China’s wealth which will keep her at home. Finally, they claim that China’sparticipation in international organizations which has increased tremendously in the past two decades has made it adhere to established international codes of conduct making her a law-abiding member of the community of free nations. They argue further that despite China’s impressive growth in the past three decades, China is still comparatively economically and militarily weak even as it faces some difficult internal and external problems which will provide roadblocks to its rise as a global power, forcing her to adopt peaceful rather than hegemonic policies.
They focus on “absolute gain” theory in trade and economic relations. According to them, pursuit of relative gain is misleading and destructive to the global economy and a hindrance to cooperation among states. They argue that if the US and China both gain in absolute terms in economic relations, the economic welfare of both countries will improve and each country will be satisfied. Many scholars and even many government officials argue that there are far more reasons to cooperate than collide.
They argue further that China is not in a position to pose any real security challenge to the United States.
According to them, despite rapid economic growth and modernization of the armed forces in the last two decades, China’s military strength is too weak to compete with that of the United States. A country can balance its potential enemy or enemies in two ways: internal balancing and external balancing. For internal balancing, a country may increase its defense expenditure, and modernize its armed forces to counterbalance its enemy states. China has been trying to modernize its armed forces and increasing its defense, especially its navy and air forces, in the past two decades. But China’s military power is still weak compared to the United States.
The doves aver that trying to outflank the US is not possible for China, and neither is it a driving principle of China’s security policy. One scholar mentions that Chinese strategies have consensus on: “first, the stronger China becomes, the more accommodating the United States will be toward China. Second, it is unwise for China to challenge the United States directly during its ‘unipolar moment’of unparalleled power except where absolutely necessary”. China’s first broad-based national defense white paper, published in 1998, mentions that “it will seek a peaceful, stable, prosperous world into the new century”. China’s military strategists periodically have cautioned China’s leadership not to indulge in any types of lopsided arms race with the United States that will hamper its economic development and modernization process. China’s policies towards its neighbors clearly indicate that China is willing to avoid conflicts and has focused more on economic development and peace and stability of the region.
Finally, the doves argue that strong economic relations with the US is vital for China’s economic growth and development. China desperately needs to preserve and expand its export market in the US for its continuing economic growth and modernization. Given the recession in Japan, slow economic growth in Europe, and slow recovery in East and Southeast Asia after the 1999 financial and economic crisis, the US is still China’s most important export market. Bad economic relations with the US will therefore definitely hamper China’s export growth and also overall economic growth, which aggravate unemployment in urban areas and mass discontent in rural areas. Moreover, poor economic performance will seriously erode the legitimacy of the communist regime.
Despite the Soviet Union’s strong postwar economic growth and Japan’s dramatic economic growth in the 1980s, neither Japan nor the Soviet Union were able to pose any real threat to the United States’ economic and military supremacy to the present time. Expectedly, neither will China’s impressive economic growth in recent decades challenge the US hegemonic position in the world today. Indeed, the United States is now the only superpower in the world even if some scholars dare to submit that US power is declining relative to other great powers. Indeed, there is still no compelling evidence that China will be able to pose any serious economic or military threat to the United States in the near future
Military experts are at one that the gap between American and Chinese military power is still insurmountable in terms of organizational and technical competence that the concept of a Chinese military threat to the United States is farfetched despite the expected dramatic increase in China’s military budget in the near future. Indeed, there is still no indication that it will extend itself beyond a robust defense one.
On the development side, doves argue that whatever hegemonic ambitions are being entertained by some of its leaders, the fact remains that China is not only dependent on the United States for its market, but also for foreign direct investment, technology transfer and financial resources which discourages her from engaging in any kind of serious confrontation with the Western superpower.
A huge Chinese military build-up, according to dovish scholars, will be exceedingly costly, if not untenable, given a weak technological base and the fact that a huge military expenditure will seriously derail its drive towards full development. This is also expected to hamper its relations not only with the US but also with its neighbors, specifically Japan and India, which will view with great apprehension such moves. China can learn from the Soviet Union’s costly and bitter experience of her arms race with the United States. Indeed, four decades of this arms race with the US seriously derailed its economic development and the welfare of the people.
For sure, it did not escape the attention of the Chinese leadership that the fall of the Soviet Union and demise of the communist party in Russia and Eastern Europe can be attributed to their failure to dramatically improve living conditions which cannot be achieved by engaging in an arms race with the United States. Indeed, only China’s economic development, modernization process, and well- being of its people will legitimize communist rule. It is understandable therefore that economic development has been given higher priority than security considerations in China during the last two decades. If only for this reason, China must improve and normalize its relationship with the US.
Finally, the doves argue that in the last two decades, China has behaved like a law-abiding member of the international community, gradually liberalizing its economy, improving relations with its neighbors, and enhancing its participation in international organizations. Indeed, it can be said that China has already integrated its economy into the global economic system and become a part of the global political and security regimes.
