Transcript of Deputy Prime Minister and Minister for Finance Lawrence Wong's Fireside Chat at the Milken Institute Asia Summit on 13 September 2023. The session was moderated by Mr Richard Ditizio, CEO of the Milken Institute.
DPM Lawrence Wong: First off, thanks, Robin and Rich afternoon, everyone. Thank you for the very warm welcome. Very good to be here. Thank you also to Milken Institute for 10 years of partnership.We value and appreciate your presence here in Singapore. These are difficult times we are facing grave challenges globally. War in Ukraine still ongoing, US-China relationship is in a period of extreme competition, and all of this is impacting businesses everywhere. For the last 30 years, there was a remarkable global consensus around free trade. Countries did not have to be friends to do business with one another and in fact, we promoted interdependence as a way for peace and stability. But that consensus is over. Does not mean that we will end up with de-globalisation but it will be a different form of globalisation. Because major countries want to build up their defence industrial bases; they want to strengthen their advanced manufacturing capabilities; they want to have control over critical supply chains. So we see the outlines of a new paradigm emerging for the global order. One where business is increasingly going to be organised not just by economic logic, but also by geopolitical orientation and national security. We do not wish for this to happen from Singapore's perspective because it means a less benign environment for small states like us. But we have to adapt to the world as it is, and not as we would like it to be. In fact, that has always been the Singapore Story since the beginning. From the start, we have always had to adapt to the world, and look at ways to turn our vulnerabilities into strengths. For example, we have not enough water, we recycle water for our own needs. We do not have enough land, we reclaim land from the sea and we develop innovative urban solutions. So similarly, in this new era, we will just have to continue to adapt, innovate and build on our strengths. And today we start off, with many things going for us compared to the past. We have more resources, we are in a strong competitive position, across many sectors of the economy, whether in finance, transport, logistics and advanced manufacturing. And we are continuing to transform our economy through new digital innovations. Because we see tremendous potential in machine learning, in generative AI in all these new technologies. Meanwhile, data is the lifeblood of the new economy, which is why Singapore has been pushing for digital economy agreements with other countries, in the same way that we pushed for free trade agreements in the early 90s. Now, with digital economy agreements, we can establish common standards with like-minded partners, and we can enable more cross border data flows. So these are our strategies to adapt to this new world. We know that it will not be easy, the journey ahead will not be easy. But I have always believed that the crucibles and the challenges in our journey can only make us better and stronger. So we look ahead with confidence that we can continue to stay united in Singapore, chart our way forward and write many more chapters of the Singapore story together.
Mr Richard Ditizio: Thank you. I think you touched on a number of points and I think we have about 30 minutes so I am going to just jump around the topics if that is okay. So let us start with where you started, about the changing geopolitical backdrop that Singapore finds itself in. As these tensions rise and there is potential disruption in supply chain currency, what role do you think ASEAN and Singapore, in particular, can play in providing some stability in an increasingly confused world?
DPM Wong: All the countries in Southeast Asia, including Singapore, are friends with both China and the US. We have close links with both countries, and we want to maintain those links. We do not want to be in a position where we have to choose one over the other. So ASEAN operates on the basis that we will advance a framework of cooperation that is open and inclusive. We engage all the major powers, not just US and China, but also the EU, India, Japan and many others. And within that framework of cooperation, we reject dominance by any single power, we avoid exclusive commitments with any single party. We want to be friends with everyone. And within that framework – because ASEAN has very strong convening powers – we are able to bring together the key parties, key partners, together to strive to build common ground and hopefully, advance cooperation for peace and stability in our part of the world. That is what we strive to do. Of course to do that, ASEAN itself needs to be strong and united, and we are doing everything we can to better integrate our economies in Southeast Asia.
Mr Ditizio: Why do you think that that backdrop of cooperation, which fostered growth and liberalisation in the recent past, why has that win-win approach seem to have eroded and people are now retreating into their own interests?
DPM Wong: The main challenge is the relationship between the US and China. It has shifted from a relationship where both sides believed in engagement and cooperation, to one where now it is a relationship based on extreme competition and rivalry. And in such an environment, understandably, there is tremendous competition for resources for leadership. Both sides see this as a zero-sum contest where leadership in key areas like semiconductors, AI, means the country will have a decisive advantage. And when you have that kind of a mindset, then we are in a different world as opposed to what we used to experience in the last 30 years.
