Looking Back, Looking Ahead: Asia in the 21st Century

ICAS 9 keynote speech by Prof. Takashi Shiraishi, President, National Graduate Institute for Policy Studies.

Angus Maddison has shown us what the advent of Europe, followed by the rise of the US, meant for Asia: The share of Asia – and here Asia signifies India, China, Japan and the rest of Asia including Southeast Asia – the share of Asia in the world economy was more than 50 percent in and up to 1820, and China alone, both under Ming and Ch’ing, occupied 20 to 30 percent of the world economy. India was the second largest, while the share of Britain, the front runner of industrial revolution, in the world economy in 1820 was less than 5 percent. Since 1820, however, the Asian share of the world economy steadily declined, while the US share, along with the West European share, expanded rapidly, so much so that by 1950, the Asian share had gone down below 20 percent, while the share of the two regions of North America and Western Europe combined, which had surpassed 50 percent in the mid-nineteenth century, remained there for more than a century. By the turn of the 21st century, however, the Asian share in the global economy, in terms of purchasing power parity, has come back to almost 40 percent, and it is now widely expected that the Asian share will surpass 50 percent to regain the position it occupied in the world economy two centuries ago.

Having said that, I need to say in haste that I am not that simple-minded to argue that Asia, especially China and India, will be back as the two global centers of world economy and that a new tributary system will be in the making with the ascent of China in East Asia. For one thing, the last two centuries witnessed not only the ascendancy of Western Europe, but perhaps more importantly, the emergence of North America as the most dynamic center of the global economy. This was and still is arguably the most important development in the world history in modern times. It is also important to remember that China and India, and for that matter the entire Asia, are now vastly different from what they were two centuries ago, and so are the Chinese, the Indians, and Asians in general.

The question I would like to raise here is this: what are we to make out of this macro-level change in the world economy over the last two centuries and what are the challenges ahead for Asia, with China and India as two major giants, now that Asia is back as a center of the global economy.

To address this question, I find it useful to recall what Karl Polanyi, an economic historian, has to say in his now classic book, The Great Transformation: the Political and Economic Origins of Our Time, which he wrote in the U.S. during the Second World War. He starts the book by saying that nineteenth-century civilization has collapsed. And he continues: “Nineteenth century civilization rested on four institutions. The first was the balance-of-power system, which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard, which symbolized a unique organization of world economy. The third was the self-regulating market, which produced an unheard-of material welfare. The fourth was the liberal state. Classified in one way, two of these institutions were economic, two political. Classified in another way, two of them were national, two international. Between them they determined the characteristic outlines of the history of our civilization.”

His notion of Nineteenth Century Civilization is unabashedly Euro-centric, and the singularity of this civilization signifies that he literally saw civilization only in terms of the long 19th century of European ascendancy. But I am not quoting Polanyi to criticize his Euro-centrism; rather, I quote him to make a series of comparisons. If we look back at European history, we may agree with Polanyi that the 19th century European system was indeed built on the four institutions of the balance-of-power system, the gold standard, the self-regulating market, and the liberal state. This system collapsed in the years from the 1910s to the 1940s, first with the breakdown of the balance-of-power system that led to the Great War in Europe (and we better remember that not much happened in Asia, except for economic booms, in those war years). The Great War was then followed by the rise of a communist state in Russia, the rise of Fascist Italy and Nazi Germany, the increasing erosion of liberal state legitimacy, the collapse of the gold standard, the great depression and the crisis in the self-regulating market, culminating in the Second World War toward the end of the 1930s.

If we look at Asia in this long 19th century, we see an entirely different picture. It was the long century in which Asia was colonized. To see how it happened, it is useful to recall what Takeshi Hamashita has to say about maritime Asia. Maritime Asia was a series of seas extending from Northeast Asia to Southeast Asia, encompassing countries and regions, trading centers and sub-centers, located along the Asian periphery. 3 Maritime Asia is not the same with non-Chinese Asia. The Kombaung dynastic state in upper Burma and Mataram in central Java were as inland, inward-looking, and peasantbased as the Ch’ing state, while the coastal regions of Southern China in the late Ch’ing and the Republican era were as maritime, outward-looking, and trade-based as Bangkok was in the same years.