There is no gainsaying that China, with its huge population and rapidly growing economy, is very important for the rest of the global economy. Moreover, future Sino-American relations will profoundly shape the life of billions of people, stability and prosperity in the world, especially in Asia.
At the end of the day, whether the US-China relations will be a zero-sum or win-win game depends on the US policy toward China, and China’s involvement in international institutions, norms, and regimes in the near future.
Geo-economics to trump geopolitics
Even as we write, China is making waves extending soft power effectively in gaining friends and influencing people in her continent. The One Belt, One Road initiative has been touted as the Marshall Plan for Asia and many have jumped on its bandwagon. The Asian Infrastructure and Investment Bank, another Chinese initiative, will supplement the Asian Development Bank and prove to be a boon to the unserved sectors of developing economies in the region.
Yes, indeed, China does not need to go to war because it is winning the peace through soft power and geo-economic initiatives.
Manila Times - Dec. 10, 2016
THE Philippine Council for Foreign Relations (PCFR) was registered with the Securities and Exchange Commission in July 9, 1985 as a non-stock, non-profit and non-partisan corporation devoted to “studies and research, information and related activities” on “vital issues of foreign policy.” It is the first institution of its kind in the Philippines.
The primary purpose of the council is to contribute to the promotion of the national interest, the enhancement of friendly relations with other countries, and the attainment of the purposes and principles of the Charter of the United Nations, in particular, to maintain international peace and security and to promote and encourage respect for human rights and fundamental freedoms for all. To this end, the council has undertaken research and information activities, published books, journals and articles, held conferences, congresses, workshops, symposia, colloquia and the like, on policy issues with important implications for Philippine foreign relations.
Recently, the PCFR was invited by the Chinese government through the Chinese Embassy to China to meet with its counterpart think tanks. The result was greater understanding of Chinese political, socio-economic and cultural agenda in this so-called Asia-Pacific century. On the Chinese side, we hope that our group was able to share with them the challenges and aspirations of the Filipino people in their quest for development as they assume their position in the world stage.
The PCFR and fellow NGOs and non-state actors today are taking advantage of the fact that in today’s rapidly globalizing universe made possible by the communications revolution, governments are sharing powers–including political, social, and security roles with businesses, with international organizations, and with a multitude of citizens’ groups, thereby devolving sovereignty and the concentrated power guaranteed them in the 1648 Treaty of Westphalia which baptized many a nation state.
Given that dialogues among groups of people and even among individuals have become an essential part of international relations, non-state relations have become a convenient vehicle for building a sense of community across national boundaries.
The contributions of these non-state actors in fostering closer relations among policy leaders and thinkers across continents have been truly astounding. Such influential international research institutions as the Council on Foreign Relations in New York (established in 1919) and the Royal Institute of International Affairs in London (1920), founded through a nongovernmental agreement between people in the United Kingdom and the United States to provide independent institutions for public enlightenment and to facilitate discussions and dialogues on issues facing the two countries and the entire world among leaders of the private sector as well as political leaders, have indeed been the forerunners of today’s track-two diplomacy. The same realization led to the establishment of a series of like-minded institutions, including the Foreign Policy Association (1918), the Hoover Institutions on War, Revolution and Peace (1919), the Century Foundation (1919, formerly the Twentieth Century Foundation), the National Bureau of Economic Research (1920), the Chicago Council on Foreign Relations (1922), the Brookings Institution (1927), the National Planning Association (1934), and the America Enterprise Institute for Public Policy Research (1943) in the United States, and the Graduate Institute of International Affairs (1927) and the Institute of Policy (1932) in the United Kingdom.
The US Council on Foreign Relations, in particular, through its unrelenting advocacy caused the US, British and French governments to challenge the rise of Nazi power. It also takes credit for drafting America’s political, economic and strategic goals after the war, contributing to the establishment of the United Nations, the World Bank, and the International Monetary Fund.
Indeed, these non-state organizations can easily promote a sense of shared destiny and common interests among countries within a region that together confront the same issues. By regular participation in NGO activities professional skills and knowledge may well develop a sense of community with professionals from other countries in the same region who deal with the same issues. Finally, through cross-national networking based on electric communications, NGOs can help promote a sense of community among members of these organizations, who are geographically spread out.
The term track two (or track two diplomacy) usually refers to international conferences, symposia, workshops, and seminars on policy-oriented topics on East Asian international relations and economic relations. Track-two initiatives are common, in the field of regional security in Asia, since 1993, and has been utilized by this administration to defuse the South China Sea issue. This has been defined by Carol Hernandez as “the generation and conduct of foreign policy by non-state actors, including government officials in their private capacity.” She adds that such diplomacy “includes the participation of scholars, analysts, media, business, people’s sector representatives, and other opinion makers who shape and influence foreign policy and/or actually facilitate the conduct of foreign policy by government officials through various consultations and cooperative activities, networking and policy advocacy.”
