When the history of development on the Pacific Rim is written, 1996 may be considered a pivotal juncture. It was the year when growth faltered and the region's economic odyssey from the paddy fields to the factory was questioned. Foreign academics have long cast a sceptical eye over the Asian growth story but last year saw hard evidence of structural failings. Wage inflation, flat productivity growth and infrastructure bottlenecks were all felt. In short, emerging Asia hit middle age. The question is whether the slowdown constitutes a long-term trend or a cyclical blip on an otherwise rising curve? The gloomy scenario says Asia achieved a one-off growth boost by transforming agrarian economies to export-driven manufacturing hubs. Now it must rely on innovation and brains to generate future growth which is proving tough. Singapore very publicly fretted, Korea gritted its teeth through political turmoil and an export crunch, and Japan idled while everywhere the debilitating effect of lousy transport systems on economic efficiency was writ large. Two years ago every economist's favourite line was export growth had driven the first phase of Asian economic development and infrastructure would lead the second. Viewed from a Bangkok traffic jam the argument looks thin with the realisation that infrastructure development is not a productive end in itself. Where a few years back Asian leaders confidently predicted catching up with the developed world the gap suddenly looks much wider. The realisation that wealth accumulated through almost 200 years of Western industrialisation cannot be replicated overnight without ruinous consequences to the environment and huge bottlenecks. If 1996 finally saw silly forecasts of Asia overtaking the West, this year should bring a more sober read on the region's prospects. Such navel contemplation always accompanies slowdown. Remember the late 1980s when the United States was almost written off, just before starting the longest-ever peacetime economic expansion. Today the US economy represents the most awesome combination of capital, labour and entrepreneurial talent the world has seen. Meanwhile, Asia has been hit by a series of cyclical downturns dominated by stagnation in the world semiconductor market and slowing trade flows. With activity dependent on foreign trade perhaps last year's 'growth recession' will turn out a temporary blip. What is certain is that competition will get tougher. The collapse of communism and expansion of a fully integrated world economy is only gradually being understood by economists. US equity bulls argue the US leads in so many critical technologies that a new paradigm for economic growth has been achieved. Meanwhile, the developing world must scramble to offer the best terms to capital that can pick and choose among production locations dictated almost entirely by labour costs. The early phase of Asia's industrialisation occurred against the backdrop of the Vietnam War and a trade regime dictated by political needs. Now, low wage competition from Africa to South America threatens the comparative advantage of nations like Thailand and Malaysia, which are experiencing escalating wage costs despite limited productivity growth. Last month's World Trade Organisation conference in Singapore clearly illustrated the fault line separating the rich and developing worlds with attempts to link labour standards to trade negotiations. Such tensions will undoubtedly persist next year as Asia fights harder to achieve growth from its most precious resource - low wage workers. Perhaps a year from now talk will again be of endless Asian growth and decadent Western work ethics being subsumed by Confucian thrift and diligence. Maybe, but the history books are more likely to record a healthy dialogue replacing silly economic jingoism.