Historically China managed its trade with maritime zones through the tributary system. It did so, not because it wanted to translate its attraction as a market into political and cultural hegemony, but rather to prevent private trade from upsetting the internal imperial order.

The British colonized the Indian subcontinent by the early 19th century and expanded its informal empire in East and Southeast Asia in the course of the 19th century. In the first half of the 19th century, British naval power colonized Asian seas from the Indian Ocean to the Malacca straits to South and East China Sea, with the establishment of Singapore and Hong Kong as the most enduring historical legacies of its informal empire building. This was followed by collective imperialism in Southeast and East Asia. Southeast Asia, with Siam as a partial exception, was divided by European powers into their respective colonies by the end of the 19th century. Modern colonial states were fashioned for internal pacification. Colonial economies were organized, not as a levelplaying field, but to benefit the colonizers. And colonies were at peace with each other. European powers mostly fought little wars, coopting as well as killing and subjugating natives. But in the long 19th century, these colonial powers never fought with each other in the region until the Spanish-American war at the end of the 19th century. The Britishled “colonial peace” in Southeast Asia was a byproduct of the European balance-of-power system. And this colonial peace was broken first by the U.S. to mark its arrival in Asia.

A major institution of the collective imperialism in mainland China was the treaty port system. The most-favored-nation clause in the treaties the Western powers concluded with Ch’ing China underwrote the collective nature of empire. The treaty port system took shape in the 19th century with the opening of Hong Kong, Amoy and Shanghai, followed by opening of more along the Yangtze river and the Yellow Sea coast and with the construction of railways into China’s interior.

Two countries escaped the fate of colonization. Thailand went about its internal pacification and modern state building, modeled after its neighboring colonial states. Japan under the Meiji government embarked on its own civilizing project to 4 build “rich nation and strong army” and emerged as a power by the first decade of the 20th century with its victory over Russia in the 1904-1905 war.

In sum, what Polanyi calls the “19th century civilization” manifested itself in the colonization and semi-colonization of Asia except Thailand and Japan. The arrival of Japan as a power was marked, characteristically, by the elevation of Japanese to the status of honorary white, creating an anomaly of Japanese prostitutes in the Dutch Indies enjoying the status of Europeans while ethnic Chinese tycoons remained foreign Orientals. The demise of the British-led collective imperialism in Asia also differed from the collapse of the 19th century civilization in Europe. By the time President Woodrow Wilson made his national self-determination speech in 1918, revolution had broken out in Russia and nationalism was on the rise in many places in Asia. There was a revolution in the Spanish Philippines, which briefly led to the establishment of the first republic in Asia, even though it was soon destroyed by U.S. occupation. Sun Yat-sen mobilized manpower and money for his revolutionary cause from among Chinese in the coastal regions of Southern China and Southeast Asia. By the 1920s the rise of Chinese nationalism threatened the informal imperialism in China and triggered its increasingly serious systemic crisis. The Dutch Indies witnessed the emergence of Sarekat Islam in the 1910s, the left wing of which turned to communism and organized revolt in the mid 1920s. And in Vietnam, the nationalist mantle was handed over from Vietnamese literati of Phan Boi Chau’s generation to French educated intellectuals of Ho Chi Minh’s generation in the 1920s.

Japan embarked on belated empire building in the same years. It started with the colonization of Korea, the Twenty-One Demands on Republican China, the invasion of Manchuria and establishment of Manchukuo in the early 1930s, all-out invasion of and war against China in the late 1930s, and finally the war with the US and Britain in the 1940s. This was a fatal grand-strategic blunder, at enormous cost of suffering and lives lost. Imperial Japan antagonized both the nationalist forces in China and elsewhere and the two hegemonic powers, the US and Britain. Japan lost the war. It lost all the colonies, and its homeland was reduced to debris and ashes. The war, however, also destroyed the collective imperialism in Asia. A devastated China and Southeast Asia experienced deep-seated and wide-ranging social, economic, and political crises.