Indeed, participants in “track-two diplomacy have no official standing, even though they may be government officials, they do not represent the state or government, and therefore the conclusions of the meeting, if any, are not in any way binding upon governments, and nor are the proceedings of the meetings represent the position of any state. This gives participants an unusual degree of freedom to speak and express their views, and to debate topics which, in ordinary circumstances, would be either taboo, or of such sensitivity that the approach to discussions is necessarily cautious.” Moreover, governments of the country they belong to can invoke “deniability”.
Track two diplomacy has become possible because participants are no longer confined to home states. Clearly, diplomacy has been increasingly shared by non-state and nongovernmental actors reflecting the dynamic changes in international power relationships associated with the transportation and communication revolution.
For ASEAN to be a successful bloc it must possess, it is suggested strongly, the ability to foster
nongovernmental initiatives to promote a sense of community among the policy planners, the business elite and intellectual leaders of the member countries. With ASEAN members at different stages of national integration, the role and impact of nongovernmental initiatives in nurturing a sense of community across national boundaries in a variety of ways cannot be underestimated.
Next year, the Philippines will host the ASEAN get-together as member nations continue to “cooperate with each other in every possible way in order to promote their strength as a region based on the principles of self-confidence, self-help, mutual respect, mutual cooperation, and solidarity, which are foundations for a solidified and viable community of Southeast Asian nations, in their pursuit of regional prosperity and security.”
In this connection, the PCFR hopes to involve itself in the event by connecting with its ASEAN counterparts to achieve the above goals.
Finally, track two diplomacy is a major source of policy inputs for governments and decision-makers in ASEAN countries even as it provides a venue for experts and scholars in strategic studies to exchange information and analysis of issues and concerns common to ASEAN and its major partners. Through a process of discussion, various issues are distilled and objectively discussed in an atmosphere of academic freedom. In sum, it serves as a laboratory to challenge contentious issues without committing government to specific positions. It thereby provides a free zone for ideas to flower. As Mao would put it, to “let a thousand flowers bloom” in a garden of ideas.
Economists Wallack and Srinivasan (Federation and Economic Reform – International Perspective) have studied countries representing a varied cross section of six developing and two industrialized federal nations.
Their incomes per capita varied from US$25,000 (Purchasing Power Parity) in Australia and Canada to US$758 in Nigeria. They have provided some conventional wisdom and universal conclusions which could be used to do a benefit-cost analysis of the current federalism proposal of this administration.
Federalist literature has listed several advantages of federalism both political and fiscal citing the benefits of developing taxation and expenditure authority across lower levels of government citing that local government are assumed to have an information advantage in identifying local needs. Decentralization allows, it is said, for more leeway in the provisions of public goods to satisfy local preferences. Mobility of factors of production, it is assumed, also ensures the efficient matching of expectations of constituents with the jurisdictions that provide public good thereby optimizing welfare through the efficient distribution of the above.
Today we have a proposal for a federal state now being discussed in Congress to replace our unitary one. The federation-to-be as submitted will comprise of 11 federal states that would be created out of the existing administrative regions, so that the identities of the proposed states would already be known by the people.
The breakdown is as follows:
•Luzon: 4 states (Northern Luzon, Central Luzon, Southern Tagalog, Bicol)
•Visayas: 4 states (Eastern Visayas, Central Visayas, Western Visayas, and Minparom, covering Mindoro Oriental and Mindoro Occidental, Palawa n and the Kalayaan Islands, Romblon, Marinduque)
•Mindanao: 3 states (Northern Mindanao, which may be subdivided into Northwestern and Northeastern Mindanao; Southern Mindanao, Bangsamoro).
The advantages of developing taxation and expenditure authority across levels of government is based on the assumptions that local government are supposed to have an information advantage in identifying local needs. Additionally, decentralization is touted to allow it is said for more variety in the provision of public goods so that local preferences can be satisfied. Mobility of factors of production it is assumed also ensures efficient matching of citizens with jurisdictions that provide the infrastructure and social service they desire.
The assumptions are that the states are:
• Able and benevolent social planners.
• Considerate to the reality of international integration and not only focused on closed economies.
• Able to produce a socio-economic equilibrium in which people and state governments are optimally matched.
• That state government governors are better social planners and not swayed by prospects of reelection and the “perks” of office.
• Have the capacity and power to enforce the policies they deem desirable.
• Certain that central governments cannot alter local policies.
• Have citizens yhay exercise tighter control over local officials.
Advantages of Federalism
It is further argued that federalism will:
• Encourage local initiatives because the entire nation is not straitjacketed by uniform policy to which every state must conform. State and local governments may be better suited to deal with specific state and local problems.
• Permit pursuits of local goals because it permits citizens to decide many things at the state and local levels of government and avoid battling over single national policies to be applied uniformly throughout the land.
• Allow for power redistribution because federalism disperses power. Moreover the widespread distribution of power is generally regarded as a protection against tyranny.
• Increase political participants because federalism allows more people to run for and hold political office.
