At a recent ANZ event in Singapore, ESM Goh sat down with BlueNotes to chat about the outlook for the region. We started by asking him if he had ever seen a period of such uncertainty, shock and volatility - with Brexit, the Trump election, Xi Jinping at Davos- and now critical elections looming.
"Just stay calm, sit back, look at the situation, and try to anticipate what might happen."
Goh Chok Tong, Emeritus Senior Minister
ESM Goh: We have been through a few crises but I can’t think of one that has got the same uncertainty as we have now. The world was going through a sea-change even before [new US president] Donald Trump came on the scene.
With him around now, with his new policies and attitude, we just cannot predict for the time being. In other words, I have not seen such a volatile period in the past.
Andrew Cornell: In the past while countries have had differing agendas there have been protocols to guide debate. Those old rules seem to no longer apply. How do leaders frame their response?
ESMG: Before I answer that question, I should stress I am no longer a member of the cabinet of Singapore. Speaking in my personal capacity, yes, things have changed.
From past experience I think it is important to not react quickly all the time. In other words, just stay calm, sit back, look at the situation, and try to anticipate what might happen.
Trump is not the only disruptor in the world. The migration and refugee problem will continue. In fact, I think Europe is going to see more of such refugees and migrants.
So what do we do? I think we look at the possible trends. For example, with the end of the Trans-Pacific Partnership and the US becoming more inward looking, what does that mean for us? How do we react?
These are the top thought processes that will go through the minds of leaders at the moment. I would have gone through the same process if I were still in charge.
AC: How do you do this, how does such scenario planning work?
ESM: In Singapore, every four or five years, the government would assemble a team of officials that would do scenario planning. We learned this from Shell.
Shell has a very well-organised system where they look into the future. We learnt that and we try to imagine the future, instead of prediction. It is not a forecast. We would try and imagine the possible scenarios that may unfold in the future.
Normally the team would have three scenarios. They assign probabilities to the scenarios and the purpose is to exercise the mind of the whole government, the whole civil service, as to what changes may take place in the future so we are not caught by surprises. Anticipate if we can the black swan events.
These thought processes allow us to act very quickly and nimbly when we see certain scenes unfolding in accordance to the scenario. It is an exercise in thinking about the future.
AC: This year, in the same week we saw Trump at his inauguration pulling America back from globalisation, the Chinese premier spoke at Davos on the critical importance of trade liberalisation. Could any scenario planning have prepared for that?
ESM: I think we could predict President Xi making such a speech because China has, over the years, adopted the market economy. But the other part, where the US is now looking inward, no, I think that would not be in the scenario planning.
That is something I would say was totally unexpected. A huge economy, a totally liberal economy, a world leader that has got alliances and friends all over would suddenly seem, to be abandoning a well-known world order that the US has itself created. That would not be in the scenario.
In the mind of President Trump, why is he doing all these? I think you need to understand the thinking behind that.
I think he will last beyond 2017, the whole term, and perhaps even another term – provided he can show results from what he is doing. He knows what he is doing and it is to get the ground behind him.
Will he succeed? I don’t think at the moment he will just withdraw the US into a protectionist economy. I think what he is trying to do is tear up multilateral agreements and then negotiate bilaterally – Japan, and Mexico with NAFTA.
In other words, he is not closing the economy. He is now trying to renegotiate an agreement that will favour the US primarily. If he succeeds with that, maybe he can grow the US economy but the world becomes smaller. In the longer term, does it benefit the US? I don’t think so.
His method of working is different and in the short term, he may create more jobs. Certainly by doing all this he is going to get more support for himself. But I would not, at the moment, deduce that he is totally crazy. We do not know his game plan yet. I do not believe US can be absolutist. It is not possible.
AC: To shift elsewhere in the region, how do you perceive what is happening in China? Are you perturbed by China’s adventurism?
ESM: A trade war is more likely than a hot war. If the US puts tariffs on imports of Chinese goods, on steel, aluminium and other consumer goods then China would hit back. But China has to be quite careful because China needs US investments.
If you punish the US companies you are actually punishing yourself because China is an emerging economy. I think China would also know where to hit back at the US – this may not be necessarily on the economic side; it could be in other areas where Chinese cooperation is required.
AC: China’s response to date has been quite restrained. From the perspective of your great experience dealing with China, is this partly due to them being as flabbergasted as the rest of the world?
