15 May 2017
15 May 2017 | 9 am
Pan Pacific Singapore
Thank you very much. Madame Speaker, Benedict, Ralf, excellencies, ladies and gentlemen. Let me thank you for being here and let me thank our friends at Temasek and at RSIS, Karen, Swee Seng, Pauline and the entire team for all the hard work they have done to make this meeting happen.
It is always a great pleasure to be back in Singapore. Singapore has a long and very rich association with the World Trade Organization. The first WTO Ministerial Conference was held here in 1996. It was a Singaporean artist who designed the WTO’s logo. And the government of Singapore, at the very highest levels, has always been very supportive of our organization and very closely attuned to its developments. Perhaps, Singapore’s commitment to the WTO is best illustrated by the appointment of so many outstanding ambassadors and officials who have served in Geneva, several of whom you will be meeting in the next few days.
Ladies, and Gentlemen, in 1965, the Futurist Alvin Toffler defined the term Future Shock as “the dizzying disorientation brought on by the premature arrival of the future.”
Certainly, this past year has been full of shocks. Who could have predicted the wave of populism that has crested over much of the developed world, a wave that has reshuffled the deck of geopolitics – putting into question some long held tenets while eroding other pillars of the Post War order.
Who could have imagined a year ago that Britain would today be in negotiations to separate itself from the European Union. Who would have imagined that two men who have never held elected office would become Presidents of two of the five Permanent Members of the UN Security Council. That political leaders in great powers would call into question cast doubt upon and pledge to wind down many of the fundamental precepts of international cooperation – including agreements covering trade, defence and development – was a notion few would have contemplated just 12 short months ago.
How many people would have predicted that political discourse would have evolved to the point where some parties would seek to portray disagreement over trade, immigration and development aid as a battle between “Patriots” and “Globalists?”
The rise of populism is by no means limited to Europe and North America. In Asia, in Latin America and in Africa too we have seen nationalist leaders, backed by populist sentiment, rise to the citadels of power.
Why has this happened? Perhaps it has something to do with the “dizzying disorientation” of which Toffler spoke. Or perhaps many people looked to the future and didn’t much like what they saw.
In industrial towns and rural villages, big cities and sprawling suburbs, people worry that they have lost control over their futures and their children’s futures. Opportunities once seemingly ever present, now seem to have vanished.
This growing anxiety about the future has given rise to mounting anger at traditional policies and politicians whom many people believe have not adequately addressed their concerns. Among the policies most under attack is the policy of open trade.
From the end of the World War II to the Great Recession, trade has expanded 20 fold. Hundreds of multilateral, bilateral and regional trade arrangements have been negotiated. This expansion of trade has helped to lift more than one billion people from poverty and nowhere has this been more evident than here in Asia.
Trade has raised incomes for professionals and workers in export oriented industries. It has led to the rapid spread of new ideas and new technologies.
Trade helps to stimulate growth by shifting resources within and across borders to more competitive firms. These firms generally have lower costs of production and pay better salaries. They are typically more innovative and use newer technologies. As consumers, workers and ordinary citizens, we gain from trade in at least five important ways:
- through greater economic growth and rising living standards
- through lower costs for goods and services and more choice for consumers
- through a positive impact on real incomes overall
- through access to new markets and increased earnings for smaller businesses
- and through poverty reduction and a pathway to help address social and environmental concerns.
The Business Roundtable in the United States estimates that trade supports about 41 million American jobs. Imports and exports comprise 30% of US GDP, nearly three times more than when the General Agreement on Tariffs and Trade was reached in 1947.
In Germany, 30% of all jobs are supported by exports.
In Japan, the figure is smaller but is still 13%.
China has seen its exports jump six fold since joining the WTO and has lifted hundreds of millions of people out of poverty. In 2000, wages for workers along China’s coast – the heart of the country’s export engine – were but 30% of those in the United States. Today they are 65% as high.
In Vietnam, a trade deal with the United States led to the creation of more than 250,000 jobs and helped the government slash the poverty rate from 28.9% to 19.5%.
Trade is tightly woven into the fabric of the economies of most nations of the world, perhaps nowhere more than here in Singapore where trade as a percentage of GDP is 175%!
In China it is 22%, Malaysia 69%. Maldives 98.1%. Thailand 65%.
Trade matters, pretty much everywhere.
It is essential that we acknowledge that increased competition from foreign producers has had the effect of depressing wages in some sectors and shuttering some factories in others. But it is equally important to take on board that other factors, like automation and innovation have been responsible for a far greater share of job losses in manufacturing.
Figures vary, but most analysts say that productivity gains from technology and innovation which have been responsible for 80%-90% of job losses in manufacturing.
