Asia’s Political Divide by Robert Horrocks, PhD, Matthews Asia
Not the one you were thinking about, surely.
But we often get asked about the political atmosphere in Asia: What is going on? Who are the people in charge? What are their motivations? Will they ever develop political systems like we know in Europe and the U.S.? How stable are they? Let’s examine some of these issues.
What strikes me about political leadership across the globe is that there seems to be a different emphasis in politics between what is happening in the U.S. and Europe on the one hand and Asia on the other.
Joel Greenblatt Owned Hedge Fund On Why Value Investing Isn’t Working Now
Acacia Capital was up 12.27% for the second quarter, although it remains in the red for the year because of how difficult the first quarter was. The fund is down 14.25% for the first half of the year. Q2 2020 hedge fund letters, conferences and more Top five holdings Acacia's top five holdings accounted for Read More
There is clearly discontent in the U.S. and Europe. Part of this can be traced to recently established trends such as inequality of incomes; partly, this is due to terrible policy mistakes (particularly, I think, in Europe) that have made recovery from the 2008 recession much weaker than it should have been. So, we have the rise of Syriza in Greece as it seeks to shrug off the burden of debt repayment and fights against an austerity-minded Germany. Germany refuses to accept higher European inflation and is now running a current account surplus of nearly 8% of GDP! This has encouraged other parties from outside the mainstream, such as Podemos in Spain, which similarly renounces austerity and wants to make incomes more equal. We have seen the election of Jeremy Corbyn as leader of the Labour Party in the U.K., the country’s second-largest party (and party of power from 1997 to 2010). Mr. Corbyn has also announced his concern over austerity and income inequality—even suggesting, along with a hike in the minimum wage, that the U.K. might also consider a maximum wage. In France, the perceived inefficacy whilst in power of President François Hollande’s Socialist Party has led to a rise in polling numbers and wins in local elections for other populist parties, including the anti-immigration, nationalist party, Le Front National.
In the U.S., as we gear up for the next presidential race, candidates conventionally thought of outside the mainstream, such as Bernie Sanders and Donald Trump seem to be running the most vigorous campaigns and are generating the highest poll numbers, even though we are in the early stages of the contest in each party. Yet, again, we see similar themes emerging—policies to legislate away income inequality on one side, and on the other, seemingly tough immigration views.
I wrote about some of this before, in the context of how the West was focusing increasingly on distribution of wealth and Asia was still pursuing increasing overall wealth. It does seem that this distinction has intensified. There is now a lot of talk about secular stagnation in the West, and in such an environment, it is natural to concentrate more on dividing up incomes and wealth than on the seemingly impossible task of growing wealth further. The trend toward increasing the role of government in allocating resources fairly and in reinforcing the welfare state seemed clear then and is increasingly evident now.
Asia, as I noted then and repeat now, has its own plans to develop welfare—health care, pensions, unemployment insurance, and the like. And the region is not without its own voices against inequality. Where we have seen the concerns over inequality play out in a more obvious way, is the Occupy movement in Hong Kong. Although it is largely remembered for its focus on universal suffrage—how the territory appoints its chief executive—there is an element of the movement that decries the landlord-based elitism in Hong Kong and is being fed, I suspect, by high property prices, which are a barrier to young, first-time buyers.
However, Asia’s governments continue to be far less generous than those in the West. In Asia, most of the governments elected recently (or in some cases, appointed recently) are more concerned with increasing productivity and growing overall wealth than they are necessarily with the distribution of that wealth: China, India, Japan, Indonesia, and to an extent South Korea, too, have all embraced the rhetoric and to varying degrees of success, the reality of reforms to increase economic efficiency. In so doing, I don’t think they threaten their own stability (which is surely the message that the unconventional politicians are sending Western elites). Rather, they still have populations that are living or pursuing the Asian dream and are optimistic about growth. Also, when you look at the United Nation’s 2008 measure of the ratio of income earned by the top 20% to the bottom 20% of earners, Asia seems to have a reasonably fair distribution. It did a lot better than Latin America, and most countries seem to have done better than the U.S. Many Asian countries’ distribution of wealth is not too dissimilar to countries like France and Italy, though Europe as a whole is more equal. So Asia’s leaders are not too threatened it would appear by inequality. They share a sense of nationalism, of pride in growing the wealth and economic power of their nation state, increasing their share of economic output globally as well as their influence on the world’s political and diplomatic stage.
I think there is some data to bear this out. Asia’s countries tend to fare better on measures of economic freedom than they do on measures of social and democratic freedoms. Notably, all four of the top-ranking countries in the Heritage Foundation’s economic freedom rank are in Asia Pacific. The top two (Hong Kong and Singapore) achieve their positions whilst not faring quite as well in rankings of social freedom and democratic institutions. Indeed, this is typical in Asia. I doubt we will see much change in Asia’s political landscape in the near term. I suspect, over a period of decades, Asia will develop more democratic institutions and start to look a lot more familiar to us. In the meantime, economic pragmatism will reign. Politics is likely to be largely stable, if not particularly edifying in terms of the social freedoms that we expect, so long as Asia can continue to be successful in raising wages and peoples’ standards of living. And that does mean a certain amount of saving, of foregoing the good times today in order to enjoy a better future.
From an investor’s point of view, I don’t make a value judgment on this. Only to say that it is a generally benign environment in which to make investment decisions for clients. Yes, the threat of populist regulation is ever present but Asia’s policymakers are looking to achieve the same thing that we believe drives growth for our portfolio companies: increased productivity and healthy growth in wages. In addition, we are increasingly putting emphasis on the likely long-term trends in the political environment and welfare spending in the region, as these countries slowly edge toward the kind of systems we take for granted as being part of a middle-class lifestyle. Within that slow evolution there will be opportunities for the companies that facilitate or even pioneer such institutional and social change. For the short term, it is interesting to see the differences between politics in Asia and the West.
Robert Horrocks, PhD
Chief Investment Officer