Bronwen Maddox
A warm welcome to the many people joining us online. I’m Bronwen Maddox, the Director of Chatham House, and I’m delighted to be bringing us together for this discussion of Strategies for a More Resilient World. I did think of calling this a hard time to run a country, but this is a much more upbeat, forward-looking and, indeed, international title. And we’re going to have, I think, an absolutely fascinating discussion.
I’m delighted to have here Singapore’s Senior Minister, Tharman Shanmugaratnam, who I’ve had the pleasure of knowing for some time, and I’ve always been impressed on the – by the way in which he grapples with the problems of individual countries, many, many different countries, and the problems and answers to those countries working together. He is, as I said, Senior Minister in Singapore.
My colleagues have prompted me coming in here to remind us, although I’m not expecting a response, that he’s announced his candidacy to be President of Singapore, which is a crucial non-party affiliated role in Singapore. A position that allows that person to challenge the government on behalf of the people. And he is eminently qualified for that. He’s served years as – in different roles as Deputy Prime Minister, Finance Minister, Education Minister. He is currently the Chair of the Central Bank, though will step down from that, as he prepares to make his case for this post. And he has Chaired the Group of Thirty, an independent global council for economic and financial leaders, over the last five years. He’s currently the Chair of the group’s board of trustees and he took over that post from Jean-Claude Trichet and was recently succeeded by Mark Carney.
I could read out, but I would take up much too much of the scant hour we have. Many of the other things he has done internationally, working with a huge range of people that are very high level to bring together discussions on the kind of problems that countries, regions and all our societies now face. But let me stop there because we want to save the time for this discussion. He’s going to make some opening remarks. I’m then going to fire some questions at him, but please start getting your questions ready and online as well. I will start weaving them in as well. And please, join me in welcoming the Senior Minister. Thank you [applause].
Tharman Shanmugaratnam
Thank you, Bronwen, very happy to meet everyone in the room and to be addressing those who are listening in online. I should just clarify, by the way, that the role of the President in Singapore is not to challenge the government on behalf of the people, but the President is elected directly by the people in order to preserve the integrity of the Singapore system, financial integrity as well as the integrity of key appointments of the public service. It’s a very important innovation in our democratic system that we embarked on a few decades ago, and one that I’m offering to put myself forward. And that’s all I’m going to say about my intended role, in the next few months, as a Candidate in the Presidential elections.
So, the topic of this talk and this discussion has to do with how we achieve a more resilient world. And I framed it thus, in discussion with Bronwen, because we first – we have to first recognise that we are in a fundamentally disorderly world. We’re not just seeing a series of bad events. We are not just seeing happenings coming about because of bad actors, whether it’s Putin or anyone else. We are in a situation that is inherently disorderly and we’ve got to recognise that if you want to then build resilience and optimism, we’ve got to recognise what we are up against. And the fact that it’s not idiosyncratic, but it is baked into the system, disorder, uncertainty and fragility. It’s baked into the system.
So, we’ve got to recognise it and develop strategies that are realistic, ambitious, and doable. And we’ve got to move our populations together with us to be able to build that new optimism in a very different world. We know the causes. We know that geopolitically, we are in a different era. We know what’s happened in the UN-based system, how Ukraine was able to happen with impunity.
We also know more fundamentally that we are in a new phase of the relationship between the US, China, and the middle powers. We are not yet in a multipolar world, but we are no longer in a unipolar world. And then, in particular, adjusting to China’s rise as an economic power and one that’s increasingly wanting to play a role in global rulemaking, is going to take some time. And we have to move past the phase where China’s rise is merely disorienting, towards a phase where we respond to China’s rise, so as to enable a new stability, and a new way of collaborating internationally, which is not about I win, you lose, but about how we can all keep advancing and develop a system which provides for prosperity on the part of ordinary citizens in all our countries.
So, that’s the geopolitical fundamental shifts. Very different from not just the end of the Cold War, not just the time when Deng Xiaoping began liberalising China, but even different from 20 years ago.
Second, I think we are economically in a new phase. The advanced world, for reasons that are demographic, but go beyond demography, faces the prospect of somewhat higher inflation for a period of time. I don’t think it’s just the current cycle, and it’s not just about – the questions are not just about whether the Fed raises interest rates by another 50 basis points. We’re really in a new phase of somewhat higher than comfortable inflation, plus weaker growth. The fact is private investment is weaker than it has been for a long time to come. Sorry, it’s been weakening over a long period. There’s a basic trend in private investment and corresponding to that, there’s also been a slowdown in productivity growth, across most of the advanced world.
