Sliding Downward Trend
In the dynamic world of global economics, the growth and dynamism of Asian economies have outshone many Western counterparts in recent decades. This shift, driven primarily by trade liberalization, export-oriented industrialization, opening to foreign direct investment (FDI), improvements in human capital, and the development of competitive private sectors, particularly in manufacturing and technology-intensive industries, has been a game-changer.
Asian countries like China and Bangladesh have transitioned from protectionist, inward-looking industrial policies to strategies focused on industrialization through exports to global markets. For instance, China's "open door policies," which greatly reduced tariffs and nurtured special economic zones to attract FDI, have led to rapid export growth and manufacturing expansion. Similarly, Bangladesh's liberalization in the 1990s expanded private banking, telecom, and manufacturing sectors.
The private sector, particularly in coastal cities like China's, is now responsible for over 90% of manufacturing assets, with improving infrastructure such as reliable power supply and efficient customs clearance enhancing competitiveness. Structural reforms and improving investment climates have also played a significant role in attracting investment and fostering domestic entrepreneurship.
In contrast, Europe's growth during this period has been comparatively slower. Higher structural rigidities and less aggressive opening to global manufacturing supply chains, coupled with political complexities that often slowed reform implementation, have contributed to this disparity.
Lessons policymakers can learn from Asia’s experience include focusing on trade openness, encouraging foreign and domestic private investment, investing in infrastructure, human capital, and institutions, managing urbanization policies to support productive labor shifts and reduce inequality, and adapting flexible economic policies that can sustain growth despite global competition and changing technologies.
The rise of Asia and the comparative stagnation of Europe have significant implications for businesses as well. For instance, SAP, a German software company founded in 1972, has lost its market lead compared to companies like Amazon, Google, Meta, Tesla, Tencent, and Netflix, all of which were launched after SAP and are much more valuable. European investors have suffered sub-5% annual returns over the previous ten years, while companies like Nvidia, Microsoft, and Apple are valued at $4.3 trillion, $3.8 trillion, and $3.2 trillion, respectively.
The article also suggests that AI will accelerate the rise and fall of business and governance models, and excessively taxed and regulated regions may struggle to compete. European stocks boomed in the first half of 2025, with the MSCI Europe index up about 20%, but the long-term implications of regulatory burdens and high taxes remain a concern.
The slippage problem becomes apparent decades later, as the country, region, or city has fallen behind, a phenomenon described as "compounding." Europe's GDP, relative to the U.S., has decreased from 90% to 65%, according to JPMorgan Chase CEO Jamie Dimon.
The article also mentions the potential impact of political decisions on economic growth. For example, Donald Trump's turn against immigration could speed up the potential decline of excessively taxed and regulated regions, such as California.
In conclusion, Asia's success is a product of deliberate policy shifts toward openness, investment in human and physical capital, and integration into global trade networks, offering a model for economies seeking dynamic growth beyond traditional methods. Europe, on the other hand, may need to reevaluate its approach to regulation, taxes, and economic policy to remain competitive in the age of AI and globalization.
European economies, such as those in the EU, have experienced a relative decline compared to Asian counterparts, with slower GDP growth and lower returns for investors. This contrasts sharply with the robust growth and dynamic business landscape seen in Asia, where tech giants like Nvidia, Microsoft, and Apple are valued in trillions of dollars.
The financial implications of this disparity are significant, with Europe's GDP falling relative to the US compared to Asia's continued growth. This disparity highlights the need for Europe to reconsider its approach to regulation, taxes, and economic policy to remain competitive in the global market, particularly in the age of AI and globalization.
