DALIAN - For countries to grow in an inclusive way, the economies of the world need more disruption, not less, said Deputy Prime Minister Tharman Shanmugaratnam on Wednesday (June 28).
This applies to both developed and developing countries, Mr Tharman said in a panel discussion at the World Economic Forum's summer meeting in Dalian, in north-eastern China's Liaoning province.
Asked to describe the state of the global economy, Mr Tharman said there were two main problems today: middle-class stagnation across a broad range of advanced economies, and the fact that most developing countries had failed to catch up to any significant degree with the developed world in the past few decades.
On the first problem, most economists agree that a sustained growth in income could only be achieved if productivity growth improved, said Mr Tharman, who pointed to how productivity had stalled across the advanced world.
Despite all that has been written about tech giants such as Google, Facebook and innovations in fields like artificial intelligence, the fact is that there had been little disruption in most sectors in the advanced economies, he said.
Most companies fail to capitalise on cutting-edge technology, whether they are small, medium or large in size, with only the leaders in some sectors advancing innovation, said Mr Tharman, who is also Coordinating Minister for Economic and Social Policies.
"The diffusion of new technologies has slowed in large parts of the advanced world. We need more disruption in most economies to have a chance of gaining productivity and income growth."
However, this can only be accepted if there were effective policies to help those who lose their jobs, and whole towns, to regain livelihoods. Traditional policies that governments use to promote social equality are no longer adequate, he added, and there had to be concerted efforts especially to help local areas which have been left behind. Both the Brexit vote and the result of last year's US presidential election reflected huge differences in sentiment between those in the leading cities and the suburbs, smaller towns and rural areas. Even the French elections showed up these differences. Governments thus need to find ways to help regenerate local communities. This usually required some economic specialisation, and development of communities of learning and mutual help. Far more attention had to be given to economic and social policies that help meet these goals, than to policies affecting trade.
As for the developing world, a major feature he noted was that many of these economies - whether they are in Africa, South Asia, or Latin America - are not adequately plugged into global economy.
The solution is not protection but more globalisation in the developing world, said Mr Tharman.
"But like the advanced countries, it's only going to work if we have better, more activist social strategies. That's the domestic policy imperative," he said.
"Because without active efforts to help people adjust to change and build social compacts, it will be very difficult to sustain both the greater disruption needed for productivity and incomes to grow, because jobs and people will be disrupted."
For developing countries to catch up, there also had to be a mindset change from protecting incumbents to encouraging competition, because it is often new players who bring innovation, especially in sectors that deal with new technologies, said Mr Tharman.
By undertaking regulatory reform, these countries will be able to access technologies faster, and benefit "a much broader swathe of small players and individuals" than just the incumbent companies.
"We have to make these moves to help the developing world in Africa and elsewhere to grow and catch up, because the consequences are going to be dire if we don't achieve this," he predicted.
"It's not just about some countries being left behind; it's going to be dire consequences of a geopolitical nature."