"Harnessing the Global - Asia Confluence" - Speech by Prime Minister Lee Hsien Loong at Singapore Summit
Mr George Yeo
Singapore Summit Conference Chairman
Distinguished guests, ladies and gentlemen
Welcome to the inaugural Singapore Summit. I am happy to see so many distinguished participants from around the world here with us this evening. It is a good time and a good place to take stock of developments in Asia and in the world.
The last two decades have been a time of tremendous change, excitement and opportunities in Asia and in the world. It has become a more inter-connected and inter-dependent world. If you just look at a couple of statistics - global trade has gone up six times, foreign investment flows have gone up more than seven times, one-third of humanity is now connected to the Internet, whether it is email, Facebook, or Twitter. This integration has helped many countries and businesses to prosper, and has opened up exciting new opportunities for talent all over the world. But it also means that events in one country can impact others far away in major ways, whether it is the Global Financial Crisis, whether it is the Arab Spring, whether it is the foolish video on the “Innocence of Muslims”.
Asia has benefitted from this globalization, especially China and India - prospering through the transfer of investments, knowledge and technology. More than 500 million Chinese and Indians are no longer classified as poor, and China is the single largest contributor to poverty reduction in the world, according to the World Bank. Southeast Asian countries have also progressed steadily, especially after they got over the Asian Financial Crisis. Asia’s influence in the world has gone up - there are Asian countries in G20, five of them; on the Fortune Global 500 list, one third of the companies are Asian, which is an underrepresentation of what should be; and Bollywood movies are one of the most powerful instruments of soft power in the world, with a viewership of billions.
Asia’s rise has also catalysed globalization elsewhere in the world because it is home to more than half the world’s population, who have now joined the global economy as consumers, workers, entrepreneurs, scientists – all over the world. It has had a major impact on the global division of labour. Everywhere, workers and professionals face competition from new entrants, and the new entrants themselves face fierce competition against one another in their own countries. It is an unrelenting struggle. As a result, many industries have been drastically restructured – manufacturing has moved to China, services and business outsourcing to India. It is not a hollowing out, but a restructuring of the global division of labour. But it can be quite a wrenching and difficult transformation. It is a transformation which affects not just the low-end, blue-collar jobs, but increasingly also sophisticated and high value work. And because of these strategic changes underway, MNCs must have an Asia strategy to succeed.
Globalisation has also made international financial markets much more tightly inter-connected. China is the largest foreign owner of US Treasury Bills and bonds; Asia is an essential investment destination for fund managers. And financial markets in different countries which used to offset one another and hedge each other’s risks have now become much more closely correlated, especially during crises. The flow of talent has become much freer worldwide. Many Asians are studying in top universities, in America, in Britain, in the West. Global talent is coming to Asia, both to work and to study. INSEAD has a campus in Singapore, which is of equal standing with its campus in Fontainebleau. The Chicago Booth School of Business has set up an Asian Campus in Singapore, taking students from all over the region. This flow of talent, capital and ideas between Asia and the rest of the world is unprecedented in modern history. The “Global-Asia Confluence” has benefitted many, and enlarged the shared interest which we all have in peace and security together.
What does the future hold for us? It is tempting to assume that all this will just continue, and the future will be a linear extrapolation of the past. But history is never so predictable. The World and Asia are now at a crossroads, and there are several critical risks we need to think about, as we try to imagine scenarios for the next 20 years.
First of all, we have to look at the things we can see, such as economic troubles in Europe and US. The problems are structural and deep-seated. I do not have to discuss them in detail but we know that the resolution and recovery will be long and painful. How will these problems affect the global economy? At the very least, it will slow the global economy down, be a drag on global prosperity. The IMF recently cut its forecast for global growth next year, because of the Euro zone problems. But beyond just slowing things down, the greater worry, though the lesser probability, is that some mishap happens, especially in the Euro zone, with unpredictable consequences. If you can surgically excise one of the small economies, well, you move to a cleaner situation; if an exit by Greece leads to unpredictable repercussions in other countries, we do not know what will happen. And it will impact Asia too, because European banks are here, because the global financial system is so integrated, because we export to Europe, and America too is part of the story.