• Improve efficiency. While it may be thought that some dozen state governments may produce inefficiencies, governing an entire nation from imperial Manila is perceived to be much worse.
• Will allow for greater citizen mobility which will provide the residents’ ability to move to other jurisdiction.
• Will promote competition among states which can lead to faster growth.
• Finally, will provide a greater system of checks and balances to national governance power.
Disadvantages of Federalism
The downsides of federalism as cited by its critics are the following:
• Federal states are less accountable for a country’s macroeconomic instability. State governments may demand extensive subsides in exchange for continued support for the federate government.
• Negative macroeconomic effects of federalism stem in large part from central governments’ inability to restrict opportunistic state government behaviour.
• The foundation of wide-ranging state borrowing autonomy and increasing transfer-independence is increasingly common, especially as countries decentralize expenditures by ramping transfer rather than building up the local tax base. Develop culture of dependency.
• It limits redistribution in the sense that progressive taxation and generous welfare benefits are likely to drive the well-off away and attract the poor, eroding for redistribution.
• Federalism tends to overlook externalities because competition for business and citizens may lead state governments to settings inefficient lower business and income taxes leading to regressive taxation.
• Federalism protects special interest groups allowing them to protect their privileges.
• Uneven distribution of benefit can result from federalism because benefits and costs of government are spread unevenly e.g. one state spend more than twice as much per capita as other states on education.
• Federalism can also create disadvantages in poorer states and communities which can only provide lower levels of education, health, and welfare services; polices protections; and environment protection than wealthier states and communities.
• Finally federalism it is feared may obstruct action on national issues (in the case of the states in the United States, states obstructed efforts of the Federal states to remove racial discrimination etc.)
The most compelling criticism of federalism is the charge that local governments may overspend on capital when capital transfers are easier to obtain than funding for current expenditure or vice versa, for example.
The critics have pointed out that in the case of grants, equalisation funds and federal fund transfers to subsidize poorer jurisdictions local politicians overspend from the pot of national resources creating an attitude of mendicancy
Indeed local government over-expenditure can contribute significantly to the country’s overall debt burden. Local control over regional banks can also drain the national financial sector, as the central government may face the choice of bailing out regional banks or suffering mote widespread financial repercussions that spell over state borders.
They might overestimate the cost of providing primary education, for example, to attract more funds from the central government.
State government may collect too little taxes owing to a race to the bottom to compete for mobile factors or impose too high levies when politicians at each level government act as revenue-maximizing “Leviathans”.
The US record
In the US, 10 reasons have been advanced as to why the federal aid system doesn’t make any economic or practical sense and ought to be downsized or eliminated.
• Unsustainable deficit financing.
–By moving the funding of state activities up to the federal level, the aid system has titled American government toward unsustainable deficit financing.
• Grants spur wasteful spending.
–The basic incentive structure of aid programs encourages overspending by federal and state policymakers. One reason is that policymakers at both levels can claim credit for spending on a program, while relying on the other of government to collect part of the tax bill.
• Aid allocation doesn’t match any consistent idea of need.
–“Federal grant-in-aid programs have never reflected any consistent or coherent interpretation of national needs.”
• Grants reduce state policy diversity.
–Federal grants reduce state diversity and innovation because they come with one-size-fits-all mandates.
• Grants regulations breed bureaucracy.
–Federal taxpayers pay the direct costs of the grants, but taxpayers at all levels of government are burdened by the costly bureaucracy needed to support the system.
• Grants cause policymaking overload.
–One consequence of the large aid system is that the time spent federal politicians on state and local issues takes away from their focus on truly national issues.
• Grants make government responsibilities unclear.
–As the saying goes, when every government is responsible for an activity, no government is responsible.
• Common problems are not necessarily national priorities.
–In brief the federal aid system is a roundabout way to fund state and local activities that serves no important economic or practical purpose. The system has many widely-recognized failings, but a web of special interest groups block reforms.
• Skewed distribution
–Progressive taxation and generous welfare benefits are likely to drive the well-off away and attract the poor, eroding the scope for retribution. Country case studies however will, this kind of centralized redistribution may no longer be as ideal when central government redistribute to ensure longer tenure in office of other non-welfare-related goals.
• Unhealthy competition
–Competition for business and citizens may lead state government to set inefficient lower business and income taxes, for example. Lower level governments’ quest to tax less mobile bases is also likely to lead to regressive taxation since the poor tend to be among the least mobile.
The common pool paradigm often produces moral hazards causing politicians to overspend from the pot of national resources (including both taxes and captive savings in the financial system) is also pervasive.
• Contribute to debt burdens
–Local governments over-expenditure can contribute significantly to the country’s overall debt burden. Local control over regional banks can also drain the national financial sector, as the central government may face the limited choice of bailing out regional banks or suffering more widespread financial repercussions that spill over state borders.
• Lack of transparency
–States sometime conceal information from the central governments to gain more resources to spend on attracting votes in elections or rewarding key supporters. They might overestimate the costs of providing primary education, for example, to attract more funds from the central government.
