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Leading the World


Dr.Akmal Hussain
Newspaper: Daily Times
Dated: Tuesday, May 24 2005

This series of articles attempts to articulate a vision of South Asia in the new world that is taking shape. A key role for South Asia in the global economy is anticipated, an alternative policy paradigm is proposed, and some of the common denominators of the South Asian personality are indicated. Finally, specific policy actions are formulated, to start the process of concretizing the vision.

I. South Asia can lead the World

South Asia is at a historic moment of transforming the economic conditions of its people and playing a leadership role not only in the global economy but also in the development of human civilization in the 21 st century. For the first time in the last 350 years, the global economy is undergoing a shift in its center of gravity from the continents of Europe and North America to Asia. If present trends in GDP growth in China, U.S. and India respectively continue, then in the next two decades China will be the largest economy in the world, U.S. the second largest and India the third largest economy. However, if South Asian countries develop an integrated economy, then South Asia can become the second largest economy in the world after China. Given the geographic proximity and economic complementarities between South Asia on the one hand and China on the other, this region could become the greatest economic powerhouse in human history.

Yet the world cannot be sustained by economic growth alone. Human life is threatened with the environmental crisis and conflicts arising from the culture of greed, from endemic poverty and the egotistic projection of military power. Societies in this region have a rich cultural tradition of experiencing unity through transcending the ego, of creative growth through human solidarity and a harmony with nature. In bringing these aspects of their culture to bear in facing contemporary challenges, the people of this region could bring a new consciousness and institutions to the global market mechanism. In so doing South Asia and China can together take the 21 st century world on to a new trajectory of sustainable development and human security. It can be an Asian century that enriches human civilization.

II. South Asia and the New Paradigm of Policy

All great epochs of economic and cultural achievement are associated with an intellectual renaissance. So must it be for South Asia as it faces the prospect of a leadership role in the 21 st century. Let us begin with a critical examination of the theoretical postulates that have formed the basis of economic and foreign policy of modern nation states.

The policy paradigm underlying the last three centuries of economic growth within nation states and political relations between states, has been characterized by two propositions that are rooted in conventional social science theory:

•  Maximization of individual gains in terms of continuous increases in production and consumption, within a competitive framework ensures the maximization of social welfare at the national as well as global levels.

•  The economic and political interests of a nation state are best achieved by translating economic gains into military power. The assumption here is that a state can enhance national welfare by initiating, or being part of an initiative for projecting imperial power over other states.

These propositions now need to be questioned because of the increased inter dependence of people and states on each other and on the ecology within which they function.

Let us briefly critique each of these propositions to lay the basis of proposing an alternative paradigm of policy, as this region develops a leadership role in the world:

(a) First, the idea that competition alone ensures an efficient outcome may not be necessarily true in all cases in view of the work by Nobel Prize winning economist John Nash, who proved mathematically that in some cases the equilibrium, which maximizes individual gains, could be achieved through cooperation rather than competition.

The Nash Equilibrium solution may be particularly relevant in the context of India-Pakistan relations. Consider. India, if it is to sustain its high growth rate, will require sharply increased imports of oil, gas and industrial raw materials from West and Central Asia, for which Pakistan is the most feasible conduit. Similarly India's economic growth, which has so far been based on the domestic market will in the immediate future require rapidly increasing exports for which Pakistan and other South Asian countries are an appropriate market. Thus the sustainability of India's economic growth requires close cooperation with Pakistan. Conversely, peace and cooperation with India is essential for Pakistan, if it is to achieve a GDP growth rate of 8 to 9 percent, overcome poverty and build a democracy based on a tolerant and pluralistic society. It is clear therefore that governments in India and Pakistan will need to move out of the old mindset of a zero-sum game, where gains by one side are made at the expense of the other. Now the welfare of both countries can be maximized through joint gains within a framework of cooperation rather than conflict.

The missing dimension of the relationship between competition and welfare in conventional economic theory is that of institutions. The recent work of another Nobel Prize winning economist, Douglas North has shown that if competitive markets are to lead to efficacious outcomes, then they must be based on a set of underlying institutions. He defines institutions in terms of constraints to behaviour for achieving shared objectives within an appropriate combination of incentives and disincentives. We can apply Douglas North's principle to identify the imperative for emerging economic powers to seek a broad framework of cooperation for the efficient functioning of a competitive global economy.

Our proposed logic of locating competitive markets within broader institutional structures of cooperation at the regional and global levels is necessitated by the integrated ecology of the planet. Global cooperation in environmental protection, poverty reduction and defusing the flash points of social conflict and violence will become the essential underpinning of sustainable development and human security in this century.

(b) The second proposition in conventional social science theory and political practice, that the economic welfare and political influence of a nation state can be best achieved by translating economic gains into military power is also questionable. In the new world that is now taking shape, the influence of an emerging power will be determined not by the magnitude of the destruction it can wreak on other countries but by its contribution to enhancing life in an inter-dependent world. Thus it is not the military muscle of a state that will be the emblem of status, but its contribution to meeting the challenge of peace, overcoming global poverty and protecting the planet from environmental disaster.

Meeting these challenges will require a deeper understanding of the processes that shape nature and human societies, as well as a deeper awareness of our inner self and our shared civilizational wellsprings. Thus, as South Asia pursues a leadership position in the global economy, it would also have to strive to reach the cutting edge of human knowledge in the natural and social sciences. At the same time it would have to bring to bear its value system rooted in the experience of humanity that is evoked in its diverse literary and philosophical traditions.

This is the first of a three part series of articles based on a paper delivered by the author on 16 th May 05, at the SAFMA Conference on Evolving the South Asian Fraternity.


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