ESM: I think the Chinese have seen so many changes of Presidents in the US, and anti-China campaign rhetoric. I think they have learnt how to deal with these changes.
They will just sit back, take a deep breath, calculate, and prepare for all eventualities, even a nuclear war. So if I were China, do I take President Trump seriously? The answer is: better be prepared.
I am sharing with you some of my gut reactions. But in the end, like everybody else, we have to give the Trump Administration more time. This is a new administration.
I have faith in the US system. It is a check and balance system. The president doesn’t have all the leeway in what he wants to do especially if he is bringing the country in the wrong direction. I have confidence that after a while they will settle down.
AC: Singapore has historically been able to adapt, from a trading entrepot, to manufacturing, to a tech centre. How does Singapore need to adapt in this era?
ESM: We have to adapt. We have the Committee on the Future Economy and the report will come out soon. I haven’t seen the report. But whatever you try to imagine what it can do, the basic constraints will not go away: finite land, tight labour force – we have an ageing workforce as well.
Third, a small economy – no matter how we enlarge the economy, it is still a small economy. So how do we adapt? I would think we go back to the basics and that is how do we enlarge the economy?
We cannot enlarge the domestic economy but we can enlarge the national economy – meaning Singapore investing outside Singapore. That is part of our economy – our investments in China, US, Middle East.
We need to train our people to be more entrepreneurial, more gung-ho, more risk-taking in going outside to invest.
We started this many years ago, at that time just two wings – China and India. Now it is not just these two wings; we should invest in Australia, in developed countries as well. So that is one response going to the future.
Then two, it means you got to invest more and more in people. We all know the skills you have today will be irrelevant, obsolete in some years to come.
What you are seeing now in Europe and the US, we saw in Singapore in 2011. Prior to that, we were quite liberal in immigrating people because we could see that our Singaporean population will shrink by 2030.
In 2011, the people were very unhappy with the large number of foreigners in Singapore and the liberal immigration policy. They expressed this in the general election. The government became very sensitive to the problem of immigration after the 2011 election. We took steps to manage it.
AC: Is the government too complacent? Do they realise the urgency of the situation?
ESM: I think they are far from complacent. The current team is much aware of the situation and working very hard to look for solutions.
We were a little complacent before 2011, on the social equity side. I was partly to blame, perhaps because we just thought to grow the economy and everybody would benefit.
We did do some re-distribution but not too much, because we believed that the family must be the first line of defence and the government must always put in as much as we could into the reserves for a rainy day.
The rainy day came, after 2011, when we realised that the growing inequality of income meant that we had to distribute much more to the bottom 20 per cent to 30 per cent. If we did not do that we would get an electoral revolution.
But it was not just the 20 per cent to 30 per cent who were unhappy, and I think we see this in Europe as well, the middle class felt that they were trapped because they could not move up to the upper middle class. The government is very much on the ball in trying to see how people can have their aspirations realised.
AC: How did you miss the signals that the middle class was becoming unhappier, because clearly they continued to be missed by governments everywhere?
ESM: The signals were there, even then. The media called it the middle-income trap. But then how do you resolve the plight of the middle class?
The attention was on creating the economy and looking after the lower income groups. There were no hand-outs for the middle class. Actually their concern was over their jobs being taken away by foreign professionals. Now the government is more sensitive to this concern.
AC: Was there an unconscious bias against Singaporeans or was there a need to re-skill Singaporeans to suit those roles?
ESM: It was a conscious economic bias. It is cheaper to get, very often, a foreigner on a professional pass, than to get a Singaporean. Singaporeans are in short supply.
You get foreigners, any number, from outside, from China, India and elsewhere – issue them an employment pass and get them to work in Singapore.
Very often, it is an economic drive by many companies. There are occasions where, of course, we do not have the local skills. That, I think, people would have accepted. But, in some areas, while we have skills, it is cheaper to get a foreigner than to hire a local Singaporean.
I coined a term – compassionate meritocracy. And DPM Tharman Shanmugaratnam used the term, continuous meritocracy.
That means you must have meritocracy but at the same time you have got to tweak here and there to make sure that the biases against Singaporeans are not there.
You have got to have meritocracy as a basis for Singapore’s performance, in the past as well as moving forward. Except now you got to be a little more alert to see where you can tweak it, so that Singaporeans do not feel that the system is against those who are not so able.
Andrew Cornell is managing editor at BlueNotes