Balance East and West
Anoop K. Dave

Released: 04/16/2001

Henry Kissinger was renowned for his bipolar model of the world during the Cold War.   One pole was the United States and the capitalist world, and in its opposition was the Soviet Union with the communist nations.  The economic ideals of capitalism and communism waged their proxy wars under the aegis of the superpowers.  Once again the face of the world has changed, but the lines are not so distinct.  The world is now an elaborate network of cities, each of which will have its own economies of scales and partners.  Boundaries will not be based on geographic location, but rather on economic industry.  The implication of this is that there will be a powerful force integrating the East and West.

            Two phenomena will greatly set the course of economic development and interactions are the global aging trend and the information technology revolution.  The global aging trend has slowly crept into the view.  As of now, people are enjoying a longer lifespan, and there is very little population growth, particularly in developed nations like Japan (which will be considered part of the West hear on), Western Europe, and America.  The aging population of these nations implies that the nations will not be able to enter labor-intensive occupations, and since the aging nations are those that are currently the wealthiest in the world, there will be obscenely high savings or investing rates.  The effects of this can be seen with Japan’s recession, which poses a very interesting problem. It is a highly credit worthy nation, but there is not enough demand to keep capital working, hence it stays in recession.  Krugman’s explanation for this is that the consumers have a higher incentive to save for posterity rather than spend for themselves, which is very logical since Japan has one of the most aging populations in the world.  It has a low birthrate, virtually no immigration, and a very long expected life span.  Thus it has turned into a nation of savers and investors of international markets.  This could very well be the case for most of the other aging nations –a vast amount of money but nothing to do with it domestically.

            While the West will find itself with a dearth of investment opportunities, Asia will look for investors.  The densely populated East, has many problems, and the programs to heal them of their colonial wounds take a great deal of money.  The catch is that if investment does enter Asian markets, it has to come in with more faith than it has in the past.  When the Asian financial crisis began to unravel in 1997, Occidental nations were quick to pull out and rebuke the tiger economies, leading to greater worldwide panic.  The combination faith, interest, and money will begin to entwine the economies of the developed and developing nations.

            It has been my observation that cities tend to be known by their industries.  In the US, Pittsburgh is the old steel town, Thomasville the furniture Mecca, and Las Vegas a gambler’s paradise.  Various Asian cities have made their mark as high-tech centers –in China there is Haidan, India has Hyderbad/Banglore, and Singapore has Singapore.  The high-tech phase will have considerable influence and eminence in Asia.  Historically, Asians have been known to take a particular delight in highly abstract and spiritual thinking.  The various philosophies of Hinduism, Buddhism, and the doctrines of Confucius, all have their centers in the East.  Techno-Brahmin theorist Gurcharan Das believes the highly complex and surreal nature of spiritual space makes it a very close relative of cyberspace.  Due to this thinking style, Asia cities have been and will be a fertile ground for hi-tech information industries, but these technologies are a bit risky.

            Investors in nations like Japan that do not have social security programs will have more conservative investing natures.  In Europe and America some social security programs exist, there will be a more of an incentive to invest in slightly higher risk industries.  As time goes on, however, the aging populations will tend to invest in low risk companies because empirically older investors prefer annuities and other low risk securities.  Currently, the world’s population has not reached a mature state; meaning investment current will be entering high tech and experimental industries.  So far empirical data confirms this, the Asian “Silicon Valleys” have enjoyed an astonishing amount of capital and interest.

According to the theory of convergence, since a richer entity is trading with a poorer city, the less wealthy city will have rapid high growth at first, but this will level off as equilibrium is reached.  Banglore has slowed its growth and now Hyderbad, which received investment later, is experiencing much more rapid growth.  As populations age, the G-7 will look for less volatile industries.  This means at first tech cities will get funding, then biotech, then textiles, and so on.  Thus tech cities will grow together, as will biotech municipalities, and textile cities.  The wants and policies, economically speaking, of various cities will be more like the policies of other municipalities in their industry –not their nation.  Collusion has already begun between cities that have similar problems; both Ahmedabad and Surat in Gujarat, India traded a lot of information and resources in the early 1990s when both had huge sanitation problems.  In a broader example, a World Bank program exists to pair up sister cities that have problems with encroachment and slum control (current members for slum control cities in Indonesia, India, and Bangladesh). 

-AKD

Economic Analyst
theshortrun.com 
 

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