A fractured world order, fractious domestic politics and the digital revolution

Speech and Q&A at the Institute of Policy Studies Singapore Perspectives 2019 Conference

28 January 2019

Thank you, Janadas, for that slightly unconventional introduction. Let me first say that today you’ve had a history lesson from Professor Wang Gungwu, a politics lesson from George Yeo, another session on economics from Chng Kai Fong, and then a session from Marty Natalegawa and Bilahari Kausikan on regional diplomacy. I’m going to try – and I say try because you’re all very long-suffering and have been here for many hours – but I’m going to try to synthesise all these elements into a coherent concept.

If you ignore the rest of my speech, I only ask you to remember three phrases. The first is a “fractured world order”. The second is “fractious domestic politics”. The third is “digital disruption”. What I’m going to attempt to show today is a chain of causality between these three elements.

Let me start by stating the obvious. We live in a very uncertain, volatile, and difficult world. You’ve heard in the course of the day [discussion of] the strategic tensions between China and the United States – I would also include Russia. You’ve also heard, or you would be aware, that politics as we know it is over. In fact, mainstream politicians all over the world are in trouble, and we are witnessing the simultaneous rise of both right wing and left wing populism – all over the world, not just in the West.

You are also aware that there is deep anxiety the world over, and especially among the middle class, over wage stagnation and the future of jobs. We are also painfully aware that there is anger over increasing inequality. If that isn’t enough, I would also hasten to add, the level of carbon dioxide in the air is more than 400 parts per million. The last time the world had carbon dioxide at this level was at least 400,000 years ago. And since I’m a doctor, I can tell you that we are overdue for the next pandemic.

Proposition

So, having put you all in a good mood – my thesis today is that we are witnessing a Fractured World Order, due to Fractious Domestic Politics, that is caused by a Digital Disruption. This is a chain of causality. Let me restate this chain. I believe that technology is a key driving force of human progress. And the Early Masters of technology accumulate and wield outsize power – financial, political and ultimately, military. Hence, every time the world experiences a major technological breakthrough, there will always be, by definition, revolutionary shifts in economic means of production. And when you get changes in means of economic production, that in turn will disrupt the society and change the politics. And, in turn, that will alter the global balance of power. We have seen all this before; and it is just that it is about to be replayed, but at a faster pace, by different actors.

Industrial Revolution

Let me start with the Industrial Revolution, to give you some empirical evidence. We are speaking English today because the Industrial Revolution started in England. Thomas Savery and Thomas Newcomen invented the steam engine. This was later improved on by James Watt. The steam engine replaced animal and human labour with energy from fossil fuels. What this meant was the beginning of mechanisation. It uprooted the economy. Previously handcrafted products were now mass produced. And importantly, owning capital became far more lucrative than just owning land. It transformed agrarian societies. Bear in mind that human beings have had agricultural societies for 8,000 years. In turn, now that you’ve got machines, and you’ve got factories, you now need labour. Labour migrated to urban centres, you got urbanisation, and cities. Increasingly in the political field, power structures shifted from land owners in feudal societies to the owners of capital in industrial capitalist societies. If you think about the way labour was exploited in the early phase of the Industrial Revolution, and the vicissitudes of work and the impact of losing a job in those days, that in turn generated a social and political backlash. And that’s why in fact we have today’s trade unions and the welfare state in Europe. These were in a sense, the political response to the last Industrial Revolution, and this is how the modern political order (with right and left wings) emerged – massive socio-economic disruption driven by the advent of mechanised production.

Foreign Policy

What did this mean for us in an Industrial age? Industrial Britain needed raw materials, a lot of which were from Southeast Asia, and new markets. Trade expeditions were sent out, the navy was strengthened, and outposts established, including, exactly 200 years ago to this day, Singapore, when Raffles landed to establish an outpost. The outcome of this trade and foreign policy was an empire on which the sun never sets, and pre-eminence for Great Britain for more than a century.