At the same time, the developing world faces risks that are of a different scale than anything we’ve seen in decades. There’s a real risk of development falling off the map, and large parts of Africa, and the rest of what we call the Global South, seeing either regression or a standstill. And we’ve got to avoid that. We’ve got to do everything to avoid that because it’ll have ramifications, not just for those very large growing populations, but it’ll have ramifications for our ability to be able to address climate change, a global water cycle instability, the loss of biodiversity and the deterioration of global peace. We’ve got to address the development challenge and treat it as a global challenge. So, that’s the economic shifts.
Third, of course, we have those existential shifts. We are way behind in the race to address climate change. We are way behind in the race to address the three-headed environmental crisis: global warming, a global water cycle that’s out of kilter, and the loss of biodiversity. And basically, we have to recognise that we are moving from an earth system that was broadly stable, for most of human history, to one that is now unstable. And it requires much more urgent and much bolder action, not just individually within nations, but collaboratively across nations.
And fourth: interacting with these first three challenges, interacting with the gradual breakdown of geopolitical order, the weakening of economic prospects, and the sharpening of the existential risks. Fourth, we have growing domestic polarisation in many democracies, particularly in the advanced world, that makes it difficult to address those first three challenges. It makes it now a confluence of challenges that I would call a perfect long storm, domestic, international, existential, economic, geopolitical. Not just an accidental confluence of events, but now a structural confluence of events that we are landed with. And the solutions therefore have to be political as well at home.
How do we bring confidence back to ordinary pop – working populations? How do we develop a politics that’s not just about the adversary, not just about the other, but the politics that’s about opportunity, opportunity backed by real paths for improvement? Starting from young all the way through life. How do we avoid winning votes, not by casting the other as the adversary? How do we win votes, not by fomenting divisions? How do we win votes, not by reflecting grievances and accentuating them? But instead, strengthening the politics of the centre and developing a mood of optimism that comes from the real possibility of everyone moving up together.
We will not solve our global challenges. We will not address global polarisation if we do not tackle domestic polarisation, and soon. I think there are four basic shifts required when we think about strategies for a more resilient world in a world which is fundamentally uncertain and disorderly.
The first is a macroeconomic policy. The stuff that makes the headlines every day, whether the Fed’s going to raise interest rates, what’s happening to the debt ceiling in the US, and the like. But it makes headlines for the wrong reasons. The challenges we face are far more fundamental than the short-term.
First, we have to accept that macroeconomic policy, is monetary or fiscal policy, is no longer simply responding to economic cycles, the booms and busts of economies. And during the boom years, you try to, sort of, lean against the wind, then during the bust years, you try and stimulate your economy using other monetary or fiscal policy. We’re not in a world that is predominantly about cycles. We are now in a world of shocks.
In the last two decades, we’ve had three pandemics. One, global financial crisis, one major war in Europe, which is not just about Europe, and we’ve had a crisis of insecurity, stretching across large belts of the world, food insecurity, health insecurity, and of course, physical insecurity. It’s a world of shocks that are not simply unpredictable, but are the result of slow moving changes, the underlying changes in currents. Very obviously, in the environment, but also the underlying political and economic currents. But it shows up now as shocks from time-to-time.
And our whole orientation in economic policy has to be not to wait for each new crisis to occur, another financial crisis, another pandemic and the like, but to be in a state of permanent preparedness to build up our defences for the next shock, and the next cycle, and the next crisis. Prevent and prepare rather than wait to respond. And you’ve got to invest a lot more in prevention and preparedness rather than response because first, it’s far, far cheaper, it’s far less costly to human life, as you could tell from the pandemic. Had we prepared better, we would have had far fewer lost of lives and we’d had to expend far, far less public resources, nationally and globally. So, prevention is by far the most efficient and humane strategy, compared to waiting for the next shock and crisis and then having to respond to it.
And it means therefore that monetary and fiscal policy has to build up buffers in normal times, knowing that another crisis is coming. You’ve got to invest in preparedness, which is largely a task of fiscal policy, and monetary policy has to avoid storing up risks in normal times. And the experience of the last 12 years has been one where monetary policy, aimed largely at attempting to raise inflation, has led to a very significant buildup of risks, not just inflation risks, but more fundamentally, financial risk. So, we need to be more circumspect about the role of monetary policy.
Once you’re passed an immediate crisis, you’ve got to be able to build up buffers to respond to the next crisis. And fiscal policy then becomes the even larger challenge. Because in fiscal policy, we have the challenge not just of building up buffers, ensuring that you don’t run very large deficits in peacetime, in between crisis. But you’ve also got to do that in a context where, at least in the advanced world, spending is going to be on the uptrend for very – for structural reasons. So, societies are getting older. One of the fundamental roles of governments is to look after the elderly. Interest costs are going to go up because we’ve, in many countries, overborrowed and interest costs are almost certain to be a larger proportion of government budgets. And in the major powers, national security costs are also going up.
