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Custodians of liberal trade

Asian nations must take charge of the economic norms that once enabled them to grow rapidly, writes Kishore Mahbubani.

india Updated: Jun 25, 2008 21:53 IST

Throw a frog into a pot of boiling water and it will immediately jump out and survive. Put a frog into a pot of cold water and gradually raise the temperature to boiling point and it will stay in the pot and die. We laugh at the proverbial frog, but are we really that different?

The biggest threat that high-growth Asian economies, including India, face is from a slow-boiling process. Facilitating economic high growth in Asia is the existing sea of norms, which has created a liberal international trading order and a comprehensive legal regime, allowing safe passage of goods, services and people.

America created the 1945 rules-based order, confident that the Western economies would outperform the rest of the world on a level-playing field, especially in trade and investment. They had been doing so for 200 years, and were confident of continuing for another 200. And it is for this reason that most Asian economies, including India, resisted liberalisation as Indian industrialists, especially in the Bombay Industrialists Club, feared the rape of the Indian economy by Western multinational companies.

Today the tables have turned completely, with more and more Asian companies, especially in China, India and Korea, confident of competing with Western companies on a level-playing field. In contrast, the populations of America and Europe have begun to fear competition from Asia. This is also why both Hillary Clinton and Barack Obama had to step up their protectionist rhetoric to gain blue-collar votes.

This fear of losing to China and India has now become very strong in the West. Three Indian social scientists (Devesh Kapur, Pratap Mehta and Arvind Subramanian) were among the first to spot the dangers of this sea change in Western attitudes to Asia, in a column ‘Is Larry Summers the Canary in the Mine?’ in The Financial Times (May 13, 2008). Canaries in the mine do not die from slow boil, but from slow inhalation of poisonous gases, which eventually kills the miners too. Larry Summers may have done Asia a big favour by becoming the canary. According to the authors, Summers’ recent columns demonstrate that the liberal international economic order is losing intellectual support in the West. Summers argues: “In a world where Americans can legitimately doubt whether the success of the global economy is good for them, it will be increasingly difficult to mobilise support for economic internationalism.

The focus must shift from supporting internationalism as traditionally defined to designing an internationalism that more successfully aligns the interests of working people and the middle-class in rich countries with the success of the global economy.” In effect, Summers is implying that globalisation can be supported only when it does not damage the interests of American workers. Kapur et al opine that arguments like Summers’ “point to a more alarming prospect for developing countries. The ground is shifting under their feet. They would do well to take notice”. So why is this important? The sea of norms which has enabled Asian economic growth cannot survive without good custodians, a role that Western governments had hitherto assumed to their advantage.

But what happens when they begin to believe that their economies will become the losers and that China and India will be the winners? Will they continue to be fair and responsible custodians, or will they allow these norms to evaporate through a slow boil. Are Asians, including Indians, being naïve in believing that the West will generously preserve a liberal international trading order in which it may lose?

The big question of the hour that all emerging Asian economies need to address is: how and when should they take over the custodianship of this sea of norms to sustain the rapid growth of their economies? Prime

Minister Manmohan Singh warned in June that “At a time when we in the developing world are standing our ground in dealing with the challenges and opportunities of globalisation, it is regrettable that the forces of protectionism are gaining political ground in many developed countries.”

Such warnings by global leaders like the PM are important. However, protectionism will not be easily destroyed, as it is not a single dragon that can be slain by one mighty sword. Instead, it will emerge in the form of a slow boil that will gradually engulf and threaten Asian economies, and in small daily decisions that will gradually undermine the liberal international trading order.

Developing countries should not count on morality and justice to reverse the tide of protectionism. The following statistics show how unjust rich countries can be to poor countries: Britain exports $56.9 billion worth of goods to the US. Bangladesh exports only $3.5 billion. Based on World Bank estimates, the per capita income of Britain ($35,134) is 27 times that of Bangladesh ($1300). Natural justice would dictate that exports from poor countries get more assistance than rich countries. Yet, Bangladesh pays more customs duties to the US than Britain does. Where is the natural justice in all this?

The time has come for Asians to stop behaving like frogs, and recognise that the benevolent sea of norms enabling their rapid economic growth is now under serious threat. Then they should begin to think about how they can gradually take over custodianship of these norms. To become effective custodians, they need to believe even more profoundly in the virtues of liberal international trade and preach these virtues to the entire world. No human order survives without skilled and gifted champions. When will the Asians begin to provide the champions to prevent the valuable international order from gradually evaporating through a slow boil?

Kishore Mahbubani
Dean, Lee Kuan Yew School of Public Policy, Singapore, and author of The New Asian Hemisphere