Managing for Global Competitiveness: Asian Perspectives
President Arroyo
Distinguished guests
Ladies and gentlemen
Effects of globalisation
1. It is my pleasure to address this forum. Whether we are here as businessmen or policy-makers, we share one thing in common - all of us feel the effects of globalisation keenly.
2. The distance between nations has shrunk, and our separation blurred. Goods and services, people and money, ideas and influences, now move back and forth across the globe effortlessly, thanks to broadband Internet, mobile phones, cable and satellite television, and the jet plane.
3. These developments are creating profound economic consequences. For the man in the street, he has a world of choice open to him. He can buy a shirt from his neighbourhood store, or an Internet mall whose operator is several time zones away. But at the same time he feels a sense of loss when he sees his local stores giving way to mega malls, finds childhood comfort food giving away to global branded tidbits and soft drinks, or hears pop songs on his radio instead of traditional music from home.
4. Producers face the same trade-offs. He has the whole world to sell to, but also the whole world to compete against. Some survive and do well. Others do not.
Long-term benefits key in embracing globalisation
5. Because there is a downside to globalisation, it is therefore not surprising that many governments face strong pressure to insulate its people from globalisation - to protect domestic industries from external competition, and to preserve their own cultural identity. And indeed, many governments intervene in all sorts of ways to help their societies and economies adjust to new market realities more gradually.
6. But if we choose to insulate ourselves from globalisation, we also give up the choice, the export markets and the opportunities that come with globalisation. For a small country like Singapore, the benefits of globalisation far outweigh the disadvantages. By ourselves we cannot earn a living and survive. For Singapore, embracing globalisation and dealing with its consequences is a matter of survival.
7. Today, let me share with you how a small city state responds to the challenges of globalisation.
Restructuring Our Economy
8. Because globalisation is a given for Singapore, we have to strengthen our domestic competitiveness to withstand the pressure from highly efficient producers in the region. In particular, China and India are formidable competitors in manufacturing and services activities.
9. But China and India cannot be self sufficient. The faster they grow, the more they need raw materials, components and commercial services to support their own businesses. Their people want to travel and see the world, and need all kinds of services like banking, healthcare and education. We can earn a good living by exporting to them, and servicing their needs. But this will also mean that we have to get out of existing activities which we are no longer competitive in, and attract new activities where we enjoy advantages. A new global division of labour is emerging, and we have to make sure we are there to seize the new and exciting opportunities.
10. To adjust to this new reality, we will have to actively restructure our economy, face the competition squarely and do what we can to ameliorate the transitional pains. We therefore gritted our teeth and lowered income taxes, raised Goods and Services Taxes to make up for lost income tax revenues, and reduced business costs by cutting our old age pension contribution. The electricity market was liberalized to introduce competition to keep energy prices competitive.
11. We needed a more flexible labour market that is more responsive to changes. So we invested in the training of workers, to upgrade their skills, and to reskill older ones. We pushed for wage restructuring to link wages to profits and productivity, so that companies can better withstand volatility in their businesses. We allowed companies greater flexibility to hire foreign workers to meet temporary spikes in demand for manpower.
12. At the same time, we stepped up efforts to promote new areas of growth. In manufacturing, we are focussing on the production of high-end components and machineries, fine chemicals and biomedical equipment and products. In services, we are growing the tourism, financial, education, healthcare, and creative sectors.
13. All these measures enhance to our competitiveness and economic health. Because of them, we continue to have a strong investment pipeline, and continue to create jobs for our people.
Strengthening External Linkages
14. The second response to globalisation is to build and develop our external linkages.
15. Challenges and opportunities are two sides of the same coin. The reward for taking on the challenges of globalisation is to gaining access to external markets. In the case of Singapore, we have a huge hinterland in Asia. Within a seven hour flight radius are the markets of Southeast Asia, China, India and Australia, making up half of the world's population.
16. To develop external linkages, we believe in advancing free trade on three fronts - multilaterally at the WTO, regionally through institutions such as ASEAN and APEC, as well as bilaterally through Free Trade Agreements (FTAs).
17. Making progress at the WTO is the most critical. It is like casting a huge net and hauling in a large catch of fish, because at the WTO, every economy makes a commitment to open up. For a small country with limited bargaining power, these are concessions we cannot possibly extract through our lone efforts.