So, there is a secular uptrend in fiscal spending. And how do we, in that context, still exercise fiscal discipline and build up buffers in all – in peacetime, in between crisis? It requires new fiscal strategies that are more targeted, less universal. It requires strategies where infrastructural investment and the role of the public sector in particular is that of stimulating private investment, mitigating risks of investments, so as to be able to mobilise the private sector. And it requires also, in many instances, strategies to raise revenues in a progressive fashion.
There are very few solutions that do not require all those three dimensions, more targeted spending aimed at those who need support the most. Second, strategies to mobilise private investment rather than having to use the public balance sheet to invest in large scale infrastructure, both domestically and internationally. And thirdly, progressive revenue raising, fair and equitable. And that way we stand a chance of addressing the longer-term fiscal challenges, but also, building up buffers in peacetime before the next crisis, so you have enough ammunition to deal with the next crisis. So, that’s macroeconomic policy, and I’ve spoken a bit longer on that first challenge because I think it’s somewhat neglected.
Second challenge, the global commons. We are way behind in the race, as I mentioned, but this is a challenge that we can deal with. We think of climate change and we think of the vast amount of spending that’s required to mitigate global warming and to adapt to the consequences of climate change. We think of it as a burden and there’s a endless debate about how much should be transferred from this part of the world to that part of the world, from the Global North to the Global South, and so on and so forth. It’s fundamentally not the right framing. This is not a game of aid. This is actually the largest opportunity for economic growth that we’ve seen in decades.
We are only going to be able to solve the challenges of the global commons: climate, water, biodiversity, by investing at a higher level for a long period of time. And if you just take the rough estimates by the IMF, the IEA and others, if you have to invest, let’s say three percentage points of GDP more than before, it translates into a very significant boost in GDP growth, something like 0.7% per year. So, roughly speaking, without being too precise and without pretending that there’s some precision in any of the models, roughly speaking, we have the opportunity to boost economic growth by 20 to 25% more than we’ve seen in the last two decades, with a even further boost in the developing world.
So, treat it as an opportunity for growth, requiring investment that must earn a decent return, and which can be mobilised by the private – by the public sector, seeing its role, particularly through the multilateral development banks, to mitigate risk, so as to be able to unleash sufficient private capital investment, particularly in the developing world.
So, this challenge can be solved. It requires collaboration, it requires prudent thinking about how we use the multilateral development banks, which are extremely efficient instruments for the multiplication of public capital and how we use them in particular to mobilise private investment in the developing world.
Third challenge: US-China. It’s not on a good trajectory. There’s a pause right now in an attempt to talk to each other more at several different levels, but we’re not – no one is expecting an early dial down in tensions. So, we are in a pause. But fundamentally, we have to recognise that China’s rise was a success of the global system. It occurred largely through market liberalisation by participating in an international trading system and by improving agricultural productivity. That’s fundamentally what most Economists would agree China’s rise was about. Not very much of it was about state-owned enterprises. Most of it was about unleashing the forces of the private economy.
We must avoid thinking either that China or Asia’s rise is inexorable, or thinking that China’s somehow going to shrink and decline. We must avoid thinking that the final outcome is going to be some great triumph of one system over another. In fact, it is most unlikely that we are going to see the triumph of one system, one method of government over another, one system of values over another. We are going to have to co-exist, and we are going to have to co-exist in ways that serve the interests of our own populations. And how US and China find a new stability, a new understanding and a new stability will also shape prospects for the rest of the world to co-exist with the US and China.
But avoid thinking in binary terms and avoid overreading the intentions of each other. This is most unlikely to be about a competition between two systems that ends up with one triumphing over the other. Learn to co-exist, learn to collaborate, and avoid the appealing thought of a cold peace. A cold peace is likely to be highly unstable and one that’s fraught with tensions and with high risks of conflict. Think in terms of collaboration, competition, and rules of the game to ensure fair competition, especially through the WTO process.
And in that regard, we have to think hard about industrial policy, which is the rage of the day in the US and Europe and many other parts of the world, in China itself. And a good part of industrial policy today has a protectionist slant. Part of it is very well intentioned, particularly that dealing with the need to invest more in climate mitigation, but it also has a protectionist slant. And if we think that industrial policy, and for that matter foreign policy, has to be aimed at serving the interests of ordinary working people, we have to aim for absolute performance in each of our countries as the principle gold, not relative performance. And if we go for a system that is protectionist, that imposes restrictions or that has negative spillovers on the rest of the world where your actions domestically have negative spillovers on the rest of the world, you might be able to preserve relative superiority, at least for some period of time, but it is almost certainly at the cost of absolute performance everywhere. Most Economists would agree on that.
