The future of the Asian economy (15 October 2008)



The shift of economic power to Asia is underscored by the fact that Asian countries now hold up to 5 trillion dollars of foreign reserves at a time when the United States must attract foreign capital, largely from Asia, to meet its escalating deficits.

 

Keynote speech by Maurice F. Strong to World Knowledge Forum, Seoul, Republic of Korea, 15 to 16 October 2008

I am immensely impressed with the theme of this conference: I commend its organizers and sponsors and appreciate the opportunity of sharing with you some of my own thoughts and concerns as to how a greater Asia can lead the way to a more peaceful and sustainable world. It is a privilege to be here in the company of such eminent speakers and participants in this great city of Seoul, in the country which has already demonstrated the important role it can play in shaping the future of the greater Asia.

If there is a positive side to the crisis conditions ringing alarm bells throughout the world as we meet, it is that it will precipitate the radical changes in the seriously flawed economic and financial system which gave rise to this calamity and are long overdue.

My own ties wish Korea go back many years and I have been privileged to witness the remarkable progress of the Republic of Korea from one of the world’s poorest countries to one of its leading industrialized countries, an influential member of OECD, surmounting the horrendous costs of a tragic war which divided, and continues to divide the peninsula, and in the costs continuing of ensuring its security. This is a great tribute to the relentless creativity, the organizing genius, the clear sense of purpose and hard work of the Korean people and its leadership. These qualities, despite limited natural resources, have enabled the Republic of Korea to build one of the world’s most successful and innovative knowledge economies.

Longstanding conflict

Let me also say that although the people of the northern part of this divided peninsula, the Democratic People’s Republic of Korea, have not experienced the same economic progress and continue to accept sacrifices in their economic life to retain their independence and their ideology. They nevertheless have the same qualities and share the same culture and hopes for the reunification of Korea with the people of the south and are capable of developing the economic progress and political conditions which meet their own needs and interests. A peaceful settlement of this longstanding conflict is essential for the future wellbeing of all Koreans and for the contribution that an ultimately united Korea must make to a greater Asia and a more peaceful and sustainable world.

The emergence of a greater Asia is already evident in the impressive progress that East Asia and Pacific Region, as defined by the World Bank, is leading the world economy. The economies of the region grew by 9.8 per cent in 2006; the employment rate was low, some 5 per cent, and output per worker grew by 50 per cent from 2000 to 2006. East Asia has achieved many of the targets of the U.N.’s Millennium Development Goals, particularly in education, healthcare, and reduction of infant mortality. Electricity production increased by some 280 per cent from 1990 to 2005. And high technology exports made up 1/3 of the exports of the region in 2006.

Despite this progress, daunting challenges remain. Pervasive poverty continues to deny millions of people the benefits of economic growth. Corruption robs many of these benefits, the economic and human costs of environmental degradation undermine, and in some cases more than negate, the economic benefits of growth and the need to strengthen their capacities to respond to natural disasters. China’s response to the tragic Sichuan earthquake demonstrated that this region is already in the vanguard of world leadership in dealing with such disasters.

In the energy field, the reliance of the region on coal for generation of electricity is increasing – to 70 per cent by the end of 2005 from 61 per cent in 1990. The region has already become the largest and most rapidly growing source of the greenhouse gas emissions which give rise to global warming, now the greatest single threat to the human future.

Single most important influence

I cite these as but a few examples of how Asia, site of some of the world’s most ancient civilizations, has now emerged as the single most important influence on the future of our global civilization – the sustainability of its peace and security, its economy, and its environment. This creates immense and exciting opportunities for Asia, but also major responsibilities. The opportunities will not be realized unless the region gives much higher priority to acceptance and implementation of its responsibilities unless it learns to act as region in its response to these opportunities and responsibilities. Korea is well positioned to take a lead in this respect.

Knowledge is clearly the principal resource on which the future growth, development and governance of our modern civilization will be based. Technology manifested in a galaxy of new products and services, design, management and information systems is the primary source of added value and comparative advantage in the global economy. It also offers the main ingredient for the transition to sustainability through patterns of production and consumption that are less physical in nature, and less materials - and energy-intensive. The value of a compact disk or a computer chip is primarily attributable to the functions and characteristics with which human intelligence and technology have endowed it, rather than to its material content. The dematerialization of economic growth is already evident in the fact that the biggest single export of the United States today, amounting to some $30 billion per year, is entertainment. The dematerialization of our economic life provides the most promising pathway to a sustainable future.

