Speaking at the inaugural summit in Singapore on 13 April, Tharman stressed on the need for Asian nations to play a vital role amid the ongoing debate on protectionism and the latest trade friction between US and China. He said Asia must focus on investing in human capital and technology to create jobs and consistently strive to interact, learn and look outward at the global market.
Tharman also had some advice for India but caveated it by saying he was offering this as a friend of the country. India, he said, was on the right trajectory, but needed to do more in terms of pace and direction.
He went on to say that the country should make a decisive shift in its strategies to accelerate to the required level of growth and to be able to create its targeted 10-12 million jobs each year.
Commenting on how India’s pace for the required growth was not enough, he said, “It is not enough if we are going to have to generate 10-12 million jobs per year. It requires a more decisive change... It requires a more decisive shift towards developing competitive strength in the international market."
Further, the deputy prime minister noted the current government’s flagship slogan to encourage domestic manufacturing, “Make In India" has to be “Make in India for the world and India".
“It has to have an external orientation," he said.
Tharman, who is also chairman of Singapore’s banking regulator Monetary Authority of Singapore, stressed on the need for investment in people and human capital in many parts of Asean and India.
“There is an imbalance in many parts of Asia—some parts of Asean and India. Too much regulation and protection and not enough investment in human capital and education at the most basic levels, tertiary levels, skills development and in healthcare. So, we have to shift the balance away from intervention in economies to investment in human capital and generations of individuals," he said.
Later, in a discussion with Hindustan Times Editor R. Sukumar, Tharman brought forth his views on the need to create more winners in Asian economies, the sharp focus on globalization and technological change and the need for calibration by each economy for capital flows and others. Edited excerpts:
The challenge for leaders around the world is to balance local concerns and in the West, a lot of these concerns have been around the fact that national incomes have not really gone up since 2007-08 and they have to balance it out with free trade. How do you balance it out?
Globalization and technological change produce winners and losers. In many of the western economies, they have left problems for too long to fester and that is in towns and cities which are losing out typically because of technological change and manufacturing jobs being lost. There is very little effort to regenerate those towns and cities. It can be done and some societies do it better than others.
Equally, in our part of the world, at the end of the day, to benefit from any economic growth, we need investment in people and human capital. Social investment is critical to take advantage of the technological change. I would say there is an imbalance in many parts of Asia—some parts of Asean and India. Too much regulation and protection and not enough investment in human capital and education at the most basic levels, tertiary levels, skills development and like and in healthcare. So, we have to shift the balance away from intervention in economies to investment in human capital and generations of individuals.
We are at a stage of major technological change, and as you said, there are clearly winners and losers in the global trade system. There is a natural reaction among leaders around the world to erect barriers to protect your own. How do you move beyond that?
The first way to move beyond that is to create many more winners. I spoke of lack of investment in towns and cities in many parts of the western world. If you look at our part of the world, we are still far away from realizing the potential of manufacturing. Most specifically in India and some parts of Asean. But because of technological change, the window of opportunity is now shorter than what it used to be. The next five years are critical for India and parts of Asean that are still not significantly on the manufacturing escalator. There is a race against technology and intelligent machines that will be able to do what labour does in factories (today). But the opportunity is still there.
China restructuring also provides greater opportunity. It is an illusion to think that people can move out of agriculture and get good jobs. We have to develop manufacturing and infrastructure because everything requires infrastructure. It can be done, but there has to be a sense of urgency because the window of opportunity is much smaller to get on to that escalator.
Globalization in its early avatar was the flow of goods and services. Then it started including movement of professionals and people, and there started to be a problem with that. And now, a lot of that flow is driven by data. The challenge many countries face is factoring in people. Now with data, how does the regulatory and other process work around this?
It is worth reiterating that when we think of the benefits of globalization, the benefits of trade in goods and services and foreign direct investment (FDI) are uncontested. That brings benefits to all nations, and that brings right social strategies, openness and inclusiveness. The benefits of capital flow, besides FDI, are still significant, but they often require some calibration. The benefits of movement of people are still significant, but it requires further calibration. If there is a hierarchy of benefits of globalization, on the top, you have FDI, then capital flows and third, the movement of people. But it requires calibration for us to evaluate that the benefits make sense for our own people and are sustainable.
Data is the new phenomenon that we are all grappling with. Data is part of the new economy. To digitize manufacturing services in any sector, we need a data economy. It requires the talent and skills of the digitized economy and also hard thinking of the competition policy since it is a new area. The traditional way of competition policy will be looking at mergers and acquisitions, (whether) consumers will be charged more for the products, any monopoly pricing and others. In the new digital economy, the consumer typically may not be paying more but less, but there are other issues involved to do with the ownership and transfer of data. It is a new challenge for competition policy all over the world, and we have not found answers for it yet.
In some ways, what you were saying about calibration would help the country to stay open because the national issues would not let the country stay open?
That is true because to stay on the path of openness and liberalization, some things need to be calibrated. You do not want to over-regulate, but you need to have the ability to calibrate. Some short-term capital flows in some economies in the domestic financial sector need to be developed and one needs to calibrate the flow of people.
One of the issues CECA (Comprehensive Economic Cooperation Agreement) is discussing is to do with the flow of people. Have you managed to arrive on a common ground on that?
The second round of CECA talks have been going on for a long time since 2010 and both Prime Ministers have agreed that we should conclude it soon and expeditiously and the officials are seeking to do that.
In many countries around the world, there have been efforts to sign bilateral and trade FTAs (free trade agreements). The movement under the aegis of WTO seems to have worn. Do you think it can be done or bilateralism is going to be the future of global trade?
I don’t think bilateralism will be or should be the future of global trade. Bilateral trade balances particularly are not helpful to even our own economies. Bilateral, plurilateral including regional initiatives, and multilateral liberalization all play a role. Regional trade deals are the ones with the greatest momentum. If you look at the ones that happened with CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and if you combine it with the potential of RCPE in Asia, it is significant.
Multilateralism and WTO, do you still think we can move forward?
In dispute resolution, it is still critical.
But not in other areas?
The liberalization process has been slow as we know after the Doha round. We should never give up hope on it. We have to wait for multilateral liberalization to move ahead and regional liberalization has to move ahead in a way that it is consistent with multilateral liberalization. That is essentially our philosophy.
What are the new areas where you think India and Singapore can partner? Do you have an existing framework?
The strategic partnership is going well and we are collaborative in several areas. A deep partnership, I would say. Our defence partnership, skills investment and now in making smart cities and linking up digital economies are all going very well and the foundation is still in trade and investment. So we are looking at opportunities in a range of sectors and these are commercial decisions that have to be made.
While India’s trade with Singapore is significant, the partnership with other Asean nations has still a lot of work to be done. How do you think that can be accelerated?
Two of the points I mentioned -- air connectivity and linking of smart cities are two ways by which we can accelerate that. Air connectivity is critical as it makes people aware of each other and the opportunities on both sides.
Over the last few years, there has been a lot of writing and thinking globally whether the world is following the right economic model. Your speech and our interaction leads me to believe that you, like any of us, think that free trade and globalization is the way to go?
This is the way to go if accompanied by right social investments and regenerating towns that are down and individuals regularly and throughout their careers and lives to take advantage of global trade and technology. It is a failure in terms of investing in people that is at the heart of many of the problems that we see today.