South Asia can lead the World

Dr. Akmal Hussain

Presented at: SAFMA's South Asian Parliament, May 15-20, 2005

South Asia is at a historic moment of unprecedented potential for transforming their economic conditions and together with other Asian countries playing a key role not only in the global economy but also in the development of human civilisation in the 21st 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 21st century world on to a new trajectory of sustainable development and human security. It can be an Asian century that enriches human civilisation.

(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 maximises 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 per cent, 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 maximised 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 the role of new emerging economic powers for seeking 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 from 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 the shared wellsprings of human civilisation. South Asian Journal Jul-Sept 2005