By Caryn Yeo
HONG KONG - NO ONE political system is the best for generating sustained economic growth, and the success of a country's economy does not rest on whether the governance is Asian-style or Western-style, Senior Minister Goh Chok Tong said on Tuesday night.
'Every country must find the political system that can deliver the goods, given its special and specific circumstances,' he said.
SM Goh was speaking at the Asia Society Hong Kong Centre's annual dinner, where he delivered the keynote address to leaders from Hong Kong's government, business, academic and media sectors.
His speech comes against the grim backdrop of a worsening global economic downturn.
'The main lesson I take away from the history of financial crises, in particular the 1997 Asian Financial Crisis and the present crisis, is that 'Asian triumphalism' and western 'liberal historical determinism' are both not borne out by the empirical evidence,' said Mr Goh.
He cited two Asian giants - India and China - as examples of contrasting political traditions that have led to strong growth.
'India is sociologically an immensely more diverse country than China, and its political system reflects that complexity,' noted Mr Goh.
'It is not possible for India to adopt China's system any more than it is for China to adopt the Indian system. Their historical and cultural make-ups could not be more different. And while India's system imposes constraints on growth, China's system too has its own limitations. And for that matter, so do America's and Europe's, as the current financial crisis reminds us.'
'So the lesson is not that democracies are necessarily worse performers economically than authoritarian systems or vice versa. This would be a naï¿½ve conclusion.'
Sustained growth is possible under different kinds of political systems, said SM Goh, but he added that all successful political systems share at least four broad attributes.
First, he said, there must be accountability and transparency.
Second, governments must have the capacity for long-term planning and execution, he said.
He listed social justice and harmony as the third attribute, and a culture of identifying and grooming talent for public service, whether in the political arena, bureaucracy or private sector as the fourth.
Mr Goh said the US would still emerge from the financial crisis the first among equals, but the global turmoil may may well accelerate the fundamental changes in the international order that rapid East Asian growth has already set in motion.
'We may well be seeing the birth of a multi-polar world,' said.
Giving his dinner audience food for thought, Mr Goh asked: 'Will the developed West admit successful East Asian economies into its exclusive club as equals? Or will it simply heighten discomfort which any change to the status quo may bring?'
SPEECH BY MR GOH CHOK TONG, SENIOR MINISTER, AT THE ASIA
SOCIETY HONG KONG CENTRE’S ANNUAL DINNER, 11 NOVEMBER
2008, 9:10 PM AT THE J W MARRIOT HOTEL, HONG KONG
Governance and Growth in Emerging Asia
1. We are in the midst of a global financial crisis of historic
proportions. The real economy has slowed everywhere and next year
could be worse than this year. It will take a while before markets calm and
global growth resumes. The priority must, of course, be to deal with the
immediate problems. This is not the time to reprise causes and I do not
intend to do so. For tonight, I thought it would be useful to lift our eyes from
immediate preoccupations and think aloud about longer term fundamental
2. Finance – the essential lubricant of growth - is crucial for all modern
globalised economies. But it is worthwhile reminding ourselves that the
sophisticated modern financial system is, in the telling phrase of Financial
Times columnist Martin Wolf, a “pyramid of promises”. That is, the financial
system is built on credibility and trust in the “promises” made between
borrowers and lenders. Without trust, the pyramid collapses as has
happened to the global financial system now. Hence, it is the essential role
of government to supply the institutions that create and sustain trust in
3. The current global financial crisis has rekindled debate about the
role of governments in a free market. I want to contribute to the debate by
raising a more fundamental question. What kind of government is best for
generating sustained economic growth? I do not think there is any
definitive answer. Hence, I shall suggest an approach to deal with this key
question that is of, I believe, not just economic but strategic importance.
The Washington Consensus
4. Let me begin with some brief history. This is not the first financial
crisis that we have experienced nor will it be the last. Since the end of the
Bretton Woods system, financial crises have been a regular occurrence. In
fact, it has been estimated that between 1973 and 1997, there were some
193 financial crises of various kinds and degrees of severity.