There is also another concern too to worry about, and that is the longer-term impact of the troubles in the West, on openness and on willingness to integrate. Because populations are anxious about jobs and the future, they are not promoting free trade or globalisation or more competition, they are turning negative on free trade. And the Governments are under increasing political pressure to become protectionist, to “protect” jobs and companies. It is really the wrong way round and upside down because this is the wrong thing to do, but the political pressures are irresistible and you have seen them in recent trade disputes, whether it is over automobiles, or tyres, or solar panels. If the advanced economies close up, it is going to have a big impact on the rest of world, and particularly on Asia because we depend on trade to grow, we depend on the integration to get the flow of investments, of ideas, of ways we can improve our lives.
The second risk is the risk of nationalism rising, in different places, for different reasons. In Europe, because of the troubles of the Euro and the lack of political consensus between those in the north and those in the south, leading to resentments either at others freeloading on the system, or on the creditor countries behaving arrogantly and demanding too much. In Asia, rising nationalism is also to be seen, for different reasons, because of pride in economic success, that the countries have stood up again. And this is a real factor in the rekindling of old territorial disputes, over islands in the Western rim of the Pacific, whether it is between Japan and Korea, the Takeshima or Dokdo Islands; whether it is between China and Japan, the Diaoyudao or Senkaku Islands; or whether it is between China and some ASEAN countries – the same place is called the South China Sea, it is also called the West Philippine Sea, and is also called the East Sea of Vietnam. But it is one dispute, and you are not going to settle on the name for the sea anytime soon. All this if it is not well handled will lead to tensions and conflict, and jeopardize the overall climate of peace and stability which has enabled Asia to grow.
The third risk is the shift in the strategic balance as China becomes stronger. The US-China relationship is the most important bilateral relationship in the world, for the two participants and also for the whole world. There are anxieties on both sides. China’s progress has made some Americans anxious - the intelligentsia worried about the new rising power, the workers worried about their jobs, even though they benefit from Walmart shelves stocked with Chinese goods. On the Chinese side, many feel, the intelligentsia analytically, the public and the netizens viscerally, that the Americans want to check their rise and curb their influence in Asia. America and China cooperate as well as compete – sometimes they accommodate each other, other times they confront each other – but China’s continued progress cannot be blocked, and in Singapore’s view, it is positive for the world. If this relationship is managed well and this shift is well handled, then the world will shift gradually and peacefully to a new stable balance of power. But otherwise, something goes wrong, even without a war, just friction, just tension, it will mean countries having to choose sides, and big problems for whole world.
If any of these risks materialise, the world is in for a rough ride. But if we avoid the risks, then you can look forward to something better, and there are several trends we can think about.
First, that Asia will continue to thrive. The Asian Development Bank projects that by the middle of the century, Asia will account for more than half of global GDP, and will host half of the world’s financial assets and financial institutions. It is always wise to be cautious about long term extrapolations like this, but it is a sense of the optimism, of the determination, of the drive, which we see not just in China, but also in India, in Vietnam, and in many Southeast Asian countries. Asian cities will form half of world’s most dynamic cities within the next decade or so, and these cities will attract talents and investments, and that will generate more dynamism. But Asia is not going to be the only bright spot in the world, any more than China is going to be the centre of the universe. There will be other parts of the world which will grow. Latin American countries are transforming themselves, some of them, and in Africa too, there are countries which are quietly prospering, and changing the image that people have of that continent. So that is the first trend, I think that Asia is going to be doing well.
Secondly, I believe that the global economy will become even more integrated. As Thomas Friedman wrote in one of his pieces earlier, CEOs rarely talk about “outsourcing” anymore because there is no more “in” or “out” to talk about, but it is really things being “Made In the World”, in different places, designed in one place, made in different places, assembled in a third location. The iPhone is designed in California, assembled in China, using parts from nine major suppliers in five countries, and that is just one example. In future, this is going to apply not just to things, but even more to services and intellectual property by reaching out to the “Crowd via the Cloud”, outsourcing on the internet. That means many opportunities for the whole world.
