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Ethos Issue 7, Jan 2010
Rethinking Recovery:
Possible Discontinuities
and
Implications for Singapore
Godwin Tang and Valerie Yuen
Analysts from the Strategic Policy Office consider how
the global economy might evolve in the next decade.
INTRODUCTION: THE FATE OF GLOBALISATION
The US sub-prime crisis of 2008 and
its aftermath presents a timely
reminder that globalisation brings
both opportunities and threats. Over
the years, Singapore has benefited
from global economic integration,
particularly in international trade and
finance. At the same time, we have
realised that greater integration means
greater exposure to a variety of "imported
threats", like the Asian Financial Crisis,
September 11 attacks and the SARS and
H1N1 pandemics.
While some analysts argue that
the worst of the global financial crisis
appears to be over, there are reasons to
remain cautious. Apart from the recent
Dubai credit crisis, anxieties about
the mounting national debt and high
unemployment rate in the US indicate
that the prospects of recovery are still relatively fragile. More importantly,
the scale and magnitude of this crisis
suggest that post-recovery, there could
be some substantial discontinuities—
highly disruptive changes from
current circumstances—in Singapore’s
future external operating environment.
Commentators such as Joseph S. Nye and
Dani Rodrik have written about how the
edifice of globalisation could eventually
unravel, due to severe long-term effects
of the crisis.1
This article discusses two related
questions: What possible discontinuities
can Singapore expect in the next 10
to 15 years, after a decade of mostly
unfettered globalisation? How could our
domestic priorities be affected?
POSSIBLE DISCONTINUITY 1:
BEYOND US / CHINA-DRIVEN GROWTH
Since the 1990s, the symbiotic relationship
of China and the US (or "Chimerica", to
use historian Niall Ferguson’s term) has
been the global economy’s main growth
engine.2 "Chimerica" accounts for 13%
of the world’s land surface, 25% of its
population, 30% of world GDP and 50%
of global growth over the last six years.
The magnitude of this financial
crisis, having put a substantial dent on
"Chimerica", is likely to usher in a new
global growth model as both countries
continue to recover. Already, China has
led the way in the global economy’s
resurgence in spite of the US’ sluggish
recovery, by spending far more to
stimulate domestic demand. In addition,
bigger and less-indebted emerging
economies such as Brazil appear to be
less dependent on US consumption
than commonly believed, and could
"democratise" global growth further.3
Implications for Singapore
Export-reliant economies like Singapore
will have to move into new markets
that serve as alternative sources of
demand. Currently, 61% of Asia’s exports,
including those of China and India, have
final consumers in the G-3 economies
of US, Japan and the European Union.4
The burgeoning urban middle-class
in emerging markets will likely provide
a new source of demand, due to higher
untapped consumption potential.5 In
addition, a geo-economic axis between
Middle Eastern and North African
(MENA) and Asian economies, based
on complementary factors of production,
could develop.6 Furthermore, the long-term
trend of much higher energy
costs in the future will reduce the
competitiveness of manufactured products
in Asia for shipment to distant markets, such as Europe or the Americas,7 and
precipitate the development of new
trade alliances.
Apart from opportunities, Singapore
will also need to operate in an
environment with greater resource
constraints. Notwithstanding the shift
away from "Chimerica-driven" growth,
the global economy is likely to
remain volatile in the short term as
major industrialised and emerging
economies restructure. In addition,
the risk of certain economies pursuing
protectionist trade policies, plunging
the global economy into a period of
prolonged stagnation, remains very
real.8 In such a world, we may have to
continually prioritise and re-prioritise the way in which resources are allocated—difficult trade-offs may have to be made across competing priorities, with emphasis on, for example, social assistance programmes.
POSSIBLE DISCONTINUITY 2:
THE RISE OF STATE CAPITALISM
Since the end of the Cold War, Anglo-Saxon free-market capitalism has been the dominant economic model. Over the years, developed and emerging economies alike have engaged in a series of privatisation and deregulation exercises to shift the ownership of industries from the public to private sectors, albeit at different paces and with differing intensities.9 This trend of privatisation has been reversed with the current crisis. The governments of the US and other developed economies have been intervening directly to bail out troubled financial institutions and big corporations. Simultaneously, the governments of emerging economies, facing increased uncertainty about their growth prospects (and political longevity) due to the current crisis, have increased direct intervention to prop up domestic demand by investing more heavily in state-owned enterprises and government-linked
private companies.10
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