Mr Ditizio: So let us stay on semiconductors. Recently, Global Foundries opened a US$4 billion facility here. How does Singapore compete on the global stage to attract that kind of investment here, given the large economic subsidies that other countries are using.
DPM Wong: We cannot. I asked them the same question, “How do you make your fab competitive?” Because all these big boys are paying so much in subsidies to attract high end semiconductor production in their respective home countries. And we cannot afford to outbid them, we cannot afford to get into a subsidies arms race. We do whatever we can to provide a conducive environment for business, and as part of that we do have a framework for some economic incentives. We operate on that basis. But more importantly, we do not just compete on incentives. We also have strong capabilities – a skilled workforce, excellent connectivity, reliability, and a stable business environment. And within Singapore itself, because we have moved up the electronics value chain from harddisk drives to semiconductors over the years, we have an ecosystem here with players across the entire value chain from design and production, to assembly and testing. So it is a critical ecosystem that is vibrant, that is competitive and attractive. And yes, within such an ecosystem, Global Foundries can make chips that are competitive. They will not make seven nanometer(nm) chips, they are not going to make even five nm chips. These are high end chips. We do not have those kinds of capabilities. And for these high-end chips, there is tremendous competition, with countries paying lots of money. Germany for example has paid $10 billion to Intel in order to have such a plant in Germany. We cannot compete in that space. But specialty chips for cars or smartphones, that we can do and we can be competitive in that area.
Mr Ditizio: So let us talk about what is working. 10 years ago, when we (the Milken Summit) were looking at where to base of our operations, we chose Singapore as I shared with you earlier. I had also spent a good bit of time here over my career when I was at Citi. And people would say well, Singapore is just very easy, it just works. I would say that our experience has been a pleasure working with EDB, they have been wonderful partners.
DPM Wong: I am glad to hear that.
Mr Ditizio: So tell us about the social compact that makes all that work, because it involves Corporations, workers and the government. And then tell us what the risks to that in the future might be to keep it going.
DPM Wong: We are very fortunate in Singapore to start with a very high level of trust and a strong sense of solidarity in our society. And we are determined to do everything we can to keep it that way. The two key priorities to ensure this continues are, number one, we must ensure that the broad middle of our society continues to enjoy real income growth and improvements in their standards of living over time as they had in the past. Second, we have to comprehensively tackle challenges of inequality and mobility which are becoming sharper as our society matures and the population ages. So we have been focusing a lot of efforts together with our partners – unions, employers - focusing on these two areas and we have seen some good results in recent years. So over the last decade, for example, median incomes have been rising in real terms. And lower income groups have experienced and enjoy higher income growth compared to the rest of the workforce. So our wage gaps are declining. They have been declining. But this continues to be a work in progress because there will be new challenges. The increased volatility and external environment, the disruptions that will take place and the increased churn in our economy which will impact Singaporeans. Which is why we are embarking on a major exercise now which we call Forward Singapore to review, refresh, and strengthen our compact to see what more we can do to support workers to help them reskill, upskill and get good jobs throughout their careers. And to see how we can help those who become unemployed and displaced. Give them some help to tide through their immediate difficulties, help them get training, get a new job, and then bounce back stronger from setbacks. It will entail more government spending, more investments in workers, in our human capital, but I think it will be investments well worth making in order to keep our society strong and united and to continue to get sustained support for our economic model, which is one that is open, vibrant, competitive and critical to Singapore's future success.
Mr Ditizio: A few things that triggered a bit of success, particularly on the asset management side is a very entrenched rule of law, which lets people feel safe to domicile their assets here. So now fast forward to when I first came here, there is about $5 trillion dollars in AUM here in Singapore. Over 700 family offices have moved here in the last few years. Most of that 5 million is institutional and not necessarily in ultra-high net worth family offices, but how do you manage the perception of growing inequality and the focus on the wealth? At the same time, you are trying to balance the rising incomes of the people in the middle and lower classes.