5. The 1997 Asian Financial Crisis prompted many gleeful western
commentaries on the end of the ‘Asian miracle’ and the unsustainability of
the ‘Asian model’, meaning, in particular, the Asian way of governance and
dirigiste economic management. Taken with the end of the Cold War, it
seemed that there was only one viable path forward: a stable, liberalised
free market. Indeed, this was broadly known as the Washington
Consensus, and the predominant prescription of IMF and the World
Bank. But Asia bounced back. And the Asian crisis was soon followed by
crises in the Western world over Long Term Capital Management and
Enron. The current financial crisis started in America as a result of lax
oversight and regulation of the housing mortgage market and the
unrestrained growth of complex, high yield but high risk products like
derivatives, structured products and collateralised debt
obligations. Imagine, the total value of credit default swaps alone was
estimated at US$60 trillion in 2007, as large as the world’s GDP!
6. The current financial mess has spared no region. Fortunately, most
East Asian banking systems have not been as badly affected as financial
institutions in the US and Europe so far. We had learnt the painful lessons
of the 1997 Asian Financial Crisis. I believe that when the dust settles,
most emerging East Asian economies will be set to resume strong
growth. In the meantime, the world is looking to China with more than a
trillion US dollars in reserves to grow its domestic market in order to
ensure that the world economy does not stall.
7. What lessons can we draw from history and the current crisis about
political systems? The key lesson I draw is not about the superiority or
inferiority of any particular culture, political ideology or system of
government. Certainly it is not about the superiority of the Asian model.
8. Two years ago, I was privileged to be a member of the Commission
on Growth and Development chaired by Nobel Laureate Professor Michael
Spence. Robert Solow, another Nobel Laureate and Professor Emeritus at
Massachusetts Institute of Technology (MIT) was also a member. The
Commission looked at how developing countries could achieve and sustain
economic growth. We found that since 1950, only thirteen economies had
sustained annual growth rates of 7% or higher for 25 years or longer. Of
these thirteen economies, nine were from Asia: China, Hong Kong,
Indonesia, Japan, Republic of Korea, Malaysia, Singapore, Taiwan and
Thailand. The remaining four were: Botswana, Malta, Oman and Brazil.
9. Analysing these thirteen economies, it was relatively straight-forward
for the Growth Commission to reach a consensus on the main policy
ingredients for economic growth. We identified seventeen factors ranging
from macro-economic stability to technology transfer to financial sector
10. I do not intend to go through these seventeen factors. If you are
interested, I can send you a copy of the report. Suffice to say there were
no surprises. The basics were well known to any development
economist. But getting the economics right was only one side of the
equation. If not, more economies than just thirteen would surely have
experienced strong and sustained growth. The other side of the equation
which the Growth Commission did not deal with was effective governance
and the type of political structure that would best ensure the production of
the economic policy ingredients. This was not within its remit.
11. Indeed, no conclusion on the best political system can be drawn
from the thirteen high growth economies we studied. They had very
different political systems, ranging from monarchies to multiparty
parliamentary or presidential democracies to a communist one party
Contrasting political traditions of two Asian Giants
12. The fact that different political structures could result in strong
growth is even more obvious if we examine the two largest high growth
economies of Asia today, India and China.
13. Since Deng Xiaoping’s reforms in 1979, China with a one-party
government has enjoyed average annual growth rates of close to ten
percent. But India, the world’s largest democracy, has also done very well
economically since its reforms in 1991. India’s growth rates are more
modest when put beside China’s. Still, for more than a decade, India has
grown at an average of more than 6 percent each year. And in the last few
years, India grew at an average rate of about 9 percent, a pace
comparable to China’s.
14. India is sociologically an immensely more diverse country than
China, and its political system reflects that complexity. It is not possible for
India to adopt China’s system any more than it is for China to adopt the
Indian system. Their historical and cultural make-ups could not be more
different. And while India’s system imposes constraints on growth, China’s
system too has its own limitations. And for that matter, so do America’s
and Europe’s, as the current financial crisis reminds us.
15. So the lesson is not that democracies are necessarily worse
performers economically than authoritarian systems or vice versa. This
would be a naïve conclusion. If authoritarian systems were the answer to
growth, North Korea and Myanmar would be among the richest countries
in the world. So would Zimbabwe. And if liberal democracies were always
right, Iceland would not have gone bankrupt. Nor is Iceland’s insolvency an
aberration. In 1976, the UK was forced to apply for an IMF loan and in
return had to accept measures imposed by the IMF.