In the wake of the war, a bipolar world emerged. Europe was divided into American-led Free Europe and the Soviet empire. The American-led Free Europe, 5 which would evolve into the 20th century system, was built on the debris of the 19th century civilization. Pax Americana replaced the balance of power system. The dollar gold standard and the GATT trade system replaced the gold standard. These international institutions, combined with the liberal democratic state and the self-regulating market, became the institutional foundation for the new system. The American-led 20th century system has undergone significant changes over the course of Cold War years. The dollar gold standard gave way to the dollar-led floating exchange rate system. The GATT trade system has evolved into the WTO system. But more important was the way in which the system was organized.

Strategic challenges the US faced in Western Europe were: first, how to counter the communist threat and contain the Soviet Union, and second, how to rebuild West Germany economically and make it an American ally, while making sure that it would never again be a threat to the United States and its allies. The answers it found to these questions are well-known: In security this resulted in the creation of the American-led North Atlantic Treaty Organization (NATO) as a collective security institution, and in economic terms, the formation of a European common market built on the partnership between France and West Germany, which has now evolved into the European Union. A similar set of questions was posed in Asia. The first question was how to contain the threat of international communism emanating from Soviet Russia and communist China – and here, we should recall that China went communist in 1949 and war broke out in the Korean peninsula in 1950. The other question was how to revive Japan but make sure Japan would never again be a threat to the US.

The answers the US came up with are, again, well-known. One was double containment. Containing the Soviet Union and communist China on the one hand, while containing Japan on the other or, to use George Kennan’s graphic metaphor, keeping America’s light hold on Japan’s jugular, which was done first by integrating Japan’s military power into the regional security system created and led by the Americans and second by American control over Japan’s energy supply.

The other was the fashioning of the US, Japan and Southeast Asian triangular trade system. Before the war, Japan’s two most important trading partners were the US and China, and Japanese business hoped to trade with China, as well as with the US, after the war. But in the early years of the Cold War in which China had to be contained, the US could not afford to allow Japanese business to trade with China and undermine its 6 containment policy against China. Instead, Americans encouraged Japanese to go south and normalize diplomatic relations with Southeast Asian countries in “Free Asia”.

The American-led Free Asia was thus organized differently from American-led Free Europe. Applied to maritime Asia, US policy was geared toward the containment of communism, and by the mid-1950s the demarcation line was drawn at the border separating North from South Korea, Taiwan and Hong Kong from mainland China, and North from South Vietnam. War, however, continued in Vietnam and expanded to its neighbors, culminating in the unification of Vietnam in 1975 and Pol Pot's coming to power in Cambodia, only to be followed by the genocide and another war in Cambodia throughout the Cold War era. Outside the war zone of Indochina, Free Asia was anchored institutionally on a string of bases from which the US projected its military power to contain communist Asia. In contrast to the British informal empire, whose interests were primarily commercial, the outer limit of American hegemony was military. Within these limits, the US encouraged its allies and client states to develop their economies, while providing its huge market and its enormous financial and technological resources. As long as they were not communist, it did not matter whether the American allies and clients were liberal democratic or authoritarian. The name of the game was stability and order. Free Asia was therefore built, not exactly on the same institutional principles as in Free Europe. Pax Americana, the dollar-led floating exchange rate system, and the GATT trade system were certainly there, but most states except Japan remained authoritarian and often quite repressive of their own people until very late in the cold war era. Most of the states went about development from above, with the military and the technocracy run by American trained military officers and technocrats as two most important state institutions.

The fact that the US made different strategic choices in East Asia and Western Europe had a profound impact on the structure of the two regional systems. In Western Europe, the French and Germans embarked on a joint project that was deeply informed by a Europeanist ideology. This Europeanism underpinned the political will to build a peaceful and prosperous Europe and led to the formation of a community anchored in the larger North Atlantic collective security system. In other words, regionalism has been the driving force in the making of Western Europe.