DPM Wong: It is an issue which we monitor and we look at very carefully. It has been a plus for Singapore that we enjoy such high standing internationally, we are seen as a reliable, trusted hub for the world. And so, in a turbulent world, that has enabled us to attract investments, capital and talent. But we know that these inflows can bring about challenges, and so we manage them very carefully. So we do a few things. Number one, we want to ensure that the hot foreign monies do not flow into residential property and make housing unaffordable for Singaporeans. And those of you who are Singaporeans know that we have very strict rules. To guard against that. We have tightened the rules two times in the last three years, and they have helped to stabilise the market. So that is one, number two – it is not about the flows because we know that financial flows are mobile, highly mobile. They come in, they go out. Our interest is not in the flows specifically, but in building capabilities for our financial services sector, enhancing our value proposition and creating good jobs for Singaporeans. And we have been able to do that, especially in areas like asset and wealth management which are growing rapidly. Third, we want the wealthy who are here, to contribute to society do their part, pay their dues, and give back to the society and they can do that in different ways. We encourage all of the family offices to set up philanthropic arms, many of them do so. Of course, another way in which they can contribute is through taxes. So we always continually review our system of taxes and transfers. Our philosophy is straightforward. Everyone has to do their part in nation building. So everyone pays tax, but the rich pay more. And if you are very rich, you pay very many taxes. At the same time, government spending benefits everyone but if you are less well off, you will benefit more from government spending. So that is how we keep our overall system fair and progressive. There is one other thing we do which is not as easy as philanthropy or taxes, which is to engage the new arrivals and remind them about Singapore's values and our way of life. And so we reach out to these groups and tell them that Singapore is an inclusive society. We are placed with an informal and egalitarian ethos, where people can interact freely with one another comfortably as equals, where we frown on ostentatious displays of wealth. So these are our house rules. If you would like to be here, please follow our norms, follow our rules. If you think they are not for you, that is okay. You can take your money elsewhere. We will not hold it against you.
Mr Ditizio: What do you think – when I think about subsequent generations and we are approaching globally, a transfer intergenerationally about $75 trillion, right? So this is the most wealth has ever been created, transferring it to the next generation. How do you think about keeping the value system that you have spoken about that has been so critical to Singapore's first 58 years, going in subsequent generations that might be more diverse.
DPM Wong: It is very challenging. There is a saying in every culture –the Chinese say, wealth does not last three generations, but there is a variant of that across many, many cultures. Because in the end, it's about attitude and mindsets. And the natural obstacle to human progress is complacency and entitlement. when you are affluent and you reach a certain level, you think you have arrived, and therefore you start to become complacent. But that is actually the beginning of the end. The beginning of the decline. So in that sense, Singapore has some natural advantage because we will always, no matter how rich and affluent we become – we will always be a little red dot, an improbable nation forged only through the collective will of our people. And you do not have to look very far to be reminded of that because we have no natural resources. You look over the horizon, you are looking at a different country. You take off from Changi Airport, you are in someone else's airspace. And also these are constant reminders, how vulnerable we are, and how we have to continually work hard, take nothing for granted and keep on making a living for ourselves. That is how we remind our young people too.
Mr Ditizio: So let us go further on those vulnerabilities. Indonesia is relocating its capital due to climate change. My guess is Singapore has no such setup. So given that you have similar geographic vulnerabilities in some way. So it is going to be a three part question. What do you think Singapore's biggest advantage is? Its challenge and the value proposition you offer the rest of the world in the green transition.
DPM Wong: We are at a complete disadvantage when it comes to the green energy transition. A complete disadvantage – we have no wind, no tidal energy, we have not enough land for large scale solar. So the best option for us when it comes to green power generation for now, is to transit from natural gas to green hydrogen. So we are making some moves in that direction. In the longer term, there could be other options. Nuclear, as you know, is a possibility. Not nuclear fission, as we know it today, but nuclear fusion which is cleaner and safer. And for a long time, everyone said fusion is coming fusion is coming, we have heard it for at least three or four decades. But in recent times, we have seen some breakthroughs, net energy gains in some of the fusion experiments. So who knows in 30-40 years, we may in our lifetime be able to see a viable nuclear fusion power plant. So that is a possibility. We are monitoring progress. We are watching that space. Another area which that plays to our strengths, are energy efficient urban solutions, whether it is industrial processes, buildings, cooling systems etc. These are things that we can be good at. We have some strengths in these areas, and we can potentially make Singapore a testbed for such green solutions and export them to other countries. The third area that again plays to our strengths is in finance. As the financial centre, we can certainly do a lot to help accelerate the transition, not just in Singapore, but around the region. So in many countries, they have projects they would like to finance but they face a financing gap. And we are working very hard to see how we can develop innovative solutions, including through blended finance, bringing concessionary capital together with private capital, to finance more projects and help accelerate the green transition for the region. And then finally, one more area, which is not so much about mitigating climate change, but adapting to climate change. Precisely because we do not know that all the assets of the world will be sufficient to tackle climate change, I think we must assume the worst. So we are already taking steps now to protect ourselves. Thinking about plans, setting aside resources, to build seawalls, bunds and banks to protect us against rising sea levels. So, these are things that we can do and we will contribute not just for Singapore but for the region. Ultimately, I think our biggest strength is that in Singapore, we are able to think, to plan and to act long term, not just within one electoral term, but across multiple terms and to set aside sufficient resources to pursue these long term endeavours. So people know that in Singapore, when we say we want to do something, when we make a commitment, whether it is for 2030, 2040 or 2050, that we will deliver on that promise. And we will get it done. And that is our biggest value proposition.
