|Essay for The Nikkei Weekly (Tokyo), published in English, August 5, 2004
THE 21ST CENTURY WILL BE ASIAN
by ANDRE GUNDER FRANK
The 21st century will be Asian. Recent research, including my book "ReOrient: Global
Economy in the Asian Age," overturn Eurocentric historiography and show that Asia was
dominant in the world until at least 1800. However, my forthcoming book, "ReOrient
the 19th Century," shows that, except for colonial India, much of West, Central,
Southeast and East Asia, as well as Latin America and Africa, prospered until at least the
mid-19th century. China did not really ''decline'' until after the 1850s Taiping Rebellion
and the Second Opium War in 1860. The Great Divergence, as Kenneth Pomeranz, professor of
history at University of California at Irvine, calls it, between East and West became so
only after 1870. A major factor in Asian decline was the weakness of the state and
colonialism. Japan, falsely called ''feudal" in the Tokugawa period (1603-1867) and
still independent after the Meiji Restoration in 1868, avoided these problems and so was
the first to develop in the second half of the 19th century.
In the 20th century, though starting from a lower level than before, the Asian growth rate
has been faster than that in the West, and in the last half century since the liberation
of China and the end of colonialism the rate of economic growth in East Asia has been
double that of the West. Led first by Japan, then in the "flying geese" pattern
by the First Four Tigers or little Dragons, and then by the next four, and for two decades
now the Big Rising Dragon of China has had a nearly 10% annual growth rate. That is enough
to double income every six years and is more even than the Japanese miracle. All that
means that Western dominance in the world lasted only about a century and now it appears
to become only temporary as well, contrary to the Eurocentric allegations of a half or
even a whole millennium.
The East Asian financial and economic crisis, starting in Japan and in 1997 in Thailand,
was misunderstood and greeted in the West as proof of Asian weakness. But it was really
the result and proof of Asian productive strength.
This was the first time that an economic crisis started in the East and moved West rather
than the other way around. That was because East Asian industry had begun to produce so
well and so much that it swamped the world industrial export market. So the East Asian
balance of trade declined and made debt service difficult. That scared speculative
financial capital, both foreign and domestic, to take flight to what seemed an American
safe haven in Wall Street and U.S. Treasury certificates. It was this Asian, and also
Russian, capital and not some "new economy" non-existent productivity rise that
created the American prosperity of the Clinton 1990s.
To examine the present and future, it will be useful to consider some alternative
scenarios. The first is continued American prosperity and dominance, which speaks for
itself, but not truthfully. Another is that we are living in a financial and debt economy
in which U.S. dollar debt instruments are the primary basis of what is being bought and
sold in the world, 20 times as much money as goods every year. But the debt is the
counterpart of credit, especially the foreign credit that is keeping the U.S. economy
afloat and also finances the Pentagon, which the U.S. then also uses to dominate and
blackmail the rest of the world to accept policies in its own interest. The U.S. trade
deficit is now $550 billion a year and growing. Every year about $100 billion is supplied
by Europeans, $100 billion by China and about $100 billlion by the Japanese, though this
year it is already over $120 billion. The rest is supplied by others, especially other
East Asians but now also by India. Americans save nothing and spend far more than they
produce by drawing on the savings, and thereby the production, of others who lend their
savings to the Americans.
Also, because world reserves and principal payments - especially for oil and gold - are in
dollars, the U.S. can and does simply print dollars and uses them to buy up the rest of
the world's production for American consumption and investment. Yet in the end, these U.S.
paper dollars, Treasury bonds, electronic accounts and funds, are all only paper and
totally worthless, ie have no value beyond their acceptance by others, because the U.S.
will not and cannot make good on them. The U.S. foreign debt is said to be already
equivalent to one quarter of the U.S. gross domestic product (in reality it is even more),
and foreigners already own 45% of U.S. government debt and a significant portion of U.S.
assets. That is already an indication that it is economically and politically impossible
to pay that debt. We, especially Asia and America, are playing in a "casino
economy," but with worthless paper chips with imaginary value. In fact it is a
gigantic Ponzi scheme, continually fed by contributions of real goods produced at the
bottom of the pyramid, until they stop coming and the entire paper tiger house of cards
comes crashing down, especially in America. Yet for the first time in history, this
permits an uncompetitive world's largest debtor to call the shots.