In the knowledge society, the educational system and the institutions which help people to develop and apply the knowledge and skills which are the keys to the functioning of their society, and the policies and incentive systems which motivate them, will become the principal sources of comparative advantage and success of each country. No country has set a better or more successful example of this than this one.

Knowledge is power, but it is the power to destroy as well as to improve our lives. Unfortunately, the power to destroy through the development and deployment of sophisticated weaponry with unprecedented destructive power continues to preempt so much of the funding, research, and development capacity that could be used to foster peace, relief of poverty, and sustainability. If our civilization is to survive and enable people to realize their hopes and aspirations for a secure and enriching life, there must be a radical shift in our priorities. If we do not consciously take charge and redirect the forces that are shaping our future, our very survival will clearly be at risk.

Principal threat to human species


In a recent speech to a group of distinguished scientists, I posed the question as to what they believe is the principal threat to the human species. Their unanimous response was the spread of communicable diseases – the resurgence of diseases which had been largely contained, the emergence of those that previously had been confined to secluded areas in the tropics, an entirely new ones. The resurgence of malaria and tuberculosis the emergence of SARS, HIV aids and bird flu demonstrate the validity of their concern and the need for this to be a matter of priority and collaboration within this region which is so susceptible to these risks. The destruction of the Earth’s natural capital, its biodiversity, the unprecedented extinction and endangerment of species of plant and animal life, the ominous decline of fish stocks, the lost of productive soil all undermine the capacity of the Earth to sustain the needs and appetites of its growing population.

The unparalleled advances in science and technology have vastly improved conditions of life for the majority of the world’s people and the means, if not the will, to lift those who have thus far been left behind. This has also have created a series of imbalances and inequities, which threaten the very viability of our civilization. Extremes of poverty and wealth divide the beneficiaries from the victims of globalization. Ours is the wealthiest civilization ever, with unprecedented capacity for creation of still more wealth. Thus the existence of pervasive poverty in a world which has the capacity to eradicate it must be seen as an affront to the very moral basis of our civilization and a threat to its sustainability.

Over the past decades the income gap between the richest fifth of the world’s population and its poorest fifth has more than doubled to some 74 to 1. The same processes have also produced a plethora of new knowledge and new tools to help us understand and manage their impacts. There is no more dramatic example than the unprecedented growth of the Internet, which had 140 million users in 1998, and was estimated to exceed 700 million by 2001.

But this phenomenal increase in our capacity to manage has not been matched by an increase in the will to do so. The prospects for sustainability of our civilization in the new millennium now depend primarily on our capacity to unite our motivations and our will to use the knowledge and capacities we now have to manage the transition to a sustainable future. Implementation depends on motivation. The main source of our motivation must be the priority we accord to the issues which will determine the survival of our civilization under conditions which enable people everywhere to live lives in which their security and basic needs are met, and the generations to follow have equitable opportunities to realize their hopes and aspirations.

Changes must benefit people


People must be at the center of the fundamental changes which are now not only desirable but essential. These changes must not only benefit people, they must have the full understanding and support of people. This means that human rights must be universally respected and protected, particularly the rights of women and children. It also means that all aspects of our individual and collective lives must be guided by high standards of ethics and morality.

The Universal Declaration of Human Rights has been endorsed by most countries of this region but it has still not been implemented. The Earth Charter, a citizen-based initiative which sets out principles to guide the conduct of nations and people towards the Earth and each other has been embraced by a growing number of people and organizations throughout the world, including some governments. The Global Compact initiated by the United Nations Secretary-General now includes several thousands of corporations which have committed themselves to high standards of corporate social responsibility. These and other people–based initiatives are encouraging evidence that people are becoming aware and concerned by the threats to our common future and are beginning to take the kind of actions that will drive and support their governments in leading the processes of change.

