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Asian outlook: New growth dependent on new productivity

April 18, 2018

Stephen McGurk

Special Advisor, IDRC
Nonie Reyes/World Bank [view:perspectives_authors_pics]

There is no doubt that Canada is tying its future growth prospects to Asia.

This has been clearly signalled through high-profile visits to the region by Prime Minister Justin Trudeau and members of his cabinet, and by joining the Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Asian Infrastructure Investment Bank (AIIB).

The potential is clear. Strong Asian growth has buoyed the global economy for much of the past decade. In 2017, the East Asia and Pacific region grew 6.4% and accounted for more than one-third of global growth, according to the World Bank’s latest Global Economic Prospects report.

But Canada cannot take for granted that past growth guarantees future growth.

In fact, the trend is showing signs of slowing. The World Bank report projects that growth for East Asia and the Pacific will ease to 6.2% in 2018 and to 6.1% in 2019. The report argues that further growth will be under pressure unless countered by structural policies. In short, generating new growth will require new productivity.

If Canada is to serve as an ally to Asia’s efforts to stimulate new growth, there must be an understanding of the unique challenges confronting Asia due to its traditional formal and informal labour markets; of how automation will impact jobs; and of how to help the region mitigate risks and leverage rewards.

The region’s greatest asset is its workers. Rapid economic growth has meant more, and better, jobs. It has also meant the transformation of employment in key sectors such as agriculture, where employment declined sharply in the last two decades. Agricultural sector employment levels across the region, though, remain well above the OECD average, suggesting the transformation has a long way to run yet.

The loss of agricultural jobs as farmers become small commercial operators and as market opportunities diversify and expand, has been offset by rapid economy-wide growth that has created new jobs in construction, manufacturing, trade, and services.

However, with the region’s growth cycle winding down, the creation of new jobs risks stalling. This would spell disaster given that the region’s labour force is projected to continue its rapid expansion.

This scenario puts East Asia and the Pacific in a challenging spot. It also compels any countries wishing to increase engagement with the region to be actively involved in the efforts to drive new productivity.

Many of Asia’s jobs are increasingly likely to be automated — such as in the automotive, electrical, and electronics sectors, and especially in the clothing, garments, and textile sectors, where workers are disproportionately young women and former farmers transitioning out of agriculture.

As labour costs rise, connectivity improves and analytics evolve. Automation will expand in manufacturing systems through customer relations and across supply chains, among other areas.

This carries both risks and rewards.

The risk is illustrated in IDRC-supported research by the Oxford Internet Institute that shows the combination of a rapidly expanding pool of workers in developing countries and increasing connectivity is already creating an oversupply of millions of workers, leading to downward pressure on wages.

However, increased connectivity also presents opportunities to overcome longstanding hurdles such as those related to gender, geography, education, and class. For instance, research shows that in some cases, women leverage online micro-work platforms more than men in an effort to improve their opportunities to balance paid work with other responsibilities disproportionately carried out by women, such as unpaid childcare and housekeeping.

A better understanding of these challenges and opportunities will be key to sparking new growth and productivity.

The implications for Canada are clear during an era of rising trade protectionism. Positioning itself as an ally to Asia will contribute to enhanced trade diversity, generate new investment, and promote innovation here in Canada and across Asia. Becoming more engaged in this transition aligns with Canada’s signals of deepening ties through the CPTPP and the AIIB.

There are large market opportunities for Canada that would also benefit the region. For instance, Canada’s agriculture sector has much to offer in helping transform food systems.

Canada’s technology sector can help shepherd in a new era of digitalization, networked communications, and entrepreneurialism. The IDRC-supported Global Entrepreneurship Monitor ranks Canada as tied with the United States for per-capita production of start-up companies. This also poses a challenge for Canada, whose tech entrepreneurs will be tested to compete against global players in dynamic Asian markets.

Protectionist pressures in the United States and Europe are threatening global value chains critical to East Asia’s continuing transformation.

All of these challenges and opportunities lie at the heart of the region’s growth outlook. The success of Canada’s engagement efforts will hinge on how the region stickhandles this era of transformation.

This is where Canada can find common ground with Asian nations that are keeping one eye on China: both are redefining what success looks like in the shadow of dominant, and at times unpredictable, neighbours.

Stephen McGurk is a Special Advisor at IDRC and Senior Fellow, School of Public Policy and Global Affairs at the University of British Columbia.