Dialogue With DPM Heng Swee Keat at the 54th St. Gallen Symposium

DPM Heng Swee Keat: Well maybe since I am nearest to you. I think just now President Karin talked about the big changes which are happening, and if I could summarise the big changes into the five “D”s. The first is deglobalisation, or certainly a fragmentation of the global supply chain, and driven very much by geopolitical risk. Second, is the demographic changes which are happening around the world. Third is digitalisation, while the demographic changes are going to change competitive advantages, digitalisation is going to change that even further. Are older people better off with digitalisation or worse? Are younger people having the skills to cope in an age of AI? Fourth, is the mountain of debt that we have to confront. And finally, decarbonisation – The need for us to continue to decarbonise. And all these forces coming together are creating huge turbulence. 

But I would say that the biggest change out of all of this, is when the US is stepping out from its global leadership role. And what this means is that the rest of the world – all of us – must step up. The US accounts for about 20% of global trade or less, and the rest of 80% of the world must come together to rebuild a new world order, the new set of supply chain, to ensure resilience, to ensure that this division of labour that has brought so much benefit throughout the world, can be sustained. The question is, what must we do? 

First, I think for globalisation to be sustained and this global division of labour, the theory about working on comparative advantage and whether you produce more wool or more wine, has been overtaken by the speed of change. And what we need to build all the time are new competitive advantages. We cannot take a static view. Instead, we need to take a dynamic view of how competitive advantages are changing. 

When we trade, our partners do not want to do the same thing all over again, because they must have aspirations that their people must also have a better life. So, to expect China to continue to produce cheap products for the world is just not realistic. So, China has undergone structural change. Structural policies are hardest, but I think Deng Xiaoping’s reform and opening of the Chinese economy was the start of the big change of China that has lifted millions of people out of poverty. 

And it is not just China. If you look at the rest of Asia; first, the four Asian tigers: South Korea, Hong Kong, Taiwan, Singapore – we embraced globalisation. We worked hard and moved up the value chain and contributed to the world, and I think the world is better off for it. So the question is, how do we sustain this change? Every one of us, needs to step up to make structural changes in our own economy, so that we can continue to have a complementary relationship with our partners. And yesterday, we heard a lively debate between the two groups here, about whether you are optimistic about Europe’s future or not. Excellent comments, and an European friend whispered to me and said, “If only we addressed all the weaknesses and build on all the strengths, we can mount a MEGA movement. M-E-G-A, Make Europe Great Again”. So, making structural changes and building complementary relationship with partners are something which we should do.
 
Second, I would like to urge EU and Asia to work more closely together. I have seen so many excellent countries and companies in Europe, which we could work with to build new complementary relationships between Europe and Asia – for European companies to invest in Asia, invest in developing countries, for which there is still a price advantage in developing in them. At the same time, invest in new growth areas, because science, technology and innovation is going to reshape global competitiveness. So let us work together to look at how we can decarbonise, have green technology, how we can use AI responsibly. Last but not least, finance –because we need money, to support these structural changes.

DPM Heng: If I could just quickly comment. First, I think Prof Bai mentioned a very important point, which is the role of the state in economic development. I think the state still has a very critical role. One, certainly on education. And second, on basic research. Every country does that. In fact, it is very good that the European Union came together to create Horizon Europe. Horizon Europe is your big government funding for research. And I think having a clear framework where at the earlier stages, where the technology readiness level is low, no one can exploit it, because we are still trying to understand the fundamental sciences behind a certain phenomenon. Quantum technology is one of those. Quantum theory was proposed back in the 1920s, the big debate between Einstein and Bohr, but it is only now that people are very excited about quantum computing, and that is the part where I think firms must pay for that premium, but the returns will accrue to the firms that can compete successfully. At the same time, the government must protect intellectual property. 

I think Roland will welcome you to Singapore to look at the industrial metaverse in Singapore – combining the cyber and the physical. And that is how I think a firm can do it, and how government in turn provides fundings. 

And the other point is that, one very interesting book about the role of the state is by Professor Mariana Mazzucato in London, she said that actually if you look at the Internet – one of the biggest innovation that has changed our lives  - it came out of the Defense Advanced Research Projects Agency (DARPA) funding to solve a defence problem, but then it ended up becoming the Internet and in turn, has now catalysed a whole range of changes, and her question is “should the internet company not pay higher taxes to the government?” So that you can have a circular flow, the government will have enough resources to now fund basic research. The company that succeeded in using it should contribute something back to fund the research. 

And the last point, Roland’s point about jobs, I think it is going to be so critical. I think government has the responsibility to retrain workers. Because if you want technological progress, the only way to sustain it is if your workers are not out of a job. And this debate about whether AI will replace humans is one very interesting topic that we must delve into.

DPM Heng: Actually, if I could just add to what Roland just said. I would say that manufacturing is important, but India in terms of its strategy will need to think about what will it be most competitive in at this stage of the game, what is its competitive advantage? India has tremendous amount of IT talent, and as the world goes more digital, I would say one ‘no regret’ thing is to think about how you can go even more digital. Its Aadhaar system has changed the way the government interacts with the citizens. And if you can build on that, domestic consumption, support from the government to the people, can flow and you can create a lot of new domestic industry as well. So I think importantly, do not think about the industries of the past, but think about the industries of the future, and where you can be competitive in.

DPM Heng: If I could just add to Roland’s point, the Singapore government runs the same discipline as a company, under our Constitution, during the term of government, we must have a balanced budget – we are not allowed to have a budget deficit. It is against the law. During COVID, I was Finance Minister, I had to be very disciplined, and that I do not just spend endlessly. Because the money has to come from somewhere. I had to roll out with five budgets in one year, to save lives, to save our people, to save the economy. 

And as part of that work, I had to seek the permission of our Elected President to use Past Reserves, who holds the second key to unlocking that Reserves. So, the first key is held by the government in power, and the President, the second one. The five budgets spent about $100 billion, of which in the end, $40 billion came from past reserves, and most importantly, without borrowing a cent. This was possible only because of the budget discipline that has been put in place. 

So I think it is possible, even though it is politically hard, and the politics will become even harder. Nonetheless, it is important for us to think of institutional checks and safeguards, to make sure that we do not burden our future generations.

Moderator: Thanks a lot.