This article is part of the Futures Forecasting series. We’ve asked experts to identify crucial trends – from a shortlist of categories – that will influence national security out to 2035 and how those trends might intersect in a future scenario.

In this article, Jeffrey Wilson concludes that Asia will go from being a global centre of economic growth and political stability to a centre of economic power but political instability.

Key trends

1Connectivity: Dramatically increased connectivity in the developing world due to a massive infrastructure build-out

For most of the 20th century, the majority of the world’s population was poorly connected – in terms of movement of goods, capital, people and information – beyond their immediate geographic domain. Outside of the Organisation for Economic Cooperation and Development and a few developing-world urban capitals, modern infrastructure was either sub-standard, over-burdened, or absent entirely.

But in the early years of the 21st century, governments have quickly sought to close these infrastructure gaps. Massive infrastructure programs – such as, but not limited to, China’s Belt and Road Initiative – have been launched, committing trillions to constructing modern infrastructure across the developing world. Within a decade, the connectivity of billions of people will suddenly increase to close-to developed world levels. 

Growing connectivity will accelerate the de-centring of power in the global economy. The geographic advantages enjoyed by developed economies will lessen in relative importance, and one of the major barriers to developing country participation in global economic flows will be loosened. The technological shift to online types of commerce – which was a pre-existing trend, but has been accelerated by the COVID-19 crisis – will further eliminate physical distance as a meaningful barrier in the global economy.

2Economics: The end of the liberalising trend in economic policy and return of (partially) economic nationalist policy

For the past forty years, the direction of economic policy reform globally has been towards liberalisation. This includes major ‘shock’ reforms in large countries (China’s 1978 Open Door Policy, Vietnam’s 1986 Doi Moi, India’s 1991 economic liberalisation, 1993 marketisation in the former Soviet Union, Indonesia’s 1999 deregulation) as well as more incremental changes across many other players. While certain countries have experimented with economic nationalism at particular times, the general trend globally has been for economic reform to point in a liberalising direction.

Since the Global Financial Crisis (GFC), this trend has reversed. Many governments have experimented with forms of state capitalism, including all of the BRICS (Brazil, Russia, India, China, South Africa). Protectionist barriers to trade have slowly, but consistently, been rising while the World Trade Organisation (WTO) suffered its ‘Doha crisis’. State-owned enterprises and sovereign wealth funds have taken a large share of global capital flows, subjecting financial markets to political control and influence. Support for the (improperly labelled) ‘Washington Consensus’ has collapsed, most notably in Washington D.C. itself.

The economic nationalism of the 21st century is not, however, a simple repeat of the autarchic ideas that gained currency during the 1930s and lasted until the 1960s. Governments remain committed to ‘openness’, insofar as they recognise the importance of international flows of trade, capital and information to modern economies. Rather, they want to control, and strategically shape, these flows in ways they perceive will maximise national benefits. They seek neither a ‘closed’ nor an ‘open’ door, but a ‘managed’ one.

3Economics: Flattening of the East Asian economic miracle as late industrialiser advantages dissipate

The East Asian economic miracle (beginning in the mid-1970s) was the single biggest developmental achievement in human history. Within a generation, one billion people had been lifted out of poverty, most Asian economies had leaped from the bottom to the middle of the global income hierarchy, and several nations achieved (effective) developed country status. This miracle survived the Asian Financial Crisis (AFC) of 1997-8 and the GFC of 2008-09. No other part of the developing world was able to sustain high-speed growth, urbanisation and industrialisation consistently for forty years.

This economic miracle underwrote a remarkable level of political stability across Asia. While regime types vary dramatically across the region – occupying all points on the spectrum between substantive democracy and hard authoritarian – all have proven especially durable. While institutional quality is debatable, the region has benefited from ‘stable’ institutions for forty years; it has not experienced the instability or institutional collapses common across all other parts of the developing world. This stability has in significant part been based on ‘developmental legitimacy’ – where consistent development outcomes buy both popular and elite legitimacy for the regimes and institutions that deliver them.

However, the East Asian economic miracle is likely to soon peter out. Its economic foundation lay in late-comer advantages: that countries could cultivate trade and investment relationships with developed economies to fast-track their development prospects. Export-oriented industrialisation strategies (which utilised foreign capital to develop export industries targeting western markets) was a universal component of success. But as the region has gradually closed the gap with developed economies, the scope to leverage late-comer advantages is narrowing. Rates of growth, industrialisation and urbanisation will slowly trend back towards developed world averages.

This will undermine the developmental legitimacy that has underscored regime and institutional stability for forty years. Political regimes will struggle to justify themselves to the public in an era of modest (and on occasion, no) growth, while institutions will become more contested as elite consensus behind them fractures. While many different political courses are likely to be experimented with, the domestic political stability in Asia to which we have become accustomed is likely to disappear.

2035 future forecast

Asia will go from being a global centre of economic growth and political stability, to a centre of economic power but political instability. 

Asia’s role in the global economy will change. It will become a centre of economic power to rival the United States and Europe, but will simultaneously cease being the engine of global growth as developmental rates slow to normal levels. This role transition occurred for Japan in the 1980s, and the same transition will occur for China soon.

Asia’s role in the international order will become more volatile, as reduced regime stability undermines post-Cold War political orders. Early examples are the Philippines (a confounding position on the South China Sea dispute), Taiwan and Hong Kong (gathering pressure for democratisation setting off flashpoints with China) and India (abandoning non-alignment under the Modi government).

Asia’s interconnectedness with the global system will also intensify with infrastructure build-out, greatly magnifying its capacity to shape economic and political outcomes on a global level. Supply chain disruptions – revealed starkly during the COVID-19 crisis – illustrate the capacity of developments in Asia to reverberate across the global economy. (Compare to the AFC which had a limited global economic effect.) Asian power projections into international institutions – also revealed by China’s involvement in the World Health Organisation during the COVID-19 crisis – will also become more disruptive.

While Asian governments will not abandon ‘openness’, they will shift from ‘liberal’ to ‘managed’ frameworks for controlling flows of goods, capital, people and information. This will create additional friction points, as governments will often want to ‘manage’ their economic relations in competing directions. The outbreak of international trade disputes over medical products and “mask diplomacy” seen during the first month of the COVID-19 crisis will be repeated in many other sectors and domains.

What would this mean for Australia?

The transition of Asia will be extremely hard for Australia to manage. Australia’s security outlook will deteriorate consistently and dramatically. While US alliance guarantees are probably capable of managing nuclear threats, forty years of political stability mean they have never been properly tested in the conventional domain since the end of the Cold War. Non-traditional security threats will be magnified enormously by increased connectivity, for which existing security arrangements are already ill-prepared.

Australia’s economic outlook will deteriorate simultaneously. It has become accustomed to an ever-increasing demand for its exports (largely commodities and services) from developing Asia, which will not continue at previous rates. It will also need to manage rising economic nationalism in all its key trade and investment partners.