This forum is held today against the backdrop of continuing financial turmoil in the US and the resulting global economic uncertainty. Despite this, East Asia, with half the world’s population, is moving ahead steadily. The rapid growth of China and India – China for the last three decades and India since the early 1990s – is well known. Less visible, but no less significant, are the changing patterns of intra-regional trade and investments, new production chains and a growing web of bilateral and multilateral free trade agreements in East Asia. These have created an increasingly interdependent and dynamic East Asia.
The World Bank has predicted that East Asia, and specifically China, will increasingly become a “growth pole” for the world economy, keeping it buoyant as growth slows in the developed world. This new economic reality is politically reflected in a multitude of new groupings and dialogues in East Asia: the ASEAN Regional Forum (ARF), ASEAN + 3, the East Asia Summit (EAS), and APEC, among others. Slowly but surely, a new East Asian regional architecture with ASEAN playing a driving role is taking shape in East Asia.
Looking to East Asia
Russia spans both Asia and Europe. It is probably instinctive for post-Soviet Russia to focus on re-building links with Europe and the Commonwealth of Independent States (CIS) countries. They are your ‘near abroad’. But it is timely for the new Russia to also look beyond and actively engage East Asia.
The first step has already been taken with Russia’s membership of several regional East Asian and Asia Pacific groupings. Russia is an ASEAN dialogue partner, and a member of the Asean Regional Forum (ARF) and APEC. Russia also has strong bilateral relations with key East Asian countries, as is evident from President Medvedev’s choice of China for his first overseas visit. But while Russia’s links with East Asian inter-governmental forums are important, the real action in East Asia lies in the growing trade and business opportunities. These are the underlying forces driving the evolving East Asian political architecture. I believe that it is in Russia’s interest to participate more fully in, contribute to, and benefit from East Asia’s growth. And East Asia too, will benefit from such participation. I want to thank you for inviting me to share my views on how Russia can do so.
But let me first of all say that I do so with humility and some trepidation. Singapore is after all only a small country of 700 square kilometres. We do not presume that we have much to teach a continent-sized country like Russia. Besides, I do not know Russia, having visited Moscow only once when Gorbachev was President. That was a different era. I can only assure you that I speak from the heart as one who wishes Russia well and wants to promote closer Russia-Singapore relations. I can only hope that my suggestions, abstracted from my own experiences in Singapore, and my observations of China and India, may be of some relevance to you. I will also be drawing on what I have learnt as a member of the Commission on Growth and Development, which was chaired by Nobel Laureate Prof Michael Spence and comprised 20 other leading economists and practitioners from government and business.
There are, of course, obvious barriers of language and culture between Russia and East Asia. But these can, I believe, be overcome if there is political will. The main obstacles to the deeper integration of Russia in East Asia are different in nature. I wish only to make three suggestions as to how this process of integration can be facilitated.
Stable and orderly external and internal environment
First, getting the politics and geopolitics right is essential. This is vital because without stability, there can be no predictability of policies and certainty of implementation. Business and trade cannot flourish to their full potential. Former President Putin has laid a strong foundation for President Medvedev by restoring a sense of order and purpose after the fluidity and confusion of the immediate post-Soviet years.
A stable and orderly political system is particularly important because I believe that for Russia to participate fully in East Asian growth, it must integrate itself even more firmly into the world economic system. Russia should place urgent priority on early WTO membership and later, consider concluding free trade agreements or economic partnership agreements with ASEAN and other East Asian countries.
Here, all countries confront an inescapable dilemma. Greater globalisation inevitably means greater exposure to forces that are beyond national control. And yet one key finding of the Growth Commission, whose report was released two weeks ago after a two-year study, is that it is impossible for any country, no matter how large, to succeed in raising its people’s living standards year after year without being plugged into the global economy. A stable political system resting on inclusive growth and social cohesion is therefore necessary to enable a country to constantly adapt to a fast-changing world.
I am aware that the effort to stabilise post-Soviet Russia has occasioned a degree of criticism from the West. But as the Growth Commission found, the 13 economies[1] which had enjoyed sustained growth of at least 7 per cent per annum for at least 25 years since 1950 did not share a common political system. They also did not follow a single, universal growth formula. They have succeeded by drawing from the experiences of countries around the world, listening to advice from many sources, but in the end making their own decisions within the context of their own countries’ history, culture and stages of political and economic developments.
China is evolving its own system of government. It is the only country in the world with a 4,000 year unbroken record of governing itself. It cannot achieve this unless it is doing something right for itself. Indian, Japanese and South Korean democracy does not operate in the same way as the West. Similarly, Russia is finding its own way.
At the same time, it is important to also get the geopolitics right. By this I mean maintaining stable relations with neighbours and with all the major international powers, in particular, the US and Europe. India’s relations with Pakistan will never be easy but with efforts from both sides, they have improved and are now, I believe, essentially stable. Similarly, China’s relations with the US and Japan will always be complex, but China’s main priority is to establish good relations with the US and all countries around its borders so as to focus on economic growth and other urgent domestic problems. Growth, trade and business require a stable external environment as well as internal stability. This does not require any country to compromise its core interests; but it does require defining national interests to encompass interdependence with neighbours and others. Competing national interests are not necessarily zero-sum games.
