Asia’s economic miracle

BY DILIP JADEJA

wanted to work in Asia. Today, few would refuse a good opportunity there. Today’s Asia is the place to be; it’s ‘the happening challenges where ‘more and more’ is the Missing out on Asia sounds like missing comparison, the West feels like a retiree’s

It is widely accepted that economics is an imperfect science. Nowhere is this truer than in Asia. Some measure of inflation spoils some things but improves others. For example, high growth rate without high inflation is almost impossible. Also impossible is to satisfy 70 years of pentup demand across the economy without incurring non-core inflation rises. The emerging Asian giants not only understand that inflation and foreign exchange rates are actually double edged swords, they’ve also learnt to use these to their advantage.

An increase in GDP raises export earnings, which is not possible without surplus production of goods and services beyond the pent-up domestic demand. Therefore inflation is but one factor, not the key factor.

Across India and China, anyone who wants and can do half decent work for half decent pay has multiple job offers - a stark contrast to just four years ago when folks queued up for almost any job more so by the shortage of workers. Salaries in India are rising fast and moving overseas is not an appealing option anymore to many. Across India and China, anyone who wants and can do half decent work for half decent pay has multiple job offers - a stark contrast to just four years ago when folks queued up for almost any job!

Recently, most people I met had jumped jobs or were in the process of doing so. Cleaners, plumbers, brick-layers, plasterers, security workers, housemaids, servants, drivers, assistants, accountants, managers, engineers, sales staff, handymen, and their ilk are in perennial short supply. This is a new dawn for Asia, where work exceeds workers despite billions of people already working vigorously.

That India had to allow African workers on some projects is a case in point. A number of high profile Indians have returned to work in India, and they are telling others why Asia offers a better deal.

The inflation of rising Asian markets, it is often argued, is eroding the value of their earnings and the buying power of citizens. The rise in food price, or core inflation, is driving a lot of non-core inflation and mismanagement of food grains in India is the sole reason for that.

However, relative to inflation, India and China have kept their interest rate rises quite modest, and that has been the secret of their economic miracle. The stronger China and India become materially, the stronger their economic engines get. Inflation, deemed a huge economic issue in the west, is just one of the many urgent economic issues in the East.

Inflation saw many Indian salaries double in 24 months and Chinese salaries are also rising fast – a trend that has led to more buying power despite the inflation. This, coupled with pent-up demand and economy of scale benefits, has allowed for an increased production, some of which is clearly exportable, especially in view of the low exchange rates.

One can call it a new economic experiment in using the inside edge of the inflation sword to promote growth. If I was an economist, I would theorise this new understanding like this: the Western economic model that advocates controlling inflation so that workers’ money buys more goods works on the assumption that there are enough goods. On the other hand if there are not enough goods, pent-up demand leads to inflation anyway. In this case giving more money to workers not only motivates them to work more efficiently, it also results in increased production. This in turn helps in satiating pent-up demand, and creates an export surplus, too. The resulting rise in inflation is more than countered by the increased salaries owing to a better net GDP growth. This system, which could be termed Eastern economic model, actually puts more nonworking people to work!

This ‘growth-despitethe-inflation’ phenomenon has created a huge market for more than a billion workers across India and China. If the world needs more workers, it has to train the rest because the juggernauts of Asian markets will not be halted by inflation. More production and more purchasing power is their quickest path to ultimately controlling inflation. And the world will feel the squeeze of skilled worker scarcity like never before.