A Small Red Dot in a Deglobalizing World – Speech by Jamus Lim

Delivered in Parliament on 15 October 2020

Mr Speaker, the supplementary budget continues to lend support to hard-hit businesses and workers even as the state of the economy remains precarious, and it also begins the important process of repositioning the budget away from crisis support to crisis recovery. That said, I have a few additional thoughts. I will share about how I believe the process of deglobalization is both ongoing and persistent, and that we need to do more to pivot away from our historical focus on being an entrepôt for the rest of the world, toward fostering internally-driven growth focused on raising the productivity of our domestic firms, especially small and medium enterprises.

Before I proceed, allow me to declare that I am an educator at a business school, and that I have occasionally provided economic and strategic views for an investment advisory firm.

The deglobalization trend predates COVID-19

Minister Heng stressed the importance of enhancing connectivity, to ensure that our economy is ready for when the pandemic is behind us. He reiterated our commitment to reviving our air hub and transshipment capabilities. As an student of the international system for the past few decades, nothing would make me happier than a revival of such a globalized world.

That said, I believe it is imperative for us to have a Plan B, if this does not occur. Mr Speaker, the pandemic is often viewed as not so much a harbinger of new trends, but an accelerant of existing trends. Minister Heng himself alluded to this, the possibility of structural shifts. In this vein, it is worth pointing out that the breakdown in global integration significantly predates COVID-19.

The global financial crisis of 2008 marked the beginning of a dramatic turnaround in global financial flows. Several years ago, the McKinsey Global Institute observed that cross-border capital fell from about 12 percent of global output for the decade till 2010, to a little more than 7 percent since then.1 Global banks, especially those in advanced economies, have divested at least $2 trillion in assets. Even in financially-open Singapore, capital flows have steadily eroded as a share of national product, and we experienced a surge in outflows in the most recent quarter.2

The financial crisis did not just usher in a decline in financial flows. The aftermath saw a massive collapse in international trade,3 and despite fitful starts and stops, global merchandise exchange has pulled back from peaks of more than half of global GDP, to about 44 percent last year. The global trading regime is fraying, with the World Trade Organization operating a dysfunctional dispute resolution system, and repeated violations of open trading principles by major economic powers, most notably in the form of the Sino-American trade war in 2018 and 2019. And closer to home, our historical entrepôt model is being challenged as never before. Our trade in

goods, as a share of income, fell by more than 40 percent over the past decade,4 and the trends are hardly positive, with the growth of nonoil exports dipping into negative territory through most of 2019,5 way before the pandemic visited our shores.

COVID-19 has accelerated the move to a multipolar world

And now, COVID-19 has completely devasted the global movement of people, with international tourism virtually vanishing overnight,6 and even the typically more resilient work-related migratory flows under threat, as corporations rethink their need for business and conference travel, and upend historical cross-border relationships in favor of reshoring previously outsourced business operations and shortening international supply chains. The fear, then, is even after a vaccine is discovered and the world is able to return to normal, that new normal encompasses permanent structural changes in the manner by which the world conducts business and pleasure.

Mr Speaker, these trends are worrying from the perspective of our banking on a return to connectivity as a key source of economic growth. If anything, major economies are turning inward, with China stressing “internal circulation”—a euphemism for a domestic turn—Europe preoccupied with ensuring the integrity of its union, and the United States—once the bastion of globalism—eschewing the multilateral system that it used to champion. If this fracturing into a multipolar world persists, our traditional approach of positioning ourselves as a global intermediary could face unprecedented stress.

Our role as a knowledge hub serving the region

Thankfully, it is possible for us to prepare more deliberately for a Plan B. Minister Heng also spoke about the importance of technology, innovation, and enterprise, a theme that he has mentioned in speeches since at least 2016. Clearly, the Government is aware of the importance of this alternative model. What I am suggesting is a willingness to commit to this shift in a more decisive fashion.

Although many forms of international exchange are in retreat, there is one channel that has been further advanced by the pandemic: the even greater importance of global information and knowledge flows. As borders shut down worldwide and work-from- home arrangements became the norm, information became the lifeblood of many organizations and countries trying to stay afloat. Service-based businesses digitized their back ends, and sought to bring their front-end operations online. And goods- oriented firms were forced to resort to online strategies to keep demand afloat. Many of these digitally-transformed functions—and automation-disintermediated jobs— will never return to the pre-pandemic states.

It is therefore time for our small and medium enterprises (SMEs) to make the bold transition as well. The government has rolled out a host of grants—such as the enterprise development grant and productivity solutions grant—aimed at this very purpose. This is important, because such firms account for 99 percent of our local companies, but only contribute to half of our national income. However, we have precious little information as to whether these funds have succeeded in raising productivity and enabling digital transformation, as the government has not released systematic studies of either the coverage nor the efficacy of these programs. To know whether we are on track, we have to know how far we’ve come, and how far we have to go.

And as much as financial assistance, especially in a recessionary environment, can help our SMEs eke by, financial support will only go part way toward helping our companies realize their full potential. Beyond relieving financing constraints, SMEs need to build stronger fundamental business skills and capabilities.7 Such skills—in marketing to a diverse regional market, adopting best practices in bookkeeping and budgeting, and inventory management—are not sexy skills, but essential ones. Programs of this nature, such as Startup SG Founder, Enterprise Leadership for Transformation, and various Business Toolkits, can be made more proactive in identifying and approaching qualifying individuals and firms, especially in industries that have lagged in terms of adoption.