• Corrupt officials
–The goal of increased local self-sufficiency can be extremely difficult in poor countries with weak or corrupt local government institutions and high levels of inequality.
• Weak central government
–A weak, fragmented central government or even those beholden to state governments make it difficult to censure them or change the basic fiscal and political institutions that create bad policies.
Optimal tax structures – Unitary vs. Federal
Unitary forms of government are likely to choose optimal tax structures since policy will be driven by the wishes of state representatives. Stronger nationally elected politicians (such as the executive), and constitutional restrictions on the kinds of taxes that state governments can have will lead to more efficient outcomes.
Central governments will distribute funds differently than in a unitary state where they could just reach directly to voters.
In sum can we expect federal states to be moving toward efficient equilibrium? Does it have the ability to respond to changing economic and political environments, including greater integration? It has been shown that Federal state can get stuck in inefficient arrangements, for example, when mistrust is generated by underlying ethnic or socioeconomic heterogeneity. Federal bargains will be more difficult to change when provision are written into constitutions or otherwise require supermajorities or unanimity for revisions.
Because of disparities in the level of development of the proposed federal estates an equalization fund has been proposed as a leveling mechanism. In the US this is known as federal grants in aid.
The experience in that country has been unsatisfactory causing a move to cancel this or substitute another mechanism.
It has been shown that most federal politicians cannot be trusted to pursue broad, national goals, but are consumed by the competitive scramble to secure subsidies for their states. At the same time, federal aid stimulates overspending by state government and creates a web of top-down rules that destroy state innovation.
THE announcement by the Duterte administration that it would adopt an independent foreign policy in line with the constitutional mandate dropped like a bombshell. Many took this as a pivot to China at the expense of the United States, an “apertura a sinistra” as the Italians would say. It did not help that the president embroidered his colorful statements against President Obama and the Europeans, perceived by most as anti-Western sentiments with strong implications regarding the defense partnership with the US.
The fact is the Americans have never left this country militarily and, despite their departure from Subic and Clark, American presence has been institutionalized in such schemes as the Visiting Forces Agreement and recently the Enhanced Defense Cooperation Agreement (EDCA).
This has serious implications for the US which continues to demand primacy in Asia and the Pacific. The pivot to Asia by Obama backed up by the transfer of more than half of US naval assets to the region only expressed very strongly the US determination to dominate the vast oceans where it has remained unchallenged since the end of World War II.
US dominance of the region was reinforced by its Philippine bases (the most forward position of its defense/offense strategy in the Far East vis-a-vis China) and those in Taiwan, South Korea and Japan. This arc of steel was intended to contain China which the US sees as an ascending superpower out to challenge USeconomic and military supremacy in the region which has been referred to by a military analyst as a Thucydides Trap.
Since the beginning of the last century this country has always been considered by the US as its military outposts which would protect its projection to the rich markets of Asia, particularly China. Taiwan, described by Macarthur as the US’s biggest aircraft carrier, and the US bases in the Philippines served to project and secure the US gateway to Asian markets while containing China. It also served as a jump-off point for the US military during the Korean and Vietnam wars.
The role of the Philippines as a frontline state serving as a US garrison in Asia did not sit well with our neighbors, particularly the Mekong countries whose cities were demolished by US flying fortresses stationed in this country. This earned the Philippines the title of US vassal state which proved an embarrassment to our diplomats during conferences among non-aligned nations.
The country paid dearly for its role as a US forward military garrison in Asia when the imperial forces of Japan overran the Philippines and ravaged the population. To defend the security of US and its allies in the Pacific the USAFFE (the United States Armed Forces in the Far East), composed mostly of Filipino regulars and freshly minted ROTC cadets,met the mighty Japanese imperial forces in Bataan and Corregidor. When GeneralJonathan Wainwright surrendered and GeneralDouglas Macarthur fled to Australia, Filipino guerrillas harassed the Japanese for years making it easy for the Americans to “liberate” the Philippines. Parenthetically, the surviving guerrillas,some of them living under destitute circumstances in the US West coast, are still begging for recognition and backpay.
Today, the US insists on staying in the islands which is essential to their defense strategy which allows them to watch every Chinese move in the South China Sea. This does not sit well with the Chinese who are still smarting over the insistence of the US to arm the Taiwanese against the homeland and using bases in East Asia to set up ballistic missiles which threaten the exposed Chinese cities in the coastal areas of the China Sea.
The Duterte administration’s battlecry of an independent foreign policy only echoes the sentiment of Filipino statesmen since independence. In 1943, while still under Japanese occupation, the Philippines declared independence from the US. Washington dismissed this as an act of collaboration and supported the government-in-exile of President Quezon. The US only granted the Philippines independence with strings three years later. But it was not full independence since the US would insist on establishing its military bases, exacting citizenship rights for its nationals and controlling its currency. It was only a decade later that this anomalous extra-territorial exaction was removed.