Concern for their personal security, brings home to more and more people the global preoccupation with terrorism, one of the most difficult manifestations of change from which this region is not immune.

The internet has revolutionized the ability of people to communicate with each other, enabling them to become more aware of and responsive to issues that concern them on a scale and with a speed never before possible. Movements, both positive and negative, can emerge and develop rapidly as manifestations of people power which can produce the broad support that governments require to undertake change while at the same time can become a counter influence on the change process. In any event, it provides a whole new dimension to the power of people which will have a profound effect on the processes of governance and the direction of change.

Accelerating risks

The accelerating risks of climate change are a primary, though not the only, example of the risks we face for the sustainability of our global society from which no nation or people can insulate themselves. Already we are experiencing the effects of increased climactic turbulence, extremes of droughts and floods, the melting of glaciers in high mountain ranges, including the Himalayas threatening the great rivers of India and China on which so many millions of people depend for their water. Accelerating changes in the ice conditions of both the Arctic and the Antarctic will have a profound impact on the sea level, threatening low-lying coastal areas in which so many of the world's people live. in the future of an increasing number of the world's people is facing growing jeopardy through contamination and reduction of their water supplies. These challenges and the risks to our common survival to which they give rise are inter-related and all require a degree of collaboration or “collabonomics” amongst the nations, institutions and peoples of the world which is beyond anything yet achieved or in prospect.

The progress made following the devastating consequences of World War II in developing a cooperative system of institutions and international agreements to ensure world peace and progress. This was an historic step forward in the direction of international cooperation. The center of the current system of international cooperation is the United Nations and its agencies which have been progressively weakened by the unwillingness of its members to agree on much needed reforms and a growing tendency to by-pass it or ignore its decisions by major member states, including the United States which took the lead in creating it. Attempts at UN reform have had some positive results but have not fundamentally strengthened the United Nations to deal with the most urgent and important global issues which effect survivability. A new approach to giving these issues the priority they must have on the global agenda is imperative.

The commitment of U.N. Secretary General Ban Ki-moon to leading the process of radical reform that has never been more necessary and more urgent is highly commendable and encouraging. He should be given every possible support. As a distinguished son of this country and this region, all Koreans can be proud of him. His very election as Secretary General testifies to the respect and the influence which the region now commands and provides it with the opportunity and responsibility to lead the process of reform.

Effective management of these issues will require a degree of international collaboration, decision-making, control, and enforcement measures which go well beyond the existing multilateral system of institutions and agreements. While it does not require world government exercising centralized control over all aspects of human activity, it does require a system of governance that can be effective in exercising collaborative management and control over those issues which are essential to survival and sustainability.

Radical changes

For Asia to exercise the responsibilities and leadership which must accompany its growing power, population, and influence, it will require radical changes within the region as well as its more extensive involvement in the changes that must occur at the world level. This, I contend, is not an option for Asia, but an absolute imperative for its own future and that of the world community.

While there has been notable progress in some countries of this region in meeting the Millennium Development Goals of the United Nations, much remains to be done and progress will be even more difficult in the period ahead. This, again, is an area in which this region’s leadership will be decisive.

Even with the profound changes driven by technology, the twenty-first century is likely to see the re-emergence of some very basic traditional issues with significant potential for conflict: access to water, land resources and livelihoods. The competition for these will intensify. One issue in respect of which we have become dangerously complacent is food security, which poses an ominous threat to the poor and underprivileged.

I am convinced that governance – the ability to manage this complex of forces through which we are shaping our future – is the primary challenge we face in the twenty-first century.

Managing complex systems

Modern technology, particularly information technology, provides tools which enable us to understand and manage the complex systems which determine the functioning of our civilization. But we are still at a primitive stage in establishing the institutional structures through which we seek to manage them. What will we have to do? First of all we need a new economic paradigm which integrates the disciplines of traditional economics with the new insights of ecological economics, what I call a new economics. This must provide the theoretical underpinnings for a system that incorporates into economic pricing and national accounts the real values of the environment and services which nature provides. It must include fiscal and regulatory regimes with positive incentives for the achievement of economic, social and environmental sustainability.