The third trend is that technology will continue to transform the world. You know that, but you do not know how. Whether it is IT, robotics, or biomedical sciences, it is going to impact every facet of our lives. IT and robotics will revolutionise whole industries. It is automating not just physical work but also mental work. And many routine tasks and jobs will either disappear or have to be reinvented. The long-term impact is huge, but which way is it going to go? There are two possible scenarios. One, the optimistic scenario, every time there is new technology, human beings have benefitted. The Luddites were wrong, the machines were good. The robots will do the dirty work, the “3D” work - dull, dirty and dangerous. And the human beings will do the more complex tasks or live a life of leisure, as Keynes once imagined. One MIT professor Erik Brynjolfsson calls this the “Digital Athens” – because in Athens, the citizens lived leisurely lives and philosophised, the slaves did the work. In the Digital Athens, the slaves will be the machines. But there is an alternative scenario, where the robots take over the more complex tasks, sidelining the humans, not just the blue collar workers but the professionals. Because you may be a very skilled worker, but it does not necessarily mean that every skilled worker can learn to become a skilled programmer of robots or controller of the system. Then we may end up in a different Digital Athens, today’s Athens, where the people are suffering because the economy has become uncompetitive. So it is hard to say which Athens we will see, but already we can see the impact of technology on income distributions – there is a huge premium on talent, there is huge pressure on unskilled and routine jobs. It is not just the workers from the emerging economies which are depressing wages, it is technology which is changing the value and the bargaining power of the workers, and soon not just the workers, but also the middle income – lawyers, accountants, even engineers. Somebody told me, there is a Princeton professor, Alan Blinder, who used to be on the Fed, who runs a course back in Princeton now, and every year, he asks his students to take a vote, whether they think in 20 years time who will be earning more – a run-of-the-mill engineer or a skilled plumber? And in recent years, his economic students have all voted for the plumber. They have not put the Princeton graduates on the list yet. We cannot stop this trend, but we will have to manage the impact on societies very, very carefully.
Fourthly, really an extension of this impact of IT but important and separate in itself, societies will undergo major changes. Social media is already altering the way people interact with one another and with the states and governments. It enables individuals and small groups to make themselves heard who previously had no voice. It makes it easy for people to organise themselves, to share interests, to support a campaign – Obama’s campaign headquarters is a very high-tech command post - or to launch a revolution. And it is a force for good as well as for bad. Because this is a channel to share knowledge more widely and transform the way we learn. In America, you have Coursera.org, where many universities are putting their course materials online. And a small consortium, Harvard, Berkeley and MIT, have formed edX, not just offering course materials online, but offering courses online, including courses which are electronically graded. Instead of a few hundred students taking the course in MIT, 150,000 people signed up for the first course, which was Design of Electronic Circuits, and 7,000 of them actually took the exam and passed. So it is a different world we are going to be entering.
The internet helps societies to organise more effectively, for example through e-government. But also makes it harder for societies to take the longer view, because governing becomes a 24/7 referendum. And it reduces the common ground that citizens of a country share with one another, because it makes it easier for people to interact only with the people they want to interact with. You do not have to get along with your neighbours – your neighbour is the like-minded person on the other side of the world who shares your passion, whether it is for antique watches, or stamps, or extreme right-wing politics. And that makes it much more difficult to make a consensus, to form a community, to make common cause within a nation. It is a challenge for all societies, whether it is America with its free and open rules, whether it is China, trying its best to keep social order and a lid on discontent, or whether it is Singapore, finding our way forward as a very small player in a very uncertain world.
So Singapore will have to adapt to all of these changes, like other countries, like all businesses. We have to take the world as it is, we cannot imagine ourselves changing the world. But there are some advantages which we are born with. We are closely linked to key Asian countries and markets – China, India, ASEAN, and many MNCs are in Singa¬pore. Our region is doing well and we are grateful for that. Global and Asian forces are constantly at play here. Our survival depends on our living the Global-Asia story – connecting Asia to the world and vice versa. So we have to prepare for the risk scenarios, just in case they materialise. We need an economy which is resilient, able to cope with a protracted global slowdown. We need a strong SAF and Home Team to protect ourselves against security threats and dangers. We need to build social cohesion to strengthen our sense of togetherness and being one community. We also need to strengthen the psychology and the toughness of our people in order to be able to cope with adversity, and not expect everything to go our way. Once upon a time back in the 1980s, we thought about these problems of a small country, and we came up with a formula, which more or less was along these lines. We had military defence, we had social defence, we had psychological defence, we had economic defence, and we bundled them all together and we called it our Total Defence Strategy. It was to deal with a different world, it was not half as globalised as it is today, but in this world, if you update the language, I do not think the concepts have changed, because our geopolitical situation in Singapore has remained fundamentally the same. But while we prepare for this, we also hope the risks will be successfully contained. And on balance, I believe this is likely and therefore we should not neglect to prepare ourselves for a good outcome, that is for a challenging but bright future.
