Dr John Chipman
There are many issues that have been placed on the table from the Asian style of quasi-state capitalism to the important need for political extroversion if economic power is to be translated into greater influence. I am keen to hear very different international perspectives to see where are there are areas of agreement and disagreement.
Professor François Heisbourg, Chairman, IISS
Professor Takenaka, I was listening with very great interest to your overview of the Japanese situation and you nearly convinced me at one stage that there was some serious hope for reviving the Japanese economy but then you came to a comparison with my own country which is France in saying, ‘We will now move to something like the French experience of cohabitation’. In my view, the only thing that is worse than political drift and chaos is the stasis which you get when you have cohabitation; that is leaders of two parties opposing parties working in the same framework. In the case of my own country, that ensured the total inability to take any decisive action and from what I understood when you talked about Japan, is that Japan, like the European countries, requires some fairly decisive action. If after the current political drift in Japan, you are going to have cohabitation, I would advise the board of trustees of the IISS to remove its investments in Japan.
Daniel Price, Partner, Sidley Austin LLP; former Assistant to the President and Deputy National Security Advisor for International Economic Affairs, US
I wanted to offer a comment on Professor Cooper’s presentation. I do not take issue with the economic overview but there was in something missing in my view in terms of predicting the future leadership potential of the US. Historically the prosperity and security of the US and part of its global leadership lay in its openness and commitment to trade and investment liberalisation. Regrettably the US seems to have lost its way on that; the Korea and Columbia free trade agreements languish, unapproved by the US Congress, not presented to the Congress by the Obama administration. We have seen an uptake in discrimination against foreign investors and indeed individuals. Those financial institutions which received TARP assistance were prohibited by legislation from participating in the H1B visa programme and this comes from a nation of immigrants.
We have increasingly seen, on trade disputes and other trade issues, a willingness to indulge the protectionist instincts of the democratic left. On the multilateral front, the positions and proposals of the US on the Doha round are notably absent. Before I sound like I am condemning the US alone, they are not alone; on the European front, we have seen a number of proposals for regulatory reform that are in fact premised on a disintegration or deglobalisation of the world economy. We can see this in the proposals on investment funds, the UK’s liquidity requirements and the Swiss lend-local rules. It seems to me that is a nation or a group of nations would assume the mantle of global leadership, or aspire to it, that must go along with a commitment to openness and trade and investment liberalisation.
Participant
I do subscribe to many of the ideas mentioned by Mr Takenaka and Mr Cooper for the analysis and prediction for 2030. However, I noticed in three missing areas in Mr Cooper’s analysis; firstly the prediction about Russia and what its status will be by 2030, secondly the Middle East and thirdly Africa. How do you see the situation there? Thank you.
Professor Igor Yurgens, Chairman of the Board, Bank Renaissance Capital; Executive Board Chairman, Institute of Contemporary Development; IISS Council Member
As the question is about Russia, I would like to say that there is a school of thought in the Russian Federation which says the following; if we join forces with the European Union, there will be 500 million people living in that area, it will be reinforced by Russia and will have 40% of the non-tropical wood, 40% of the world’s nickel, 20% of the world’s oil, 8% of the world’s gas, one-seventh of the world’s land mass, then we can beat everybody by 2030. If we do not do this, Europe will suffer, Russia will suffer even more and we will lose the position as the seventh economy and current comparative purchasing power will go down. Nothing tragic will happen to the Russian people because Argentina was number seven in the midst of the last century and now is it is placed within the 60s and Argentineans live and enjoy life. However, the super status of USSR membership in G8 should in this case be forgotten. Indigenous resources are nonexistent because of the demographical situation amongst other things but the modernisation course has been announced and if we stay together on that course with Europe, by the year 2030, you will be surprised and not unpleasantly surprised.
Silvina Vatnick, President, Center for Financial Stability, Argentina
Obviously what Professor Yurgens has just mentioned is absolutely true and I think that is explained by mismanagement but my point is broader and is to do with an aspect that I did not hear about from the presenters on the panel. It is not to do with power or influence as such or GDP growth but to the actual economic relations and the flows of trade in goods and services because in this session and with this group of people, I think it would be very useful to discuss what we see coming up in the year to come with respect to some of the relations between emerging economies, other countries and the industrialised economies. I think there is a fundamental shift there that we need to understand better which relates to issues in the Middle East over food security and access to water resources, without forgetting some of the bigger issues such as climate change. I think some comments about that would complement the panel’s discussion.