In the United States, for example, industrial output in 2015 reached an all-time high, even while as many as 5 million manufacturing jobs were lost since 2000. In 2015, US manufacturers churned out three times more durable goods – cars, washing machines, furniture and consumer electronics – than they did in 1980 and twice as many as in 1995. Yet, they did so with one-third fewer workers.
The reality is that, through technological innovation and improvements in production processes, companies are producing more with fewer workers – higher productivity in other words – and this trend towards greater automation and improved production processes is set to continue as technological advances accelerate.
But it’s not easy to campaign against the Iphone, Tesla and the on-line purchase and delivery of goods and services. In the search of job loss culprits, trade makes a much easier target.
While the breath taking technology change of today has had the effect of unsettling a great many around the world, it is important to understand that this not new.
The disquiet felt by many workers today might best be viewed through an historical context. A seismic shift similar to the digital revolution occurred in the 18th century with the advent of the industrial revolution.
Steam-powered machines, housed in factories, led to the creation of new industries and new products. Steelmaking and textile production flourished. Entire cities sprouted up around these factories. From 1770 to 1850, the population of Manchester grew from 25,000 to 350,000.
As new production technologies were introduced and manufacturing became more capital intensive, many workers responded violently. Luddites in 19th century Britain destroyed weaving machines which they believed were putting their jobs at risk.
Many of those hired to work in these new factories toiled in appalling conditions. But unlike most blacksmiths, candle makers or agriculture workers, they did have jobs. Then, as now, the response from policy makers was slow in coming. It took many decades before lawmakers acted to protect workers through regulation, social programmes and protection of trade unions.
As in the 18th century, technological advance in the 21st century has heralded big changes to the global economy. Robotics, nanotechnology, artificial intelligence and genetic technology promise tremendous economic opportunity but there will be real challenges and costs as well. According to an analysis by the World Economic Forum of 15 advanced and emerging countries, new technologies will by 2020 result in the creation of 2 million new jobs in these countries but at a price of 7 million jobs lost. Many of these job losses will be for white-collar workers.
As driverless vehicles become commonplace, the livelihoods of truck and taxi drivers will be under threat. A recent study by McKinsey suggests that 45% of jobs performed globally today can be automated by adapting available technologies. Some economists estimate that as many as 50% of jobs in the United States and more than one-third of British jobs may be imperiled by emerging technologies.
The impact of automation on employment is not strictly a matter for the past or the future. It is happening today. This technological change is not limited to robots on the factory floor or artificial intelligence.
In the same way that the advent of electricity and the motor car were bad news for candle makers and blacksmiths the relentless advance of technology has put jobs at risk in the 21st century.
Think of how you pay your bills and make your travel arrangements today and what that has meant for bank tellers and travel agents. Internet news and on line delivery systems have meant the loss of millions of jobs in the newspaper and retail industries. Keep in mind, these are not sectors that are, generally speaking, subject to competition from imports.
All of this being said, we must acknowledge that trade is responsible for some job losses in some sectors, in some regions. But would severing trade links and hoisting up new trade barriers bring back the old factory jobs and lead to the creation of new ones?
It seems very clear that it would not. Implementing protectionist policies would not bring back jobs, would not raise incomes and would not lead to the creation of new jobs.
What is far more likely is that such policies would raise prices, stifle innovation and provoke tit-for-tat retaliation from trading partners.
All students of economic history know about the U.S. Smoot Hawley Act, which resulted in additional duties of 50% or more on nearly 900 imported products. America’s trading partners were not amused and they responded in kind with crippling effect.
When Smoot-Hawley was signed into law on June 17, 1930, unemployment in the United States was 8%. By 1931 it had doubled to 16% and by 1932 it has risen to 25%.
Between 1929 and the end of 1934, global trade had contracted by two-thirds.
More recently, a study by the Consuming Industries Trade Action Coalition (CITAC) Foundation found that restrictions on steel imports applied by the US government in 2002 resulted in more workers in the United States losing their jobs that year due to higher steel prices (202,000) than were employed in the steel industry itself (187,500). One out of four of these job losses occurred in the metal manufacturing, machinery and equipment and transportation equipment and parts sectors. The total cost of all job losses was $4 billion in lost wages.
A study by UCLA and Columbia University states that severing trade links would erode the purchasing powers of wealthy consumers by 28%. But a slide into protectionism would have a really devastating impact on the pocketbooks of the poorest, slashing their purchasing power by 62%.
Too often when trade is identified as the problem, the suggested remedy is protectionism even though today we know such medicine would harm the economy rather than help it. It would exacerbate the problems we all want to solve, leading to more job losses, lower wages and greater inequality.