Fordism

What happened after that? The next breakthrough was the concept of a moving assembly line. The archetypical example of that happened in the US, with Henry Ford’s Model T car. Mass production was made possible through task specialisation. What used to take 12 hours, to produce a car now took 2 hours and 30 minutes. Prices fell, and a virtuous cycle between mass production and mass consumption was created – those same workers that Henry Ford employed, who earned high wages, could now become consumers in their own right. So we now witnessed capital accumulating, wealth accumulating, even more than before. Those who are interested in history will know there was a period called the “Gilded Age”, and there were “Robber Barons” who found ways to further enrich themselves. In fact, it was a period of increasing inequality.

Across the globe, reactionary responses to this type of asymmetric capital accumulation led to growing extremism – fascists on the right, and communists on the left. Economic rivalry and political miscalculations sowed the seeds for the two World Wars of the last century.

Foreign Policy

The corollary, of course, was that the US, having outdone all other countries in technological superiority, was actually the undisputed main winner of World War II and emerged as a global superpower. Yes, I know there was a distraction of more than 50 years of the Cold War. But in a sense, there was no question that the US had technological supremacy. And therefore, we should not have been surprised by the fall of the Berlin Wall.

The US’ share of global GDP in 1960 was around 40%. Today, although the US GDP has continued to grow, on a relative scale, it is now about 24%. And, you realise, when a single superpower has 40% of global GDP, for every dollar created in the world, 40 cents accumulates to it. In that scenario it was worthwhile for the US to set the rules of global engagement, to be the primary architect and underwriter of the world order as we know it that has existed since the end of World War II. This was the system defined by free markets, free trade, and global economic integration. Along the way the United Nations was formed, the Bretton Woods Institutions (IMF and World Bank), World Trade Organisation, the Marshall Plan for Europe, the reconstruction of Japan, and the GI Bill, which provided mass education for veterans, which gave them the skills to harvest the fruits of the Industrial Revolution. There was therefore a Golden Age for capitalism for about 30 or 35 years after the end of World War II – an age of a rising middle class, which could afford a house and home, and the security to provide for their families. The foundations of the rules-based multilateral system in fact gave newly-independent countries like Singapore a small seat at the table, and significant opportunities.

Post-War Globalisation

Think about the process of globalisation that occurred after the war. In fact, it was again driven by the technological revolution. Think of names like William Shockley, John Bardeen and Walter Brattain, who invented the transistor in 1947. But actually, it is Dick Morley’s Programmable Logic Controller which revolutionised industrial control, because it made it easier to reprogramme machinery in factories, and change products in accordance with consumer needs. Now that production was easily adjusted, by leveraging on improvements in shipping logistics, and at the same time, the explosion in Info-Communications Technology transformed the world once again. At its zenith was just-in-time production, which allowed global supply chains to be constructed. Multinational companies, or MNCs, became a formidable force, very often having revenues exceeding that of small countries.

Now, think about Singapore’s position in the mid-1960s when we were unexpectedly thrust into independence. Fortunately, our early leaders chose to do what was unfashionable in the early post-colonial era, by inviting these same MNCs that were building global supply chains, to bring their technology and access to markets to us. This was unconventional back in the 1960s. If you think about other countries, newly independent, they were focused on import substitution. So paradoxically, because Singapore lost its hinterland, and because we had to invite the MNCs, we became a global city, way before the word “globalisation” became fashionable. We moved up the value chain and subsequently into advanced manufacturing and ultimately global services. Our GDP grew from US$500 per capita in 1965 to more than US$50,000 per capita 53 years later.

As Dr Goh Keng Swee said, and this was a point that I think Kai Fong made earlier this morning, we needed the humility to learn, the courage to be unconventional, and the ability to unify and carry our people as we embarked on this journey. Today, the success of Singapore is a living testament to the fruits of an export-oriented, free-market capitalist system. We have fully exploited our improved air, sea and digital links in an increasingly connected world. But the point is this. We were in the right time, right place, right technology, right strategy. And it is always important therefore to understand that we cannot engage in navel-gazing, but we need to understand what is happening around us, and then adjust our posture. Now, whilst the net impact of globalisation has clearly been positive for Singapore, in a sense, actually, we had no choice. But nevertheless, we must be careful not to overstate the benefits of globalisation. The political reality is that with globalisation, and automation, there will always be both winners and losers. For Singapore as a relatively young country, we started from a low base, and made a quantum leap up, due to the visionary political leadership that we had. So we are clear winners in this age of globalisation. But in the western world, especially in the last 30 years, it is clear that a significant number of people, especially blue collar workers, have been left behind. Blue collar workers in Europe and in the West, have seen their wages stagnate, jobs move overseas, and the income gap widen vis-à-vis the elite, and are increasingly aggrieved. In a sense, another upheaval, another backlash, and we should not have been surprised by it.