So, avoid strategies that merely go for relative superiority and are at the expense of absolute performance because the ordinary worker depends on absolute performance, the growth of an economy, the jobs being created, the quality of jobs being created, and the opportunities for social mobility. It’s not about how well this economy is doing relative to another economy somewhere else in the world. That doesn’t improve the life of ordinary workers. So, just remember that, absolute performance and a international competitive game in which, if I win, you don’t need to lose, has to be the way forward. Absolute performance remains at the interests of ordinary working people everywhere in the world.
So, let me stop there, but I want to end with one final point. It only works if the politics also seeks to work against rather than to accentuate domestic polarisation. We are not going to achieve a less polarised world without a less polarised set of societies, our own societies. And that requires a politics that is more long-term, more optimistic, rather than focused on the adversary or focused on divisions between people. And it also requires dealing with a challenge that we have not found a solution to as yet, but a very large challenge internationally, which is the industrial scale misinformation that is now eroding the basic pillars of democracies. And we have to be forthright about addressing these challenges internationally because it’s not a problem that could be solved by any one country.
I am optimistic. I’m optimistic because I think the basic ingredients for a more resilient world are there. The ability to have public private collaboration on a scale we’ve never before seen is there. And the opportunities for new politics with the strengthening of the centre in politics is there. And the opportunities for the US and China to have a new understanding and to find new stability in their relationship that will serve the interests of ordinary working people in their societies, as well as globally, is there as well.
So, I stop on that note. I’ll be very happy to have a discussion with Bronwen and take questions. Thank you [applause].
Bronwen Maddox
That was terrific. Thank you very much indeed, and people – oh, there’s some fascinating questions coming in. Please do keep sending them online, and here, begin to get yours ready. And lots of places I could start. You’ve covered so much. We start with your sense of the perfect long storm as you’ve called it. I mean, the things that really make it much, much more difficult for governments of all kinds to make the judgments they have to make. But I want to pick one of – start with one of the more positive points, which is about investment and attracting investment.
You described the three, you know, things that – when you were talking about fiscal policy that have to be done. And I was thinking, not parochially of the British press at the moment, where the discussion about how to raise tax and how to target and cut public spending is – it feels like an arithmetic wrestling match in every page of the papers. But your third point, is one that also applies to many countries about how to attract investment and indeed, how to make the most of the revolution in AI and the need for green technology that is going on at the moment. And so, if you were going to advise, as you do, governments around the world, but even particularly with an eye to say the UK Government, how would you advise a government goes about making itself – making its country particularly attractive at this moment of very rapid change?
Tharman Shanmugaratnam
Well, that’s a important question and a broad one, and perhaps I can address it in two parts. One has to do with social policies, social reserves as it were, and the other has to do with economic competitiveness. On social policies, as I mentioned earlier, we’ve basically run out of space in most advanced countries to be able to simply spend on everyone and at the same time, have some sustainability in debts. And we now have to face the task of targeting spending more carefully.
Healthcare is the biggest challenge in the advanced world because of aging. The UK is a bit of a outlier even compared to Europe because of your system of universal benefits in the NHS. A very sensitive topic. But the world that was envisaged by Beveridge, when the policies were first enacted, has turned out to be very different from the world that we’ve had. The fact is, advances in medical technology increased – vastly increased lifespans, and the fact that most people would like to have the latest drugs and treatments and not see it as the privilege of only a few, has meant vastly increasing healthcare costs. And we are able to address that by a strategy that is actually more progressive, which is to support the poor more and to ensure that upper middle income people and the rich pay their share for healthcare costs. Either you do that or you have to ration healthcare by having very long queues or having some people go abroad for treatment, which is just not very fair and not progressive.
So, I think it’s a fundamental challenge, and I speak – it’s not just a challenge for the UK, but it’s a challenge for several other advanced countries as well. Targeted subsidies are critical in healthcare. The use of insurance as a solution that pools risks is important. But if you simply go for the ultimate insurer being governments, governments simply paying for all costs, you end up with a ever increasing bill that has to be met by taxes of someone. So, I use that just as an example.
But the second example that I really want to highlight, again, because it’s neglect – it’s too – it’s obvious and yet it is neglected, is that – and this ties up both social policies with economic competitiveness. Our whole approach, when I talked about improving absolute performance and not just trying to have a relative lead over each other internationally, our whole approach has to be 90% building up the capabilities of our population, and 10% making sure that no one else is abusing their position in the global system. And that 10% sometimes becomes 30% if someone is egregiously abusing the rules of the WTO.
Right now we’re very far from that mix. There’s very little effort being made to develop the capabilities of domestic populations, starting from the earliest years of life where the gaps once entrenched, lasts all the way through life, all the way through what happens to ordinary working people during their careers. We stop investing in them and we leave it to the market. But the market’s always too short-term because an employer is mainly interested in what that worker can do today in that particular job with that particular technology rather than prepare that worker for a new technology or prepare that worker for a job with another employer. There is a basic market failure.
