By Richard Lambert The Straits Times
Published on Apr 26, 2013
BACK in the 1980s, the epicentre of the world's financial
shocks lay in the countries of Latin America.
In the late 1990s, it was Asia's turn for big trouble.
In the past five years, though, the earthquake mainly hit
the developed countries of Western Europe and the United States, and their
economies have still not recovered from its impact. The emerging markets have
emerged relatively unscathed and have turned into the main engine of global growth.
This process of convergence truly is something new. But is
the great convergence sustainable?
Professor Kishore Mahbubani is convinced that it is. He
writes (in his new book The Great Convergence): "The great convergence
that our world is experiencing is now irreversible. Too many forces have been
unleashed to shrink the world. They will only gain momentum in the coming decades.
And if we look at our lives carefully, no matter where we live, we can clearly
begin to see that our lives are being affected daily by events or decisions
made all over the planet."
Among other things, he cites the global reach of social
networks and the vast increases in connectivity between and within different
countries. He talks about the way the financial system has become integrated
across the globe so that trouble on Wall Street is instantly here reflected in
Singapore. He discusses the way in which students are studying in different
institutions around the world, sharing ideas and values. His list goes on.
Other writers take a different view. For example, Mr Ruchir
Sharma argues in his book, Breakout Nations, that "scores of 'emerging'
nations have been emerging for many decades now. They have failed to gain any
momentum for sustained growth, or their progress has begun to stall since they
became middle income countries".
He gives many examples: Malaysia, which appeared on course
to emerge as a rich nation until the financial meltdown of the late 1990s; the
Philippines and Sri Lanka, which were billed as East Asian tigers back in the
1960s only to see their growth falter badly well before they reached
middle-income levels. In short, he concludes glumly: "Failure to sustain
growth is the general rule, and that rule is likely to reassert itself in the
coming decade."
So who is right?
I'm not bold enough to come up with an answer. But I have
been around long enough to know that trends don't usually last forever. And I
could imagine circumstances in which the benign story of the past decade or two
could be checked, if not reversed.
One obvious example is the way the international banking
system now seems to be Balkanising, with banks almost everywhere retreating to
their home bases in the wake of the financial crash in the West. Regulators in
the US are requiring that foreign banks hold much higher levels of capital in
their jurisdiction than in the past. Banks in Europe are pulling back loans
from their partners in the euro zone and cutting their balance sheets down to
size.
So it looks like global financial integration is on the
wane, at least for the time being.
At the same time, the central banks of the US, the euro
zone, the United Kingdom and most recently Japan are now conducting the most
extraordinary monetary experiment in financial history. In a bid to boost
demand and lean against fiscal austerity, they have been buying bonds, mainly
from their governments, on a truly astonishing scale.
We don't know how successful they will be in unwinding their
enormous bond holdings in a timely and orderly manner. But we do know markets
have a tendency to overreact and could get very jumpy at the first sign of
interest rates rising from levels which haven't been seen before in the modern
era.
We must worry that all this quantitative easing could have
implications for inflation, and even for competitive devaluations, with adverse
consequences for global trade. I'm not suggesting that this will happen. But I
do believe that the international economy is still in a dangerous and unstable
phase, and that it's too soon to think we are out of the woods.
The Great Convergence could be tested in the years ahead,
and it therefore makes sense to look for the qualities that will make the
difference between success and potential failure in countries around the world.
And this is where I turn to the Singapore story. As a
complete outsider, I could make some spectacular gaffes. But the challenge in
this context is irresistible. So here goes.
Geography as destiny
TO START with, it's obvious that geography matters. In his
book, The Bottom Billion, Paul Collier writes about the plight of those people
who have missed out on the benefits of globalisation. He argues that they tend
to live in countries which have a number of common features. One is that some
of the poorest countries in the world are landlocked and have bad neighbours.
And indeed a significant number of countries right at the bottom of the United
Nations league table come into this category - no access to the sea or to
international trade routes, and neighbours from hell.
The opposite is true as well, as Singapore has demonstrated.
It has used its prime location on the planet to turn itself into an
international entrepot on an almost unparalleled scale. Expressed as a
proportion of its gross domestic product, its exports of merchandise goods are
more than twice the size of its nearest rival, and its exports of services also
top the global league table when measured in the same way.
Of course, that's not just the result of an accident of
geography. Strong governance and strong institutions are the key, and most of
them are summed in a series of interviews with Mr Lee Kuan Yew published two
years ago under the title Hard Truths To Keep Singapore Going.
How, he is asked, do you have a strong economy? He answers:
"By maximising your human resources. Your people, the way they are
trained, organised, educated to serve the world's needs, which means
infrastructure, connections, linkages with those parts of the world which will
add value to our lives. Second, we leapfrogged the region because they wanted
to squeeze us. We brought in multinationals."
I looked around for some data to support these claims. Here
are some of the things I found. In a league table of Asian Universities
published in the Times Higher Education Supplement a couple of weeks ago,
little Singapore had two universities in the top 12: the National University of
Singapore came second only to the University of Tokyo. For comparison, giant
India has only three institutions in the Asian top 100, and all are highly
specialised. The Indian Institute of Technology at Khragpur is the highest
placed, standing at number 30.
When it comes to the performance of 15-year-old students in
reading, mathematics and science, Singapore again compares with the best of the
world, well ahead of the likes of Germany or the US. As for bringing in the
multinationals, foreign direct inflows between 2007 and 2011 worked out at 18
per cent of GDP, which was not as high a proportion as in Hong Kong but well
ahead of most other economies in the world.
A strong emphasis on the quality of government and high
standards of governance are other recurring themes of the Lee Kuan Yew
interviews: He argues repeatedly that they have been the foundation of
Singapore's growth and transformation.
There's also a focus on merit - as he puts it: "Not
equality of rewards but equality of opportunity in education, housing, health
and so on. And a system based on meritocracy. That's the basis on which we have
had intercommunal harmony and inter-religious tolerance."
It's certainly had an impact on the well-being of this city
state. Singapore now stands at No. 18 on the UN's Human Development Index,
having climbed a full seven places in the rankings since 2007. For comparison,
France is in at No. 20, and the UK - which has also risen in recent years - at
No. 26.
And there's another thing that comes through strongly in the
interviews - a sense of real anxiety, a worry that citizens might become
complacent in their relative prosperity and forget the qualities that have
turned the country round. He says his greatest fear is "a leadership and a
people that have forgotten, that have lost their bearings and do not understand
the constraints that we face".
"Small base, highly organised, very competent people,
complete international confidence, and ability to engage the big countries. We
lose that, we're down. And we can go down very quickly."
Strong investment in human and physical capital. Sound
governance and an economy in which everyone can aspire to have a stake. An
openness to international capital and trade. Concern for the future. These
appear to be some of the key ingredients of Singapore's success.
Countries with shrinking, ageing populations will struggle
to sustain their economic performance over time. As the number of workers
relative to retirees declines, the tax burden of supporting those senior
citizens increases. So countries like Japan and Germany, where the working age
population could fall by roughly a third by 2050, will face growth problems and
fiscal pressures. And this is a challenge for Singapore too, as it must be with
its fertility rate among the world's lowest at 1.2 compared with a replacement
level of 2.1 and, for example, 1.9 in the UK.
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