Transcript of Minister for Foreign Affairs Dr Vivian Balakrishnan's Speech Titled "New Realities for Southeast Asia: Perspectives from Singapore's Minister for Foreign Affairs Dr Vivian Balakrishnan" at the Asia Society HQ, 26 Sep 2018

Excellencies

Ladies and Gentlemen

First, let me say that it is a pleasure to be here, and I am shocked, I really expected half a dozen people.  There is somewhat more than that and I hope I will be able to justify your sacrifice of time. For those of you who don’t know, Singapore is, I suppose, slightly larger than Manhattan.  And the way to understand Singapore is to imagine upstate New York has ejected Manhattan. Manhattan has to be an independent country, with your own foreign policy, your own port, airport, army, navy, produce your own water, and run your own electricity. But if you can imagine that, then you can also imagine the existential challenges that have confronted us over a short period of 53 years.  

Now what I am going to share tonight is a perspective from Singapore and basically three big areas of concern.  The first, the impact of the Digital Revolution; second, the increasing spirit of protectionism; and third, how we are viewing the evolution of the transition from a unipolar to multipolar world – or another way of looking at it, how we are looking at big power relations.  So three areas.

I began today with a very interesting discussion. This was the Bloomberg Global Business Forum, we had Henry Kissinger in there.  And would you believe – the topic was on Artificial Intelligence. And for those of you who don’t know, in fact, Henry has written a wonderful article, I think it was published in The Atlantic, and I would recommend, I would strongly recommend, all of you go home tonight to read it.  But anyway, let’s focus first on the Digital Revolution, of which Artificial Intelligence is one aspect of it.  It is not hyperbole to say that this is completely transforming the way we live, work, play, communicate, entertain, organise ourselves, mobilise our societies, transform our politics. I think that you can accept at face value.  But another way to look at it, is to take a 10,000 year look at human development in history.

I will divide it into three phases –the first phase, the first transition, was from a “hunter and gatherer” society to agriculture.  Once you’ve got agriculture, you’ve got land, you’ve got villages, you need extended families, and you create rudimentary forms of politics and societies.  So that’s land. About 250 years ago, we had the Industrial Revolution. And if you think about it, one of the key ingredients, apart from technology, one key transition was that it was the owners of capital who had the power.  In the earlier society, it was feudal and it was about the landed class. You’ve got nobility, aristocracy, which is basically based on land. Then in the last 250 years, it has been about money. And that transformed families, villages became cities, feudal societies transited into what we recognise as today’s politics, and you had a new class of owners.  A new locus of political power, this time centred around money.

Now if you accept my thesis that we are now in another revolution and I were to ask you what the key currency, and I don’t mean cryptocurrency, what is the key currency of this new Digital Age that we are running into?  Is it ownership of land, is it ownership of capital, or is data the new oil, data the new currency? And if you think of it that way, several implications come to mind. Several historical cycles come to mind because every time human society makes a transition, it goes through a repeating cycle.  First, the few owners that get the technology – who own the land or own the capital – make enormous outsized profits and accumulate power. Political power that comes with being first. For instance, the reason we are speaking English, although we have a multi-ethnic audience today, is because the Industrial Revolution began in England about 250 years ago, spread to Europe, and the ultimate heir of the last Industrial Revolution was obviously the United States of America.  So now, in the first phase of the Revolution, you actually have a Gilded Age, you get increased inequality. Now the challenge really is that in the next phase where the new means of production becomes democratised and commoditised, that is when you get a rising middle class and you get reduced income inequality. In the Digital Revolution that we are in now, we are still at stage one. That is why if you think about the real household names, the billionaires of today, it will not be the Robber Barons, not the Oil Barons, it will be the Data Barons.  And that’s why the list of the top 10 or 20, take any list, it is about the guys who understand data, who understand digital technologies, who are mastering Artificial Intelligence, and who are using that to obtain outsized profits and outsized powers.

Now, how is this relevant to Southeast Asia?  Some of you may be familiar with the flying geese paradigm – I think this was popularised in the 1930s.  It was a Japanese, [Kaname] Akamatsu I think, and that was basically a theory of comparative advantage. In that paradigm, Japan was the first Asian nation to industrialise, to copy from the West and adopt those technologies. But as each country industrialises, eventually, its labour cost will go up and it will lose its comparative advantage to those other countries in its neighbourhood that were less developed and willing to provide the lower cost of labour and raw materials, in order to move up that technological ladder.  So in Asia, we saw Japan, and then you heard stories about the Asian Tigers, of which Singapore was one. And then the rest of Southeast Asia and ASEAN were all, in that sense, a set of flying geese moving up that technological ladder.

