European Twilight, Asian Sunrise

In August I left the London School of Economics and am about to move to Singapore. I left Europe for Asia. I am a British-Sri Lankan – half European-half Asian. I grew up in Sri Lanka, lived in Britain and elsewhere in Europe, and am now returning to Asia. This life-change prompts a few general thoughts on the state of Europe, and more broadly the West, and the state of the emerging world, particularly Asia.Liberty, particularly economic freedom – what Adam Smith called “natural liberty” – is a theme that preoccupies me; and I am especially intrigued by its condition and prospects outside the West. That is one reason for my move to Asia.

First some recent political and economic trends. The last economic era, roughly from 1980 to 2008, was the most successful combination of globalisation, growth and prosperity in history. The West benefited, but, more importantly, this was when “the Rest” came on board: “underdeveloped countries” cast off post-colonial isolation and embraced the world economy. The recent global economic crisis, though, has induced sharp divergence of economic performance between the West and emerging markets. The USA and most of Europe are stuck with anaemic growth. The main emerging markets, with the exception of Russia, sailed through the crisis and are booming. This short-term divergence has accelerated the long-term convergence between emerging markets – particularly in Asia – and the West.

There is similar divergence in the global policy outlook. The West’s financial crisis and “crisis interventions” have wrecked public finances. Financial bailouts, fiscal-stimulus packages and extra-loose monetary policy also provided cover for Big Government micro-interventions that distort competition and restrict economic freedom. Most emerging markets retain healthier balance sheets and have a much more promising outlook.

America is mired in gloom, but I have residual faith in the vitality of American society. I am more pessimistic about Europe. Too many European countries have overlarge public sectors, cosseted public-sector unions, bloated welfare states and an entrenched “entitlements” culture, not to mention unsustainable debt levels. Too many people lack individual responsibility, are overdependent on the state, lazy, decadent and degenerate. Tocqueville’s dystopia comes to mind: “A people reduced to perpetual childhood … compressed, enervated, extinguished, stupefied, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which government is the shepherd.”

In the European Union, necessary liberalising reforms have stalled. A Eurozone crisis rages. The response of a third-rate European political elite is not to undertake commonsensical market reforms; rather it is a centralising, bureaucratic, almost command-economy-like response – fiscal-policy harmonisation that portends more Brussels bureaucracy, more intrusive regulation, higher taxes, and ever-larger transfers to profligate governments in the European periphery. These are symptoms of European decline; and the EU may indeed be sleepwalking to disaster.

Asia, in contrast, is an awakening continent whose peoples are vertical, up-and-doing, grasping new-found economic freedom with both hands. Market liberalisation over the last few decades, first in east Asia, then in south Asia, and including China and India, has unleashed the “animal spirits” of ordinary people, particularly the young. Their commitment to education, work and self-improvement is everywhere in view. They are exercising their “natural liberty” with gusto and are transforming the world in the process. I want a ringside seat at this great twenty-first century drama and watch the story unfold.

My base camp, Singapore, faces east and west at the main “choke point” of Asian maritime trade. It is where “liberty outside the West” got a massive boost with its founding by that intrepid, autodidactic, polymath colonialist Stamford Raffles in 1819. His vision was of a “vast emporium”, fully open to trade and to migrants in search of work and enterprise. He was probably the first to realise, in concrete form, Adam Smith’s vision in The Wealth of Nations. Of course Lee Kuan Yew’s Singapore differs from that of Raffles in many ways, but Raffles’s legacy survives: Singapore is still a multi-ethnic entrepot that practises free trade, open to the world’s goods, services, investment and people.

But I don’t want to paint too rosy a picture of emerging markets. Market reforms have stalled in China, India and elsewhere. Domestic red tape continues to stifle emerging markets’ business climates and repress economic freedom much more than in the West. This is reflected in all major global rankings, such as the World Bank’s Doing Business Index and the Fraser Institute’s Economic Freedom of the World Index. Economic institutions and political systems remain relatively weak; they keep business costs high, repressing entrepreneurship and innovation. Emerging-market powers suffer their own divisions, such as the mistrust and rivalry between China, India and Japan. They are still reactive in global economic institutions. And they have high barriers to intra-regional trade, investment and the movement of people – a far cry from the EU and NAFTA. In other words there is huge unfinished business, particularly to expand economic freedom outside the West.

Now turn to ideas. Liberty, particularly economic freedom – what Adam Smith called “natural liberty” – is a theme that preoccupies me, particularly its condition and prospects outside the West. The liberal tradition is a product of the West. Those who are Western-centric like to think that liberty is the West’s intellectual property. It is for the West to export liberty to benighted lands – to lead them out of their “areas of darkness” (to borrow a favourite V.S. Naipaul term). True, the liberal tradition comes mainly from the West. But it will not work unless a serious connection is made with local intellectual traditions and local history. Hence there must be a serious effort to explore non-Western liberal traditions, and then make the connections with Western classical liberalism.

And now to history. A Western-centric view holds that only Western colonialism enabled economic development outside the West. But there is only a grain of truth in this script. The history of long-distance trade, for example, was mainly a non-Western story until the 15th century.

The zenith of economic freedom outside the West in pre-modern history was medieval Indian Ocean trade before European colonisation, a Golden Age of south and southeast Asian commerce. Before the Portuguese muscled in, the Indian Ocean was Mare Liberum, not controlled by any power and fully open to trade. Coastlines were dotted with “port-polities”, independent towns and cities whose lifeblood was overseas trade. Aden, Hormuz, Cambay, Goa, Calicut, Aceh, Malacca and Macassar --these were religiously tolerant, polyglot, cosmopolitan places, energised by trading diasporas. Freewheeling economic competition went in tandem with decentralised, flexible political institutions and advanced legal structures. Fractured geography and competing polities combined to promote economic freedom, growth and prosperity.

The last sixty years has seen a remarkable economic renaissance east and south Asia – a recreation of the Golden Age of Indian Ocean commerce. Commercial clusters in and around coastal cities, connected with each other across seas and oceans, are its economic lifeblood. Its networks are complex manufacturing and services supply chains linking them to global markets. It is in these mostly coastal strips – from the south to the west of India, the eastern provinces of China, coastal cities in southeast Asia -- that liberalisation of markets, property rights, a burgeoning middle class and other features of commercial society are blossoming most. Hong Kong and Singapore are today’s Malacca and Macassar. They form the core of liberty outside the West today; they point the way to its future expansion. This is not quite the Utopian vision of Richard Cobden, who foresaw free trade leading to a world of cosmopolitan, peacefully coexisting municipalities that would replace warring nation-states. But Cobden would still approve enthusiastically.

One concluding thought. The global economic crisis has ushered in a phase of illiberal ideas and policies; it has set back the cause of economic freedom. I have some confidence that the intellectual tide will turn in parts of the West – indeed it already has in the USA. But, looking beyond the short-term, I have greater confidence that the expansion of liberty – especially economic freedom -- outside the West, especially in Asia, will provide even more tailwind. The future of liberty is shifting East; more than ever, it lies outside the West.

Razeen Sally is Director of the European Centre of International Political Economy, a global-economy think-tank in Brussels. He was a student, and then for eighteen years on the faculty, of the London School of Economics. He will soon take up positions at the Lee Kuan Yew School of Public Policy and the Institute of South Asian Studies, both at the National University of Singapore.