Grading Asia’s reform hype
Even for jaded long-time Asia scribes, the past three years have been uniquely fascinating—and Narendra Modi has much to do with that. The Indian Prime Minister’s arrival on the global scene in May 2014 put Asia’s four biggest economies simultaneously in the hands of bold reformers. The common thread linking Modi, Japan’s Shinzo Abe, China’s Xi Jinping and South Korea’s Park Geun-hye was a clear focus on making their nations more competitive: structural upgrades, cutting red tape, spreading the benefits of growth, taking on vested interests, reducing corruption and catalysing entrepreneurship.
Three years on, though, progress has sadly been slow, unsteady and, in most cases, underwhelming. Here’s a report card—worst to best—on Asia’s four big reform projects.
Parkonomics: Korea isn’t last in the class just because Park ended up in handcuffs (after being formally impeached in March). She failed completely to build a more “creative” economy. The key was dismantling the corporate system her father, Park Chung-hee, championed in the 1960s and 1970s. At its core were family-controlled conglomerates known as chaebol. Those names—Samsung, Hyundai, LG, Lotte, Daewoo—still enjoy vast political influence as they monopolize Asia’s No. 4 economy. Rather than check their power, Park Geun-hye got coopted. Then, she allegedly shook down the chaebol she pledged to discipline for tens of millions of dollars. That got her ousted from office and tossed in jail along with the head of Samsung, Korea’s biggest and most globally respected brand. Luckily, Korea can take a punch, something it’s proven time and time again since the 1997 Asian crisis. The bad news is that new President Moon Jae-in must, somehow, pick up the pieces amid weak job growth, stagnant wages and soaring household debt.
Park’s grade: ‘F’
Xiconomics: Leaders from Abe to Donald Trump would kill for Beijing’s roughly 6.5% growth. Less recognized, though, is how Xi’s timidity on economic retooling is killing China’s long-term prospects. When he took power in November 2012, Beijing’s spin machine touted him as the strongest leader since Deng Xiaoping. But rather than act boldly to curtail state-owned enterprises, shift from smokestack industries to services, get a handle on the shadow banking industry, and attack corruption broadly, Xi hit the stimulus gas. The cost of today’s rapid gross domestic product (GDP) growth is bigger bubbles in debt, real estate and pollution down the road. Sure, China is making inroads as a start-up powerhouse and filling the void left by US President Trump’s isolationism. Where it really counts—balancing a lopsided economic system—Xi has been all caution. For all his strongman bone fides and talk of letting market forces play a “decisive role”, Xi’s adherence to Joseph Schumpeter-like creative destruction has been surprisingly weak.
Xi’s grade: ‘C-’
Abenomics: In December 2012, Abe came to power pledging a three-phased big bang: monetary easing, fiscal pump-priming and deregulation. The Bank of Japan delivered on the first; its “shock-and-awe” liquidity jolt weakened the yen, buoyed the Nikkei and boosted profits. Winning the bid for the 2020 Olympics brought phase two on line. But part three, the most vital, barely began. Abe did pull off a few obvious tweaks to corporate governance, but he’s achieved nothing big on lowering trade barriers, loosening labour markets, encouraging innovation and risk-taking, empowering women or, more basically, learning to live without economic steroids. When Japan does eke out 1% growth, as it did in the first quarter, it’s only thanks to the lowest interest rates and biggest debt burden in the developed world. Basically, Abe’s much-ballyhooed scheme is more marketing than substance—a great public relations campaign in search of a product. That leaves Japan just one Trump Twitter rant away from recession should he troll the yen as undervalued or start the trade war on which he campaigned.
Abe’s grade: ‘C’
Modinomics: India is top of the class because Modi has put some important wins on the scoreboard. Getting a national goods and services tax through Parliament is no small feat. Steps to open up sectors, including insurance and defence, wider cheered investors. Modi also gets points for audacity with his demonetization ploy, even if the execution seemed more amateur hour than Gujarat model. One big demerit: too many of Modi’s actions are of the low-hanging-fruit variety. India’s twin balance sheet dilemma—bank bad loans and excess corporate liabilities—require urgent action. Modi could use his popularity and charisma to open sacred sectors like retail. His Make in India push still needs a serious infrastructure boost.
And then there’s the biggest thing Modi hasn’t brought: jobs. It’s not just the 300 million living below the poverty line; it’s also a burgeoning middle class looking to move up the ladder. Modi must devise a less-intrusive regulatory state, upend the tax code and rewrite labour and land rules. Yet, daunting to-do list aside, Modi gets our highest grade—a ‘B’—for most decisively changing the narrative on a nation so clearly on the move.
William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.
His Twitter handle is @williampesek