Documents menu

Economist predicts growth will come from Asia's 'huge internal market'

From Far Eastern Economic Review
4 November 1999

Joseph Stiglitz, chief economist at the World Bank, isn't very popular at the International Monetary Fund. Over the past two years, he has from time to time challenged the Washington orthodoxy on the Asian crisis. What's really annoying for the fund is that he has often been right. Early in 1998, he said the IMF's fiscal and monetary policy was too tight in the Asian crisis countries. The IMF later agreed that might have been the case. Then he said short-term capital flows are dangerous and there are times when inflows should be controlled. That now has become conventional wisdom. Stiglitz is an unabashed fan of Asia and is confident the region will get back on track.

The REVIEW's G. Pierre Goad spoke to him in Singapore about the longer-term outlook for the region. Excerpts:

What will Asia look like five years from now?

I predict it will have fully recovered from the crisis. China will continue its remarkable growth. So Asia will have created within itself this huge internal market, which I think will be the key change. Whereas in the previous two to three decades it has all been export-oriented toward the United States and Europe, those markets are becoming saturated. So the real growth is going to come from the internal demand in the region.

What has to happen to get there?

Trade in Asia is not free. Southeast Asia's natural market is Northeast Asia and Northeast Asia hates imports. The psychology of countries will change. Remember 30 years ago these countries were trying to jump-start. They saw themselves at a marked disadvantage to developed countries. They had to move from producing very low-quality goods to the high-quality market. They succeeded. And they succeeded I think beyond even their expectations. Countries like Korea had a per-capita gross domestic product roughly comparable with India. When you're starting from a position of that kind of weakness, it's natural to say we have to protect ourselves, our markets. Even in the United States, where it's clear there's a very strong economy, there's a protectionist sentiment that is still alive. At the same time I think the United States has learned the huge benefits that come from allowing competition, allowing goods to come in.

I think Japan, Korea and China will all recognize the basic principles of open trade. That process will be facilitated if protectionist measures are resisted in the United States and Western Europe.

What about within Asian countries? Are there things countries can do and should do to liberalize internally and encourage the kind of dynamic growth they have had in their external sectors?

There are areas like retail trade in which the kind of dynamic competition we've seen in the United States and Western Europe has been very slow to come. But it is beginning to manifest itself. I think these global forces of competition will play out not only in the manufacturing area but also in the service sectors. With improved information flows due to the Internet and travel, people know the prices that goods are being sold all over the world.

A consumer in any of these countries knows what consumers in other countries are paying, and people will begin to ask: "Why do we have to pay more for these goods?"

How important is it for the region to regain self-confidence?

I do think the concept of confidence is important. In the face of the crisis, there was a lot criticism that I think was misplaced and unwarranted. Whether it was intended to have that effect, it certainly did have the effect of undermining confidence. I think the quick comeback is helping to regain confidence. I think the way that Asia has defined itself in the past is that it has tried to learn from each experience and tried to incorporate the lessons in going forward. My own suspicion is Asia will do that again, and that will provide the basis for this renewed confidence.