The global economy has still not shrugged off the crushing impact of the financial crisis. Trade has grown at less than 3% for each of the last five years and grew at a paltry 1.3% last year. WTO economists predict trade expansion may be as low as 1.8% this year and 2.1% next – though such is the political uncertainty at present that our forecasts actually involve a range of possible outcomes. With trade growth already so meagre, does it make sense to take steps which would curtail it further still?
Rather than resorting to medicine which would make the patient worse, wouldn’t it be better for governments to try and respond to the real problems in the economy and prepare themselves and their citizens for the profound changes that loom on the horizon. The loss of one’s job is a tragedy, whether that job has vanished due to technology, trade or the overall economic climate.
A balanced, evidence-based discussion on trade will be vital in preparing that response and governments will clearly need to think long and hard about how to assist those who have been hurt by trade. So what should governments do?
The gains from trade are hugely significant but they are not automatic. Trade needs to be joined by the right mix of domestic policies if the full range of benefits is to be achieved. It must also be recognized that trade can have negative effects in some parts of the economy and those effects can adversely impact some people’s lives.
Securing the gains from trade often involves adjustment costs. Less productive firms might have to close down when faced with import competition. Workers in sectors that have been impacted may need help to get back on their feet.
Some governments have adopted successful adjustment programmes to support workers displaced by trade and to offer them training and new job opportunities. Here in Singapore the government adopted during the financial crisis the Jobs Credit Scheme to help companies keep workers on their payrolls.
Singapore’s Council for Skills Innovation and Productivity – lead by senior officials from government, business, unions and academics – has also launched “SkillsFuture” a programme designed to help support people at all stages of their careers by promoting courses and training programmes to enhance skills and match individuals with the companies that need them.
Last year, for example, nearly 70,000 Singaporeans took part in about 9,000 courses designed to enhance skills mid-career. Government funding for these courses covers up to 90% of the tuition.
The programme also provides guidance to enterprises and businesses on the sectors where job growth is likely to be strongest in the years to come. Skills framework programmes are geared to preparing Singaporeans for work in high growth sectors like aerospace, logistics, electronics and sea transport.
Korea’s Trade Adjustment Assistance Programme and Denmark’s “Flexicurity” programme are two other examples. The City of Pittsburgh in the United States has transformed itself from a steel town to an innovation centre.
But other governments have been less successful in their response.
A debate on an issue that affects our lives so deeply has to be based on facts rather than rhetoric. Policymakers need to be sure that when they are analysing the problem, they get the diagnosis right.
Trade is not perfect – but it is essential. It is up to governments, policy makers, academics and international organisations to make it work better as we seek to respond to a period of wider economic change.
All of which underscores the wisdom of Confucius, who said “study the past if you would define the future.”
Trade is one of the most powerful poverty reduction tools in history. Trade injects dynamism, new technologies and fresh ideas into every economy. But it does this through enhanced competition in which not everyone emerges as a winner. While the majority of people benefit from trade, we cannot deny the fact that the current model for trade policy leaves too many standing on the sidelines unable to fully reap the benefits trade can provide.
It is increasingly evident that policymakers, academics, international organizations and others must do more to ensure that the benefits of trade are more widely shared and understood. We need to make far greater efforts to ensure that trade is truly inclusive.
This means bringing more developing countries, more smaller companies and more women entrepreneurs into the trading system.
The use of electronic commerce has the potential to bring millions of new entrants into the market, and many entrepreneurs in the developing world have succeeded in selling their goods and services in foreign markets. But the fact remains that while $22 trillion of e-commerce business was conducted last year, more than 50% of the world remains unconnected to the Internet.
It also means providing better support for those who have lost out from economic change. Providing a social safety net to workers who lose their jobs is a far more effective response to imports than protecting jobs in uncompetitive companies. It is also much, much cheaper. Studies show that protecting such jobs is significantly more expensive than providing wage insurance, skills enhancement and job placement.
Not only is it economically counterproductive to shut down trade, the application of trade barriers is viewed by other countries as a hostile act, which may warrant a retaliatory response. Many historians believe that the adoption of protectionist, economically nationalistic policies in the 1930s not only made a dire economic situation worse but further fuelled the tensions that led to the outbreak of World War II. It was this belief that led the architects of multilateralism to create the rules-based global trading system.
Rising geopolitical tensions in many corners of the world dictate the need for greater international cooperation, not the adoption of hostile trade policies. This is not the moment to turn inward by implementing measures which would further inflame those tensions, send trade into a downward spiral and raise the spectre of recession.
Change is required in the way we view trade and trade policy. We need to find policies that bring about more inclusive trade so that all nations, all businesses and all citizens have the opportunity to gain from an economic tool that is essential for growth, development and elimination of poverty.
Thank you very much for your attention.
Last updated on 07/05/2019