FORCES OF CHANGE IN THE 21ST CENTURY

Well, first let me bid everybody a very good morning. I bring you warm greetings from Singapore, literally. I would like to personally thank Mr Wehmeier, Mr Paulsen for inviting me to this Munich Young Leaders Round Table, and the Körber Foundation for this opportunity to speak today. I glanced through who attends the Munich Young Leaders meetings and I must say that I'm very impressed with your records and you certainly have accomplished much in relatively short careers. Many of you have experience, either with government and/or legislature, and so it's an honour for me to be able to address you. I thought rather than just hearing what I have to say, I would like to hear what you have to say, how you view the challenges as we face them. So what I intend to do is to give a broad overview of what I think are important issues but it isn't meant to be comprehensive but to set the context for us to discuss and to elaborate on some of these issues. I have entitled my talk "Forces of Change in the 21st Century". As I've said, it's not meant to be comprehensive. I've picked five forces that I think will shape how the 21st century evolves. You may have more or you may disagree with some of these forces.

A Disruptive Era

Let me first start by making an observation, that the history of our world is not linear. Episodically, we have disruptive forces that precipitate a cascade of events that dramatically changes the established order and with it, the fate of individual nations. If you look back, I think WWII was such an epochal event. Of course, WWII exacted a devastating price on humanity. There was an article yesterday, in one of the global newspapers, on Stalingrad, looking back on the horror and devastation. But in the aftermath of WWII, there were reconstructive efforts: in the US it was the scientific institutions, the G.I. Bill that spurred on college undergraduate education; in Europe it was the Marshall Plan; the Japanese reconstruction headed by General MacArthur; and new institutional global governance, following Bretton Woods, IMF, World Bank, UN, WTO, its predecessor GATT. These changes laid much of the foundation for the next 50 years from there, which allowed the world to enjoy progress. And I think, if we look back over that period, it would be fair to say that in this, the US as a pre-eminent global power played a leading role in providing the security and stability that allowed these institutions to function as well as allowing countries to progress. I mention that as an epochal disruptive event. I think there are other such events in our lifetime. To me, the fall of the Berlin Wall, the lifting of the Bamboo Curtain in China, 9/11 and the global financial crisis in 2008, are disruptive events. We're still feeling the consequences.
I don't think I need to further convince you that our world is changing as we speak, and we see it. No one can be sure about the exact configuration of this new order, what will emerge, and I think we all hope that the transition will be peaceful. If you take one example, the terrorism of 9/11, I think many of us woke up that day, we saw the pictures on the television and were shocked. And already lives have been lost fighting against terrorism. I think Singapore in this regard has been fortunate. We have sent forces to Afghanistan to help in the reconstructive efforts, to help the Afghan nationals on their path to self determination and so far we've not suffered casualties. But closer to home, tragically, if you remember the Bali Bomb blast in 2002, a significant number of lives were lost. So I think all of us want to concentrate our efforts to facilitate positive and progressive outcomes because strong forces are shifting the tectonic plates of geopolitics. If you look at what's happening, existing institutions, which were mainly post-WWII and Cold War constructs, are under pressure, whether they are bilateral or multilateral relations and groupings, they are under strain. And I think that there's no certainty that missteps can be avoided altogether. Let me describe some of these deep forces that I think are at work and will shape our 21st century. I have, as I've said, listed five.

A. Trade Patterns

The first force that I think we have to contend with is global trade patterns, which has changed substantially over the last two decades. I'lll just give a few numbers. If you take BRICS, their GDP (in PPP terms) in the year 2000 was 16%. In one decade it jumped to 25%. If you project forward, by one estimate, the world's five largest developing economies - BRIC plus Mexico, will account for 35% of world GDP in PPP terms by 2020, while the five largest developed economies, G5, will only account for 29%.In particular, the rise of China has had far reaching consequences. Some numbers again just to illustrate the scale of this shift. Prior to China's accession to the WTO in 2001, China was not even amongst ASEAN's top three trading partners. Before China's ascension, our top three trading partners were the US, Japan and the EU, in that order. China is now ASEAN's largest trading partner. China is also the largest trading partner of Australia, Japan and Korea. Some project that China will become the world's largest trading nation by 2030, accounting for nearly 17% of global trade. India at that time will account for 5.3%, the third largest in the world.