The state has to step in, and this has to be an opportunity for state, private sector, unions and people collaboration to invest in people regularly, through their working lives, so as to keep upskilling, reskilling and making sure that the quality of jobs that are available to them goes up. And it’s just the most neglected element of public policy in too many countries. And I’m not even talking about the developing world, where in a large part of Sub-Saharan Africa and South Asia and parts of South East Asia, childhood stunting currently ranges from 25% to 40% of kids under the age of five, childhood stunting. Once you are in that situation at the age of five, your life is blighted.
Bronwen Maddox
Do you mean physical, lack of nutrition or educational? Everything?
Tharman Shanmugaratnam
It is both mental and physical stunting. A society, quite apart from being grossly unfair on the families and individuals involved. So, we’ve got to – when I talk about 90-10, we’ve got to start thinking about domestic capabilities, skills, opportunities, and human potential as fundamental to both social and economic policy, including economic competitiveness rather than what I can do to hold the adversary down. If the adversary is not playing by the rules, take action, ideally through multilateral means, sometimes through bilateral agreements, but focus first and foremost on what we can do to maximise our own capabilities.
Bronwen Maddox
Thank you for that. We could go on, you know, a long time on this. We’re both exploring the development and indeed, what it means for individual countries. I was thinking of – as you’re talking, as I said, not to bring it just back to the UK, but of the projections that if you simply extrapolated health spending now, you would end up with in the phrase, you know, ‘a health service with a small country attached’. It is on that kind of scale.
Let me take you to one of your other central points about how countries can react to the rise of China and the relations between US and China. And you’ve made a very strong pitch for countries of all kinds not to deal with this in an antagonistic way, to look to ways to live with China’s rise and not to see this as a zero sum and so on. How would you advise those two countries though, the US and China, to go about this? They are at a point of some tension. And while you’ve called on countries to solve their internal polarisation, the one thing on which American politics appears to be agreed, is to be tough on China. What would you say to the political leaders of the US and China?
Tharman Shanmugaratnam
Well, I’d say first, if you look at the – and by the way, then – there are no saints here. Both of them need to make adjustments. Both of them need to avoid a sense of hubris with regard to the superiority of their own systems. And both of them need to recognise that there’s actually a great deal in common in the way they go about trying to improve lives and grow incomes.
China’s not the Soviet Union. The Soviet Union was largely isolated from the global trading and investment system and was also very small, compared to what China is today. China is deeply inserted in the liberal economic order and has a deep interest in its preservation. And that’s – those are huge grounds for seeing eye-to-eye and developing rules to make sure that trade is fair, investment is fair, intellectual property’s protected. These are rules that can be developed. If you were to ask someone like Henry Kissinger, he’ll say, “You need a new détente.” But you’re not talking about countries, which are fundamentally strategic adversaries. It’s totally different from the Soviet Union or today’s Russia.
So, with China, I think both sides have to find – have to recognise that China’s size and the fact that it’s not going away, and the fact that it is going to keep climbing the innovation ladder, requires a strategy of interdependence with some constraints. If you don’t have a strategy of interdependence, it doesn’t mean that China gradually withers away. It eventually rises anyway. But when it finally gets there, it might not exceed your capabilities in the most advanced chips, but when it finally gets there, it will know who made it extremely difficult for it to get there, and that makes for a dangerous world.
Far better that you have an interdependent world with interoperability and rules of the game to ensure that intellectual property is safe and rules of the game to make sure that you don’t unfairly subsidise domestic competitors at the expense of international competitors. Unfairly subsidise domestic producers at the expense of international competitors. But that can be developed. I mean, that’s not a new game. I mean, that’s what the WTO has been about. It is not difficult to formulate such rules.
If you look at US…
Bronwen Maddox
It is more difficult to enforce them though, as the WTO has found, including in the case of China.
Tharman Shanmugaratnam
Well, it needs the Appellate Court to come back into business, and it’s in everyone’s interest that it does. But if you look at, you know, what’s the cause of this disquiet and this, sort of, disenchantment? I regularly look at the Gallup and Pew surveys of domestic public opinion and opinion around the world. And if you look at the attitudes of Americans towards China, is China a force for good or is China a good thing for the US?
Bronwen Maddox
A threat? A threat? That’s the word.
Tharman Shanmugaratnam
Right, some – a threat.
Bronwen Maddox
Yeah.
Tharman Shanmugaratnam
There was a general drift up in perceptions of China being a threat over the last 20 years. But something did happen in 2016. There was a step change in the curve, and I don’t think that step change in the curve was occasioned by any new strategy on the part of China or any new development in China’s market share or China’s actions in any regard. It was domestic politics. Politics matters, politics matters. It shapes people’s minds. It adds to a sense of grievance and it creates an opponent in the easiest possible way, which is not the opponent of technology, not the opponent of skills that require investing in, but a foreign opponent. Politics matters, and I think we are trumbling down a road where we are in the politics of pessimism and grievance, and it has to be redressed, otherwise we are just all worse off.