But while some of the political and economic colonial trappings were removed, it took almost half a century for this nation to evict the former colonizers from its military bases in the archipelago. But that was not the end of the story for a little more than a dozen years later the Americans would return in the guise of visiting forces in Mindanao.
The presence of US bases in this country has always been a contentious issue that has divided the country. Almost every administration has tried to nibble away at the allegedly unequal military and defense treaties with the US. While the first republic under President Manuel Roxas was overly generous in sharing the sovereignty of this country with its erstwhile colonizer, succeeding administrations have attempted to whittle down the onerous provisions of the bases treaty. Magsaysay, Garcia and Marcos succeeded in cutting back the lease period as well as the acreage allotted to the bases. It was the Senate during Cory Aquino’s time, however, which defied her intention to retain the bases. It took her son to restore this under the guise of the Visiting Forces Agreement and the EDCA.
Rationale for the bases
The US containment policy purportedly to stop the advance of communism in the world was known as the Truman Doctrine. In Asia, the containment policy was reinforced by the forward defense policy aimed specifically at China. This involved the positioning of substantial US forces in the Western Pacific and the adjacent coast of mainland Asia from a sprawling base complex in Japan, South Korea, Taiwan and the Philippines. General Macarthur claimed that this was essential to have “air-striking power to be launched from offshore island rim, including the Aleutians, Japan, former Japanese-mandated islands, Clark Field in the Philippines and Okinawa.”
This gave rise to the Mutual Defense Treaty concluded by Presidents Truman and Quirino in 1951 which provides that in the event of an armed attack in the Pacific area on either of the parties, they would act on it as a common danger in accordance with their constitutional processes. Parenthetically, the US has clarified that this does not include the South China Sea and the US response would have to be cleared by the US Congress, a matter that negates the concept of automatic retaliation. It might be added that since the so-called treaty was signed, the US has not been able to provide this country with a credible defense force.
It was this ambiguity that forced Marcos in the mid-1970s to ask for a review of the MDT because, in his words, “an act of aggression (against the US ally) does not technically fall within the external type of aggression against which the MDT was supposed to be invoked, or because of inclinations and policies of the US government.”
In this light, critics of EDCA with its five base allocations all over the country have questioned the prudence of having US boots on the ground manning US bases weaponry albeit with the locals. Hypothetically, if the bases were used by the Americans in their penchant for regime change in this part of the world, would not this country be dragged into an unintended aggression against a third country? Moreover, would not these bases be in the crosshairs of the Chinese if they perceive these bases as part of the containment policy of the US against China? As pointed out by Claro Recto in yesteryears, these bases are magnets for foreign retaliation as were the US bases in this country in the last World War.
Post-US bases options
A solution to the Philippine security dilemma in case this country finally gets rid of the American bases would be the revival of a robust reserve officers training program and of the citizen army concept. As suggested by Marcos, these moves could be implemented by a self-reliance defense program akin to the military industrial complex that has made America the most powerful military nation in the world. Under the Marcos scheme, the National Security Council would enlist domestic private manufacturing firms here and abroad on a PPP (public-private partnership) to manufacture the requirements of an armed forces modernization plan. This would discourage the Philippines’ culture of dependency, the biggest obstacle to the formulation of an independent foreign policy.
Parenthetically, when “the Iron Chancellor” of Germany visited the home of William Tell, the German asked the Swiss president how he would handle a German invasion that would be twice the standing army of the latter. The curt reply was, “we will only shoot twice!”
Today, global geopolitics fundamentals are being altered. The pre-war era of European colonialism in Asia that started in the 16th and 17th centuries ended half a century ago. This gave rise to a resurgent Asian nationalism as former colonies gained independence.
The political void left by the colonialists was filled by a fast growing economic colossus – China, the sleeping giant who, after surviving a “century of humiliation,” was now ready to take her place in the world scene.
Emerging as a super economic power, China has adapted to increase foreign direct investment by making Chinese companies become more multinational. The objective is to improve resource security by acquiring access to foreign resources, as well as to acquire leading-edge technology to boost the competitiveness of Chinese industries.
The implementation of the trade-strategy above will be facilitated by the very rapid growth in Chinese foreign exchange reserves over the last decade due to sustained large trade surpluses, as well as large capital inflows from foreign direct investment. This has provided a large fund of foreign exchange to support China’s foreign trade policy, which, in turn, increased Chinese role in global trade and investment – a development that has created rising political fears among governments about China’s increasing dominant control over their resources; its huge investments in their natural resources; and its huge export market for their products which could lead to a situation where flag follows trade.
It is assumed that technology, research and development, as well as innovation, will become increasingly important drivers of comparative advantage of economies in coming decades in a wide range of key manufacturing and service industries not just in China but also in the rest of the world. Parenthetically, the last five decades, technological leadership has continued to be an important driver of competitive advantage for the US and European multinationals.
