Ruchika Tulshyan, who is interning at Time this summer, said some interesting things in this morning’s meeting. We asked her to write a blog post. Here it is.
As the austerity debate rages on and squabbles erupt over every single point—should interest rates be raised? is stimulus spending good or bad?—there are lessons to be learned from Asia. Singapore reported 18.1 percent growth in the first half of 2010, and China’s growth is estimated to come in at as much as 10 percent this year. What gives?
Interestingly, many of the macroeconomic principles that have benefitted the wealthy Asian nations—specifically, Singapore, Hong Kong and China—come from Western economists. As we debate the validity of our ideologies here in the U.S., countries in Asia are reporting record growth numbers using these very ideas.
First, the contentious question of stimulus. Early 20th century British economist J.M Keynes said that the ill-effects of the private sector can be counteracted by strong monetary and fiscal policies. Modern day anti-Keynesians are crying foul over the Obama administration’s injections to the economy and citizens. The Congressional Budget Office said the federal budget is on an unsustainable path if the U.S. government continues to spend on healthcare and Social Security.
But on the other side of the world, it is exactly this Keynesian ideology that has worked remarkably well. Fitch ratings agency recently stated that China’s fiscal stimulus package was 13.5 percent of GDP, and 8 percent in Singapore. In a statement released today, China’s President Hu Jintao said China would continue to implement a proactive fiscal policy, combined with a loose monetary policy. In 2008, China put a $586 billion stimulus package to work that rescued their weakening economy. Now, analysts believe China could overtake Japan as the world’s second largest economy, as soon as by the end of this year. With fears of overheating looming, Asian governments are quickly stepping in to cool things down, whether in the property market or through currency valuations.
Then, there’s the question of government stake in large companies. Many cried “socialism” when General Motor’s CEO Richard Wagoner was ousted last year by the Obama administration.
Yet in Asia, “modern socialism” has worked rather well in major companies. Take the case of Singapore Airlines, the world’s second largest carrier by market value. Singapore’s government owns a 54 percent stake, by way of their investment vehicle, Temasek Holdings. While Singapore has often stressed their non-involvement in corporate governance of the airline, the stability created by the economy’s strong governance as a whole, has increased investor confidence, both local and foreign. Companies in Singapore such as DBS Bank and Sinopec in China have also benefited from central government stakes, be it in terms of governance or investor confidence. Chinese and Singaporean businesses enjoy substantial state subsidies that have seen them through tough times.
Finally, David Pilling’s piece in today’s Financial Times really summed up the aversion to debt seen in many Asian nations. China, Hong Kong and Singapore have enjoyed high savings rates and bolstered their reserves continuously, cautious of the boom years in the West. Their quick bounce-back this year is testament to the wisdom of spending with one hand, saving with the other.
While the cultural differences at play make it hard to adapt any lessons without flexibility—one could not lump the Thai and Singaporean economies into the same category—there is something to be said for taking the wisdom of age-old economics and applying it with prudence. It might be time to re-learn the lessons we lent to Asia.