How do we respond to these, if I may characterise it as "staggering", changes in world trade patterns? I don't think you've ever seen, in such a short period of time in global history, how much the trade patterns have shifted, and they must have consequences. How do we respond to a future where China, for instance, is the largest trading economy and for many countries the largest leading trade partner? Well, our first response must be, for both China and the other BRICS economies, that the growth of these economies is a triumph of Capitalism. That's what we were fighting for. That's what many fought for, so that economies could grow. Obviously not all the consequences were
foreseeable. When China lifted its Bamboo Curtain, when they moved from autarky to join the global financial and trading systems, it became the leading manufacturer for the world. There is another tsunami coming from China. In about 10 years' time, China alone expects to have 200 million college and university graduates. Then, by 2020, four out of every 10 university graduates will come from just two countries, China and India. 200 million graduates is nearly three times the population of Germany, all graduates. This will have a profound effect on all of us, on the flow of trade and talent across borders, not only in the region but globally.

So the question to ask is, how will this rebalancing in trade flows and inter-dependencies affect relations between countries and regional groupings? John Kerry, who was just confirmed as the next US Secretary of State, recently said, "Foreign policy is economic policy" - I think he is right. History shows that no global power has been able to maintain its military power without economic might. As trade patterns change, stateto- state relations will follow.

B. Unsustainable Legacy Systems

The second force I'd like to talk about is the denouement of unsustainable legacy systems. Here, the global financial crisis in 2008 played a, if not immediately proximate cause, precipitating cause. It precipitated levels of public debt and fiscal deficits in many developed countries not seen since the end of WWII. And the response, I think we're still in the response phase, monetary stimulus or quantitative easing appear to be more palatable than austerity measures. At least, in places other than Germany. Some learned economists have argued rigorously that this is the right medicine for an already weakened patient. Even so, I think indebted economies will still need to address unaffordable consumptive habits. For example, as a proportion of GDP, public expenditure on pensions, just pensions alone, in Spain, Italy or France amount to the entire Government budget for Singapore! One line item in one country for the entire budget for Singapore. Sooner or later, the structural imbalances between benefits and subsidies and tax revenues will need to be addressed if a country wants to regain its competitiveness. I think this is the heart of the debate between the Republicans and the Obama Administration and that between different EU countries. There are simple characterisations about the EU, and most people understand the problem. But doing the right thing can be costly for Governments. As the Prime Minister of Luxembourg commented wryly in his epiphany, "We all know what to do, we just don't know how to get re-elected after we've done it." This has proven particularly true in Japan, which had five changes of government in as many years, often after an introduction of necessary but unpopular policies. So that's the norm if you like, in Japan. You're a government, you have one year to introduce a correct but unpopular policy, and then the next government comes in.

C. Greater Polarisation

I've talked about changing global trade patterns, the unravelling of unsustainable legacy systems. Let me talk about the third force. The third force changing our world is that of greater divides within and between countries. The world is now more connected than ever. Information flows have increased exponentially. I was recently in Cambodia, both in Phnom Penh and Siem Reap, and we were in a restaurant. Cambodia is not the most built up of cities, but I had brought my iPhone there and I said "I think there's free wifi here". My younger chaps didn't believe me, and I switched on my iPhone and true enough there was free wifi, at faster speeds than busy periods in Singapore. But despite greater connectivity and knowledge of people and customs, it hasn't always led to greater consensus, let alone acceptance and understanding. And I think if you look around the world, people and countries are still divided by ideology, ethnicity, wealth, so on and so forth. The World Economic Forum conducts a global risk assessment yearly, and in 2013 they surveyed world leaders and asked them what they thought were the leading risk factors over the next 10 years. The leading risk factor in that survey was widening income disparity. Between 2006 and 2011, income inequality as measured by the Gini coefficient has risen in most countries.
Within countries, you're seeing a shift. For those of you who live in the EU, you saw in recent elections a rise of the right. They were pushing for more nationalistic policies against immigration. There is, if you like, a backlash against globalisation. Some citizens like the supermarket that globalisation brings, but not the disamenities when that supermarket is placed in their back yard. Even within the US, an open nation in terms of trade and ideas, this polarisation is increasing. The 2012 Pew Political Values Survey in the US, found that the proportion of Republicans identifying themselves as "conservative" has increased, the proportion of "Liberals" in the Democrats have also increased. If you do the math, these two must take from somewhere, and where they've taken from is the middle ground. Basically the bell curve has stretched out and there's just a greater polarisation. And in fact, the Tea Party faction within the Republican Party is now acknowledged as part of the "core", not a marginalised group, but part of the "core" of the Republican Party.