Rise of Smart Technology

Now, to make things even more complicated, we have not yet even digested the full consequences of the last industrial revolution, well, to compound things further, a new digital revolution is upon us. This time it is the rise of smart technology, and in particular, smart technology due to machine learning, a phenomenon which has only really taken off in the last two or three years. Machine learning – if you are a biologist, you would say, well, you tried to copy the brain – multiple layers of synapses, simple on their own, but by making connections you create systems that are able to recognise patterns. But this would not have been possible without the exponential rise in computing power, networks, big data and new algorithms. I want to say, as a biologist, as a doctor, that – pattern recognition is the difference between AI, smart AI, and standard automation. Because if you think about it, the ability to recognise patterns is the basis for vision, for vision, for listening, for speaking, for translation, and for cognition.

For example, Google developed the Alpha Go programme, which beat human professional Go player Lee Sedol without handicaps in 2016 for the first time. I often find that Western audiences who have not played the game of Go may not realise how complex the game is. There are more combinations of moves in Go than there are atoms in the universe. What that means is that unlike chess or Sudoku, it cannot be solved via standard rules-based programming. Let me tell you, since PM has programmed a Sudoku solver in “C”, which I translated into Javascript, I can attest that Go has a completely different level of complexity.

So the point now is that for the first time in human history, not only has human and animal energy been replaced by fossil fuel, not only have automation and globalisation taken over, but now, the advent of robotics, machine learning, and artificial intelligence are already revolutionising finance, commerce, defence, logistics, health, and transport sectors.

Now, just to give you an idea of how much progress has occurred in the last two years. In 2016, the United Nations uploaded about 800,000 documents to the internet. The critical feature of that upload was that – the UN has six official languages. So it uploaded documents which were translated word for word by humans in six different languages. In 2016, at the same time that Google was playing Go, it decided to use the same techniques of machine learning to do translation. Any one of you who has used Google Translate before 2016 and today would know that there is a big difference. If you don’t believe me, try it now. The big difference was that they shifted over to machine learning, neural nets, and pattern recognition. When Google did it, they didn’t tell anybody. They kept it a secret until a Japanese researcher in November of that year started to notice that Google Translate had improved, and then they revealed their “secret sauce”. In fact, they stopped all development using old techniques and switched over to machine learning.

Now, there is another explosion occurring, and that’s in 5G technology, and I don’t just mean the contest between the US and China. 5G will create unprecedented levels of connectivity. It will increase bandwidth, and it will explode the Internet of Things, and there will be an explosion, a tsunami of data. Now, pattern recognition and machine learning depends on data. And you now have a tsunami of data, and the algorithms, computing power, and networks to deal with it, you are sitting on a real revolutionary technology. And language barriers will erode.

But herein lies another problem. It means that you are now competing not only with workers overseas, not only with machines locally, but that tele-presence is now multilingual. There are only about a billion people who speak English to a sufficient level to perform useful technical work today. But once you break these barriers of language, you can easily double or triple that number. So, the point is, that we are going to see disrupted societies, fractious politics and the global order as we know it is going to change. In fact, there will be considerable dislocation because the pace of change is accelerating. And in the example I gave you, I bet most people in this room are not even aware of how much has changed in just the last two years. And if history is a guide, every time you get a change like this, you get an initial “Gilded Age”, greater inequality, “Robber Barons” – the early masters and adopters of technology. And it takes time before the new means of production are democratised and a new middle class can arise.

I believe we are now in a new digital “Gilded Age”. There are winners, and there are losers. The winners are the supranational tech companies – you know the names – Google, Amazon, Apple and Facebook, which are growing in economic and political clout. Why? Because they sit on mountains of specific and very often personal data. And there will be are losers – those who have not been able to skill up and have lost their jobs due to disruptive changes. Automation in the past took away many blue-collar jobs. But pattern recognition of today and tomorrow could also make many white-collar jobs redundant. It is true that new jobs will be created, my worry is that this will not be fast enough to replace the old jobs, and this will cause further dislocation, and fractious domestic politics.