Government as facilitators, not free-market purists
My second point is: move from a concept of government as solely a regulator of business and economic activity to a concept of government as facilitator of business and economic activity. Former President Putin had started many important economic, legal and administrative reforms designed to encourage the development of a market economy. But there are still lingering international uncertainties over the balance between the market and the state in post Soviet-Russia.
This is perhaps understandable since even pre-Soviet or Tsarist Russia was not really a market economy. But concerns have been accentuated by several recent high profile cases mainly involving Western energy companies and indeed even some Russian companies. I am not passing judgement on the rights and wrongs of those specific cases. I am sure that the Russian government had its own good reasons for the actions it took. But that international concerns have resulted is an objective reality that should be addressed by providing greater clarity on the relationship between the state and the market in Russia.
It is in Russia’s own interest to address these concerns to provide a more stable, predictable and level-playing field for business, whether local or foreign. This will attract more foreign as well as local investments into the domestic economy. This will help diversify the Russian economy away from over dependence on energy and commodities. A diversified Russian economy will lead to greater integration with East Asia because there will be more trade and cross border investments. Oil and gas alone provides too narrow and potentially too contentious an interface with the East Asian economies.
Somewhat paradoxically, to encourage the further development of the economy will require firm and sustained governmental action. And indeed the Russian Government has recognised the problem. I am told that many Russian leaders, including former President Putin, President Medvedev and Speaker of the Duma, Boris Gryzlov, have, for example, identified excessive bureaucracy and its consequences such as corruption, lack of legal certainty and arbitrary action as the single most difficult obstacle to the development of foreign and local business in Russia. Administrative reforms must therefore accompany economic reforms.
Please do not misunderstand me. I am not advocating the uncritical acceptance of the so called “Washington consensus” which the Financial Times recently summarised as “stabilise, privatise and liberalise”. The Growth Commission has found this to be too narrow a basis to create economic growth. As I said earlier, the Commission has found that there is no single, simple formula that will sustain high economic growth for all countries for many decades. Indeed the experience of countries around the world after the Cold War, including Yeltsin’s Russia, was that any attempt to apply such a formula in a simplistic way more often than not led to disaster. Here as in other areas, Russia must find its own path. But it must be a way that encourages and facilitates interdependence with the world economy and is consonant with global rules.
Investing in people
Thirdly and finally, I believe that Russia’s greatest and most precious resource is not, contrary to popular belief, oil or gas or some other commodity but its creative and talented people. Russia’s prowess in science, technology and engineering, literature, music, theatre, ballet and other arts is world renowned. The resolution and resilience of the Russian people have been cruelly tested time and again but have never been found wanting. To maximise this full human potential will require rectifying many years of under-investment in critical sectors like education, public health, public housing and training and re-training of workers to provide them with new skills for the future. But you know the challenges better than I do. Let me just say that there is a small (2,000 or so) but growing Russian community in Singapore, so we know from first-hand experience what valuable contributions the Russian people can make. We would welcome more Russians to live, work, invest, do business and visit Singapore for leisure.
Implementation – the Russian way
Ladies and gentlemen,
What I have had to tell you may strike some of you as simple, motherhood observations. But the study by the Growth Commission of countries which have sustained high growth, and those which have stagnated or even regressed, has shown that while the basic principles are not difficult to grasp, implementing them is another story.
East Asia’s growth story did not begin in the late 20th century. Since the first contacts with the West in the 18th century, East Asia has struggled to adapt to a Western defined modernity in order to survive and prosper. It has been a long hard road with many a wrong turn and dead end. We have had our share of mistakes and folly, leading to disaster. No doubt the road ahead will have many further twists and turns and rude surprises. But East Asia has proven its resilience and shown its determination to succeed.
I believe Russia has many of the same attributes. Its journey into the uncertainties of the market economy began only 17 years ago after 70 years of a planned socialist economy. What Russia has achieved in this short period of time is truly remarkable.
Unlike Russia, Singapore, being a small country, has no ability to influence great events. But we have learnt to navigate and survive in this turbulent world. To do so, we often have to work out our own solutions to problems. There is no primer for us to follow. We are in this sense somewhat like a Research and Development laboratory on issues relating to government, social and economic development. We experimented with many ideas, kept what worked, and quickly modified those which did not, even if it meant selectively abandoning economic orthodoxy. We are pragmatic in our approach. Some of our experience may be of relevance to Russia as you open up your economy to integrate with East Asia and the rest of the world. Singapore’s position as a leading financial, trading, logistics, communications and high-tech manufacturing hub in East Asia may offer useful lessons for Russian adaptation. We could also be a valuable springboard from which Russian businesses could venture into East Asia.
Ladies and gentlemen
Thank you for listening to me.
