The age of disruption

Vivian Balakrishnan

Nov 30, 2016


In a keynote address at The Straits Times Global Outlook Forum yesterday, Foreign Minister Vivian Balakrishnan described 2016 as a year of the unexpected, highlighting events such as Brexit and the election of Donald Trump as the United States president. Other themes dominated in the year, such as a rising China and the expansion of activities by the Islamic State in Iraq and Syria that appear to target the South-east Asian region. He painted a picture of the world at the beginning of a new age of revolution, where technology - not trade - is the great disrupter; where anxieties over jobs and ways of life are rising at a time when the world is becoming more interconnected. Below is an edited excerpt.


The first common theme (underlying events of 2016) is that the global consensus on the benefits of free trade and economic integration has been ruptured.

If you stop to think about it, free trade and global integration have been continuing since the end of the Second World War and you could say its zenith was probably the fall of the Berlin Wall so much so that Francis Fukuyama mistakenly called it the end of history.

The global consensus which assumed the benefits of free trade and economic integration has been ruptured. Commentators have written about the deep unhappiness in sections of the UK and the US population with trade globalisation and economic integrations. The symptoms were evident in the Brexit campaign, in the US presidential campaign. Frustration with the unequal distribution of the proceeds of growth was the defining voice of both these events. It fuelled and reflected disillusionment and resentment against existing political and institutional structures and we should therefore not be surprised that incumbents are severely disadvantaged in such a move.

Harvard economist Dani Rodrik has written about this. He calls it the inescapable political trilemma of the global economy, namely you imagine a triangle with three indices.

One apex is deep economic integration, another apex is national autonomy, the third apex is democratic politics, and his theory, and I agree with it, is that it is impossible to achieve all three aims simultaneously. You can only get two out of three, one has to give. And Rodrik has chided his fellow economists for excessively siding with globalisation's cheerleaders without presenting a more balanced picture on the immediate issues of free trade.

So, for instance, trade's potential for causing disruption and its distributional challenges which are experienced first-hand by certain groups of citizens and workers through job losses and wage stagnation. Even though on an aggregate level, on a macro level there has been growth and there's no question that the world economy, the regional economies have been better off as a result of free trade and globalisation - but because people were not presented with the full picture and because not enough attention was paid to the people, to the groups who were being disrupted and were disadvantaged because of the distribution or maldistribution of the benefits of free trade, economists and political leaders lost credibility.

And, unfortunately, when people are disrupted and frightened and established political structures and institutions are discredited, it is very easy for people to put the blame on free trade. That fits a 140-character tweet but to explain the political trilemma is much more difficult and you can't do that in an election race.

So it is very clear that the events of this year reflect and will change the way trade and economic integration are spoken about. As we pursue deeper issues, individual governments will need to be more sensitive to the needs and to the livelihood of all the groups within society.

The responsibility for looking after the different disparate groups in each society has to be the responsibility of the national government and especially when people embark on trade negotiations on a regional basis, it's very important to bear in mind in seeking aggregate growth that you, the national negotiator, the national government has a responsibility to understand the implications of this on the different groups in the society and to have in place the adequate compensatory safeguards to look after individual different groups.

So I agree with Rodrik's astute observation that it is crucial to have a balanced, sensible and credible discourse.

TECH, NOT TRADE, IS THE REAL DISRUPTER

His point goes beyond that. His point is that trade has been unfairly blamed because the real revolution is not a political revolution, the real revolution is a technological revolution. And if you use history as a guide, think about the Industrial Revolution, think about the names like Carnegie, Mellon, Rockefeller, these were families that were the first to adopt the technologies of the day. Carnegie made his fortune in steel, Mellon made his fortune from banking, Rockefeller made his fortune from oil. Each of them represented the early adopters of new technologies that broke out in their time. They became robber barons.