Mr Ditizio: I mentioned, the $5 trillion that resides here, right? And you think about all that dry powder that could be catalysed towards more productive environmental means. Does the government have any plans to try and move along, particularly back to the intergenerational transfer. The recipient of that capital is very energised around climate change. I think young people in particular, want those assets invested in a way that it is productive. So two things – should the government create some lanes to foster that kind of investment? And then secondly, how do you prevent greenwashing?
DPM Wong: Oh, we are. We are talking to many of these institutions and family offices set up here to say, “Look, of course you will invest your money. But to the extent that you are prepared to do something on the philanthropic side, why not set aside some of this as concessionary capital for green projects?” And in fact, we are now in the midst of engaging many of these outfits, philanthropic outfits as well as multilateral development banks, the MDBs, to pool together concessionary capital into a platform which we can then leverage on to catalyse private capital, and bring to bear a considerable amount of blended finance to help fund green and transition projects all over the region. That is actually something that we are working very hard on. Now, having done so, the question is how do you make sure that these are legit green projects? And it is not just green washing. So clearly, it is something that we have to do with partners. So when we develop such a platform, which we are in the midst of doing together with institutional partners like the ADB or the World Bank or others, we will also need strong local partners, and we will need to ensure that high standards are upheld. There needs to be a system for monitoring for disclosure as well. So those are things that we are working on as well.
Mr Ditizio: So AI and digitalization has been a dominant theme of nearly every conference you attend this year. Walk us through some of the early bets that Singapore took and even go back through like how your STEM education works to prepare people for the next kind of job that is coming down the pipe.
DPM Wong: We have come a long way with our IT journey. We were very slow when we just started out in the 60s and early 70s. The entire public service in Singapore only had two mainframe computers, one in the Central Provident Fund, which is our Social Security Agency, and another in the Ministry of Finance. We did not have money for the other ministries to buy computers. Any other ministry which wanted to use a computer, had to come to the Ministry of Finance for data processing. That is how poor we were at that time and how backward we were. Our private sector was also highly manual. So the entire society the whole of Singapore was lagging behind. We made the first leap forward in the early 80s, when we decided we had to transform. We started training IT professionals. We exposed the working population to computers. And we also provided young people in schools with computers and IT. At that time, it was really a leap into the unknown – in the early 80s. But I think we managed to catch the wave at the right time. Because if you think about it, the personal computers became mainstream around the mid-80s. The Internet took off in the early mid-90s. And so we benefited from all that, we plugged into the grid. We made broadband available. We continued to invest in infrastructure thereafter. Now we have a nationwide fibre optic network. Almost every household has high speed broadband in Singapore. In recent times we have invested in our soft digital infrastructure, our “digital stack”. We have got the national ID digital system, we have got a national payment system. So we have been able to roll out a lot more digital services. It has been a complete transformation over the years, through investing in infrastructure training, leadership, but I think the most critical asset at the end of the day is our people. The investments we put into education in the 80s, early 90s that paid off tremendously. I am a beneficiary of it. I went to school. I mean growing up in the 80s you had computers to work from. You could not afford it at home, but you could work with computers, you learn how to code. We did all these things. And all my peers, we are familiar with computers. A whole generation growing up, able to make full use of technology. But it was not easy for everyone. There were segments that found it very difficult. My mother found it very difficult. She was a teacher – to transit from her beloved type writer to a computer was so painful. I could not understand it. You can type, you love your typewriter. What is the difference? Computer is the same thing. But it was difficult, so painful that she opted for early retirement at the age of 55. So, you know goes back to the basic point that even then the transition was hard. I think going forward with AI with so many new technologies, that transition will be even harder for many people. And not just at the working level. Even professionals, managers many of them will see disruptions in their work, in the way they do business. And all the more from the government's point of view we think to prepare our workforce well, we will need to invest in adult education and training a lot more than we had in the past and build up a strong system of support to enable everyone to adjust and adapt to these changing circumstances.
