Mario Monti Rebuilding Bridges in East Asia

In the next few days, Italian Prime Minister Mario Monti will visit South Korea, China, and Japan. It is a wise and well-advised trip, given the role these countries are playing in the political and economic arena today, and Italy’s loss of relevance in the region in recent years. Italy is not only lagging behind the USA and Germany, but also France and Spain, despite traditionally strong links with the East Asian nations in the past.
China and Japan’s traditional strengths are well known, but both countries are now crossing a crucial period in their history. Beijing’s rise started nearly three decades ago, but the overall situation is changing rapidly. China’s growth rate is expected to shrink next year, to a relatively “moderate” level at just below 8%. This slowdown in growth is accompanied by a shift from investment to consumption, with increased salaries and continued reevaluation of the yuan causing the cost of labor to increase by roughly 20% per year.
Japan, on the other hand, after decades of extraordinary growth followed by a long period of stagnation, is facing the great challenge of restructuring its industrial assets after the Fukushima disaster, and coping with the decision to progressively close all of its nuclear plants.
Less considered is the importance of South Korea. Despite having 10 million fewer inhabitants than Italy, the country is at the forefront of innovation, scientific research, and the ability to convert its technological achievements into commercially successful products. A country founded upon its first-rate educational system, South Korea excels in the fields of electronics, biotechnology, mobile telephones, shipbuilding, air conditioning, and desalinization.  Fully wired for broadband, Internet adoption on the southern end of the Korean peninsula is virtually universal. South Korea provides an impressive example of what a relatively small nation can achieve by staking its future on the development of its human resources and an extraordinary ability to work together.
Important to note is that traditional tensions between Japan, China, and South Korea remain strong. Even today, both official political relations and the deep-seated sentiments of the different populations fan the flames of divergence rather than concord. Unlike in Europe, there has never been a reconciliation process between the countries, and none is in sight. Despite tensions, commercial relationships and economic interconnections are strong enough to make the region a benchmark in agility and efficiency for the world economy. As recently as 1992, China and South Korea had no diplomatic relationship, but today almost one-third of South Korean exports go to China, while the quality and quantity of economic relations between China and Japan has made the two countries increasingly interdependent. The ties are so strong that after the Japanese tsunami, the gap in production idled thousands of South Korean and Chinese factories, leaving them without critical components.
A newly integrated economic system is being born, the first in the world in both size and efficiency. It is a gigantic productive cluster, based not on cheap labor but on technology and the capability to apply innovation to viable products and bring them rapidly to the global market.
Apple’s manufacturing remains in Asia not because of lower costs, but for the simple reason that the integration between the different Asian manufacturers and their ability to quickly respond to market demands has created a system far more efficient than what would be possible in the US today, even when considering that due to extensive automation, the cost of assembly would be virtually the same even in California.
The Italian Prime Minister’s visit to Asia should have two objectives: first, to launch a strategy, at last using adequate tools, aimed at increasing Italy’s clout with the three nations that form the productive nexus that drives the world economy today, and will drive it ever more in the future. Monti’s second goal should be to spur his European colleagues into forming a common political front to organize an industrial complex strong and integrated enough to rival Asia’s.
There is still time for Europe to act, but it is fast running out.