Similarly, we have to ensure that those who have undergone SGUnited Jobs and SkillsFuture reskilling programs continue to closely meet business needs. This can help avoid mismatches that can lead to disappointment and discouragement, an experience that one of my residents, Danny, shared regarding the continued difficulty faced by his colleagues in securing work, despite having undergone retraining. More generally, the return proposition of such retraining should be evaluated: how much are we expending per trainee, and what is the placement rate for program graduates? It strikes me that a dedicated unit at Enterprise SG—tasked with identifying, supporting, disseminating, and evaluating skills development—can be an important complement to our primarily finance-focused efforts.

Similarly, many public-private venture funds, such as Startup SG, tend to privilege technologically-oriented firms. While such investments are appealing in that they could lead to the next Carousell or Grab, we cannot leave the vast majority of “old economy” firms behind. Moreover, raising productivity levels in such firms isn’t limited to deploying the latest technology or adopting AI solutions. They often derive from much more modest sources, such as focusing on improving core management practices. 8 Such practices—in performance evaluation, conflict management, and team motivation—are skills that could be lacking in smaller, family-run businesses, inhibiting their ability to grow. Our iTalent and iSkills programs are one such way

forward, but the current participation rates—involving a few dozen firms—remain a drop in the ocean.9

Moreover, our funding and support policies should look beyond just the infotech or biotech space. Growth can arise from what we may dismiss as pedestrian businesses, such as coffee roasting and brewing, automotive repair, or elderly care. What is required is a willingness to rethink the way the ways local firms have traditionally come to do business; to be willing to disrupt the existing market regime. But rather than promoting winning firms or championing winning sectors, we should strive to create an environment where every firm can potentially succeed.

At the aggregate level, our regulations should be prepared to be flexible, to ease the wrenching shifts that would accompany structural transformations in the economy. Some sectors may, despite our best efforts, be destined to shrink, and so we should ease the teething pains for those poised for expansion. SMEs that have traditionally focused on trade in goods must evolve to add value higher up the ladder, and those who provide services must learn to deliver these across borders.

This may also mean greater regulatory forbearance on the part of government. For example, finance startups often find themselves held to reporting requirements comparable to those for established incumbents. While there have been occasional initiatives toward easing—pilot regulatory sandboxes, as well as easier ACRA reporting requirements during COVID-19—executives from a number of fintech startups I have spoken to reveal that they still find the standards that regulators hold them to impossibly stringent.

We should also be more aware of the unintended consequences of our policies, especially in terms of how they affect small businesses. One owner of a hawker store in Lucky Plaza, for example, shared with me about how recent policy to only allow either odd or even-numbered IC numbers into the mall resulted in a complete decimation of foot traffic, rather than just a halving. On a positive front, the number of permissible businesses allowed under existing programs, such as the Home-Based Small Scale Business Scheme, can be re-examined, and expanded if possible.

And if the world does eventually carve itself into multiple regional markets, our firms must be ready to compete within our economic sphere, which is Southeast Asia. This means recognizing that a Singapore firm is essentially an ASEAN firm. The government has understood this for a long time, but we have to make sure that our workforce and our people fully embrace this identity. Doing so has become even more imperative in what is promising to be an in increasingly balkanized world.

Our workers should be prepared to spend time in our ASEAN neighbors, learning the specificities and idiosyncrasies of our neighboring markets, and returning to Singapore to disseminate that knowledge and experience, either with their sending firms, or in new companies of their own. Government can play an even greater supporting role in fostering this expansionist mindset, beyond internationalization grants. It can do so through a wider recognition of ASEAN languages in the schooling system, incorporating exchanges and internships in Southeast Asia as a required component of secondary and post-secondary programs, further enhancing the exposure of local firms in exhibits at regional trade shows, and co-financing early- career stints for PMETs in other regional capitals.

Cities are resilient

After the allied bombing of Japan in World War II, many major cities were almost destroyed. In principle, the architects of postwar Japan could have chosen many other locations to site new economic hubs. But ultimately, rebuilding occurred in those very same cities that experienced some of the greatest destruction, a testimony to the incredible resilience of cities.10 Our forefathers have already made Singapore into a globally-competitive city, and we will rise again, after the crisis is over. To inherit this destiny, we have to be willing to be even more economically nimble, and recognize the limits of further leveraging on our trade and transportation infrastructure alone.

The strength of any modern city lies in its ability to be a gathering place for innovators to exchange, debate, and improve their ideas. We must ensure that our SMEs fully participate in this knowledge-based future economy.

Mr Speaker, allow me to recapitulate. In a deglobalizing world, we need a Plan B to cater to the possibility that the post-COVID world will be more fractured and insular. We must transition our economy, urgently and decisively, by increasing the contribution of SMEs to our growth engine. Government can help in this process with more than just financing, which is still our major focus. It can do so with moves to improving productivity via enhanced business skills and management training, exercising greater regulatory flexibility to foster a stronger risk-taking mindset, and pushing additional educational and experiential initiatives that strengthen our regionalist worldview. Undeniably, the germs for many such programs already exist. My contention is that we need to accelerate and scale up these efforts.

Notwithstanding my additional suggestions, I support the motion.