To invest, or not to consume

To invest, or not to consume

Most emerging Asian countries are enjoying large current-account surpluses, meaning that they’re sitting on large amounts of cash. Though it provides a certain degree of financial security, it’s also considered a protectionist rule and has been deemed a cause for the American housing bubble by numerous Western economists.

The same economists recommend that Asian countries stabilise their markets by shifting from export-based income to consumption-based income. The current surpluses are being kept for a rainy day – certainly in these economical difficult times – and are mostly saved in financial institutions abroad. While these countries are flourishing financially, the standard of living barely improves.

It’s a simple economical breakdown: if consumption is stimulated, the standard of living will receive a temporary boost. But… if these surpluses are invested in – let’s say infrastructure – they could sustain a steady growth, thus continuously improving the standard of living. An example would be the Philippines: investments only account for 15% of the GDP, which leaves about 80% of the GDP to consumption. The low investments – which secure future output and consumption – and the high consumption only facilitate flashes of improvement, but don’t sustain growth. Leaving the Philippines with one of the lowest growth rates on the Asian market.

It’s clear; many Asian economic models need to be revised. The rapid development and weak political systems leave too much room for misconduct and mismanagement. As per usual the populace is being left out. We’ve seen the same problems with former colonies, where reinvestment of surpluses is nearly non-existent.

One of the origins of the problem is the lack of leadership with integrity; most Asian markets are still considered part of the ‘Eastern Wild West’ where money makes the world go around. This leaves little room for responsible spending, which is ever so desperately needed. Globalisation should’ve streamlined the world’s markets into a single and unified platform on which we can all fairly trade-off. Making concepts such as ‘outsourcing’ and ‘offshoring’ a vague reminder of ancient times, where everyone had a different standard of living. The Western world is rapidly becoming an exclusively service-based market, as to where the developing countries are becoming solely goods-based. This phenomena has enormous socio-demographical consequences, ranging from education to discrimination.

Simple measures like a balanced investment-consumption model are fairly easily implemented and maintained, but there’s no drive to change the current Asian model in this economic downturn - leaving the world’s economy fragile and the Asian populace in poverty.



Simon Verduyn

http://www.economist.com/business-finance/economics-focus/displaystory.cfm?story_id=15328875