For countries to grow in an inclusive way, the economies of the world need more disruption, not less, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.
This applies to both developed and developing countries, he said in a panel discussion at the World Economic Forum's summer meeting in Dalian, China.
Asked to describe the state of the global economy, Mr Tharman said there are two main problems today: Middle-class stagnation across a broad range of advanced economies, and the fact that most developing countries have 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 incomes can be achieved only 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 technology giants such as Google and Facebook, and in- novations in fields like artificial intelligence, the fact is that there has 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 innovations, said Mr Tharman, who is also Coordinating Minister for Economic and Social Policies.
CURBING EXTERNAL COMPETITION NOT THE ANSWER
I first came to Dalian about 15 years ago, I have been here several times since. It impresses me every time I come, but the problems of the region have grown larger, like they have in the Middle West in the United States, or anywhere else. But the difference is, everyone I speak to in national leadership and in local leadership, not a single one of them thinks that the answer is to find some ways of curbing external competition. Not a single one of them thinks that the answer is to slow down innovation and have less disruption. The answer in their minds is in social and economic policies to help those who are displaced to get back into a job, or to have a decent social safety net if they are in the older age group. ''
DEPUTY PRIME MINISTER THARMAN SHANMUGARATNAM, in his closing remarks at the WEF Summer Davos programme.
"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," he said.
However, this can be accepted only if there are effective policies to help those who lose their jobs, to regain livelihoods.
Traditional policies that governments use to promote social equality are no longer adequate, he added, and there has 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 requires some economic specialisation, and development of communities of learning and mutual help. Far more attention has 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 the global economy.
The solution is not protection but more globalisation in the developing world, said Mr Tharman.
"But like the advanced countries, it is only going to work if we have better, more activist social strategies. That is 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 has 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 is not just about some countries being left behind; it is going to be dire consequences of a geopolitical nature."