by Jeremy Siegel, Ph.D.
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Posted on Tuesday, May 29, 2007, 12:00AM
During the past two weeks I toured Southeast Asia, visiting Bangkok, Cambodia, Singapore, Bali, and Hong Kong. In those two weeks the news media reported these headlines:
The combined economy of India and China overtakes Japan
China surpasses Japan as the second largest auto market, right behind the U.S.
China invests $3 billion in Blackstone, a leading U.S. private equity group
Singapore GDP tops all estimates at nearly 8% growth
Thai, Singapore, and Chinese stock markets continue to hit all-time highs
Virtually everyone I met said their economy was strong and the future looked bright. Tourism is up and each country is competing for the tourist dollar. Singapore trumpets their “Integrated Resorts,” a euphemism for casinos, but actually a well-planned commercial, residential, and green development that is designed to attract international tourists. “We plan to light all Singapore’s buildings to make an exciting skyline,” reads a brochure of Singapore.
But Hong Kong is not standing still, as anyone can see from the explosive development of casinos in Macao. This economic strength begets new confidence and some new concerns. Asian policymakers worry about their currencies becoming too strong relative to the dollar, a far cry from the collapsing currencies that devastated Asia a decade ago.
I felt Hong Kong was experiencing a renaissance. The former British colony is approaching the tenth anniversary of the “handover,” as the once-feared transfer to Chinese control was called. This transfer created a Special Administrative Region that is meant to preserve much of the Hong Kong’s independence for fifty years. Although doubts were high in 1997, there is a universal feeling that this arrangement has gone better than expected.
The last ten years, however, have not been easy for Hong Kong. After the 1997 handover, the real estate market collapsed then the world-wide bear market caused more pain to the economy. A particularly trying period was the SARS epidemic that almost caused the island to grind to a halt. I was told that at the peak of the crisis there was only one guest in the entire Peninsula Hotel, one of the city’s oldest and most venerable establishments.
Arriving at Hong Kong's airport, one still passes by a fever detector, but the disease is no longer feared. When the SARS epidemic subsided in 2004, both the economy and the stock market recovered and have continued upward.
Convergence of Values
One of the reasons for Asia's economic growth is a consensus that the private sector does the best job at not only providing goods and services but also employment for the millions of job seekers that are moving into the urban centers. Certainly there is far more government planning in a country such as Singapore than in the U.S. But nowhere did I see a move towards government ownership of the means of production – a critical feature of the socialist and communist models that dominated most of the world (including quite a bit of Europe) a generation ago.
And there is a growing consensus about what constitutes a healthful environment. Ten years ago, I flew business class on China Airlines and suffocated from the cigarette smoke. Now all airlines – and most restaurants – are smoke free in Asia. Who would have thought a few short years ago that the airport in Phnom Penh, the Cambodian capital that was our transit point between Angkor Wat and Singapore, would be a no smoking airport?
And encouraging better health means more than curbing smoking. Can you imagine a decade ago seeing a huge Cancer Awareness Exhibit in Singapore’s Raffles City Center mall that finds enthusiastic, young volunteers handing out free loaves of whole wheat bread to those waiting in line to sign up for a free colorectal screenings?
Furthermore, environmental awareness is very popular. Singapore boasts that its new concert hall at the Esplanade on Singapore Bay has a specially pointed roof that moves with the sun to minimize the heat that is absorbed. And Hong Kong residents openly talk about how pollution must be controlled since it’s hurting their ability to attract top talent.
Diminished Influence of U.S. and Japan
During my trip I also felt that the U.S. economy was losing its importance to the region. The world economic engine is now strong enough to make it on its own without help from the U.S. consumer. The U.S. is still viewed by Asians as first in higher education and this year’s Wharton student body hails from more than 70 different countries.
But the big change from a decade ago is that these students are returning to their native countries after their education and not remaining in the U.S. There are two major reasons for this. The first, and most important, is the obvious growth of opportunities in their homelands. But another is the difficulty in obtaining working permits in the U.S. This is leading many to seek higher education elsewhere.
I wonder whether the U.S. can stay number one in this area in these circumstances. It may only be a matter of time before these developing countries develop world-class educational institutions of their own. If they do, becoming educated abroad will not have the same importance. The U.S. must continue to be a player in the world pool for top talent or we will suffer from a reverse brain drain that will deplete one of our most important advantages.
Although my trip did not take me to Japan, I felt that Asia’s richest country is also losing influence. On May 24th, the day I flew to Hong Kong, The International Herald Tribune featured a story titled “Japan losing Engineers, and perhaps its Edge,” and on the same day, The Asian Wall Street Journal wrote an article entitled, “Why Japan's stock market is unlikely to join global party.” The first article spoke of firms in developing countries raiding the top engineers from Japanese firms who felt suffocated by the corporate culture and the inability to capitalize from their own inventions. The second highlighted the low level of merger and acquisition activity in Japan compared to other countries. One of the reasons is that Japanese management puts up so many defenses that private capital does not find it worth the effort. All of this is a recipe for economic stagnation.
Conclusion
Perhaps the most important lesson to be learned from the Asian experience is that economic growth is not a zero sum game where the winners take jobs and opportunities away from the losers. The growth of China, India, and Indonesia is helping all the countries in Southeast Asia. Singapore gets more shoppers from neighboring countries and Hong Kong believes it will remain the financial capital for a burgeoning China since its open and transparent markets can attract more investors.
Similarly the U.S. has much to gain from the growth in Asia. Brand names are very important to the Asians and the consumer market in these developing countries is just opening up.
If we shut ourselves off from developments abroad, we will be the major ones to suffer. Opportunities abound in these developing markets. You can be sure that if the U.S. does not catch them, others most certainly will.
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