16. Hong Kong is a society with strong stakes in the idea that two
systems can coexist and succeed in one country. More broadly, it is
philosophically important for the idea that there are different possible paths
leading to the mountain peak of economic prosperity to gain acceptance
The rise of Asia
17. The world is undergoing a fundamental rebalancing. For the last two
hundred years or so, the international system has largely been shaped and
dominated by the West. Non-western countries were largely the objects of
international relations or arenas of international tussles rather than full
participants. The fundamental question that confronted many non-western
societies has been how to adapt to a western defined modernity so as to
survive and prosper.
18. Only a handful of countries, mostly in East Asia, have so far
successfully managed this encounter with the West. And they had done so
with a diversity of political systems. Meiji Japan, Asia’s first mover in
economic growth, was a feudal system when it instituted western style
reforms. South Korea and Taiwan were military dictatorships when they
grew rapidly but have since adopted pluralistic systems. Singapore is a
modified Westminster style parliamentary system. Indonesia under former
President Soeharto prospered for three decades. Malaysia and Vietnam
have their own distinct systems. Thailand is still unsure about the merits of
democracy with opponents of the current ruling party suggesting that most
members of Parliament should be appointed. But grow we all did. And this
will have an impact on the thinking on the link between forms of
governance and economic growth.
19. Long after the present financial crisis is over, I believe the US will
still be primus inter pares. But the current crisis may well accelerate, and
its aftermath will at least confirm, the fundamental changes in the
international order that rapid East Asian growth has already set in
motion. We may well be seeing the birth of a multi-polar world. Will the
developed West admit successful East Asian economies into its exclusive
club as equals? Or will it simply heighten discomfort which any change to
the status quo may bring?
20. Symptoms of disquiet are already evident: concern over sovereign
wealth funds; controversies over the proper interpretation and
implementation of human rights; debates over the reform of international
institutions like the United Nations, the World Bank and the IMF. The list
could easily be extended. The proximate causes may differ, but there is a
common source of discomfort: in East Asia, capitalism flourishes without
western style liberal democracy. This challenges the preferred historical
narrative of the West in a fundamental way. And it is worth noting that
unlike Meiji Japan whose ambition was to ‘leave Asia’ and ‘join the West’,
India and even more so, China, have no such ambition.
21. Any restructuring of international order is never easy. Historically, all
such changes have been traumatic, and are either the cause or the result
of conflict. To avoid repeating history, it is important that we do not
propagate simplistic ideas about the superiority of one system or
another. Instead, we should give strategic salience to the idea that no
single type of political system has a monopoly on success and that
sustained growth can occur under different types of political systems.
22. The networks of global interdependence that have emerged in the
21st century are too complex to be reduced to simple dichotomies between
‘Asian’ and ‘Western’ political systems. Nor is any political system in Asia
or the West static. All systems act and react with each other and with
domestic forces, and so evolve over time.
23. Whether different systems can eventually converge, I do not wish to
speculate. It is not my key point. The main lesson I take away from the
history of financial crises, in particular the 1997 Asian Financial Crisis and
the present crisis, is that ‘Asian triumphalism’ and western ‘liberal historical
determinism’ are both not borne out by the empirical evidence. History has
not ended. There is still a whole lot of history to be played out.
24. As for identifying the common characteristics of political systems
which facilitate high growth, it is best done by scholars. This will probably
require many years of painstaking research and it may be that the different
stages of growth require different characteristics. I take the pragmatic
approach of accepting that sustained growth is possible under different
kinds of political systems. But based on my experience in government, I
believe that all successful political systems share at least four broad
Attributes of successful political systems
25. First, there must be accountability and transparency. For long-term
political stability, governments must govern with the consent of the
governed, expressed through the ballot box or otherwise. While temporary
political stability can sometimes be achieved through repression, force
cannot sustain economic growth over long periods since growth requires
the liberation that comes with competition and the support of the people.
