The previous part of this article discussed how many economic miracles have been midwifed amid the chaos of global geopolitics. Several such examples exist. Both South Korea and Taiwan have been described as miracle economies. These countries rose like phoenixes from the ashes of destruction.
What is not discussed all that much is the role played by their patron state, America, in boosting their rise. In an exhaustively researched book, Geopolitics and Globalization, noted political scientist Baldev Raj Nayar notes that both these miracle economies were herded towards high growth rates by an indulgent America that was keen to use them as its first line of defence against communism in the Asia-Pacific.
In the 1950s, American aid to South Korea was 15% of its GDP, five-sixths of its exports and 80% of gross capital formation.
Similarly, for Taiwan, American aid was 6% of GDP and 40% of gross investment. American aid and capital formed the bedrock upon which these miracle economies were built. More than that, it was American consultants who crafted an export-driven growth model for these countries and influenced them to devalue their currencies to make their exports more competitive.
The result was that by 1986, 74% of Taiwan’s GDP growth and 41% of South Korea’s growth was thanks to exports to America alone. American willingness to absorb these exports was driven by geopolitics and not charity.
Similarly, the other tiger economies of Asia—Malaysia, Indonesia, Thailand and Philippines—also benefited from the geopolitical compulsions of the American alliance to safeguard raw material supplies to Japan, Korea and Taiwan. This time, Japan did the heavy lifting as the chief patron of these ‘tiger cub’ economies.
Japan pumped $20 billion in assistance into the four cubs over just four years between 1987 and 1991. Also, Japanese conglomerates moved sunset industries and low-cost manufacturing to these countries, giving their manufacturing industries a massive boost.
The world’s greatest example, however, of geopolitical chaos being used for economic success is China.
As America’s war in Vietnam headed towards disaster, the US feared that the geopolitical equilibrium would shift towards the Soviet Union, its Cold War adversary. Henry Kissinger’s outreach to China was designed to halt this slide.
After initial tentativeness, the Chinese realized the size of the opportunity that had landed in their laps. American enthusiasm to enlist China as an ally against the Soviets by showering it with favours was unparalleled.
Technology and military equipment flowed to China under presidents Jimmy Carter and Ronald Reagan. China was given ‘most favoured nation’ (MFN) status and access to international bank credit, even as the US opened its vast market to Chinese goods. Encouraged by the US government, a torrent of foreign direct investment flowed into the People’s Republic.
The Chinese borrowed a trick from the earlier US and used the promise of their markets and cheap labour to cultivate US business leaders and Wall Street titans as their champions in the US political establishment. This allowed Beijing to brazen out the ramifications of its 1989 Tiananmen Square massacre without much damage to its commercial ties with the US.
In fact, so devoted was the US business lobby to China that President Bill Clinton had to make China’s MFN status permanent. For some two decades, the US looked the other way as China flouted a variety of World Trade Organization rules to gain advantages in trade.
Harnessing geopolitical tension and chaos is a well-used strategy to achieve escape velocity from poverty. But climbing this ladder of chaos is not easy. All economies that have been successful in doing so share a few common attributes—a political consensus on economic growth, stability of policymaking, a laser focus on exports and bureaucratic excellence. All of these are currently missing in India.
The role of geopolitics is important to recognize in the context of globally significant events over the past few years. The window of geopolitical opportunity has opened again for countries like India. Some countries such as Vietnam have already started taking advantage of the shifting sands of geopolitics to fuel their growth. India, in contrast, seems to be standing at the sidelines, moving too slowly to take up today’s opportunity.
The Indian government should engage with the geopolitical turbulence of current times and do what is necessary to leverage it for an export-oriented economic strategy. If we miss this bus again, like we have done so many times before, all that we will be left with is the illusion of our imminent arrival on the world stage.
The author is a director at Arrjavv and a ‘probabilist’ who researches and writes on behavioural finance and economics. Her X handle is @DivaJain2
