Before I left Asian Development Bank to pursue Ph.D. education in the great state of Missouri, I was involved with a team in chanrge of analyzing the impact of the recent global economic crisis on enterprsiees in Asia. Led by my great mentor and colleague, Rana Hasan, the resulting paper would be included as the special chapter for the volume, Key Indicators 2009, one of the flagship publications of the Asian Development Bank.
I'm happy to know that the launching of the publication was good, and that the special chapter itself is even better. Among the highlight of the study, I'd like to share three excellent points:
1. There's no question about it: Asian enterprises has been hit hard, and this is evidenced by scaling back of operations, cutting of production, and laying-off of workers in many of the region's most dynamic and export-oriented enterprises. Most hit hard is the manufcturing sector--among the eight Asian countries we studied, seven reported declines in manufacturing employment by about 2 percent to 7 percent between the first quarters of 2008 and 2009.
2. Since one of the consequences of the global crisis is weaker export demand, we saw large enterprises hit by the crisis. But the smaller enterprises (the SMEs) are victims as well. This is because another consequence of the global crisis is reduced aggregate demand in Asian countries. Since SMEs tend to be more domestically-oriented, we also saw SMES hit by the crisis as well. As for the large firms, it will be a slow recovery because it is expected that demand for exports to likely only recover gradually. And this is an important point because looking back to the 1997 Asian Financial Crisis, the Asian economies were quick to get back on track primarily because strong export demand is there. That is clearly not the case this time.
3. Seeing that export would not help much, it is recommended that some economies rebalance their economic growth toward domestic sources. A potential source is the rapidly growing urban middle class, which will be key to increasing domestic demand. Now, because most Asian workers depend on SMEs for their livelihood, the expansion of the middle class hinge on the dynamism of SMEs (or Asian enterprises in general). Given this, constraints to entry and growth of SMEs (a.k.a. nonproductive-related transactions costs) should be eliminated. Governments should promote adoption of productivity-enhancing modern technologies that will not only provide well-paying jobs, but increase the supply of goods and services required by the domestic market as well.
The key here is to increase domestic demand in each of the Asian economies.