By 2050, the world’s “economic centre of gravity” will be located somewhere between India and China, predicts Danny Quah, the Dean of Singapore’s Lee Kuan Yew School of Public Policy.
The economic centre is currently in Europe. As it moves east, so will the source of global and political influence over the next 50 to 100 years. This “revealed where global problems needed to be addressed” in the future, Quah says. Governance will “require more inclusive engagement of the east”.
In an exclusive interview with GovInsider, Quah discusses the future of ASEAN’s developing nations; why he is optimistic about Malaysia; and what the US-China trade wars mean for Southeast Asia.
In ASEAN, Cambodia, Laos, Myanmar and Vietnam (CLMV) are the next frontier, with their economies growing rapidly at rates between 6% and 7%. But “one big challenge” for these countries will be to make the jump from low income nations to more advanced economies, Quah believes.
Developing countries can no longer rely on “the twin engines” – globalisation and industrialisation – that helped countries like Singapore, Hong Kong, Japan and Taiwan get rich, he says. They “all went through this process of industrialisation, through manufacturing, selling to the rest of the world”. But “manufacturing has for decades been falling as a share of national output,” he adds. As much of manufacturing is automated, it no longer provides the income it once did to people.
Instead, these countries will need to develop more “information-driven products”, he believes. “We need to be clear about what narrative these countries can develop for themselves”, he says.
Alongside strong economies, they will need to develop good governance practices, particularly in urban areas which are rapidly changing. Quah’s advice is to “be clear about what your people want”. City governments must be able to anticipate and adapt to the needs of residents to keep up with the growth. They should focus on understanding its people; “don’t focus on technology”, he says.
Even when governments implement projects that are good for overall economic growth, they need to convince citizens to agree with them. “If you can’t convince your people, what do you do in that situation? So governance principles kick in,” Quah says.
For instance, in June, the Vietnamese Government was confronted with public anger against plans for special economic zones (SEZs). While the government’s intention was that the SEZs would spur economic growth in new industries, people widely feared that China would be allowed to dominate the investments. “The discussion in Vietnam on creating special economic zones where Chinese investment would be predominant was not something that was uniformly popular or accepted by their population,” Quah says.
Elsewhere in ASEAN, Quah is “very optimistic” about the future of Malaysia. In May, it held unprecedented elections with the opposition coming to power for the first time. The country is now led by 93-year-old Prime Minister Mahathir Bin Mohamad, who jumped ship months before the election from the incumbent party (UMNO) to the opposition.
The shock elections have given fresh drive to Malaysia’s civil servants, Quah believes. “The people in government as a whole are really moved and energised to make things, to transform Malaysia for the better.”
”The people in the Malaysian government as a whole are really moved and energised.”
Another reason for optimism in Malaysia is the level of people’s participation in the elections, he says. Despite 60 years of voting with the same party in power, Malaysians “consistently went back to the polls”. Voter turnout for the last two elections have been at 82%. “Malaysians from all over the world piled in to help each other make their vote count.”
Something Quah is worried about is the impact on ASEAN of the ongoing China-US trade war. “The implications can be quite profound,” he says. “My own view is that the trouble is just possibly the beginning of a much bigger conflict.” Industries in ASEAN are closely linked to markets in the US and China due to increasingly global supply chains. ASEAN’s trade with the US stood at US$230 billion in 2016, while its trade with China was valued at US$514.8 billion in 2017.
One of the causes of the trade war, Quah believes, is “an inability to communicate and negotiate”. US President Trump vowed to cancel trade deals with China during his election campaign, and has blamed its “unfair practices” on trade and intellectual property rights. In June, he announced tariffs on US$50 billion of Chinese exports, which would increase costs for businesses and people buying made-in-China products. Soon after, China responded that the US had “launched a trade war” and announced tariffs on US exports.
It has since escalated to tariffs on trade worth US$200 billion, and could be headed towards US$500 billion, Quah says. If this continues to get worse “then we will end up in an extreme, where we’re looking at the possibility of international conflict between the two worlds – two greatest military powers”, Quah adds.
“We’re looking at the possibility of international conflict between the two greatest military powers.”
Another potential reason for the trade war is that “America is nervous about its place in the world”, he adds. “Trump is sort of the poster child of that American nervousness”, Quah says. “America has for decades felt it was the exceptional nation – the special nation; it was blessed with this land, richness of the oceans, friendly neighbors,” he says. Its position as a global superpower is now threatened by the rise of China.
The fate of Asia’s next frontier of countries is tied in a complex web of uncertainty around the future of industries, politics and trade. But there’s no doubt that the spotlight is steadily closing in on them and a global audience awaits.