SPEECH BY SINGAPORE PRIME MINISTER GOH CHOK TONG AT THE 10TH SESSION OF THE UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT ON SATURDAY, 12 FEBRUARY 2000, BANGKOK, THAILAND
Constructing A New Global Order
The East Asian financial crisis has subsided. However, it will take many more years to rebuild the assets and wealth that were destroyed. And the political changes that the crisis catalysed are still reverberating in some countries. Still, the region as a whole is bouncing back. The World Bank has once again described East Asia as the fastest growing 'Emerging Market'.
The financial crisis exposed the structural flaws of many East Asian countries. But it also showed up their strengths and resilience. For example, despite the economic devastation, the region sustained a generally open orientation towards trade and investments.
Many people view the East Asian crisis as a crisis of globalisation. Because East and Southeast Asia were so successful for so long - indeed held up for emulation as a model of Third World development - the crisis had a wider political and intellectual impact. It raised disquiet over the consequences of globalisation. It sharpened and gave greater immediacy to debate about the future directions of developments in the world economy, in particular the financial sector. It also contributed to the lack of enthusiasm of emerging economies to support a new round of trade negotiations at Seattle.
I am convinced that the outcome in Seattle hurt everybody, particularly the developing countries, in the longer term. I believe that we must do whatever we can to ensure that Seattle is merely a pause and not a break in our effort to create global prosperity through freer trade. However, I believe that what is at issue is bigger than WTO and a new round of trade negotiations. It is nothing less than the international order of the 21st Century.
UNCTAD X is a significant occasion to take this debate a step further.
What happened in the region two years ago has underscored the difficulties of managing a domestic economy in an increasingly integrated global economy. Different countries responded differently to this challenge.
In Singapore, we have opted for even greater openness and liberalisation. We are embracing globalisation and the IT revolution, convinced that they present more opportunities than costs.
Whatever our stand on globalisation, whether we embrace or turn away from it, we cannot ignore the reality that globalisation is unstoppable. It is in our interest to maximise the opportunities and minimise the risks and costs of globalisation.
The rise of globalisation coincided with the end of the Cold War a decade ago. The political implications of this have not been adequately understood.
When the financial crisis first hit Thailand in July 1997, no one foresaw the chain of events that followed. It was initially considered only a local problem. It was only in September 1998, a painful and destructive 14 months later, that Federal Reserve Board Chairman, Alan Greenspan, disclosed that the US was prepared to cut interest rates to help calm the turmoil in global markets. This was a clear, if belated, admission that the crisis posed a global systemic risk after all.
Such a belated response would have been inconceivable in the Cold War years. For example, once it became evident in 1948 that the World War II alliance with the Soviet Union would not hold, the US moved swiftly and decisively to assume responsibility for underwriting the prosperity and security of the non-Communist world. It implemented the Marshall Plan and, more importantly, generously opened its markets to support an open international trading system.
But this is the post Cold War period. So, many political leaders succumbed to domestic protectionist pressures at Seattle. During the last two US presidential elections, there was much debate over the downside of the global market - loss of control, undue influence of foreigners over national policies, imported unemployment and macro-economic instabilities.
During the Cold War, the market was often subject to political and strategic imperatives. Even today, a nuclear-armed Russia is treated more gingerly than others. In the previous Cold War strategic environment, it would be difficult to imagine the US and other western countries folding their arms while the events that led to the rupture of the social and political fabric of Indonesia were unfolding. Indonesia would have strategic value as a bulwark against communism.
Today, capitalism is everywhere triumphant. And that may itself pose a challenge. For without alternatives, the market's negative consequences may be allowed free rein. The need to balance profits with other desirable non-market objectives risks being overshadowed. The social dislocations created by globalisation may be too lightly dismissed as the unavoidable consequences of change.
An uncritical market triumphalism carries within it seeds of its own destruction.
Over the last century, the West has gradually restrained unfettered capitalism in the public interest. Institutions were evolved to ensure that the state acts to safeguard the interests of the people against the abuses and failures of the market. Whether domestically or internationally, free markets and democratic institutions cannot in themselves guarantee solutions to all problems.