Bronwen Maddox
There are many people who would accept that explanation for at least part of what’s gone on in the development of the US political approach to China. But would you agree that there has also been a change of President Xi’s China in its approach, for example, to Taiwan, the kind of language used and so on, that it too has hardened its stance?
Tharman Shanmugaratnam
I think if you read China carefully, and there are those who look beyond the, sort of, headline statements and read very carefully what China says and does, two things are clear. First, China doesn’t yet feel it is ready to be an equal with the US at the centre stage, but it wants to play a more major role in rule setting at the IMF, at the World Bank, in trade and in other areas.
Second, on Taiwan, no serious re – observer, including those who are very close observers and who are engaged in this, believes that China wants war with Taiwan, neither does the US. And it’s extremely important to preserve prior understandings on Taiwan and preserve the constructive ambiguity on Taiwan that has lasted for decades, on the part of both the US and China.
Bronwen Maddox
Right, well, thank you. It’s not going to be our last chance to discuss that, although it might be today. Let’s go to questions and there’s some terrific one – oh, great, and there’s some terrific ones online as well. Alright, I’m going to take them in pairs because there’s lots of hands up. Let me take the two people here in the second row, starting on the aisle, please [pause]. Oh, if we start on…
Euan Grant
Okay. Mine will be very quick. Euan Grant, I’m a Chatham House member. I’ve worked for a number of international organisations on trade projects. These – such as the Asian Development Bank. Quick question, what were the positives and negatives, in your view, from the Shangri-La meeting last week?
Bronwen Maddox
Okay. Thank you, and next to you.
Ritvij
My question is about the multilateral banks as well. To what extent do you think that the international financial institutions have reformed since the Bretton Woods Conference? Have they kept up with the modern changing world with the introduction of Sustainable Development Goals and ESG, or are they still using their decisions, based upon an old framework?
Bronwen Maddox
Great, thank you. There’s no compulsion to say who you are, but if you’d like to, we’d certainly be interested.
Ritvij
My name’s Ritvij. I’m a Doctor and a UK youth delegate for the G20.
Bronwen Maddox
Thank you very much indeed.
Tharman Shanmugaratnam
Very good. So, on the first question, I think, you know, the mere fact of meeting in the same place is something we must count as a achievement, given how difficult the relationship has been between the US and China and the Shangri-La Dialogue plays that function. I would say – I wouldn’t say there was a huge meeting of minds, but there was an ability to listen to each other. I’m – I’d say we are all encouraged too by the fact that both the US and China do want to increase that pace of interaction, whether it’s Janet Yellen or Jake Sullivan or Blinken and their counterparts on the other side, Hu Ling Fang and Wang Yi and others. There’s a desire to increase interaction and hopefully, we’ll see a meeting in San Francisco between the two Presidents. So, there is a desire to talk, and we have to count that as a positive.
On your question, which is a very large one, I would say there’s now a window of opportunity for serious reform in the inter – amongst the international financial institutions, particularly the World Bank and the MDBs. I happen to be a member of a G20 Expert Group that just had a virtual meeting yesterday, by the way, that’s working very hard on the fundamental shifts required at the World Bank and the MDBs, along the lines of what I was talking about earlier.
How do we use limited public capital in our international institutions to multiply resources and in particular, to be able to invest at a la – on a larger scale in both development and sustainability at the same time? Both development and climate mitigation and adaptation at the same time. The challenge is to do both together because it cannot be an either or. You can’t just talk about global public goods and invest in climate mitigation and adaptation if you’re not continuing to reduce poverty, improve lives for ordinary people who are low income and want to move up to middle income and enable governments to achieve national development objectives, it just won’t happen. They’ll junk the global public goods part of it.
So, you’ve got to do both together, but when you do both together, the cost of capital goes up because many of the technologies required – if – for instance, if you’re talking about an infrastructure project, if you want to add sustainability to that infrastructure project, it’ll cost a little more, particularly because the technologies are not yet mature and it requires therefore a global public subsidy. And there are ways in which we can do that and yet mobilise a lot more private resources.
So, this is one of the – you know, when I talked about the four challenges, I would say this is the one where we more or less know what the solutions are and they can be done. But we’ve got to be willing, in the US Congress and all legislatures, to provide the necessary capital to the multilateral development banks because they’re extremely efficient tools of public policy. We’ve got to be willing to provide them the necessary capital.
Bronwen Maddox
Thank you for those. Right, let’s take another pair here. In the pink and again, on the aisle, and then I’ll come to you two.