First of all, we need to harness globalisation, the Global-Asia Confluence, to become a springboard for companies venturing into or venturing out of Asia. So we have companies from the West growing in Asia - IBM Services setting up an Integration Hub (East) in Singapore, GSK setting up their Emerging Markets & Asia Pacific HQ here. There are also Asian companies which are expanding globally, and often prefer Singapore to be their base, rather than their home countries. Tata Communications HQ is in Singapore, many Chinese companies have their HQs in Singapore, and we hope we can be host to many other firms like these as well. At the same time, our own companies need to go beyond Singapore into the region and into the world, whether you are Keppel Corp, making oil drilling platforms, whether you are Olam, trading commodities, whether you are SingTel, in the IT/Telecoms business. Singapore is too small a platform, a stage. You have to go out, you have to be competitive with the best in the world. We need to attract and develop talent that can thrive globally. For example, we have a Human Capital Leadership Institute here, to bring talent together, to interact with one another, and to prepare for the future. And we need to understand and develop products, services and solutions to address diverse consumer preferences, so we have the Institute on Asian Consumer Insight, P&G has a Singapore Innovation Centre. We are always making the most of ourselves not by doing it ourselves, but by doing it with others and harnessing the strengths of others to make the most of what we can add and bring to the table.
Secondly, while we embrace globalisation, we must also strengthen ourselves to cope with the risks of globalisation. We need to promote economic integration and free trade, whether it is through the Trans-Pacific Partnership or the Regional Comprehensive Economic Partnership. We have to do it through many ways, because there is no single path forward, and because doing it on a multilateral basis through the WTO on the Doha Round has become too difficult, and may take longer than one politician’s political life. We have to equip our people with the skills and mindsets to meet the competition because we have to know that it is impossible for us to shield ourselves completely from the competition. There is no place to hide, however high your seawall, however strong your barrier, the pressure is there, and it will seep through, and we must be ready to meet it. We have to build up our foreign reserves and strengthen our social safety nets to cope with volatility and uncertainty. People sometimes ask us, why do you need to have a sovereign wealth fund? The world is safe and you can float your currency. But we tell them that there are things that you cannot calculate, and your models may not predict all the events which can go wrong, and Six Sigma may not really be a Six Sigma event.
Thirdly, we need to master technology to embrace the innovations which can transform Singapore into a Smart City, whether it is broadband on fibre, whether it is intelligently managing our city traffic, whether it is being more efficient with a smart grid in our energy utilisation. If technology is applicable, we should be able to use it to the max. But we have to educate our people to use it to thrive in the new economy – to help students to learn how to learn, to promote lifelong learning among our workers. And then we can use the technology to raise productivity and improve Singaporeans’ lives, and not be sidelined by it.
Fourthly, we need to adapt to the rapid social changes brought about by the social media. We are especially affected by this, probably more than other countries, because we small, we are open, we are completely English-educated, you do not even need Google to translate the Web for you to understand. We are fully wired up and totally wirelessly accessible. There is no magic formula or handbook for doing this, nobody has an answer, all are looking for their way forward, groping, and so are we, and we have to adapt as we go along. We have to exploit fully, the internet and social media, but institute safeguards against its misuse. And do our best to strengthen our cohesiveness and sense of identity, because it is fine to be an avatar in cyberspace, but you need to be a human being in real life, and make that connection with other human beings, and other fellow Singaporeans in order to form a society and a country with an identity, able to hold its own, in a very porous and very rapidly changing world. Then we can evolve our governance and politics to function in the new age, differently but we need to make it work functionally, which the examples of the other countries show is not so easy, and we can keep Singapore a special place to live, work and play at the crossroads of Asia and the world.
This is how we see our problem; I am sure that, mutatis mutandis, other countries are asking themselves similarly basic questions about the future. This Singapore Summit is one example of how Singapore can harness the benefits of the Global-Asia Confluence. The future landscape will be shaped by the flow of ideas and this Summit is an open and neutral platform to bring together thought leaders and successful practitioners from the East and West, not just to discuss global issues in Asia, but to focus on the ideas, the partnerships, and the opportunities which arise from this confluence, from the happy conjunction of the stars. Your sessions tomorrow will look at key Global-Asia issues, including Asia’s role in the evolving global order, Global-Asia connectivity and inclusive development. And as a small bonus, you can watch the F1 race on Sunday. So I hope you will enjoy the Summit and find it worthwhile, and make time to explore Singapore and experience a Global-Asia living environment first-hand.
Thank you very much!