In a market economy which drives the processes of globalization, the market provides the signals that motivate sustainable development. This means shifting taxes from products and practices which are environmentally and socially beneficial to those which are least harmful. In effect, getting the prices right. No nation can do this alone without disadvantaging its own economy. It has to be done through international agreement. There is a lot of room for individuality in the manner in which we administer these nationally, but it can only be effectively done within an internationally agreed framework.

Effective management of these issues cannot simply be a matter of placing our bets on the predictions of experts, however plausible they may be. A survey by the American Association for the Advancement of Science in the 1930s of new technologies that may impact on society did not indentify a single one of the main technologies that now dominate our life. We have to have a view of the future, but we must prepare for a future that we cannot reliably predict. The processes through which human activities produce their ultimate consequences transcend the traditional boundaries of nations, sectors, and disciplines.

We are the first generation in history of which it is true that we are literally the agents of our own future. What we do, or fail to do, today will determine our future. This does not require homogeneity in our lifestyles or aspirations. It does require at the global level that we agree on those measures which are essential in avoiding the major risks to survival and well-being of the human community, which ensuring the broadest range of opportunities for individual self-expression and fulfillment. It is instructive to remind ourselves that the most healthy and sustainable natural ecological systems are those which maintain the highest degree of diversity and variety. But to ensure their sustainability requires that they remain within certain basic boundary conditions on which the health and effective functioning of the systems depend. The same, I would contend, is true of human systems.

Champion of democracy


I have great regard for the United States, but I keep challenging US audiences: “Are you, as the great champion of democracy, prepared to let democracy function on a global basis?” I usually get silence in response to that, because the fact is that not only the United States, and those others which have dominated the multilateral institutions since the end of World War II, including the UK and France, are reluctant to give up their privileged status. Threats to expel Russia from the G-8 and not to admit China will be much more damaging to the credibility and effectiveness of the G-8 than it will be to these countries. Yet their engagement is essential to the resolution of almost all major problems confronting the international community. History tells us that what is unrealistic today becomes inevitable tomorrow. Inertia will often carry institutional arrangements well beyond the time when they have outlived their original reasons. We will have to accommodate to a world in which we in the west are a privileged minority – a powerful minority, yes, but nevertheless a minority. We are a long way from recognizing that.

The global future will be affected radically by changes in the demographics being experienced in almost every region, notably this one. Although overall population growth may level off sometime in this century at a level that is probably going to be some 50 per cent or so higher than it is now, the growing needs and appetites of people will multiply the impacts of these changes. Most population growth is concentrated in some of the least developed countries. Some of the more mature industrialized countries are experiencing declines in their population. In Japan, if present trends continue, the country would be entirely depopulated in something like 80 years.

In past times, emigration provided a solution to the pressures of excess populations, while other regions, particularly in the Americas welcomed immigration and indeed became countries largely of immigrants. But today the borders of the world are closing, except to the rich and those whose skills are in demand, while the more developed countries try to stem the rising tide of illegal immigrants. These demographic patterns will exert more and more pressure and potential for conflict in the period ahead.

Global commons

Global commons issues will become a major driver of global governance. The Antarctic, outer space, the atmosphere, the oceans, even the overall life-support systems of the Earth itself are, commons areas. The various elements that come into management of these common areas need to converge into one high-level organization which can take important political decisions required to safeguard them.

The need for an effective international regime for surveillance and regulation of capital movements and the financial institutions through which they flow is dramatically underscored by the US financial meltdown and its global impacts. The demise of leading US institutions, the weakness of its economy and its currency have clearly undermined the leading role of the United States in the world economy. Although that role is likely to be rebuilt, it will never achieve the degree of supremacy it previously enjoyed. The United States must now share with the leading countries of this region, notably China, Japan, India, and of course, this country, leadership of the world’s financial and economic systems. The crisis of the United States underscores the fact that the center of gravity of the world’s economic and financial systems is moving to Asia and the current crisis will clearly accelerate that process.

