Liberalisation is the key to growth – in Asia and the West

 

Whilst western economies have recently been experiencing recession and stagnation, many countries in Asia have enjoyed rapid economic growth, which has been sustained over several decades. Free-market reforms have been the driving force behind this success story. Liberalisation programmes have enabled Asian business to enter global markets and increasing international trade has been a key vehicle of development. In essence, Asian governments have learnt the lesson that Western governments appear to have forgotten: economic liberalisation brings higher living standards by breaking down artificial barriers that restrict the flow of goods, services and capital.

The Indian government, for example, cut tariffs on imports and simplified import procedures, shifting India away from its previous inward looking trade policy. Regulation on foreign investment was eased while domestic competition was promoted by the abolition of the old industrial licensing system. Reductions in corporate taxation and income tax also helped encourage business growth. As a result of these liberal reforms during the 1990s, India has now become one of the fastest growing economies in the world.

By contrast, economic policies in the West have moved in a markedly illiberal direction. Key problems include high levels of public spending (and therefore taxation) and increasingly burdensome regulations that raise business costs and stifle trade. Thirty years ago, Asia looked to the West for policies that would encourage rapid economic development. Western governments should now emulate successful Asian countries and launch their own programmes of free-market reform.

 

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