Toward creative destruction

Its time that we revisit the great masterpiece ‘Capitalism, Socialism & Democracy’ written by the legendary Austrian economist Joseph Schumpeter in 1942. In a kind of a prophetic analysis, the book argued that socialism will ultimately take over capitalism primarily led by intellectuals who, in fact, would have supported capitalism previously. Most importantly, the book coins a landmark term called ‘creative destruction’ which implies a sort of ‘positive destruction’ where the old is replaced by something new (and better). In the absence of ‘creative’ in destruction, there are no replacements, there are anarchies, chaos and lost opportunities.

Thailand is an apt example where destruction has not been so creative and presents a warning signal for Asia. The People Alliance for Democracy (PAD) has its members from very middle class and elite that supported the 1992 democracy movement.

Since the last decade, there have been numerous coups, bloody street protests and multiple rewritten constitutions. The political chaos is not because of democracy that they once fought for but because of the failed returns of the set up that they once idealised. Led by an agenda called ‘New Politics’, PAD aims for democracy not from a theoretician‘s textbook but by radical ‘undemocratic’ measures like direct appointment of parliamentarians, Thai style.

Political challenges

There are 22 democratic countries, seven quasi democracies, eight of them have nominal or questionable democracies and 11 are non-democratic countries in Asia. Recently, East Asia Barometer (EAB) conducted national random-sample surveys in five democracies (Mongolia, the Philippines, South Korea, Taiwan, and Thailand), one old democracy (Japan), one quasi-democracy (Hong Kong), and one authoritarian system (China). Among these eight political systems, public satisfaction was incredibly low in most of them with the lowest in democratic Japan and Taiwan. For example, one-half (52 per cent) of Japanese respondents believed that ‘almost all’ or ‘most’ officials in the national government are corrupt.

Add to it the possibility of failed states in Afghanistan, Iraq, Pakistan and East Timor. Based on a long-standing research programme of the World Bank, the Kaufmann-Kraay-Mastruzzi Worldwide Governance Indicators, which capture six key dimensions of governance (voice and accountability, political stability and lack of violence, government effectiveness, regulatory quality, rule of law, and control of corruption) between 1996 and present, the top five most populous countries in Asia, namely China, India, Indonesia, Pakistan and Bangladesh, which together have half the population of the world, are in the low 10-50th percentile in terms of quality of governance. Essentially, this means that half of the world’s population has abysmal low quality of governance.

Economic challenges

Consider another important paradox of Asia which is with regard to its economic system. On a larger canvas, the picture seems very rosy like its GDP of around $22 trillion and an annual growth of per capita GDP of around 7.5 per cent. According to an Asian Development Bank (ADB) research, income inequality in developing Asia has increased over the last 10 years. The increase in inequality is significant for populous countries. The ADB research also says that in terms of absolute inequality the top 20 per cent have seen their expenditures/incomes grow considerably faster than those at the bottom (bottom 20 per cent). This inequality does not mean that the rich are getting richer and the poor poorer but it is the rich getting richer faster than the poor, which is increasing the inequality.

The unevenness of growth can also be seen in various spheres of economic life. The ADB research states that growth has been uneven across sub-national locations (across provinces, regions, or states). Second, growth has been uneven across sectors — across the rural and urban sectors, as well as across sectors of production (especially, agriculture versus industry and services). Third, growth has been uneven across households, such that incomes at the top of the distribution have grown faster than those in the middle and/or bottom.

Social challenges

There is an increasing trend towards asserting the identity of social groups based on either region, linguistics, religion or caste. This can be seen in the rise of identity-related conflicts in Asia. One remarkable research titled ‘Culture, Identity and Conflict in Asia 1945-2007’, conducted by Professor Aurel of the University of Heidelberg, gives some very interesting insights into this. In this research, Asia tops as the number one contributor to conflicts worldwide. The trend is towards intra-state conflicts which have remarkably increased in Asia than the inter-state ones. There has been an increase in identity conflicts and the special relevance of history-related conflicts especially since the 1970s. This resurgence of identity and its subsequent manifestation in conflicts can be attributed to the non-fulfillment of social aspirations in the governance system of the state.

Asia is standing at the cross roads where it needs a ‘creative destruction’ in multiple facets. If the architecture of governance is not reinvented by choice there will be an eruption of chaos leading to a ‘destructive destruction’ rather than a ‘creative destruction’ which will be the biggest challenge for Asia in the decades to come.