Mr Ditizio: And I think your mother's issue illustrates that it is not all upside and there actually are some downsides. One of the things that I get concerned about is as our lives become increasingly digital, there is a dark side and that dark side is that cybercrime is expected to reach $10.5 trillion, and that is larger than the economy of Japan. So cybercrime would be the third largest economy in the world. So how do you think about the reaction to that, like what should happen from a regulatory perspective to try as everyone's lives become increasingly distant and digital, how do we regulate that?
DPM Wong: It is an issue that you will have to confront, a very real issue. AI has huge upsides, but it can be misused. One category of bad things you can do with AI are all the things that you described cybercrime, cyberattacks, deep fakes and misinformation. These are things we will have to deal with. But the misuse can be in other areas too. You could imagine a category where you have a proliferation of weapons and it completely changes the nature of warfare and raises many fundamental ethical issues. And then you have yet a third category around AI systems that more and more businesses will use for decision making. And I am sure it will be very good, very effective in raising productivity. But the systems will not get it all right, even if an AI system is 99%, right, that 1% failure can lead to catastrophe. It could be a huge financial loss, or worse, a loss of lives depending on the application and use case. So clearly you need regulations.
Mr Ditizio: And does it need to be global? Historically, regulation tends to be geographically specific, but this is occurring in the ether.
DPM Wong: It needs to be global because AI is decentralised. It is everywhere. A model that is a problem in one country can easily find knock on effects everywhere around the world. So it does need to be global. The unfortunate reality is that most governments are not focused on this and so regulations are behind the curve. And because of geopolitical rivalry and competition, I think countries do want to get ahead in AI. So they are focusing on leadership in AI rather than governance and regulations for fear that that was stifle innovation. So that is where we are. I think in the end, we probably have to settle for second best solutions for now. And from Singapore's point of view, we will do our part to advance this agenda, which is why we have launched something called AI Verify, which is a governance toolkit, a testkit for developing responsible AI. And we are engaging with like-minded countries. We are engaging in international forums to see how we can advance this agenda for a global framework for Responsible AI. It is not easy, because the key question for us is how can we address global risk without holding back genuine AI innovation? But there is a parallel in the financial world. The financial world is familiar with this. We have institutions like the Financial Stability Board, IMF that deals with macroprudential risks, and they have rules to make sure that we mitigate the risks to global financial stability without jeopardising economic growth. So in the same way, I think we will have to think about “techno Prudential” risk. How can we have clear governance of risks, a framework for Responsible AI? The burden for developing these sorts of systems has to lie with the developers and owners of AI solutions. The onus should be on them to make sure that their solutions meet a certain reasonable threshold of safety before it can be rolled out to the public. And then we need obviously monitoring and regulations around this. So we think it is important, we will do our part, but as you as you rightly said it needs a global solution, and we hope more and more like-minded countries will join us in this effort.
Mr Ditizio: We are almost out of time. I think something that people might not know about you is that you are quite a good guitar player. And actually on the flight over, I was on YouTube, where you are on YouTube. And the guy in the seat next to me leaned over and said, “Who's that jamming on the guitar?”. So I said, “It was the Deputy Prime Minister of Singapore. He's quite good.” So what do you take from music into your job like what did you learn through your work?
DPM Wong: I have not found a parallel that relates from music to work, but it is something I have done for a long time. I picked it up when I was very young. My dad's friend taught me and I have been self-taught since then. And it is a way to decompress. It is a way to relax. It is a way to relieve stress. It is ironical, right, because I could never figure out why there has been many people in Singapore, parents wanting their children to take up music. They go for these classes, Grade 1,2 or 3 and they take formal lessons and it is wonderful. But a lot of the kids do not continue playing music after they finished the exams. And I cannot understand that because I have never had a chance to have any formal lessons. I wish I did. I think I would have been a far better guitar player today. But you know, just learning on my own and enjoying it, going busking with college friends in America, playing at open mic bars and then continuing now. I found it a tremendous way to relax and decompress.
Mr Ditizio: Great everyone needs that. Well, thank you so much for your time, for joining us today. Thank you.
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