Free markets create unprecedented prosperity. But there is also a price. With rapid progress also comes disorientation, disruption of settled order and new insecurities. Yet, accepting the inevitability of an open global market economy does not mean unconditional surrender. What we urgently need is a new framework - a new global order - to sustain a global consensus on open markets and moderate its worst excesses.
A new global order will not evolve by itself. It must be constructed. Herein lies the central challenge of our age.
Without a new framework, the international consensus on the desirability of an open trading regime will gradually but inevitably be eroded by the pressures and dislocations of the relentless market. The world could evolve into a two-tier system. One tier will be the more developed economies linked by trade and technology. The other will be either those who voluntarily seek to shut themselves off or are marginalised. The gap between the two groups of countries will widen. The world could also fragment into different blocs of FTAs or Free Trade Areas. Such a fragmented world is not good for world peace. The tensions bred by marginalisation, inequality and the breakdown of free trade and competition between economic blocs will invariably have political and military consequences.
The construction of such a new global framework is a project that must appeal to the South in general and UNCTAD in particular. After all, the new international economic order was for many decades our project.
The pressures of a truly integrated world economy and the end of the Cold War present a grand opportunity for international cooperation to create this new global order.
While globalisation's effects are most evident in finance and economics, there are far-reaching implications across a range of issues. It affects the very notion of statehood and government as they have hitherto been understood. The essential function of any government is to govern, to provide public goods and services to its citizens within its borders. But in a globalised economy, financial geography and economic geography no longer coincide with political geography.
This means that governments no longer have total power within their own state boundaries. Globalisation does not challenge the de jure sovereignty of states, but it profoundly alters every government's de facto capacity to govern. Hence the feelings of helplessness and loss of control posed by globalisation. But this effect is systemic, not the result of national or international design. The challenge is not of one state conscribing the sovereignty of another; or of the powerful forcing their will on the weak. The real challenge is now within each state, no matter how powerful or weak.
Dealing with this phenomenon requires a reconceptualisation of the very idea of government and statehood. It requires a complete change of mindset by the powerful as well as the weak.
What we need is an unprecedented and qualitatively new kind of international cooperation. Not just cooperation based on the alignment of national interests as has occurred throughout history. It requires the redefinition of what constitutes both 'nation' and 'interests'. States can no longer just collide or cooperate at the boundaries of their sovereignties. It demands nothing less than shared responsibility for global governance.
For this new kind of international cooperation to be constructed and take root, it must be supported by practical experience that demonstrates that it is superior to any other political alternative. It is here that the intersection and interplay of globalisation and the post Cold War international order complicates matters.
The end of the Cold War at first seemed to promise a new dawn, opening up vast potentialities for international cooperation, unconstrained by ideological conflict. These hopes have long been dashed. In reality, the end of the Cold War may have made international cooperation less likely.
The Cold War was not just an ideological geopolitical struggle. The Cold War imposed identities that transcended individual states or regions. Even those that sought to escape the Cold War in fact defined themselves in relation to it. Irrespective of which side we stood for, the Cold War was the organising principle for international action and the concept by which we understood global events.
The lack of a clear new organising principle for international action in the post Cold War era has made cooperation problematic. With the end of ideological conflict and the increasing influence of market principles in all areas of life, economic efficiency is now an essential condition for evaluating political actions. But globalisation has also eroded the ability of states to muster the political consensus of their own citizens for such action. It is therefore not very surprising that the right kind of new response has not yet been forthcoming.
Of course, lip service is being paid to the need for new international institutions to deal with new transnational problems or to the reform of existing international institutions. But the more usual reaction to the mismatch between economic geography and political geography has been defensive or a sterile triumphalism; a new protectionism, xenophobic or nostalgic nationalisms or, where a country feels strong and confident enough, a new kind of extra-territoriality. Strong states try to project their national laws beyond their boundaries or insist on their standards as conditionalities for trade or other kinds of cooperative interactions.
This is disappointing, but not surprising. A shared responsibility basis to deal with global problems requires international consensus on what is legitimately in the general interest of sovereign states. No matter how compelling the issue or problem, this is not self-evident.
