Will The Asian Export Model Survive?

The Economist has a short interesting story on the Asian export model. The article notes how the export oriented strategy grew among many Asian countries, how it became the essential strength of their economies and the devastation that the collapse in demand has wreaked on the strategy.

The article poses this question at the end. How do the Asian export economies adjust to a world in which demand remains permanently reduced? The answer to the question the author offers is that they have to develop a new model but haven’t admitted that fact to themselves.

No doubt the Asian economies would be well served by developing a stronger domestic economy and providing more social services. Getting to that point is going to be difficult, requiring wrenching political and economic adjustments. Those with vested interests in the export model are not going to go quietly.

All of this is based on the “new” conventional wisdom that the American consumer is gone forever. That in fact we are moving on to a world in which demand remains permanently depressed from prior levels and former consumers become savers. I think that there might be more wishful thinking than reality in this meme. 

The history of the U.S. since the end of World War ll has been one of steady growth in production and consumption. Like any economy there has been waxing and waning of both but the trend line has been  consistently up. It’s difficult to see why there should not be some mean reversion this time as well. Time may be required to heal some damage to balance sheets but predictions of Americans developing the savings habits of the Japanese seem off the mark.

Conventional wisdom is usually wrong. Whether predicting the never ending increase of housing prices or the end of western consumerism it usually represents more hope than a logical conclusion of the likely course of events. The Asian economies should consider this.

Yes, diversification of their economies is a justifiably good goal. They, however, likely have much more time than most currently give them to make those adjustments. Economies will recover and consumers will begin buying the goods that come from Asia. Prosperity generated by an export economy will not vanish. This crisis should serve as a wake up call for Asia not as a mandate for radical change.

They will have plenty of time to properly restructure as consumers do what comes naturally.

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