Dr Lee Chung Min, Adjunct Senior Fellow for Asian Security Affairs, IISS; Member of the President’s Foreign Policy Council, Republic of Korea
Dr Takenaka, why is Japan not globalised? You served under Prime Minister Koizumi, one of the most international leaders that Japan has had and yet his impact on the global stage was, in certain respects, quite limited. Do you see Japan having a global voice in the future? If it does not, do you want China speaking on behalf of all of us Asians? I think Asia feels very uncertain about that.
Dr Cooper, do you foresee any structural role in the G20 in managing the global economy over the next 20 or thirty years? If so, what type of role would you imagine the US playing in the context of the G20 and how do you see the reaction from the G8 countries?
Participant
I just wanted to confirm the view given by our colleague in saying that the US is closing. Bahrain has a free trade agreement with the US and yet suddenly there is a policy of ‘buy American’. Goods from certain industries are discriminated against when trying to sell in the US. This would not be a good example to other nations where economies sign agreements to trade freely and then suddenly decide to be patriotic. Secondly, the Arab world, especially the Gulf, has not been mentioned; what is this group’s opinion as to what will happen to our part of the world in terms of world economy?
Professor Richard Cooper
I will not try to cover everything but I just want to say that the big story of the last two years is not that the US is becoming more closed; it is that the whole world has remained as remarkably open as it has under the provocations of the financial crisis and then the economic crisis. The concern of all of the leaders was that there would be major protectionist pressures; there have been some leaks here and there but on the whole, the dike has held against the protectionist pressures which inevitably arise in democratic countries when unemployment goes up as much as it has done in the US, in Europe and even in Japan.
I think Mr Price confused liberalisation with openness and liberalisation requires further actions; openness requires maintaining what we have and I personally strongly favour liberalisation but this is not the time to do it politically. The real efforts should be to maintain openness and on the whole, not 100% but on the whole, that has been achieved.
The only comment that I want to make is in regards to the Russian gentleman who said that together, Russia and Europe can beat everyone; the world is not a big sports event in which countries go into contest and some win and some lose. The big story of the last 60 years is that almost everyone, there are exceptions in Haiti, in parts of Africa and in Afghanistan, but almost everyone is much better off than they were in 1950. The big story is the improvement in worldwide welfare and the decline on poverty. For the first time, hundreds of billions of families have real choices in life and are not just worrying about where the next meal comes from. We are on a roll and we want to keep that role going and I think that is the big story and not who is going to win the next contest.
Dr Heizo Takenaka
Thank you very much for a very stimulating question. Honestly speaking, we have to study France’s experience more; I also understand that cohabitation is not easy. However, in the case of Japan, the real problem is, the ruling party, the DPJ, made the wrong promise in the last election. They promised to increase expenditures, they promised to revitalise the Japanese economy and so on but that is the wrong promise and it is an impossible one. They are now aware of that so they need the rationale to change something. In that sense, a kind of cohabitation would be a possible way but I still I understand the very important issue of who the partner would be.
Also, In the case of Japan, the budget deficit is becoming a very serious issue. We know that Greece is now suffering from this however if we compare the government bank GDP ratio, Japan’s figure is much higher than that of Greece. This is financed domestically at the moment but situations are changing; the effective ageing of the population. This is a kind of competition of the market and politics so in order to cope with the situation, a tax hike or a reduction of government expenditures is needed. This is very risky politically and in that sense, some kind of partnership is needed. This is the reason why I raised it but we should study your experience more.
Responding to Dr Lee of Korea, the global spread of Japan is still limited; global contributions are still limited. China is growing but Japan should spread more in the global community and that is exactly true. At the same time we should recognise that Japan is already playing quite an important role, in the field of environmental issues for example. Japan has a very special technology for pollution abatement; if we compare the CO2 to emissions to GDP ratio. This ration is about half in Japan, compared to that of the US, half in comparison to the European countries and one-ninth of that of China. Therefore, we are contributing this kind of technology. The way of presentation is very modest. Another reason, if we raise it, is that of population. Japan has a 127 million population, the second largest of the industrialised countries. Generally speaking, as Japan has a huge domestic market we should pay more attention to the domestic issue. The only exception in the world is the United States who, despite a large population, is taking care of global issues. As I mentioned, as the population of Japan is declining, we should pay more attention to the global issue. I believe Japan’s role in the global agenda will substantially increase. In the case of China, the country also has a very large population and therefore, more domestic issues at the moment. However, as was mentioned by Dr Cooper, it is not easy for China to take leadership in global issues. In that sense, the leadership of the United States is very important – though influence and leadership are different - and China’s is increasing. Japan’s, Korea’s and the role of other Asian counties are now becoming much more important so we need far more cross-discussion on that issue in Asia.