The definition of what is in the legitimate public interest within a specific state or nation is the product of a long historical process, cultural attributes and the level of economic development. It is the basic stuff of most domestic political contests in most states. Consensus is not easy to reach domestically. It will certainly be even more difficult in an international system that is concurrently united and divided by globalisation and the end of the Cold War. And the international problem is compounded because the expectation that the post Cold War international system would be multi-polar has proved premature. A multi-polar world is still more a matter of potential rather than a current reality.
I am aware that I have raised more questions than I have answers to. Constructing a new global order will be difficult. It will require all the ingenuity and political will at our command. And there is no guarantee that we will succeed. I only know that we must try.
I cannot offer pat solutions. There are none. But allow me to conclude with three suggestions that may provide a rough way forward.
First, take urgent remedial action to deal with global issues. We must start a new round of trade negotiations, if necessary through a building block approach. To stand still is to risk sliding back. We must pick ourselves up, shake off the dust of Seattle and move forward. Seattle demonstrated the dangers of trying to use the WTO as a platform to solve domestic political issues. The WTO should remain focussed on its basic agenda of global trade liberalisation. The developed countries must settle their own differences, find the political will to overcome narrow domestic interests and deal with the concerns of the developing countries in an equitable manner.
Here I suggest that a review of the GSP system be undertaken. GSP is now given on a unilateral basis. It should perhaps be institutionalised under the WTO. It is not just a matter of tariffs. The rules of origin of exports must also be looked into to facilitate developing countries' access to markets.
Equally pressing is the reform of the international financial system. The IMF's initial shortcomings in dealing with the Asian financial crisis seriously affected its credibility. We have not succeeded in fixing stabilizers to the flows of capital. The existing international financial architecture is inadequate to deal with huge and sudden flows. Important work has been done in the G22. The formation of the Financial Stability Forum last year was another important step forward. We now have the G20 that brings together the G7 and the large developing economies. We must maintain the momentum.
Second, there is need for a mindset shift by both the developing and developed countries. Developing countries must accept that globalisation is not a North-South problem. Categorising countries into "North" and "South" is not useful in finding solutions to global problems. "North" and "South" are today more descriptive than prescriptive terms. The developed economies too face serious problems that can be attributed to the pressures of globalisation, such as the marginalisation of a permanent underclass in their societies, persistently high levels of unemployment, questioning of social protections afforded by the welfare state and the preservation of cultural identity. Of course, the problems of the "South" are more urgent and compelling because of their relative poverty. But they are not necessarily qualitatively different. In Seattle, the main problems were in fact between and within the developed economies.
Globalisation is blurring the distinction between the "domestic" and the "international". Domestic policies cannot be entirely off limits to the international agenda. Developing countries need to develop the capabilities to deal with the pressures of globalisation and plug in. Difficult domestic structural changes will be necessary to ensure that their policies and institutions meet international standards. These standards are today largely western but can and ought to be negotiated. Developed countries themselves must accept the need to place some of their own domestic policies and policy making processes on the international agenda, for example, in agriculture. It will then be easier to get developing countries to submit themselves to the disciplines of international standards.
Finally, the developed countries must avoid a sterile triumphalism or a one medicine-cures-all prescription. Globalisation is undoubtedly led from the West and bears the strong imprint of American political and economic power. It is highly uneven in its consequences. But globalisation should not mean the dominance of the West over the rest. It affects the US as it does all other countries. Globalisation is restructuring the way in which we all live. Constructing a new global order for the 21st Century requires a modest recognition that no one has all the answers. Persuading those disoriented by globalisation and technological changes will require skilful diplomacy and the artful balance of competing interests. Smugness or pushing an ideological agenda is not the best way to reach consensus.
And it must be consensus. Unilateralism or hegemonic leadership will only provoke resistance, and not just from the developing countries. The crisis of globalisation is really a crisis of complexity, putting pressure on all kinds of human institutions at the national and international levels. It is not clear that rigidly hierarchical structures are the best for the new world that we have entered. As the global economy becomes more information and knowledge based, flatter, more agile and inclusive institutions may be necessary. In any case, it is clear that the existing international multilateral architecture should be updated. It was built in a different age and was designed to cope with different problems. To change existing power structures is never easy. But we must try and create a better new global order.
Thank you.