As always, race and religion remain perennial issues that can divide people within and across nations. I only need to mention two examples. The recent furore in response to cartoons of Prophet Mohammad when it came out in a Danish newspaper and the visceral anger in the Muslim world against an American-made film denigrating the Prophet. These are vivid examples of how passions can be inflamed when these differences are accentuated.

D. Transnational Threats

The fourth challenge I'd like to talk about is transnational threats, and these require solutions on a global scale.
Climate change is a prime example. But bioterrorism and food, energy and water security are just as important and impactful. And these problems are obviously inter-linked. Extreme weather and environmental degradation caused by rising temperatures and sea levels will cause disruptions in food markets and business supply chains.
E. Demography
I'd like to talk about the last force briefly, and it would be the impact of demographic trends. I think it would take an entire forum to discuss where this is bringing us, but I thought just one sharp contrast illustrates how deep and how powerful this force is. So I give you this example: Half of India's population is currently under the age of 25. What is the median age for the EU or Japan? For Japan, it's 45 years; for the EU, it's 41 years. India, like China and many others before it, is poised to reap the demographic dividend. By one estimate, just on population alone, all other things being equal, India's GDP will grow 2% just based on the addition to the work force alone. Aged countries on the other hand will have to grapple with less economic active residents and more elderly to support.
Local and Global Governance

I have mentioned five fundamental forces - changing trade patterns, the unravelling of unsustainable legacy systems, transnational threats, demography as well as greater polarisation from values and systems and so on and so forth. These five forces collide and produce myriad outcomes in the crucible of local and regional geopolitics. I've mentioned the forces, but I think any man who is brave enough to claim to predict the outcomes is a brave man indeed. But I think one lesson is clear. Existing institutions and relationships between states we have now are under stress as these forces gather strength. Let me illustrate with just two examples. Western liberal democracies rightly pride themselves in having diverse representation and free speech. But many EU countries with high debt and unsustainable fiscal policies are stuck. Their governments unable to solve national problems due to the politics of compromise and weak coalitions. Existing global institutions - the G7, IMF, the WTO - appear less effective in responding to new patterns of global trade, security and transnational problems. As the world's economic centre of gravity shifts towards Asia, I think we have to refresh and renew various regional and global governance frameworks, to ensure that both the interests of rising and resident powers are accommodated.
And I think in doing, we have to keep in mind three principles. First, these frameworks should accommodate the interests of all countries, whether big or small. Second, the rule of law should be the bedrock of global governance. Third, effective outcomes build credibility and ensure longevity.
Singapore supports the on-going efforts to strengthen the reform of existing multilateral institutions, including the UN and IMF. Some of you will be familiar with the G-20 which is a new grouping to respond to global challenges. But here I think the reach of the G20 can be extended. And for that reason, Singapore played a role in pushing for the Global Governance Group, or 3G, which helps provide the linkage between the G-20 and the UN. We have other conferences like this, the MSC, the Shangri-La Dialogue and I think they're very useful to bring leaders together.
Regional organisations can make important contributions. Some of you may not be familiar with what is happening to ASEAN. But ASEAN has an ASEAN "plus" framework - it's 10 ASEAN Member States with eight key extra-regional partners, Australia, China, India, Japan, New Zealand, the ROK, Russia and the US. And this provides platforms for these 18 countries to dialogue and cooperate.
ASEAN is well-placed to play a central role in this because of our strategic location, combined group of 600 million people, combined GDP about 1.6 trillion. ASEAN has always been at the confluence of the South China Sea, Strait of Malacca, key trading routes.
But above dialogue, we feel that effective outcomes are very important, and here I give you one example; the ASEAN Defence Ministers' Meeting decided that we needed a structure to allow the militaries of 18 countries to exercise together. And this July, Brunei is hosting an 18-nation full-troop exercise under the theme of humanitarian assistance and disaster relief. I think this is the first such exercise where you have militaries from 10 ASEAN countries, including that of US, China and Japan as part of the "plus eight" countries, to come together and build confidence and capacity.
Conclusion
So let me thank you for your kind attention. I look forward to your views, how you see the world shaping up and whether you agree or disagree, what your response is to what you think are the challenges that the world will bring to us in the next 10 to 20 years. Thank you very much.