One resulting scenario is that this situation offers an opportunity for more productive
and competitive Europeans to step in and replace the dollar with the euro and/or another
as the world's reserve currency. However, the Europeans lack a strong state to do so. But
a major step would be for Russia, OPEC and other oil exporters to price their oil in euros
instead of dollars, thus increasing demand for the euro and sending the dollar crashing
down. Iraq priced its oil in euros, and an important reason for the U.S. war against it
was to keep others from doing the same.
My alternative scenario is Asian, including a possible Asian currency basket. Let us
examine especially the Chinese connection today and its possible future. First, low cost
Chinese workers produce real goods, and are already the world's leading producers of 100
manufactured goods, and export $350 billion worth a year, mostly to rich American
consumers, who buy them essentially for free with printed paper dollars. China is already
the No. 4 world exporter with an over 5% share of the export market (but only 4% of
But that is only the half of it, because the Chinese use these paper dollars to purchase
paper Treasury certificates paying only 4-5% yearly interest. Still, what a bargain! Of
the $700 billion Treasury bonds outstanding, the Chinese central bank already holds $300
billion, and the Bank of Japan and European and other central banks, including oil
exporters, most of the rest. Why do the Chinese, Japanese, Europeans and others do this?
About Japan, my friend Jeff Sommers writes, " Japan has to keep the export game
going, even if it means subsidizing the U.S. Until then, Japan has no choice but to play
the U.S. game and both extend free loans to the U.S. through purchasing its bonds, and
also to send real goods to the U.S. for (worthless) dollars. The Asian market is not yet
large enough to replace the U.S." I may be misinformed, but I disagree.
The main reason the Chinese give to keep the dollar up against the Chinese yuan - and
other dollar-linked currencies - down in order to be able to sell to the U.S. market. Only
recently has China begun to use some of its dollars to buy Southeast Asian goods. But why
in dollars? That need not be. Instead, as Henry C. K. Lui [of Lui Investment in New York]
writes: " China has the power to make the yuan an alternative reserve currency in
world trade by simply denominating all Chinese export in yuan. This will set off a frantic
scramble by importers of Chinese goods around the world to buy yuan instead of dollars.
OPEC would accept yuan for payment for their oil."
Why only China? What about ''Greater China," including Hong Kong, Taiwan and
especially the overseas Chinese who are now the source of the largest capital investment
in mainland China? Mainland China already receives the most direct investment in the
developing world. And why not more Asians, eg. ASEAN+3 [Japan, South Korea and China] ,
which China is already ''organizing,'' and India? In the 1997 financial crash Japan
proposed an Asian Fund to bail the economies out but the U.S. squashed that and in so
doing taught the Asians a bitter lesson never be caught unprepared again and next time
have an Asian Fund to get out from under the IMF/U.S. Treasury and its blackmail and
organize its own East Asian economy.
Finally, returning to a longer historical perspective, it is noteworthy that the
economically most dynamic regions of East Asia today are exactly the same ones as before
1800, which survived into the nineteenth century.
1. In the south, Lingnan, centered on the Hong Kong-Guangzhou corridor
2. Fujian, centered on Amoy/Xiamen and focusing on the Taiwan Straits and all of Southeast
Asia in the South China Sea
3. The Yangtze Valley, centered on Shanghai, whose trade with Japan is again taking the
4. Northeast Asia, including Northeast China, Manchuria, Mongolia, Siberia/Russian Far
East, Japan and the Korean Peninsula. The region's ample mineral, forestry, agricultural
and petroleum resources and abundant low-cost Chinese and North Korean labor can permit
Chinese, Japanese and South Korean capital to again develop the area into an important
regional growth center in itself and a region that is highly competitive on the world