One key structural change that will be a game changer for countries like China and India is their significantly improved educational infrastructure. With large numbers of their graduates in science and engineering each year, developed economies are now shifting the location of their global R&D facilities into China and India, where a large pool of highly qualified scientists and engineers is readily available.
In December 2003, Chinese Premier Wen Jiabao in a speech at Harvard said that, “China has laid down her three-step strategy toward modernization. From now to 2020, China will complete the building of a comfortable society in an all-round way. By 2049, the year the People’s Republic will celebrate its centenary, we will have reached the level of a medium-developed country. We have no illusions but believe that on our way forward, we shall encounter many difficulties foreseeable and unpredictable and face all kinds of tough challenges. We cannot afford to lose such a sense of crisis.”
Today, China is being recast from a socialist industrial society in the early 1990s to a semi-capitalistic global economic leader. It is a host to a number of FDIs and a large number of foreign workers from the OECD countries who have flocked to China to find their fortune, or to at least gain experience in the world’s rising economic power.
China’s role as a trade and investment partner has also risen very considerably during the last couple of decades, particularly in the Asia-Pacific region, which sees China as the largest export market for a number of its countries.
Challenges to China
An emerging problem facing the Chinese economy over the next 15 years, however, is the impact of rising labor costs in coastal China. This was brought about, in the first place, by rapid growth in Western Chinese provinces, which has driven up wages as supply of migrant workers for coastal Chinese factories tightened.
Another challenge is flawed demographics, partly a reflection of China’s one-child policy, which has progressively reduced the number of workers entering the labor force each year.
Finally, the marginal productivity of capital is gradually declining, with China having invested heavily in modern infrastructure and equipment, making it progressively more difficult to deliver rapid productivity growth on additional capital investment. This means that strong wages growth, which has the effect of pushing up the annual average rate of unit labor cost rises. In economic terms the incremental-capital to output and employment ratios are rapidly declining.
With wages rising, pushing up the average rate of unit labor cost, the net result is the loss of cost-competitiveness (its comparative advantage) for coastal Chinese provinces – the factory of the world for low-cost manufacturing, such as textiles and clothing, as well as consumer electrical and electronic goods over the next 15 to 20 years.
This is the same ‘hollowing out’ experience of manufacturing industries in Japan, South Korea, Hong Kong, Singapore and Taiwan in the past.
China as a rising superpower
Despite this downside in Chinese economic prospects, China is still expected to become the world’s largest economy by 2030 as the total size of its GDP surpasses the US and the EU. This will have significant geopolitical and economic implications.
As time marches on China will become the key trade and investment partner for Asia-Pacific nations. As we write, it is now the largest export market for almost all Asia-Pacific economies, and for some nations, even as it becomes increasingly important as a source of both foreign direct investment and portfolio capital flows for most Asia-Pacific countries, as its economy becomes the world’s largest.
Expectedly, the role of Chinese corporations in the global economy will continue to increase, supported by the Chinese government’s own policy of encouraging large Chinese multinationals to internationalize. Chinese multinationals will, thereby, become more significant global competitors in international markets.
Growth will increase the purchasing power of an enlarged middle class and boost consumer demand, which in turn, will become the new engine for global consumer spending growth. The multiplier effect of these developments will be wide-ranging. For commodities, the implications are for continued strong growth in demand for energy sources, such as solar and wind energy. That will be accompanied by equally robust demand for agricultural commodities, including grains and soya beans, as well as meat, dairy products and fisheries products. This could be a very positive long-term trend for agricultural exporting nations, such as the US, Australia, New Zealand, Brazil and some sub-Saharan agricultural exporters.
Tourism is an important tool of Chinese trade policy, which nations should take advantage of. The contributions of Chinese tourists’ spending to the balance of payments of emerging economies cannot be understated.
Underlying these developments will be China’s need for energy security, which will be a central focus of Chinese strategic policy, with heavy implications for its political and defense policy initiatives.
With its outward push strategy, Chinese financial institutions will become increasingly international, with banks expanding their international operations both to support their corporate sector and also to play a bigger role in global finance. This will be facilitated by the establishment of the Chinese initiative – the Asian Infrastructure and Investment Bank (AIIB).
Will economic power translate into hegemony?
Against this background of unparalleled growth China will gradually play a much more central role in global geopolitics. As it becomes the world’s largest economy, it will join the big boys as it participates in heavy-lifting initiatives as behooves its economic weight in international policy-making bodies such as the G20, IMF, World Bank and the Asian Development Bank and the newly minted Asian Infrastructure and Investment Bank. This will undoubtedly allow it to win friends and influence countries while also allowing it to project its foreign policy objectives more effectively and successfully, thereby enhancing its geopolitical role.
The question is, will China’s superpower status create a friendlier or a more unstable geopolitical global order? As China’s economy grows to become the world’s largest, this will inevitably lead to rising defense spending and increasing military capability. As China’s GDP increases and eventually overtake the US, the size of Chinese GDP as a share of total Asian GDP, which is already one-third, will increase further.
