Live it Up, Asia!
Three known beauties,ukiyo-e by Kitagawa Utamaro
Given rising commodity prices, stagnant or decreasing home prices and weaker consumer demand, it is increasingly likely that the bubble economies, particularly the United States, will slide into recession. Despite the dramatic 75-basis point rate cut this week, and another expected next week, interest rates have not yet had the effect of stimulating aggregate demand.
What can be done to prevent bubble economies from weakening? One answer may be found in 17th century Japan and the high consumer spending of what is known as the ukiyo, or “floating world.” From China to Korea, Japan and Thailand, the conditions in Asia are ripe for increased consumer spending. The pan-Asian adoption of a floating-world mentality could bolster at-risk economies globally and increase aggregate wealth in the process, much as the floating world did for Tokugawa Japan.
Enjoy Tomorrow, Today
From the early 17th century through the mid 19th century, the Edo Period was a rare time of relative peace in Japan’s turbulent history. The absence of conflict created space for the arts, philosophy, and commerce to flourish. Massive urbanization combined with economic growth and cultural development, emerged largely within the context of the floating world paradigm.
In the floating world, city-dwellers sought fulfilment by pursuing pleasure. Often characterized by its embrace of vices like prostitution and gambling, the floating world was a place where inhabitants lived for the moment, floating on a cloud; their pursuit of pleasure took precedence over concerns about the future.
Despite its historic association with frivolity and vice, it was the pursuit of enjoyment, however short-lived, that facilitated economic expansion and arts patronage. It was in the floating world that a wealth of stories, poetry and music were born, including kabuki theater. In economic terms, businesses that catered to wanton desire increased the velocity of money, and thus, aggregate wealth.
Asia, more so than any other region, is currently well positioned to increase consumer spending, much as Japan did in the 17th and 18th centuries. Such an increase would have the effect of stimulating global output, hopefully to the extent that recessions could be avoided.
The reasons are threefold: an almost unprecedented period of inter-state peace, high national and private savings rates, and a positive economic outlook. With national economies increasingly intermeshed, a recession in one economy can easily lead to the weakening of otherwise bullish economies elsewhere. It is therefore in the interests of everyone, including Asians, to save less, spend more, and return to a pan-Asian version of Japan’s floating world. The near-term fate of the global economy may depend on it.
Despite outward appearances, East Asia is experiencing a period of peace not seen since at least the mid-19th century. Yes, Asian military expenditures are on the rise, the two Koreas are technically in a state of war and Thailand recently experienced another military coup, while there are numerous territorial disputes simmering. But these divisive issues belie the reality that no East Asian nation has gone to war with another country since the Vietnam War. As intra-Asian trade increases, economic interdependence makes conflict even likely. In this stable environment, Asian consumers needn’t worry about physical security or economic collapse. As such, they do not need to save as much to prepare against disaster as they have in the past.
Spend and be Merry
The tremendous rate of savings in East Asia is another reason Asia is in a better position to prevent global recession than anybody else. During the East Asian financial crisis of 1997, some currencies weakened dangerously. At the time, national governments lacked enough reserve foreign currency to counterbalance this devaluation. The lesson that East Asia took away from this experience was to maintain large enough reserves to prevent drastic currency fluctuations. As a result, Asian governments now accumulate foreign currency for reserve purposes at a rate far in excess of any other region.
Combine these high national savings rates with already high private savings rates and what you have is a frugal Asia that can afford to loosen its purse strings for the greater good. While other nations, like the United States, consistently run both current account and trade deficits on the national level and maintain low or even negative real private savings rates on the consumer level, Asian governments and individuals alike are situated to increase spending for the sake of a buoyant economy.
For 2008, things are looking up in Asia, which only provides greater incentive to increase consumer spending. China has an ever-growing middle class, hungry for gadgets and conveniences. Japan recently broke free of a decade-long recession that dampened both employment and consumer spending. Less than a month ago, Korea elected as president a fiscally astute businessman, armed with a plan to reinvigorate the Korean economy. And with the recent elections in Thailand, it seems the Thai economy is poised to rebound from the military coup that previously cast a degree of uncertainty on the country.
Near-term economic prospects in Asia are higher than they are for other regions. Such a bright economic outlook, combined with currently high savings rates and regional political stability, suggest that Asian economies will perform well in 2008—assuming they are not dragged down by global recession.
Asia, unlike most, is not powerless to stop such a downturn. Rekindling some of the spirit of the floating world, with accordant increases in consumer spending, could provide the life raft that the global economy needs. National governments may be searching for ways to avert recession through independent fiscal and monetary policy but no economy, not even North Korea’s, operates in a vacuum. An international macro level approach, such as region-wide increases in consumer spending, is the only discernable way to avoid recession. All eyes are now on Asia.
Van Jackson is an adjunct professor of East Asian history at the University of Maryland, University College. The views expressed in this article are his own.