Dr Atsushi Seike, President, Keio University
When you think about economic power bands, population is always the key variable. Both Professors Takenaka and Cooper mentioned the impact of demographic change on the economic balance. As you know, East Asian countries are all facing a drastic increase in their populations, however there is a significant time lag in aging populations in East Asian countries. Japan is aging first, then Korea, Taiwan and eventually China as Professor Takenaka mentioned. I am just curious to know in what way and to what extent you feel that this time among East Asian countries would affect the economic power balance. Thank you.
Dr Odeh Aburdene, Senior Advisor, CT Capital Trust Group
Professor Cooper, in your talk about growth over the coming 20 years, there was no mention of the impact on oil prices. If the World is going to grow as you have concluded, what will that do to oil prices, and also, will that enhance the regions? I also have a question on US growth. US indebtedness is almost $9.3 trillion. Twenty years from now it is going to have increased substantially, so how can the US grow with this amount of debt and in twenty years, will the US be in a similar position to the one that Greece is in today?
Lord Powell of Bayswater, Former Private Secretary and Adviser on Foreign Affairs and Defence to Prime Ministers Thatcher and Major, UK; IISS Council Member
I thought both speakers’ predictions for future growth trajectories of the major world economies and their effect on the relative size and share of world GDP were very interesting. However, both of them said rather little about competing economic models, whether that is the free market, the social market economy model of Europe or the authoritarian capitalism of China. Professor Cooper focussed on innovation and flexibility as the key to US success, but while I am sure that is right, one might think that financial innovation has gone a step too far. China, of course, is not noted for either innovation or flexibility, and yet it has achieved great success. Do either of the speakers think that the Chinese model will gain greater attraction for other countries because of its ability to mobilise resources and to deploy them very rapidly? Or do they think that this is just applicable to the very particular circumstances of China.
Dr John Llewellyn, Partner, Llewellyn Consulting; former Chief Economist, Lehman Brothers
John Llewellyn from New Zealand and the UK. Can I just suggest to Professor Cooper that perhaps he has short changed Europe a little in his projections? I’ll tell you why I say that. An alternative way of telling the history of the last 40-odd years is to say that output per person has increased in the US at about 2% a year, as it has in Europe. However, the US economy has grown about a percentage point faster than that which - as he said – is mainly because of immigration. However, Europe has also seen a remarkable expansion in the post-Soviet Union era. In other words, just as the United States has grown faster by taking labour in, Europe as a region has grown very rapidly by bringing countries into its orbit. You may say that it has been spectacularly successful in helping economies, which were not used to a market system and did not have the institutions of western market economies, acquire them very quickly. Therefore, I am not so sure that the difference between the performance of Europe as we know it today and the United States is as quite as great as he said. If I can close with a paradox; that might be seen as the ultimate success of US influence, because of course, the world I describe for Europe is precisely what the Marshall Plan envisaged for Europe after the Second World War.
Professor Wang Yong, Director, Center for International Political Economy, Peking University
I would like to thank the panellists who I think have made a lot of sense in the special context of global financial crisis. Secondly I want to say that as a scholar of international political economy, we are concerned about the political foundations of the new global economy. I think that we have reasons to be pessimistic about the future, even the next twenty years. The first reason is US leadership, especially the dangers of the rise of protectionism as mentioned by Mr Price. We have the lessons of history; particularly the inter-war period. Secondly, how will the risks posed by over speculations of the global economic flow of capital be correctly governed and how to avoid a second - and maybe more – wave of global financial crisis. I do not think we have the right solutions to limit the negative side of economic globalisation. Thirdly, the position of the US economy. I believe it is very important to address the issues of how to finance the revival of manufacturing sectors in the United States and face up to the challenges and competition of emerging economies. For example, in the field of new energy development. Personally, I see more competition in that area. Thank you.