Now, the anxiety in Southeast Asia is this – if in fact, we are now living with the advent of a new Digital Revolution, this flying geese paradigm, this comparative advantage paradigm, works fine when technology is stable.  And I will give you an example – Singapore used to be the world’s largest maker of computer hard disks. We aren’t anymore. In fact, we haven’t been for quite some time – it went to cheaper locations and it keeps trickling down.  But if the advent of Artificial Intelligence, Big Data, Robotics, CRISPR – which is a process where we can edit genomes – comes about, then that step-change in technology means just trying to offer a cheaper location, hardworking and disciplined people, and lower taxes is not going to cut it.  You are going to miss the real action in town. That is the first point I am making – Southeast Asia is acutely aware that it is a Digital Revolution and we need to get up onto that ladder, and we can’t assume that we can just stay on the old previous Industrial Revolution.

Now, what does that mean from the point of view of a government? For government, it means there are certain things which we believe governments ought to do – for instance, infrastructure. In Singapore, every home has two fibre optic cables landing in it.  Australia has tried to do that as well, but the big difference is that because Singapore is small, we can do it more cheaply and cost effectively. This is much harder in Australia, which has a population of about Malaysia, but is a whole continent onto itself.  I say that because Kevin [Rudd] will know all about that challenge. But anyway, for infrastructure in a place like Singapore, and we say convincingly, that we aim to be first world and best in class for digital infrastructure. Easily done, substantially already achieved. Now there are more difficult challenges – the next aspect is software, and by that, I don’t mean computer code, but capacity of our population. We need to train our people for new jobs, rather than trying to compete for old jobs. Because if you try to compete for old jobs, that’s the route to middle-class stagnation, middle-class angst, and increasing unemployment, especially if people lose their jobs in their 40s and 50s.  That is why in the case of Singapore, we are obsessed with restructuring our education system and not just the first phase of your life – pre-employment. Yes, it is true we are trying to teach coding to every kid, or at least computational thinking, to every kid, but that’s not really it.

We also have to transform adult education and that is why we have a programme called SkillsFuture. We allocate money for every Singaporean who is above the age of 25, and we give them money that can only be used to upgrade themselves and pick up new skills, relevant skills for future jobs. So that is on the software side.

Beyond education and training, we also have to have innovation in policy frameworks. That means that if you accept that data is the new currency, this is where we do not believe the old utopian concept of the Internet –  a Wild, Wild West where as long as governments don’t get in the way, you can trust the big businesses to keep it going.  I think recent events have shown that you cannot just leave it to the businesses and to the new digital barons, who own data and who probably know more about the people in this room that you probably are aware of yourself.  If you haven’t already done it, please go home and ask Google and Facebook to give you a download of all the data that they have on you, or at least what they tell you they have on you. You will be surprised at the volume and the details which they have.  The point I am making here, is that we believe that it is a government’s duty to make data available, to break down walled gardens, to enhance transparency, because this is the new means of production, the new channels for getting wealth.

I am emphasising this because there is a larger political message behind this.  In this Digital Revolution, in fact in any technological revolution, you get anxiety from the middle-class as you have stagnating wages, and people are getting anxious about the future prospects for their children.  This will always cause political tension, and history is a guide. Whenever the middle-class feels stressed and people feel like they are unable to cope with change, you always see reactionary right or left wing extremes, whether it is communism or fascism in its old classical sense.  Even today, we are witnessing the age of populism because politicians are trying to respond to this anxiety. The point that I am making is that we need to understand the change and prepare our people and societies to get ahead of that change, rather than pretending that pandering to their fears, erecting walls, and insulating people from competition will be the answer to the future. There is no value in squabbling over yesterday’s jobs, which are never coming back, or to squabble over yesterday’s technology.  Instead, we need to focus on research and development and collaboration, and creating new ways of value extraction from data. By using new tools such as Artificial Intelligence, which is where the future is and where the future wealth is, we need to transform our societies in order to harvest that wealth. So that is the first idea to bear in mind - the impact of the Digital Revolution and why we in Southeast Asia are focused on preparing ourselves for tomorrow’s technology, tomorrow’s markets, and tomorrow’s jobs.

The next thing I want to move on to is the issue of protectionism, and in a sense, I have already hinted at why the global consensus has been eroded. The real issue is technology, but it is very easy and very Twitter-worthy to blame foreigners, competition, and free trade for the stagnation of wages and the potential loss of jobs.  If we look at this in a little more detail – I thought I would cite some figures from Pew Research. In June 2015, just three years ago, apparently 70% of Americans said that they supported free trade. But a subsequent Pew survey done in the final weeks of the 2016 US Presidential election found that only 44% of Americans had a positive view of free trade.  In fact, both Democrat and Republican Presidential candidates denounced the TPP. This is the same TPP which America had conceptualised, led and corralled everyone together to push through. Both felt a need, politically, to retreat from that.

This sentiment about free trade is not just amongst the commentariat or the journalists – this sentiment in fact has extended to the private sector too, but for different reasons.  American companies who used to be the chief advocates for China’s accession to the World Trade Organization (WTO) have now have changed their minds and their attitudes. They have complained that their market access to China was limited, investment opportunities were restricted, the playing field was uneven, squabbles about intellectual property.  And if you think deeper about this, when China joined the WTO, it was only about 5% of the global economy. Today it is 15% and growing and the concessions that were made to China when it was only 5% do not seem appropriate. The point is that the attitudes of businesses – I am sure that some of you represent those businesses – towards China and open and free trade have changed.  I am not saying that in a critical way, I am just making an observation and saying that we should have expected it.

