Can Asia turn its sprint into a marathon?

        In its report prepared for Asian governments attending its recent annual meeting in Hanoi, the Asian Development Bank hinted that the widely predicted Asian century may not materialise. Before choruses in China and India, supported by those in Indonesia and Malaysia (and maybe Mongolia, too, where mere expression of wishes is often equated with actual fulfilment) cry “Cassandra”, it should be remembered that the prediction has not really come out of the blue. For some time now, prominent economists have been sceptical about Asia’s ability to keep growing at current rates and challenging the basically media-spread belief that Asia is set on an irreversible course to global economic dominance.

         Nouriel Roubini, the man famous for predicting the downfall of the US housing market and subsequent global credit crisis, forecast last month that China will suffer an economic “hard landing”, followed by a collapse in growth sometime after 2013 as a glut in productive capacity caused by over-investment in infrastructure and housing begins to take effect. He said, “China is rife with overinvestment in physical capital, infrastructure and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns and brand-new aluminium smelters kept closed to prevent global prices from plunging... All historical episodes of excessive investment – including East Asia in the 1990s – have ended with a financial crisis and/or a long period of slow growth.”

        Critics have been quick to point out China has been following this path for well over a decade and whenever it has seemed there is too much investment or infrastructure, growth catches up and spare capacity disappears. Another tongue-in-cheek rebuttal was that the poor quality of much of the construction also means that within a decade or two all the old infrastructure will have to be torn down and rebuilt.

        Economic prediction is tricky business, and neither boom nor doom has any special claim to be proved right. So no matter what sceptics say, many economists remain convinced that Asian dominance of the 21st century is not only possible but probable, with some going so far as to call it “an inevitable outcome”. Sustained growth at the rate developing Asia has been achieving  would increase Asia’s share of world GDP from 27 per cent now to 51 per cent by 2050 – three times its share in the 1950s and close to its 58 per cent share in 1700, before the industrial revolution transformed the west.

        And now comes the ADB Report. Rajat Nag, the ADB’s managing director-general, says Asia is in danger of forgetting, amid the “euphoria of progress”, that it faces huge challenges in achieving western-style prosperity. “Just because China’s rate of growth has been 10 per cent or so for the last 10 years does not mean that will necessarily go on. Asia’s rise is probable but not preordained.”

        The great danger for Asia, says Nag defending the report, is that, like Latin America in the 1960s, it will fall into the middle income trap – the term used by economists to describe developing countries that grow rapidly out of absolute poverty but fail to become fully advanced because their economies stagnate. He feels there is a “better than even” chance that Asia will fall into the trap, unless it quickly tackles region-wide weaknesses such as corruption, lack of accountability, poor access to justice, widespread income inequality and slow progress in improving innovation and productivity. The ADB report suggests that these problems could hamper growth so much that Asia’s share of global GDP rises to only 32 per cent by mid-century, with income per head barely reaching $20,000 – just over half the level that sustained rapid growth would bring.

         “The odds are more than even that we might miss out on the Asian century,” says Nag. The challenges have to be met now, otherwise the die is cast. Even if we take these steps we might not make it but certainly we will not make it if we don’t.”

         And as I write this, comes news that an Indian high-level committee on inflation management has said lower growth was “desirable” in the short term to control a price surge. “In the short-run, lowering inflation can have a dampening impact on growth...but that is desirable if our aim is to achieve high, sustainable growth,” said a statement released by the committee. “Sustained high growth is unlikely in a high inflation environment. Both demand management and supply response policies need to be co-ordinated in ways that work to inflation under control.”
So we have to wait and watch until the chicks are hatched and can be counted.


Divorce lawyers get busy again as U.S. economy improves

        It is perhaps perverse to argue that if every cloud has a silver lining, in its turn every silver lining would also have a cloud, but that is what seems to have happened in the USA. The US divorce rate, which dipped in the recession, has bounced back as the financial constrictions on individual lives ease. Lawyers and matrimonial experts report that a stronger economy, lower unemployment and a housing market that – while still weak – is no longer in free fall are all contributing to a rebound in divorce filings.

       During the recession, couples who were out of work or unable to sell their house stayed married to save money. The percentage of the population 15 years and older who counted themselves divorced dropped to 9.7 in 2009, from 9.9 three years earlier, according to the Census Bureau. More than half of the 1,600 attorneys who are members of the American Academy of Matrimonial Lawyers reported a downturn in their business in 2009, the most recent year for which survey data are available.

        Now, those same lawyers are inundated with new clients. The group’s president has said her own practice has been 25 per cent busier this year than in the same period in 2009. One client had first approached her about leaving his wife in 2008, but put the divorce on hold when the local bank would not lend him the money to buy her out of their ranch. As property values in the area rebounded following a steep rise in the price of corn and wheat, the once stalled divorce is “moving full steam ahead”, the lawyer said.

         Divorce has not become any less acrimonious but the fights have changed. One lawyer says people no longer argue about who keeps the house, but about who remains stuck with it. So-called underwater homes, that are worth less than the balance on their mortgage, are flummoxing judges who cannot decide whether to treat them as an asset or a liability.

         Other divorce rituals are also going by the wayside. It was once standard practice to make copies of family photos. “But today, people don’t want to shoulder the expense,” said a lawyer. Even in times of economic distress, however, there is only so much misery that people can bear. One divorcing Manhattan man had planned to use the proceeds from his Bernard Madoff account to pay for a new apartment when he left home. The man did move out after Madoff’s investment fund was exposed as a Ponzi scheme. “But he got a much smaller apartment,” said his lawyer.