Dr Alexander Dynkin,Director, Institute of World Economy and International Relations
I have a couple of comments for Mr Cooper and Mr Yurgens. I guess that to a great extent the US leadership depends on the success of the current reform of the Obama administration because, to my knowledge, it could be compared with the situation of ’69, ’71 when there were also a substantial set of reforms implemented successfully in US economy and society.
If you look at the healthcare, the regulation of the financial market, the changes of foreign policy, it is a tremendous departure from the Bush administration. I remember that one of our conservative observers said, when Obama was about to win the election, that this is the new Gorbachev who will destroy the last superpower. I remember that everybody loved those days, but the challenge is very serious in the United States and for me, the outcome is not clear.
I guess that, in favour of the United States, is that if you look at the current R&D budget of the US government, it is comparable with the whole R&D budget of EU27, China, India and Russia. It is a substantial amount of money which has put innovation into the economy and this is very important. Regarding Russia, I do not believe that it is reliable to merge Russia with the EU, because I presume that it is more important for the EU to merge with Southern Europe rather than Russia. There are no political forces that could support that idea. So I believe that Russia will remain more and more frequently a Euro-Pacific state and, according to our projections, by the year 2030 we will be in a good position to become the number one economy in Europe, in the first economy in global GDP.
Thomas Graham, Executive Chairman of the Board, Thorium Power Ltd; Executive Chairman, Lightbridge Corporation
I wondered if Professor Cooper would comment, with respect to his projections, as to how the World economy may develop over the next twenty years, on the potential impact of climate change and the lack of access to water in many countries around the world as is anticipated – along the lines of what the Argentine delegate mentioned earlier.
Participant
I am a little bit concerned by the sense of absolutism last night and today. Our statements seem to be a little bit absolute in a volatile world which is full of crisis which is gaining more momentum. I think that our old wisdom is losing credibility by the minute. I believe that we are still using tools of analysis derived from the industrial age. I would have much preferred that we had started by talking about the new drivers of history as a common frame of reference. Then we could talk about classifying and ranking economies in terms of economic influence and impact. My question is that I think that some of the statements are full of prophecies, not projections or predictions. Without qualifying the statements with absolute, or at least, probable trends that have shaped history and the 21st century, then I would view those statements as mere wishful thinking or self perception. I believe that those with those crises, that are increasing their momentum and intensity, the ship is sinking rapidly while the passengers are fighting over who sits in the first class cabin.
Dr Dhafer Al Umran, Director, Bilateral Relations, Ministry of Foreign Affairs, Bahrain
Actually, I would look at bit a little bit differently. I would like to thank you Mr Chairman for a stimulating discussion today, and also both professors who have given a chance to everyone to say what they really want to say. I am an economist at the Ministry of Foreign Affairs in Bahrain. I would like to go into something a little bit different, regarding the steps that we have discussed this morning and share with you that when I first joined the Ministry of Finance, where I have worked for over 20 years, I was an economist excited that economic growth was the magic tool that would really solve all problems. However, after working for a while and becoming more mature, I now think that we cannot solely rely on GDP figures as statistics that would really solve our problem. I think we need to look at other indices. For instance, quality of life among other things. We need to have a balance for economic growth and we need it with a human face. We need to have economic development or sustainable development, because there are so many variables involved in keeping a country stable and strong and safe from all challenges. I know that Professor Cooper did not like the phrase economic power, an opinion I share, and I would like to emphasise political stability in any country we need to have a balance between economic development on one side and human development on the other. Thank you.
Masafumi Ishii, Ambassador, Policy Planning , International Security Policy, Ministry of Foreign Affairs, Japan
To follow up the question about the G20. Let me ask a tactical question. We believe that G20 will be the future, but also that the G20 is already becoming too large. Would you have any idea of how to make the G20 more functionally operational? One thing we are noticing is the emergence of recognition of closer coordination among the middle powers. Starting with Australia, the Republic of Korea and Indonesia. If you add up other major Asian economies to these three countries, - Japan, India and China – and perhaps also the United States (we call it the G6 plus 1). Would that work as a good internal focus for the future of G20? Thank you.
