A world without 'white knights'

Globalisation could fail despite best efforts of governments: PM Lee

By Janice Heng, The Straits Times, 5 Nov 2011

GLOBALISATION could unravel despite the best efforts of governments, Prime Minister Lee Hsien Loong warned in an interview on Thursday.

Speaking to BBC television while in France for the Group of 20 (G-20) summit, he pointed to the possibility of a 'disorderly mishap' arising from the Greek debt crisis, even as European countries try 'very hard to make sure that matters are handled in a controlled and managed manner'.

'I think in this world environment, governments know they cannot disconnect themselves without a very high price,' he said.

'You do not want to wake up the next morning and find yourself in a totally new situation, and have no Plan B.'

The possibility that Greece may leave the euro zone has raised questions over the future of a unified Europe. If convergence in Europe fails, Mr Lee said, the world will face a difficult situation. That includes Singapore, which depends on a global economy characterised by predictability and international rules.

Asked what Singapore could do to help as a small country, he said Singapore would do its part in the international effort to solve the crisis: 'We join the fire brigade, we each do our part, and together with the homeowner, we try to diminish the problem.'

But no country will sacrifice itself 'to put out somebody else's fire', he noted. The world is no longer in an age of such 'white knights' riding to the rescue of countries in distress, he added.

The United States is now a 'much less dominant participant in the world economy', and the rising powers of China and India are still not 'anywhere near being a dominant participant' - nor, he added, do they wish to be seen as such.

This lack of a dominant power may not necessarily be a problem, as 'a lot of people will say a multi-polar, global system is more comfortable for the smaller powers'.

But he noted that such a world makes it more difficult for countries to coordinate, for leadership to be taken, and for decisive action to be agreed upon.

That, said PM Lee, is the strategic problem facing the G-20: the lack of global government.

The G-20 comprises 19 countries and the European Union. In the absence of the 'threat of imminent disaster to concentrate minds', these countries each have their own perspectives, said Mr Lee.

On a more positive note, he pointed to what he called 'moral persuasion' and 'mutual encouragement' going on among G-20 countries to avoid 'drastic' actions like protectionist measures.

'There is a certain obligation not to do foolish things, even when holding the line is politically difficult at home,' he observed.

Cohesion was a theme of the interview: not just at the international level, but also within individual countries.

Noting that Singapore's social cohesion is admired, the BBC interviewer Paul Mason asked how countries could deal with domestic unhappiness and division.

He also noted that 'in the West, and above all in the UK (United Kingdom), there is a fascination with the Singapore story because it is a success after all the challenges you faced along the way'.

Replying, Mr Lee said Singapore has tried to persuade its people to share a common long-term goal, which is maintained over more than one election term.

But, he stressed twice, 'I am not holding us out as what other countries should do.'

He noted that there are 'deep forces' at work beyond the control of governments, such as globalisation which is putting downward pressure on wages of the less able, and technology which is displacing even skilled workers.

Singapore's strategy has thus far worked to raise its own standard of living, he noted. 'But how we continue to make that progress forward from this level is something we are continuing to work at,' he said. 'So I would hesitate to say that Singapore has a solution for the rest of the world.'

SINGAPORE STORY NOT ONE-SIZE-FITS-ALL
'We do not hold ourselves up as a solution for the world. We have a strategy for ourselves, it has worked so far, it has helped to raise our standard of living, it has helped to bring ourselves up from very basic levels of skills, of expertise, of education, to what are almost First World standards.

'But how we continue to make progress from this level is something we are continuing to work at, so I would hesitate to say that Singapore has a solution for the rest of the world.'

PM Lee, in response to an observation that Singapore's success story fascinates the West, and what Britain could do to rebalance its economy

CONSISTENCY MATTERS FOR THE LONG HAUL
'One of the things which we have tried to do... is where we decide where we want to go over the longer term, what makes sense for us collectively, and then persuade our people that this is what we need to do, and try and hold that line consistently over long periods, meaning longer than one election term.

'If we can do that, we can maintain a business environment where people have confidence, where they would invest, and where you have a premium over others.

