Inclusiveness the cure for what ails globalisation
Inclusive development policies designed for different groups in society will be the key to making globalisation work the way it was intended to, says a banking executive.
The rise of globalisation has led to a stark divide between the haves and havenots as policymakers have put greater emphasis on “efficiency-driven” development, while overlooking the importance of “inclusive growth”, said Jimmy Koh, head of research and investor relations at United Overseas Bank.
The resulting discontent has been tapped by politicians the world over, Donald Trump being the most noteworthy example, while advocates of the liberal world order are forced to concede that rising prosperity has not been shared equally.
“Now that [lack of ] inclusiveness is beginning to haunt every system,” Mr Koh said in an interview with Asia Focus. “If we do not get that inclusiveness right, globalisation cannot continue because groups who feel short-changed will come to disrupt the whole process every few years.”
The anti-globalisation movement has yet to gain much momentum in Asia, although the rise of Philippine President Rodrigo Duterte suggests a possible shift toward populist, right-wing outsiders who strike a chord with disenfranchised groups.
While there will always be a social pyramid, inequality can at least be narrowed by ensuring that those who have yet to experience the benefits of globalisation are “not too far off” from inclusive development, said Mr Koh.
“If you’re taking more from the top end [of the pyramid], you really have to bring it down to the bottom end,” he said. “The key is not to make it totally even, but to make it less uneven and help [lower-income people] find a role in the system.”
Mr Koh cited the “workfare” policy of the Singapore government as an approach that offers incentives for people to remain employed. For example, if a cleaner earns S$800 a month, the government will supplement his income by S$400. This is in stark contrast with welfare programmes in many countries where people receive money whether they work or not.
“As an individual, if you want to be entitled to this [payment], you must work. For employers, if you want to be entitled to it, you must hire. So you bring the supply and demand together by bridging that gap,” he said.
Mr Koh points to another example of constructive intervention by the Singapore government to counter the effects of the 2008 global financial crisis, when many otherwise sound companies were facing severe liquidity trouble.
“They came out with a package telling commercial banks to lend money to customers and the government would take 80% of the credit risk,” he said.
“[The government] wanted to address the liquidity [problem], but not insolvency, because they knew good companies could not get credit, so they asked the banks to [provide] lending as long as they are good companies.”
Despite the unpredictability and volatility in the global economy, Asian countries are well positioned to weather any storms as the structural problems similar to the ones that triggered the 1997 financial crisis have been addressed.
For example, banks no longer lend dollars to companies that do not generate revenue in dollars. This also helps guard against structural problems and capital outflows, said Mr Koh. “We have more of a cyclical issue rather than a structural issue like the West.”
Intraregional activity, such as trade between Mekong sub-region countries, and a growing middle class should help propel Asian economic growth, he said, adding that most Asian countries had more room to manoeuvre fiscally than their Western counterparts.
“We are seeing a lot more infrastructure-related projects being pumped out to hedge the downside effect [on economic growth],” he said. “We can’t overcome the downside effect, we can only help to compensate for the downside effect.”
And despite concerns about the slower pace of economic growth in China, policymakers are paving the way for dynamic changes in the services economy where technological and consumer industries will drive future growth prospects.
“The last 30 years were the rise of China, the next 30 years will be the transformation of China. We will have to see how it evolves,” he said.
Still, Asian countries will also have to find alternative growth engines to compensate for the possibility of reduced demand from China, said Mr Koh.
He subscribes to the “Goldilocks” view of Asia as showing steady GDP growth, low inflation, low unemployment and increasing asset prices. “I think we have to live with slower, moderate growth, [be] aware of the risks, and understand issues [happening] in China,” he said.
Lowering interest rates, however, will not spur economic growth momentum as current rates are already low and there is a limit on how much monetary policy can do. Keeping rates too low for too long, he said, can be “frightening” as it induces risk-taking behaviour.
“Interest rates are actually the cost of undertaking risks. When the rates are too low, the cost of undertaking risk becomes too low, which is not healthy for the system and there will be social implications along the way,” he said.
“Globally, I think central banks want to bring [interest] rates higher, but they just need time; otherwise you would end up with [economic] bubble.”
Fiscal spending is better as it directly injects capital into the financial system, he added.
Although household debt remains a concern, governments have measures to curtail household leverage and thus it does not pose as a significant risk, in his view.
Regional central banks have also ensured that commercial banks build up high capital buffers and loan-loss provisions in order to mitigate rising loan risk if the economy turns sour.
Unlike in 1997 and other crises where governments responded only after damage had occurred, today’s governments are “snipping it off at the bud”, said Mr Koh.
“You must have a significant [economic] slowdown, a significant rise in the unemployment rate, or a significant rise in borrowing costs, then we could see material issues. And based on what we have spoken about just now, it does not look like any of these will happen anytime soon.”
“If you’re taking more from the top end, you really have to bring it down to the bottom end. The key is not to make it totally even, but to make it less uneven and help [lower-income people] find a role in the system” JIMMY KOH Head of research and investor relations, United Overseas Bank