18. But we do not rely just on the WTO. Regional initiatives such as the ASEAN Economic Community, and the Bogor Goals of APEC, are smaller but also significant nets, which serve as good fallbacks should the big net fail. The unsuccessful WTO Ministerial meetings at Seattle and Cancun are constant reminders not to take the multilateral trading system for granted.
19. We also rely on bilateral FTAs. They are like fishing rods which catch one fish at a time, but nevertheless helps us earn a living and feed ourselves. We have forged FTAs with partners near and far, around Asia, in the Western Hemisphere, and in Europe. Recently, we concluded an FTA with Panama, our first with a Central American country. We have not had an FTA with any African nation. Perhaps with the revival of the Bandung Spirit and the strengthening of ties between Asia and Africa, that will change in the not too distant future.
20. Singapore is therefore not dogmatic about focussing only on the multilateral trading system and eschewing bilateral trade deals. We have decided to embrace globalisation, and that means advancing free trade through all avenues. What is critical is to pursue regional and bilateral co-operation within an open architecture that strengthens the links across different regions of the world. The more linkages we weave between regions, the less likely the world will break up into inward looking trading blocs, which will hamper free trade, destroy opportunities, and ultimately undermine the peace and stability of the environment we live in.
Competition and Competitiveness
21. The third response is to have faith in our own people, invest in their abilities, and motivate them to rise to challenges. External competition and domestic competitiveness are not mutually exclusive. Just because local companies are shielded from foreign competition does not mean they will do well. On the contrary, it is often competition that pushes companies to be more productive, more efficient and innovative.
22. Singapore's experience with the aviation industry is one such example. Our national carrier, Singapore Airlines (SIA), has been a good and profitable airline with a strong reputation. But it did not succeed by having the Government protect it from competition, or subsidise it in various ways. We have always adopted an open skies policy, allowing airlines from all over the world to fly to Singapore. Because the foreign airlines compete for SIA's business, they have done SIA a whole lot of good.
23. SIA has to try all means to differentiate themselves from their competitors, offer services and amenities unmatched by others, and stay ahead of the market. Further, as Changi Airport hosts more airlines and connects to more cities of the world, it has grown into an air hub. This draws more passengers and traffic to Singapore, and enlarges the pie for all airlines, including SIA.
24. Now, low-cost carriers, or LCCs, have come to Southeast Asia. They will undercut fares for established airlines and affect their business during a difficult period for the aviation industry. But Singapore has decided to welcome the LCCs. This is because LCCs have the potential to bring new traffic to our airport and attract new tourists to Singapore. They also offer Singaporeans cheaper fares to travel in the region. Overall, our economy will benefit from LCCs, even though in the short term, SIA will have to compete harder. As the Government, we have to put national interest above the interest of SIA and its shareholders.
25. As it turned out, Singapore Airlines came up with new strategies, including starting their own LCC, to meet the new competition.
26. Singapore is not alone in making this decision. Countries across the Asia-Pacific are increasingly opening up to LCCs. Recently, the Philippines allowed LCCs to fly to Clark Airport, now known as Diosdado Macapagal International Airport (named after President Arroyo's father). We welcome that and hope it is the start of stronger and broader linkages between our two countries.
Conclusion
27. I have shared the experiences of Singapore in responding to the challenges of globalisation. The views expressed are from the perspective of a small city state.
28. Are they applicable to other countries? That will be for each country to decide. Every country faces a different set of circumstances and challenges, and will have to make its own assessment and decisions. Our advantage as a small city state is that wherever you live in Singapore, you can see how the world is changing, and why we need to be constantly on the move. This helps us to build consensus and common understanding amongst our people on the direction we must take. So although we are not a huge economy, we are agile and can move fast.
29. But big countries too are moving fast. China and India, two of the most populous countries in the world, are opening up their markets, reforming their economies, and have become two of the fastest growing economies of the world. They will continue to grow and modernise for the next decades, transforming Asia and the world, and as Prime Minister Manmohan Singh of India said, will 'reshape the World Order'. China and India show how countries can reform themselves, and through their own efforts, improve the lives of their people. Their achievements give hope and inspiration to others.
30. Ultimately, whether a country is big or small, it needs to plug into the global economy, seize the upside and deal with the downside of globalisaton. This is our best chance of bringing prosperity and a better life to our peoples. At the same time, regardless of the differences in our history, culture and background, the countries of the world will have to come together, learn from each other, set aside differences, and tackle our common problems and challenges together. That is what we hope to do at this Asia-Africa Summit meeting.