In East Asia, by contrast, there was neither the political will to create a community nor a sense of identity as Asians to serve as the basis for “Asianism” as a 7 regionalist ideology. Instead East Asia has emerged as a region through a process of economic integration driven by the tremendous economic development, often under the aegis of what would come to be known as developmental states. Economic integration would be substantially powered by foreign direct investment from Japanese, American, South Korean, Taiwanese and overseas Chinese businesses. In other words, it was market forces, and not the political will informed by Asianism, that led to the regionalization of East Asia in the 1980s.

The regional structure fashioned by the US in the early Cold War years provided the framework for this development. The regional security system remains an American-led hub-and-spokes-system. But at the same time, the regional trade system has evolved out of the original triangular trade system with the integration of China and other countries into the system since the 1980s.

The cold war also ended differently in Asia and Europe. Democratic revolutions in East European countries, the unification of Germany, the collapse of the Soviet Union, the bloody civil war in the former Yugoslavia, the NATO expansion and the deepening and expansion of European integration – all these developments meant substantial geopolitical change in Europe. Nothing of this sort took place in Asia. Democratic transformations did take place in the 1980s and 1990s, not in socialist countries but rather in American client states such as the Philippines, South Korea, and Taiwan. Although there were democracy movements in China and Burma, no socialist state in East Asia collapsed. Instead, China and Vietnam transformed themselves from socialist states into socialist market economy states. Myanmar also chose a similar path recently, while North Korea remains Kim’s dynastic party state.

In sum, no major geopolitical change took place in Asia, except the end of the war in Indochina and the ASEAN expansion thereafter. More important were regional economic changes, as evident in the creation of transnational production chains across national borders.

People used to talk about Japan as the workshop of Asia, in much the same way people now talk about China as the workshop of the world. But this workshop is in fact no longer confined to any single country, but rather spread out across the region and beyond. Equally important, the premise of developmental statism, which used to stress late industrialization founded on import substitution, export promotion, and industrial upgrading, has been undermined by the new reality of evolving global value chains and 8 increasing importance of service across economic sectors, including manufacturing and agriculture.

China’s socialist economy has undergone enormous changes since the 1980s when the party leadership decided to shift gears from self-reliance to integrating China to the global economy and in so doing transforming its socialist economic system. In the 1980s China dismantled the communes and other collective institutions, welcomed substantial foreign investment, aid and loans, promoted domestic markets, and embarked on a national development strategy. Since then China has posted high economic growth rates every year except a setback in 1989-1990. In so doing, China has become deeply integrated into the postwar triangular trade system, while at the same time remaining outside the American-led hub-and-spokes security system.

That China successfully transformed itself from socialism to socialist market economy turned out to be crucial for the survival of other socialist states on its vicinity. Both the dynastic party state in North Korea and the military junta in Burma/Myanmar survived while becoming increasingly dependent on China. Vietnam followed China’s footsteps in transforming itself from socialism to socialist market economy. The region, once bifurcated from the 1950s to the 1970s, became increasingly integrated economically, preparing the ground for institution-building in the post-Asian crisis years.

Integrated into the regional economic system, China has in turn transformed the regional system by greatly expanding the intra-regional trade and, in doing so, effectively decentering the US. Hence, we are witness to the current anomaly in which the US has been increasingly decentered economically while remaining the hub of the regional security system, from which China is excluded. And this explains why many states in the region engage in a delicate balancing act, aligning with the US and its allies for security on the one hand, while engaging China for economic cooperation.

The kind of regional structure that now informs these two different but simultaneous types of politics—namely, balancing and economic cooperation—is likely to remain in place for quite sometime. This means that despite the promise of globalization, the 20th century system of Pax Americana, the dollar-led exchange rate system and the WTO trade system, the liberal democratic state, and the self-regulating market as its defining institutions has not quite evolved into the 21st century global system. Radical Islamist challenges pose a fundamental opposition to the very assumptions of globalization. The Eurasian continental alliance, with China and Russia as senior and 9 junior partners, may be in the making. And in Asia, having survived its systemic crisis in 1989-1990, there are no signs that China, which has benefited enormously from the American-led 20th century system over the last 35 years, is accepting all its institutional norms. It remains a party state and its market economy is at least one-third under state control. Calling for a "Rich Nation, Strong Military" to achieve what President Xi Jinping calls China Dream, China is positioning itself militarily to be on a par with the US in the region, projecting power onto maritime Asia, and perhaps attempting to create its own sphere of influence.