Lord Skidelsky, Chairman, Centre for Global Studies; Member, House of Lords, UK; Emeritus Professor of Political Economy, University of Warwick
I do not want to put on a Keynesian hat, but I do want to query Richard Cooper’s suspicion of the word ‘power’. After all, what he is doing is throwing out the key concept in political science. That is the way in which it, and international relations, tries to understand the world I would have thought that the common sense meaning is pretty clear. It is the capacity to get someone to do what you want him to do but he does not want to do. Or prevent him doing something that he does want to do. I think that there are many examples in international relations of the exercise of this power and while military power is obviously the most important, economic power is frequently exercised in this kind of way. I believe that to have an analysis of the changing nature of the world without taking explicit notice of the changing balances of power - and economic power – is to leave out half of one’s analysis.
Dr John Chipman
Richard Cooper first. Power, climate change, oil and different styles of capitalism.
Professor Richard Cooper
I will have a private conversation with Robert Skidelsky on the semantics of power. His use suggests a degree of coercion or potential coercion. While I agree with that use of power, it is precisely in that sense that economic power – I will not say never – can rarely be exercised effectively. It is too much of an argument to go into here.
On oil prices, I think that whatever happens, the role of the Gulf is going to be enhanced in this World. The demand for oil will rise, but how much the price rises by depends on how much investment there is in the new production of oil. That is in the hands of the Gulf countries, but either way the economic and financial role of these countries will be greater in 2030 than it is today.
On models of development, and the China model, I believe there is no China model. Deng Xiaoping was very clear on this issue and he is quoted - up to the present – that China is feeling its way stone by stone across the stream. The China model is in the eye of the beholder, so there are many China models depending which aspects the particular person speaking on it has in mind. What impresses me most about China is that it is run by engineers. They are problem solvers, very pragmatic and when they see a problem they go after it. China was the first country to announce a big stimulus package when the big downturn came. This was very sensible in my view. I entirely agree with what Mr Llewellyn said about Europe. I run a seminar with Karl Kaiser on Europe at Harvard, and we have one speaker after another doing handwringing about what is going on in Europe and being preoccupied with what is going on at the moment. However if you stand back, one of the smashing successes of the last 30 years has been first the promise of enlargement of membership of the European Union, followed by the actual membership in the European Union, and also the transformation of economics and politics in many of the European states. I think it has been a smashing success and that should be recognised.
In my judgement, climate change will not have a significant impact in my timeframe, except through the policies we adopt to deal with it. By 2030 they may – and I hope they will – have a substantial impact. However, climate change itself is going to come relatively gradually. It is our anticipation that what we do to mitigate climate change will potentially be a large policy change and certainly it is one of the major two items on global agenda in my view. The other is global non-proliferation. Those are the two large, unsolved items.
On water shortage – we waste water like crazy. Most of it is used in agriculture. We have learned at intellectual level how to use water much more efficiently in agriculture than how it is currently used in practise. As water becomes short – I am particularly thinking of northern China which is one of the areas of increasing water shortage – this means just a lot more attention to treating water as scarce resource rather than a free resource and using it more effectively.
Dr John Chipman
Takenaka-san?
Dr Heizo Takenaka
Let me raise two short comments on your questions. One is on the question raised by Dr Seike. Yes, the pace of aging in Asia is a difficult problem. The total rate in Japan is about 1.3 or 1.4, but in Korea and Hong Kong this rate is much lower. We share common problem in the region. In ten years, Korea, Hong Kong and Singapore will face a very similar problem as Japan does now and China will follow. We sometimes use the phrase Flying Geese Theory. This was first applied to the international balance of payment, but can be applied to Asia in total. The important thing is how to solve the problem. In that case, Japan is still the showcase of this problem.
Let me also address the Chinese model, which it is impossible to define. However, we can see our experience. For example, Japan and Korea are sometimes criticised for socialistic capitalism and China can be labelled capitalistic socialism. One of China’s important features is that Flying Geese Theory can be applied domestically. First of all in the coast area, then in the inland area and so on. This is a very important pattern and this is why high growth has been continuing in China.
An important final point is that we today mostly discuss the GDP size, but there is also military power. If one’s military power is increased, relatively speaking, while the military power of other countries decreases. The GDP and economy of the world is a positive sign and that is a very important point,. If neighbouring countries increase their GDP, this provides a chance for the neighbouring countries and we should not forget this important aspect of the economy.
Dr John Chipman
Thank you very much indeed. Any first session is an intellectual throat-clearing exercise. We needed to open this session with two economists of global reputation who were able to handle any question that was thrown at them. For their preparation and their extemporaneous capacity to deal with these questions, thank you very much indeed.