'I am not saying it is easy to do even for ourselves, but I think it is something we should all aspire to.'
- PM Lee, on the Singapore Government's approach to social cohesion

PM Lee: This is worse than 2008 meltdown

By Rachel Chang, The Straits Times, 4 Nov 2011

CANNES: As an escalating debt crisis in Greece hung over the first day of the Group of 20 (G-20) nations summit in France, Prime Minister Lee Hsien Loong told G-20 leaders yesterday that the European situation is a 'serious and volatile' one and on a bigger scale than the 2008 financial meltdown in the United States.

Speaking at the first working session of the Cannes summit over lunch, Mr Lee said that the risk of 'sudden and unpredictable' global contagion from the troubles in Europe is also higher.

Despite robust fundamentals and continued growth, Asian economies are already seeing the pullback of capital and the slowing of their exports to the West, he said.

He noted that political decision-making in the European Union - made up of 27 countries, of which 17 share a common currency - is more complex, and issued a call to the G-20 to show 'political leadership which is critical to solving economic problems'.

'Help people understand that we are in for a difficult period... and build political support for measures that involve some sacrifice today, but which will make things better eventually,' he urged.

Singapore is at the meeting of the world's leading economies for the second time as one of five invited guest countries, and Mr Lee said that he was sharing the thoughts of a 'small nation closely tied to both the advanced and developing world'.

The G-20, made up of 19 countries and the European Union, represents 85 per cent of global gross domestic product.

As world leaders descended on the French Riviera yesterday, political brinkmanship over the debt crisis in Greece threatened to hijack the proceedings.

Greece is not a member of the G-20. But Prime Minister George Papandreou's intention to put a €130 billion (S$227 billion) bailout plan to a national referendum kick-started a chain of events that led to European leaders making it clear that they saw the euro as more important than Greece's continued membership of the currency union.

'The medicine must not kill the patient'

The impasse dominated conversation among the G-20 throughout the day, and is likely to put progress on its original agenda - like the reform of the international monetary system - on the back burner.

PM Lee added his voice to those of other G-20 leaders in calling for an 'early and decisive solution - or else festering issues will affect the global economy'.

He said that there was a risk of prolonged stagnation and high long-term unemployment, and asked G-20 nations to consider additional measures to stave off such a scenario.

'Within the EU, Europeans must decide what to do. Globally, the International Monetary Fund should be strengthened to backstop the global system,' he said.

While measures to tackle banking and debt problems are inevitably contractionary, he said that a clear plan for growth is a fundamental part of the cure and the only sustainable way to reduce unemployment:

'Short-term pain is unavoidable, but the medicine must not kill the patient.'

Besides financial fixes to the immediate crisis, the world also needs structural reforms to raise long-term growth potential and create confidence.

Outlining how both advanced and developing economies can work together to create global growth, he said that 'tough choices are unavoidable'.

On the part of developed economies facing fiscal deficits, reform of social security systems and labour markets are needed, as well as investment in training and education to boost productivity.

For emerging market economies like those in Asia that can contribute to global demand, he suggested three measures: investment in infrastructure; increasing foreign direct investment and removing barriers to competition; and increasing exchange rate flexibility to 'help restructure and upgrade economies'.

Mr Lee sketched out a best-case scenario for the world economy, one where political leaders generate confidence that 'things are moving in the right direction':

'People believing that governments will do what is right for the long term. Businesses optimistic about future demand to spur private investments. Countries having faith that others will do their part and stay the course. Everyone confident that tomorrow will be better than today.'

He said that one thing all the countries around the table in Cannes have in common is that 'none can escape the problems which confront us all'.

'We all face domestic pressures, and must balance painful measures with soothing balm. We need bold action now, as the cost of inaction is higher down the road,' he said.

Speaking to The Straits Times separately, Insead professor of banking and finance Jean Dermine underlined the seriousness of the current euro zone crisis:

'What is a big difference this time around, compared to the US financial crisis in 2008, is that the economies around the world are slowing at the same time. Then, Latin America and Asia were booming, so that was helping the world economy. This is no longer the case.'