Anna Freeman
Hi, my name’s Anna Freeman from Imperial College. So, a bit about your, sort of, like, the infrastructure analogy you just pulled. How do you create, sort of, a business case for investing that bit extra just for the sustainability or for resilience or – so, sort of, who pays for that and how do you create a business case around that?
Tharman Shanmugaratnam
Okay.
Bronwen Maddox
Thanks.
Tharman Shanmugaratnam
Okay.
Bronwen Maddox
And over here on the aisle, so, here.
Member
Hi, I’m [inaudible – 52:20] and I’m a Freelance Journalist. I’d just like to bring you closer to home, Thailand. Because when you said something about this, how to create, not to win the vote without fermenting divisions, that’s what happening in Thailand now. You see that the party leader that win the most seats he’s not able to form a government at the moment, due to so many political factions and some interference from the establishment allegedly. Thailand is very close to Singapore and it’s one of – it was the first country that brought in this Asian financial crisis. How concerned is Singapore as a neighbour and member of ASEAN to the repetition, the recycling of this, the vicious cycles, coup, constitution, election, and coup again? Thank you.
Bronwen Maddox
Sustainability, who pays, and Thailand divisions.
Tharman Shanmugaratnam
Right. So, on your first question, it’s partly related to the one we just had. I think, basically, private markets overprice the risk of investing in the developing world, particularly in Africa. And we’ve got to find a way of reducing that risk premium and reducing the cost of capital of investment. Part of that – why do I say overprice? Part of it is not overprice, but reflects genuine problems: governance problems, political changes, new governments coming in and sometimes redoing all projects, and the like. And that part can be addressed.
The MDBs, when they work with governments, have to set very clear rules to ensure stability in regulation, but also to develop the capacity, capacity in project preparation, capacity in developing whole sectors, capacity in national development. That’s still such an important part of economic development, developing institutions and capacity to be able to see through development strategies.
But another part of the reason why risks are priced so high is just the perception that long-term some things – some bad events will materialise and private actors, private firms just price it in. And it’s very hard to explain the extraordinarily high interest rates that some developing countries have to play – have to pay, based on their actual observed record of cancelling projects or, you know, not fulfilling their obligations.
So, on that, I think we need a more concerted strategy of public-private collaboration, involving the MDBs, the development finance institutions, the private sector, philanthropies, and national governments, to just reduce that perception of risk through a more co-ordinated strategy. But we barely begun, we barely begun addressing the basic risk perception, and I think it has to be addressed quite forthrightly.
On your question, you know, we are most averse to commenting on other countries’ politics. If you talk about countries that break international norms, Russia invading Ukraine, what Myanmar is doing domestically, we all have to comment and we do what we can to ensure that bad behaviour is discouraged. But Thailand will have to find its own equilibrium. I would be very wary, as someone who’s still a sitting member, a senior member of the Singapore Cabinet, to comment on what the best solutions are, but we each have to find our own equilibrium or dispensation in democracy.
Bronwen Maddox
Alright, thank you for that.
Tharman Shanmugaratnam
Sorry, I’m not answering your question satisfactorily, but that’s the stance I would take basically.
Bronwen Maddox
Okay. I’m going to come to you two in a moment. Let me just take two online and thank you for sending them. One from Karen Patel saying, “Do you think that Ukraine, Russia has increased the, kind of, geoeconomic, geopolitical fragmentation you’ve been talking about?” And an interesting one from Anita Punwani saying, “Can incumbent leaders build resilience if those are the very leaders who brought us to this state of permacrisis? Or do we need to focus on giving the next generation of leaders the agency to bring about change?” So, Ukraine, Russia, and its impact on all this and one generation and the next.
Tharman Shanmugaratnam
Yeah, two very good questions. I think Ukraine-Russia is not just about Ukraine. I think the weakening of the international order extends beyond the problems of Ukrainian territory. There was a flagrant break in norms and in the UN rules. And the fact that a large number of our countries, although they condemned Russia, were unwilling to go along with penalties, is indicative of the state of the world we live in. There’s a weakening of multilateral commitment to the rules of the game that is worrying.
On the second question…
Bronwen Maddox
One generation and another. So, saying, interestingly, “Can incumbent leaders really do all these things…
Tharman Shanmugaratnam
Right.
Bronwen Maddox
…we’re here calling on them to do if they’re the ones who have contributed?” She is suggesting to this state of permacrisis, she’s using the word that is often used about this. Or do we need to…
Tharman Shanmugaratnam
Right.
Bronwen Maddox
…hand it over to the next generation?
Tharman Shanmugaratnam
Right. So, I mean, the reasonable answer will be, you can’t expect very much from those who are responsible for fomenting divisions, or fomenting that more polarised state of affairs. But I think the real challenge, if you ask me, is in recreating a robust politics of the centre. And that is a challenge for both those who are left of centre and right of centre, but not far left and far right. We’ve got to find a way in which the equivalent of Democrat parties, Labour, social democratic parties in Europe, address the needs of the working class and avoid the extreme right taking over and winning their allegiance. Because what’s happened, remarkably, is the way in which the extreme right, not the moderate right, the extreme right has found ways of winning the allegiance of ordinary working class people, in a whole range of countries.
