The threat of consumption-led capitalism and the future of Asia

By GIFT

This article appears in the November 2009 monthly note of IJ Partners, a Geneva-based wealth management company.

The 20th century was marked by major wars, the end of colonialism, triumph of capitalism over communism and ended with relative peace and the unparalleled creation of wealth. But it created the dilemma of the 21st century: consumption-based capitalism having triumphed met its nemesis in climate change, resource depletion and global environmental degradation. The recent financial crisis has seen the West’s leading economists and policy makers urging Asia to make a conscious effort to consume more and thereby help save the global economy. This is a view shaped by vested interests and conventional wisdom which conveniently refuses to acknowledge the unpleasant effects of unrestrained consumption and the limits to growth, the latter so crudely defined by economic metrics like GDP. This blinkered view needs to be questioned and replaced by a more rational approach to the challenges of the 21st century. If Asians (and Africans, South Americans) aspire to consumption levels taken for granted in the West the results will be catastrophic across the globe.

Although perhaps overstated and oversimplified it is widely believed that the 21st century will be Asia’s century led principally by growth in China and India. But let us not forget and add to the mix the vast and soon to be dynamic nations of Indonesia (250 million) and Vietnam (85 million). The region will be home to close to 60% (5.5 billion) of the global population of 9 billion by 2050. If only 3 billion of these, many of whom are now only at the margins of the consumption economy join the global consumption classes the implication will be earth shattering .This will range from the consumption of non-renewable commodities like coal and oil to the production of renewable essentials such as food staples and the impacts on the commons such as fisheries and forests. As little as 20 years ago very few in the West (and even in Asia) envisaged a world in which China and India might actually get rich. They may not even have wanted it knowing what that might really mean. Some of the reactions even today to the growth of China betray an underlying resentment of this new reality because not only does it mean a shift in economic power but many also know that it now means sharing the world’s resources with the Chinese, and very soon the Indians. It is important to recognize that the development model in Asia over the last 40 years has essentially aped that of the West. But this was a model that had its roots in European expansionism, colonialism and global industrial exploitation of resources. It was a model that therefore believed in limitless resources and possibilities, privilege and no limits to consumption. There is no denying that millions in Asia have benefited from this approach but until now were not aware of the price to be paid. 

In adopting this model Asian governments also forgot about the growth in its own population: global population has increased by 4 fold over a mere hundred years of human history in the 20th century. We now have a battle for limited resources at a time when even the disenfranchised are being led to believe through modern information technology (no toilets but access to cheap mobile phones and free internet) that they can have it all through the workings of open and efficient markets. This is a false promise. The simple truth is that there is not enough to go around if consumption levels in the West are aspired for in Asia. Such levels are unrealistic and will threaten the world in more ways than one. Deniers of all the scientific evidence should also not rush to conclude that such concerns are a rehash of Malthusian fears. All of this is underscored by an economic model that promotes consumption but is ill suited to managing resources fairly because it under prices externalities. The current stock of carbon dioxide and other greenhouse gases built over the last 100 years is testimony to this market failure. The almost religious but quite unfounded faith in technological innovation to solve these challenges has allowed many to deny and hide away from the hard choices ahead. Thus the long term solutions are not to be found solely in technological innovation or economic instruments but must be shaped at the top of the pyramid by smart and even draconian rules about how societies are organized and thus regulated. The good name of sound regulation should be restored and not allowed to be trampled on by the self-interest driven opposition of free market fundamentalists. It is the only way to protect the rights of the majority and the common good. Asian governments and leaders find themselves at a cross roads. They may either continue on the current, unsustainable path of Western-style consumption-led capitalism, disregarding the evidence, or they may realize that they hold the unenviable responsibility of leading the world to a more sustainable path

The solutions will entail making sensitive political choices and adopting certain forms of government to effect such a fundamental change of direction. This will all fly in the face of current ideological beliefs rooted in free market capitalism. But if Asia is willing and capable of taking on this responsibility it will help save the planet whilst reshaping capitalism. This will be a bold step in the continuation of history and put in perspective theories about the end of history as postulated by some at the end of the 20th century.