Island Voices
Asia must seize future today
By Brhm Prakash
Assistant chief economist for the Asian Development Bank
If developing Asia is to capitalize on globalization, it must seize the opportunities the process offers as well as manage its challenges and risks.
The Asian Development Bank, a Manila-based development financing institution with the overarching aim of reducing poverty in Asia and the Pacific, sees the globalization trend as one that stimulates economic growth and helps reduce poverty. It also believes growing trade should create additional opportunities for the region's economies to develop export markets.
In addition, the information and communications technology revolution should create opportunities for Asia to export skill-intensive services.
But the Asian financial crisis of 1997 shows that globalization can also cause volatility, not only impacting economies but also their welfare systems.
The rapid growth of parts of Asia in the last three decades came about through a boom in exports, accompanied by high savings and investment rates, a supportive macroeconomic framework and inflow of new technology.
But developing Asia will have to graduate from a growth model based on accumulation to one based on innovation, adapting their institutions accordingly.
Information and communications technology infrastructure will be increasingly critical to capitalize on globalization. But first, support will have to come from the telecommunications sector and a partnership between the public and private sectors, as well as technology transfer from more industrialized economies.
Globalization will only increase, and it is vital to minimize its risks. These can range from sharp changes in prices in the world markets to full-blown economic and financial crises.
Thus, it is important to adopt policies and develop institutions to limit volatility and any impact on society's vulnerable groups.
Appropriate policies include maintaining a stable economy, prudent financial policies, and sound regulatory practices. Meanwhile, governments, in cooperation with the private sector, must determine appropriate policies and put them into action.
Building an effective social safety net and ramping up programs in response to a crisis are inefficient and time-consuming. This makes it important to put in place lasting social infrastructure protection.
A short-term safety net should provide employment for those unable to work, while public-works programs must provide jobs for the poor. Where openness leads poor countries to specialize in the production and export of labor-intensive goods, there is the danger that globalization may draw poor children out of school.
Thus, targeted subsidies are needed to encourage school attendance, as these have been successful in increasing school enrollment in some developing countries.
In terms of the policy shifts on economics and trade, human resources, social issues and institutions that are needed if Asia is to meet the challenges of globalization, the ADB recommends the following:
• The efficiency losses and economic distortions brought about by trade barriers have to be minimized, for instance, through replacing nontariff barriers by tariffs and lowering the average level and kind of protection.
• There should be more emphasis on basic education, rather than vocational training, to give semi-skilled workers flexibility in adapting to a rapidly changing environment. Developing Asia also needs a core of highly trained engineers, scientists, financial-sector personnel and technicians who can help absorb new technology and transfer it to domestic firms.
• It will be important to maintain competitiveness in the new economy by investing in telecommunications infrastructure and computer-literacy programs, depending on local circumstances.
• Economies relying on centralized bank-based finance might also have to turn toward securities markets, which could prove more efficient in providing venture capital for new technology start-ups.
• The process of adapting institutions to globalization takes place at the global, regional and national levels. Actions at these levels should be seen as complementary to each other.
• Monetary and financial institutions have to be strengthened if volatility is to be reduced. Credibility and prudence have to be the watchwords of these policies.