And if you look at these successive waves of technological development in the Industrial Revolution, it always starts with the gilded edge, people who get in first make enormous outsized fortunes, it takes time for these same technologies to be democratised, for everyone to acquire the skills and ability to master and use these new technologies, and when that happens, the middle class rises and inequality falls.

I'm putting forward this hypothesis so that hopefully people won't blame the wrong stakeholder but understand that today we're living through another new revolution - and at the start of a new revolution, we should not be surprised if the names you hear are Bill Gates, (Mark) Zuckerberg, because they are the robber barons of the digital age and the real challenge for us is to democratise the new technologies, to commoditise the tools, the skills in education so that a new middle class will rise using these new technologies.

And there is one key difference between today and the time of Carnegie, Mellon and Rockefeller.

What is the key difference? In the old days, if you mastered a technology, let's say you mastered the railroads in America, you'll make an enormous fortune from America. Today, if you are the master of the digital universe, the base of your pyramid is not one country or one party. It's the entire world. In such a system, if you're at the top of the global pyramid today and the base of that pyramid is seven billion people, we should not be surprised about the great asymmetry of benefits that accrue from this new globalised digital technological revolution.

So the point I want to make is that it is not trade, it is not a right-wing conspiracy. It is the fact that we are at the early phase of a new technological revolution. And that explains much of what is happening today.

ANXIETY OVER JOBS

The second theme I want to discuss is that all our economies are undergoing fundamental changes. Advances in automation, cyber-physical systems brought about what many people call industry 4.0. Essentially smart factory. But the trouble with the smart factory is that there are no lights on - because there are no people inside.

In fact, you can get enormous growth, increases in productivity per factory but not enough jobs being created. And certainly a mismatch between the skills needed and the labour supply.

Take digital 3D printing. Nowadays it's not just 3D printing plastic stuff. We're even 3D printing biologically - implants - which we can use internally.

There is a whole new frontier out there - big data, visualisation and software. All this can improve our quality of life. But it also comes with increasing demands and expectations of its citizens. Even apps that use augmented reality, nowadays many people are walking around playing Pokemon Go. These games are changing the way we perceive and interact with the real world. And even more fundamentally, they are changing the way we interact with each other. The way we communicate, interact, entertain, inform, engage and mobilise has been completely disrupted.

Some of us will find this empowering and liberating. We can do anything we want at our fingertips, whether it's open a bank account, transfer money to each other, purchase services and goods, offer our services, freelance services remotely. But such massive changes inevitably impact the labour market.

Many people, maybe even the majority of people, feel anxiety about this impending disruption. Many people fear that their skills will be obsolete. Governments all over the world face the challenge of creating meaningful and gainful employment for workers whose skills have been made less relevant because of the new economy and new technologies.

And the paradigm on education, the old thought that education is something you do before you work - in this new world, education is going to have to be an ongoing effort and that's why in Singapore, we have SkillsFuture, adult education. Peparing for your next job is going to have to become a defining characteristic of our education and training scheme.

INTERCONNECTED WORLD

Despite the xenophobic, isolationist talk you may hear from time to time, the truth is we live in one interconnected world, more so than ever before.

As technological advancements have virtually replaced distances, increased accessibility, made movement of people, goods, services and ideas across frontiers and oceans a trivial breeze, values and ideas that originate from one place will generate a growing ripple and sometimes a tsunami in other places.

Take terrorism. ISIS (Islamic State in Iraq and Syria) has been able to attract fighters from all over the world, including our region. The attacks that took place in Jakarta this year were ordered by militants in Syria. Radical groups also leverage the same technology, producing videos and producing messages that convince people and mobilising people to take action. These same technologies, radical groups have mastered.

In the same way, new epidemics are being transmitted across borders. Zika, for example. Another example: a transboundary problem which no one can say I can solve on my own.

The fundamental challenges of the next decade or two by definition would be transboundary. We have to find new ways of engaging and mobilising and forming effective stakeholder groups across countries in order to deal with these challenges.