But we also need to be aware that the days when China could free-ride on the 20th century system are coming to an end. China’s share in the global economy, measured in current prices, expanded from less than 4 percent in 2000 to more than 9 percent in 2010 and it is expected to surpass 20 percent in less than ten years. It is hard to imagine China free-riding on the global system for its economic growth, while maintaining its domestic political and economic system intact as a party state-led socialist market economy, building its military, expanding its sphere of influence and constructing a continental coalition vis-à-vis the US-led alliance system in Asia and Europe.

Needless to say, we do not know what the future holds for us. What we can say with reasonable confidence is that there will be more uncertainty, if not mounting tensions, as China rises and becomes more assertive. Balance-of-power politics will be more pronounced in the coming years, and this in turn will confront China’s party state leadership with a major grand strategic choice about the position it seeks in the world and the region.

At the same time, however, we can also say with confidence that the engine of transforming the region will remain primarily economic, even though security matters, perhaps more so in the coming years. Over three decades from 1980 to 2010, per capita GDP in local currency constant prices expanded 1300 percent in China, 600 percent in South Korea, 440 percent in Vietnam, 347 percent in Thailand, 265 percent in Indonesia and 130 percent in the Philippines. (By comparison, per capita GDP expanded about 170 percent both in Japan and the US over the same years.) This has led to the emergence of middle class societies in the region –in Japan in the 1950s and 1960s; in South Korea, Taiwan, Hong Kong and Singapore in the 1970s and 1980s, in the original four ASEAN member countries in the 1980s and 1990s and in China in the 1990s onward.

Region-wide middle classes constitute expanding regional markets for 10 multinational corporations. A recent METI study estimates the regional middle class population (outside Japan) with the household income of 15,000 USD and above to expand four times, from over 300 million in 2010 to almost 1.2 billion in 2020. If it was foreign direct investments, geared to the markets outside the region, that drove East Asian regionalization in the 1980s and 1990s, multinational corporations now target the middleclass markets within the region. Studies also show the emergence of middle classes sharing sub-regional lifestyles. Defining middle classes in terms of the ownership of standard package items –TV set, car, computer, smartphone, air con, vacuum cleaner, etc.— a study found that the ownership patterns of standard package items among people in Manila, Singapore, Hong Kong and Taipei, for instance, have a lot in common, suggesting the formation of a shared sub-regional lifestyle among most likely ethnic Chinese urban middle class people. And these people envision the future of their children regionally and globally and educate them for that future.

The political consequences of the rising middle classes in Asia vary from one country to another: though created in one generation, they have evolved along different historical trajectories, nationally occupy different social, political and cultural positions, and exercise varying levels of political influence. But one thing looks certain. Asia has emerged as economically a very dynamic region, and practically all the states in the region, whether democratic or non-democratic, have staked their regime stability and legitimacy on the success of their respective politics of economic growth. The middle classes, who owe their existence to that postwar politics of economic growth, are in turn now the most important subscribers to this politics. International forces or events may shape their politics of economic growth as we witnessed in the East Asian economic crisis and the global financial crisis, but these states are subject to the internal dynamics of their respective societies, and the challenges their peoples confront and the future they aspire to.

The politics of economic growth as well as the middle classes’ long-term cultural hegemony and political ascendancy is largely dependent on the economic performance of their respective countries, because high economic growth means not only their survival, prosperity, and expansion, but also the promise of social mobility and a life of plenty for the poor.

In the face of increasing urbanization in Asia—the World Bank estimates that 62 percent of the population in East Asia will be urban by 2030—states and societies will 11 have to tackle the issue of impoverished people converging on informal sectors in cities. According to a World Bank study, 270 million people, or 33 percent, of East Asia's overall urban population lived in slums in 2004 and even if this particular ratio declines drastically thanks to economic development, 350 million people will be trapped in slums in 2030. As we see in Thailand in recent years, the urban-rural divide is confronting many countries and threatening their political stability, but it is almost certain that the poor-rich disparity in urban areas will be even more serious political issue in the coming years.