26. But I hesitate to equate ’democracy’ automatically with accountability
and transparency because ‘democracy’ is both a loaded and protean
term. It means different things to different people. There are few
governments in the world that do not claim to be democratic, even those
which are obviously not, like the Democratic People’s Republic of
Korea. Nor do, as some recent experiences in the Middle East and
elsewhere have shown, free and fair elections necessarily always result in
better accountability and transparency: think of Gaza! In any case, rather
than selecting a political label or focusing only on the form of procedures, it
is more important to put in place the right supervisory and regulatory
mechanisms to keep the other elements of the government and the
economy in check.
27. Second, governments must have the capacity for long-term planning
and execution. It is important that government policies can withstand
populist pressures. While politicians must be responsive to their peoples,
the first duty of all leaders is to lead. Far too many elected leaders
nowadays govern according to what the polls say. In other words,
government policies should not be crafted for immediate gains but should
instead be formulated for the long-term public good, even if such policies
are unpopular in the short-term. Indeed, long-term orientation has been a
defining feature of many of the high-growth East Asian economies.
28. Of course, no elected government can entirely ignore the election
cycle when formulating policy. But too many governments too often refrain
from pursuing worthwhile policies that would take longer than one election
cycle to show results. Politics sometimes makes it difficult for pluralist
governments to deal with the negative effects of growth such as global
warming and urban congestion. Some of the less positive aspects of multi-
party politics, such as corruption and vote-buying, may ultimately
destabilise and threaten the political survival of some governments. Thus,
for developing economies whose institutions are weak and whose markets
are not as functional, the brand of democracy that may have worked well in
advanced economies might not produce the same results and could even
lead to a backlash that would de-legitimise some governments.
29. A third attribute is social justice and harmony. By this, I refer to the
need for governments to provide every citizen with an equal opportunity to
compete and succeed. Equality of opportunity does not mean equality of
outcome, and it is inevitable that some would fare better than others in any
competitive system. But the political system should not be beholden to any
particular special interests. It should, instead, be motivated by the principle
of equality of opportunity. Everyone should have the same access to social
services and infrastructure like education, housing and basic health care. A
political system which provides for an inclusive society and is capable of
delivering social justice will enjoy wide support from the people.
30. It is easier to state the importance of social justice than to achieve it,
particularly for those nation states which are not homogenous. Too often,
winning elections means appealing to the majority group, thus further
fracturing the fault lines of race, language or religion. The minority groups
inevitably feel marginalised as a result. Such politics of division makes it
difficult to rally the whole nation, or give everyone a stake in its
success. To ensure high and sustained growth, leaders will have to rise
above such divisions to unite the people and forge an inclusive society
where no one is left behind and everyone shares in the rising economic
31. The fourth attribute is a culture of identifying and grooming talent for
public service, whether in the political arena, bureaucracy or private
sector. A meritocratic system of administration picks out the best through a
fair and just selection process and provides a competitive environment for
the brightest brains to join and work in the government. At the political
leadership level, a systematic renewal process which is planned and
continuous will also ensure continuity of government policies and lead to
stable power transitions. In a liberal democratic system, politics is
adversarial, governments come and go and politicians, and sometimes
public servants too, are subjected to constant and unwarranted public and
media harassment. Alas, of late, this syndrome seems to be infecting
some East Asian countries too. This does not augur well for the future of
these countries because many good people are discouraged from coming
forward to serve in political office.
32. The four attributes I have identified are broad categories. The devil,
as always, is in the details of implementation. Most people, whether in Asia,
Africa, the Americas, the Middle East or Europe, are not particularly
interested in political philosophies or the mechanics of governance. People
everywhere are, however, vitally interested in results. Political systems that
endure are those that consistently deliver jobs and a better quality of life in
a stable and secure environment.
33. My approach to governance is one of pragmatism. Every country
must find the political system that can deliver the goods, given its special
and specific circumstances. And what works in one historical period, may
not necessarily deliver in another historical period. But however societies
evolve politically, we must never lose sight of these basic attributes if they
are to continue to prosper.
34. Ladies and Gentlemen, thank you for listening to me. I realise that I
have probably raised more questions in your minds than I have provided
answers. If this is so, then I have succeeded because my essential point is
that political systems and practice must be contextualised according to
time, history, a people’s culture and make-up and the stage of a country’s
political, social and economic development. With that caveat, I will now be
happy to take your questions.