This implies that among the Asia-Pacific nations, China’s military capability will become significantly larger than that of any other Asian nation, including Japan and India. With China’s technological capability also rising rapidly, the future use of military power as an extension of Chinese foreign policy could become a key risks to regional peace and security. Whether this will actually happen is uncertain. However, given that China remains a one-party state and will have a rising military capability, other Asian countries are increasingly concerned about the potential for the growing asymmetry in Asian military power to become a source of geopolitical instability in the Asia-Pacific. How this will play out in regional geopolitical terms will depend on the foreign policy and defense policy of future Chinese governments, which could lead to the Thucydides Trap.
The Asia-Pacific region is increasingly becoming the center of gravity for the world economy as China, India and Asean have emerged as key engines for global economic growth that could lead to an Asia-Pacific century.
Today, Asia is beleaguered by sovereignty issues, the center of which is that involving the South China Sea. While there is some subliminal saber-rattling egged on by outside superpowers with interest in Asia, there is considerable scope for optimism that Asean can form the hub for regional security dialogue, most notably reflected in the recent achievements of a number of Asean countries in combating piracy in the Straits of Malacca through close cooperation and coordination among their government and military forces.
Asean Defense Minister Plus with Eight Dialogue Partners forum (ADMM+), which was established by Asean in October 2010, and the Asean Regional Forum (ARF), as key platforms for regional dialogue on defense and security. The ADMM+ process has already made significant progress, with the establishment of Expert Working Groups under the auspices of the Asean Defense Senior Officials’ Meeting Plus. The five expert groups are in:
• Humanitarian Assistance and Disaster Relief
• Maritime Security
• Peacekeeping Operations
• Military Medicine
Mechanism for rapid implementation of new measures to improve cooperation in these key areas have been offered by experts. For example, given the succession of major natural disasters that have afflicted the Asia-Pacific in recent years, including the Indian Ocean tsunami, the major flooding of Myanmar and the Japanese earthquake and tsunami in 2011, the importance of greater cooperation in humanitarian assistance and disaster relief is one very important and practical priority for the Asia-Pacific region, given the considerable logistical difficulties in relief operations that have been evident in such catastrophic events.
Obviously, with China acting as the big brother, it being the largest economy in the Asia-Pacific, any regional security dialogue would need to have the full support and cooperation of China. At the Shangri-La Dialogue on June 5, 2011, the Chinese minister of national defense made a strong statement in favor of regional multilateral security dialogues and cooperation mechanism.
Four pillars of Asia growth
If, indeed, the 21st century is the ‘Asian Century,’ there are four main growth engines within Asia that will continue to support this Asian ascendancy during the 21st century.
It is obvious that China will become the key driver of Asia’s rapid economic growth. Its long-term growth rate over the next two decades is still expected to be the super engine driving the rapid expansion of economic growth, trade and investment within the Asia-Pacific region. It will be the centripetal force that lifts the rest of Asia into its growing orbit.
With India projected to overtake Japan in around 15 years’ time in terms of overall size of GDP in nominal terms, it will contribute to the growth engine provided by the Chinese colossus, with Indonesia and its big population not far behind, and with membership of the population-rich BRIC economies proving a supporting role.
Last but not the least of the economic quartet will be the agglomeration of Asia’s next new frontier economies, combined with the rest of the Asean economies. Most of the countries comprising Asia’s fourth growth engine are well positioned to benefit from strong trade and investment flows with China, India and Indonesia, as well as sustained strong growth from domestic demand in the more populous countries such as Bangladesh, Vietnam and the Philippines.
Asia–Pacific to replace the OECD
High consumer spending in the Asia-Pacific region, with its rising middle class, will result in emerging Asia replacing the OECD economies as the key contributor to global consumer demand growth over the next three decades.
The rapid urbanization and growth of emerging Asian cities is another important structural trend that will create vast opportunities for companies related to urban infrastructure development, as well as residential and commercial construction projects. Asian countries will also require massive investment in infrastructure, creating major opportunities for investments.
There has been immense economic progress in the Asia-Pacific over the last 50 years, as rapid economic growth has lifted hundreds of millions out of extreme poverty. A number of Asian nations have succeeded in transforming their economies into advanced economies with high average living standards. These Asian miracle economies with high average living standards — these Asian miracle economies — are Japan, South Korea, Taiwan, Hong Kong and Singapore.
However, the driving force that is reshaping the balance of global economic power from West to East is the rise of China, as its population of over 1.2 billion people move out of poverty and into the ranks of the middle class. India, which is also a nation of over 1.2 billion people, is further behind on its development path than China, but will also be contributing significantly to the tidal wave of consumer-led growth that will change the shape of the global economy over the next three decades.
In the circumstances it behooves governments of the Asia-Pacific region to embark on a determined program of building the regional architecture for political, security and economic cooperation, to avert the risk of future conflicts in regional geopolitical flashpoints, which remain a threat to Asia’s dream of producing a zone of peace and prosperity through sustained economic progress and human development.