Those of us who have been promoting free trade – we are in fact ourselves guilty of, perhaps, overselling the case because trade policy is actually economic strategy.  And the chief duty of any trade negotiator is not just to know what his protagonists’ economic structure is. The chief duty of any trade negotiator is to understand your own domestic economic structure – which parts of your economy still need more time to transit, which parts of your economy are truly globally competitive.  That’s where the nuts and bolts of trade negotiations really go on. In other words, what I am saying is that trade policy begins at home, and you need to start by understanding your own competitive position and have sensible plans to transform your own economy, so it becomes globally competitive. Otherwise, if you just take the mantra that free trade is good, and you cannot demonstrate its benefits in terms of enhancement, profits for companies, new jobs, and lower cost of consumer goods, people will reject it and say that maybe free trade isn’t such a good idea after all.

That’s why we are now dealing with this blowback against free trade. I have to say now that from the point of view of Singapore, we look at this blowback with great anxiety.  Singapore is very unique. Apart from the analogy of Manhattan being forced to go independent, we are the only country in the world where our trade volume is three times our GDP.  So when we talk about free trade, it is not a debating point, it is our lifeblood. And any trade war, is a source of great concern for us because by simply reducing the volume of trade or enhancing the risks associated with trade, this erodes the value of hubs like Singapore.  What I am saying is that while we understand why people are anxious and we also think we have an appreciation of what needs to be done, but we don’t control the agenda and we watch with great anxiety.

My third and final point, is on major power competition.  The last 70 years after the end of the Second World War, have actually been glorious years. Setting aside the Vietnam War, the Korean War, the problems in Africa and the Middle East, if you look at it from the planetary-level, generally the last 70 years have been good.  First, there was the golden age for a middle class that had acquired the means and tools of production of the Industrial Revolution. The GI Bill after the end of the Second World War educated a whole large swathe of middle America. Inequality went down, at least until the 1980s, free trade increased, and the flying geese paradigm was available to us in Southeast Asia, wealth was generated, but more importantly, middle-class was raised.  In fact, the chief beneficiary of the last 70 years was China, which by incorporating technology of the Industrial Revolution and taking advantage of this new age of globalisation and free trade, was able to lift hundreds of millions from abject poverty into a new middle-class.

The visionary, architect and underwriter of this age of globalisation, free trade and economic integration was the United States of America.  And you see what the United States of America did with the Marshall Plan in Europe, and you see the impact of the United States in Asia and Southeast Asia.  Singapore was also one of the key beneficiaries. This was a formula that brought peace and prosperity to everyone who subscribed or operated on the Washington Consensus. Today, however, that same system has also led to the rise of a multipolar world. After the Second World War, although there was a Cold War to settle, you could argue that by the fall of the Berlin Wall, it was clear that America was number one and the only one.  But this globalised world with free trade and economic integration also gave opportunities to others.

We are now transiting into a multipolar world – the question is whether this transition can be managed peacefully or will there be bumps in the dark of the night.  I am not going to get into that debate – but let me reflect the view from Southeast Asia and I have two sub-points there. The first, is that China is Singapore’s largest trading partner, while the United States is our fourth-largest trading partner.  The United States is also the largest source of foreign direct investment in Singapore. In fact, to give you another statistic – when Vice President [Mike] Pence went to Jakarta last year, he said that the United States had more than US$280 billion worth of stock investment in Southeast Asia.  This was in fact more than the United States had invested in India, China and Japan combined. And the other little interesting factoid is that a very large chunk of that US$280 billion is actually invested in Singapore. So this is all on the plus side. Little Singapore is also the largest foreign investor in China, shocking as that may be.

My point is this - we are one of the chief beneficiaries of a world in which the United States and China get along with one another, trade with one another, allow investments to flow between them and perhaps collectively between them to the rest of the world.  For us, it would be a nightmare if we are forced to make invidious choices and we hope that question is never put to us.

We also know we do not control the agenda of Beijing and Washington.  We hope that cool heads prevail, we hope that there will be enlightened self-interest, we hope there will be a long term perspective.  If there is, then we can move into another phase that will be characterised by new technologies, new world orders, new architectures which hopefully will still be open, will be fair, will be transparent, will give opportunities to people all over the world who are willing to learn new things, work very hard and create a sustainable world along the way.  Because do not forget that the other challenge we believe in, as a low lying island, is that climate change is real, and because one-quarter of our land is reclaimed from the sea, it would be a very bad idea for the sea levels to rise, and for storms and droughts to occur.

Let me stop there and take questions. I hope I have given you enough food for thought, or enough food for indigestion, for the rest of the night.  Thank you very much.

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