And whilst you can blame it on nationalist strategies and anti-immigrant strategies and the like, and sometimes just personal charisma, it is fundamentally a failure of the left. A failure of the left to address the needs of ordinary working people, when faced with job loss, sometimes affecting whole towns and regions, and allowing the scars to remain and thicken over time. And likewise, the right of centre needs to have a strategy that’s not just about markets and keeping taxes low and talking about individual responsibility, because it’s not as if societies have weakened because of a upsurge in individual irresponsibility. You know, people haven’t become suddenly more irresponsible.
We face challenges now that require a more active role for the state. It has to be an active role for the state that still supports growth because it is much easier to tax people if incomes are growing and it has to be basically a progressive strategy. Even if you’re right of centre, you need a progressive fiscal strategy for it to be sustainable. So, I think the restoring confidence in the politics of the centre has to be extremely important as a political challenge in all democracies.
Bronwen Maddox
Thank you. I’m going to take that as a, kind of, answer to another question online from Richard Gosney, which is, “Who can best persuade publics to accept a bit less jam today for more jam in decades to come?” The political question of the time, which – but I want to just squeeze in these other questions. I’m going to take the two of you as you had your hands up first, I’m really sorry. Here and then behind you in the back. Yes, Ben, sorry, you start.
Ben Bland
Yeah. Hi, I’m Ben Bland. I’m the Director of the Asia-Pacific programme here at Chatham House. Minister, I think we’d all share your hope for an improvement in US-China relations, but as we know, hope is not a strategy. So, failing that improvement, how far do you think middle powers, smaller powers, countries like yours and the UK, how far can we shape a more effective multilateral system, despite the US and China? Is that even possible?
Bronwen Maddox
Terrific. Thank you, and here.
Hugo Barker
Thank you. Hugo Barker, I’m currently studying a Master’s in Security and Resilience: Science and Technology at Imperial. So, the topic’s close to my heart. Similar to the question here, do you think small states are able to be more nimble in this hyper-complex world? And do you think larger states, by that virtue, are more fragile, or do you think the larger states’ll still be able to be better because of, kind of, economies of scale and the money they can pump into innovation? Thank you.
Tharman Shanmugaratnam
Okay.
Bronwen Maddox
Thank you very much. One abstract one and one absolutely to the point of…
Tharman Shanmugaratnam
Yeah, two very good questions.
Bronwen Maddox
…what can be done about this? Thank you.
Tharman Shanmugaratnam
So, first, by the way, I mean, I do not make my case on the basis of hope for the US and China. I think there’s self-interest on both their parts and particularly the interests of ordinary working people that have to guide their policies. And as I mentioned, the interest of ordinary working people rests not on relative leads that one country has over another, but on absolute performance. The fact that we’ve got to create jobs and to create jobs and improve incomes, international trade counts. A free international trading and investment system is the most secure basis for rising incomes in all our societies and an active state to be able to help those who are displaced, principally by technology, but also sometimes by international trade competition. Now, that formula is still robust. I believe self-interest and some clarity of thinking still exists amongst the major powers.
But to address the other part of your question and the two questions, I’d say the – what we call the middle powers, small countries like Singapore, regions like ASEAN, play a very important role. We play a very important role in ensuring that as we move from a unipolar world to a multipolar world, which is a shift that cannot be resisted, it doesn’t become a polarised world. In other words, where you have one bloc comprising China and a set of allies and another bloc comprising the US and a set of allies.
If you notice, through our actions in ASEAN, Singapore and ASEAN, we are members of various economic blocs and sometimes digital blocs. We are both members of blocs that involve the United States and blocs that involve China, and that creates an overlap between the emerging alliances. Having that overlap is critical. So, it’s not just you’re a member of one bloc and not another. Overlapping blocs are extremely important.
Second, keeping each of those blocs open-ended to new members is also extremely important. So, that has to be our strategy. We fundamentally do not determine the outcome in the US-China relationship, that’s going to be determined by those two major powers. But I think we play a useful role in avoiding a complete bifurcation and staying engaged, actively engaged with the US and China.
Bronwen Maddox
Thank you for that, and the Foreign Secretary speech did, UK, one did indeed avoid that complete bifurcation. We are really sadly going to have to stop there. I’m so sorry, thank you for these terrific questions. Thank you for the even more that were coming. Thank you online. There were some great ones, which we couldn’t get to. But thank you all for coming, virtual or in person. Please join me in thanking Minister Tharman [applause].
Tharman Shanmugaratnam
Thank you.