The question for the future becomes: What is Singapore, a tiny, low-lying island city state, going to do to survive and thrive in a world like this?

First, I believe we need to embrace our interdependence, with the global system and to continue to believe in and to foster economic cooperation and deliberation. Our Prime Minister recently articulated this during an official visit to the US. The press asked him: "Mr Prime Minister, what do you think the world would look like in 50 years from now?"

To paraphrase him, he said, well, it's not possible to predict what the world would be like 50 years from now. But the world is facing a strategic choice. We can believe in interdependence - in which case we will believe in remaining open, stable, successful, win-win collaboration, working together.

Or the other model is to believe in independence, self-sufficiency, rivalry, zero-sum games and carving out the world into different blocs. Depending on which vision prevails, and which strategic choice is made, the world will unfold accordingly.

[Brexit and Trump would suggest that our baser instincts - fear leads to anger, anger leads to hate, hate leads to suffering - will more easily prevail. The Dark Side is seductive.]

In the case of Singapore, we exist and have succeeded because of the concept of interdependence, openness, integration and connecting as many people, ideas as possible, aiming for always maximising cooperation, collaboration.

We know that we could never be self-sufficient - we can't be even on the fundamentals like food, water, energy - and we eschew the conflicts and the mentality of zero-sum games. So this is a choice which we have made. Perhaps we've made it because we have no other choice. But it is a choice that we hope the big players who have the luxury of choice will make.

We will not determine the global agenda. We will have to watch and wait and see and do our bit whatever we can to promote more interdependence.

Over the years progress has been made to reap the benefits of free trade as countries work together bilaterally and multilaterally. This hard-earned ecosystem of trade has over the years reduced tariffs, increasingly set common standards and harmonised regulatory frameworks.

Much talk and lamentation has gone on about the TPP (Trans- Pacific Partnership agreement) in recent months. In Singapore we will proceed to make necessary domestic legislative adjustments to support the TPP but we really don't know how this will unfold.

President-elect Trump has announced that from day one, he will withdraw from the TPP. And the US is such an important part of the TPP. Its future really depends on decisions made not in Singapore but decisions made in Washington.

But actually the story doesn't end here. Apart from the TPP, Spore is a key active participant and supporter of the Regional Comprehensive Economic Partnership (RCEP). Our ultimate objective is not TPP versus RCEP. Our ultimate objective is to work with free trade area obligations that will promote trade liberalisation, sustain growth through interdependence and win-win outcomes.

And that brings me to the next sub-point on trade, which is that I believe this is a global phenomenon. I believe it represents an interdependent world. I believe it represents our best choice or best option to maximise the fruits of this new revolution. So don't get too distracted or too anxious - you'll get ups and downs in the negotiations and the way these things unfold.

The correct response then is to prepare your population, equip your population with both education and skills and the safety nets so that they can continue to pursue this path which I still believe in the long run will definitely bring benefits for our countries.

So this brings me to my next point, that we need to be cognisant of the interests and the perspectives of all the disparate groups within our society and we need to be inclusive going forward by ensuring no one is left behind.

The necessary domestic mechanisms must be put in place to ensure that the benefits of globalisation and technological change are reaped inclusively. This goes hand in hand. Without this effort, without the safety nets, without the attention to different groups, you can't pursue free trade and global economic integration.

So in Singapore we recognise that this is a disruption. We recognise that it is a feature, a defining feature of the new economy. It means constant change. It means constantly paying attention to people, constantly preparing our people.

And that's why at the macro level we got the Committee on the Future Economy chaired by Mr Heng Swee Keat and it's looking at these changes and pre-positioning Singapore to take advantage of the opportunities that will come our way.

At the micro level it is likely that many jobs will (change), requiring new skills and capabilities to make the most of new technologies. Training, lifelong learning, constantly updating ourselves will become essential too for every single job.

A version of this article appeared in the print edition of The Straits Times on November 30, 2016, with the headline 'The age of disruption'.