All of this requires that we examine the extent to which the countries of this region are prepared to accept these new responsibilities and to exercise them effectively. Governance, both within and amongst the countries of the region and in their relationships with the rest of the world will be the key to this. It will be a particularly daunting challenge and meeting it successfully will be essential to the future of the region and its role in the world. The most urgent priority is for them to develop unity of purpose and policy on those issues that are most critical -- not all issues. For the countries of the region differ widely in their respective cultures and compositions. Japan and Korea are largely homogenous in their populations, while China and India consist of a broad diversity of ethnic, religious, and linguistic communities. Indonesia, too, has a diverse population while being the largest Islamic nation in the world. Nevertheless, these countries have made significant progress to varying degrees in development of their own distinctive national systems of governance.

The principal countries of the region, notably China, India, Japan, Indonesia, and the Republic of Korea have made significant progress to varying degrees in development of their own distinctive national systems of governance. China has demonstrated that a one-party system which brings all parts of the country into the processes of consultative decision-making can produce both internal security and rapidly growing prosperity. India is thriving economically under its own version of a modified western style democracy despite continuing turbulence, and regional, religious, and ideological differences. Japan’s version of democracy has produced some notably weak governments and periods of crisis. Democracy in this country has made progress but cannot be said to be thriving. Attempts to establish democratic systems of governance in other countries like Malaysia, Thailand, and Pakistan have demonstrated the difficulties of imposing a western style, capitalistic democracy in countries in which it is not rooted in their culture and traditions.

Ideology -- becoming less relevant

Although proponents of both socialism and capitalism continue to stress their ideological differences, in practice these are becoming much less relevant as socialist countries move towards the market economy and even the leading capitalist country, the United States, is resorting to socialist solutions in response to its financial crisis. Indeed it is ironic that as the United States is forced to take ownership or control of major private sector institutions, the world’s principal socialist country, China, is privatizing many of its state enterprises in implementation of its commitment to harmonious development through a science-guided “Socialist Market Economy”.

A stronger Asia that is able to achieve its potential of greatness must consist of components in the countries of the region which are themselves strong. To achieve this each must develop its own system of governance which accords with its traditions and culture, meets the needs and engages the support and participation of its people and enables it to participate effectively regional and global governance. There is, of course, much to be learned from the models of democracy developed in the west, in their failures and weaknesses as well as their achievements. As we have seen recently, western “ballot” box democracy can produce weak governments.

Deeply entrenched corruption often accompanied by organized crime and a thriving drug trade is one of the most pervasive and difficult challenges to the development of effective governance in the countries of the region, many of which are now seeking to control or eliminate it, particularly in its more extreme forms. The greatest single obstacle that this region faces in achieving greatness is lack of an effective regime of institutions and legal agreements which bring corruption under control, establish the rule of law, and give practical effect to democratic process. At the regional level institutions, like ASEAN are useful but limited by their purely consultative nature. The Shanghai Cooperative Organization which links Russia as an increasingly formidable an influential Asian power with China and a growing number of other countries in the region is one of the most promising recent institutional initiatives.

The visionary proposal of India to establish a multibillion dollar Asian gas grid and oil security pipeline system is one of the most exciting proposals to come from within the region, though there is little sign as yet of it being activated. Particularly dangerous is the lack of a significant structure of agreements and institutions to ensure the vastly increased cooperation required to prevent and manage trans-boundary environmental and resource problems which pose a major and growing threat to the achievement of sustainability in the region.

The renewed commitment of the Democratic People’s Republic of Korea to developing its nuclear capacity underscores the need and the urgency of an agreement to make the Korean Peninsula and indeed all of Northeast Asia nuclear-free including freedom from nuclear threats from outside the region. These are only some of the main examples of the need for a new era of collaboration in the region. Unfortunately, calls for an Asian Union drawing on the example of the European Union have developed little momentum and this remains a promising goal, it is still a distant and doubtful prospect.

The shift of economic power to Asia is underscored by the fact that Asian countries now hold up to 5 trillion dollars of foreign reserves at a time when the United States must attract foreign capital, largely from Asia, to meet its escalating deficits.

In these remarks, long as they have been, I have only been able to touch on some of the main areas of the challenges and responsibilities that Asian countries face as they exercise the new powers and strength that they have achieved and confront the daunting challenges they must resolve if they are to succeed in realizing the potential for greatness of the region and lead the world into a new era of peace, security, and sustainability.