In this sense, the future of Asia both nationally and regionally will depend very much on the sustainability of this politics of economic growth. With the kind of geopolitical structure and economic, political and cultural networks now in place in this region, individual states cannot afford to embark on nation-building and economic development in isolation. We are likely to see not just middle classes across Asia becoming Anglophone, sharing common sub-regional lifestyles and the way of thinking and ideas, but also states with common political agenda based on commonalities of challenges despite the divide over security and sovereignty issues.

How then should we look forward at Asia?

Two arguments that were often made about Japan in the 1980s and 1990s are now being made about China: first, that regionalization is essentially a process by which one single country—whether it is the U.S., Japan or China—creates a region in its own image, so to speak; second, that regionalism is led by one country, hence the idea that China is now taking over the leadership from slow-growing Japan and narrowly-focused America. While state-centric arguments may have some validity in understanding the Cold War era, when applied to the present situation they are far from sufficient. As much as Japan is deeply embedded in Asia, so are other countries in the region, and so is China, above all its coastal provinces.

We now know the promise of globalization as entertained in the immediate post Cold War years were unfounded: globalization, driven by technology, communications, trade and financial flows, did not automatically lead us to the more peaceful and prosperous world anchored in the American-led system of Pax Americana, the dollar-led exchange rate system, the WTO trade system, the liberal democratic state, and market economy. Nor do we see an imminent hegemonic shift in the region, however much China’s party state leadership pushes for the China Dream. Rather, it is interactions among states, markets, and societies that are laying the foundations of Asia as a region, 12 rooted in specific national formations and yet at the same time promoting economic interdependence and equally important, redefining the purpose of politics, namely what purpose states are there to serve.

I have worked as a historian, an international relations specialist, a political economist, and a foreign policy expert over the last 40 years, but have always studied Asia, Southeast Asia initially and Asia more generally in recent years. It is my conviction that Area Studies have a lot to contribute to our understanding of the very complex global, regional, national, and local processes at work, precisely because our perspective is anchored in historical and comparative approaches to and across areas rather than in any disciplinary box. The "crisis" of area studies has been talked about since the end of the Cold War era, with budget cuts, disciplinary compartmentalization and the imposition of quantitative, technical assessment standards borrowed from some of the natural sciences and now applied uncritically to the social sciences and the humanities. At the same time, we are very much aware that no discipline can account for the complexity of the lived experience and processes currently unfolding across different scales. Our understanding of the region these days is most often based on a certain discipline, and disciplines are useful because they pose questions from which we can undertake our study of and engagement with the world. But I believe that area studies provide an arena in which we can talk across disciplines and learn from each other. At a time when we have all the more reason and need to learn about ourselves and our neighbors, this crisis of area studies may in fact be a crisis of knowledge and authority, or rather the way in which we go about producing, authorizing or validating, and sharing knowledge. We need to ask the question of whose crisis this is, and whether we are not ourselves guilty of thinking within a box, or even in a box within a box, and complicit in reproducing the inequalities that structure knowledge production. What is clear is that we can no longer go about doing area studies the way we have been used to: which is to say, we go to a "field" somewhere, do research and write about "other" people not our own, publish in our own national language as well as in English but not the languages of the people we are talking about, talk to our fellow academics in America or Europe or Asia while feeling ourselves above the debates happening within communities in the region and in the different countries, not talking to nor citing the scholarship produced by our colleagues in this region, and then insisting that everyone should publish in Englishlanguage journals with high impact factor. The point is that people in the region and the 13 world move on and things are unfolding right in front of us, and for many of the people who find themselves in an "area"--in the many senses and contexts in which it is understand as such--that area is not something removed or out there, but the ground on which they, and we all live, work, love, hate, have children, move about, grow old, and die. Let us be open-minded and stop thinking about Asian studies as something out there, but something we do together with our friends and colleagues here.

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