And so, we are already seeing the political effects – increasing polarisation and a hollowing out of the centre of middle-class and of mainstream politics. So we see that in virtually all societies, one group is moving further Right – channelling frustration towards immigrants and free trade. They want to build walls. Another group is moving further to the Left – demanding increased subsidies, one example of which is Universal Basic Income, and they want radical redistribution. Can you see it? The collapse of the centre, and the rise of the right wing and the left wing. This breakdown of domestic consensus will inevitably disrupt the international system.

There will be countries that are afraid of change and fearing competition who will question the value of the current liberal world order. On the other hand, nations like Singapore believe we need to master the new technologies, face competition head on, and double down on interdependence, integration, openness and to seek win-win collaboration. This division and divergence will grow more acute as technological adoption accelerates. So, ladies and gentlemen, this is our current predicament.

US-China technological contest

The US-China technological contest is a case in point. China’s achievements in the last 40 years since its reform and opening up or 改革开放 have been astounding. It has lifted 800 million out of poverty since 1990. GDP per capita has risen from US$90 in 1960 to over US$8,000 in 2016. China has climbed up the technological value chain. Today, we all hear about companies the likes of Tencent, Alibaba and Huawei. This is not just catch-up industrialisation, but this is leading edge, cutting edge technology.

In the earlier period, the US and China have had a mutually beneficial and interdependent relationship, very different from the relationship between the US and Russia during the Cold War. Instead, you had US companies flocking to China, and actually China became part of their global supply chains. The US welcomed Chinese investments and talent. Trade in goods and services reached over US$700 billion per annum. But we all know today, the nature of relations is now shifting from engagement to strategic competition. The question is, why?

China has used the last four decades of ‘Reform and Opening-up’ to catch up on the last industrial revolution. The question now is who will master Smart Technology, AI, Robotics, and Big Data first. Who will be better able to acquire and apply the data, techniques and the tools better, faster, and more effectively. Countries used to compete over land and capital, but today, the fight is going to be over data. Data will be the crucial factor of production in this brave new world. And the one who acquires and applies the most data will have an enormous advantage, an enormous headstart. And in this technological contest, the stakes are actually even higher than they were in the past. Why? Precisely because in the digital arena, global markets, geography has contracted.

Let me just give you an example. When the Silk Road first started, the price of silk in Europe was ten thousand times the price of silk in Beijing. Why? Because transportation, logistics, were so difficult. Today, in a world with fibre, Amazon, e-commerce, and the rest of it, those kind of differentials have collapsed. What that means now is that if you have the best silk, the best product, you have access to a global market. The consequences of winning, especially as we move towards a winner-takes-all world, are profound. There is an enormous difference between being “Number One” and “Number Two”.

We see this contest in the race among the major powers to become the world leader in 5G networks. I am not downplaying the other areas of strategic contest we see, such as in trade. But we need to recognise that something more fundamental is at work here. Even if the US and China manage to settle their current trade disputes – which Singapore obviously earnestly hopes that they will – things will not be hunky-dory. Because of the pervasiveness of technology, we expect this strategic contest to be waged in other arenas – defence, energy, cybersecurity, and outer space. Alongside the contest for technological mastery runs a parallel contest for its governance. The question is: whose preferred paradigm will regulate the emerging global commons such as cyberspace and outer space? Should these be democratised, or subject to the free market or state-controlled? These are not easy questions to answer. We took many years to reach a global consensus on regulating the High Seas and international trade. That’s why we have the UN Convention on the Law of the Sea (UNCLOS) and the WTO. Discussions on cyberspace and outer space regulations are still in the very nascent stages.

So the question is, how should we in Singapore respond to such a world? In this age, smart technologies and big data hold the keys to the future. The ones with the keys will retain economic and geopolitical relevance and shape global rules. But the runners-up will not just be incrementally disadvantaged. They will be left exponentially further behind. It is this technological contest and its impact on the economy that underpins the conduct of foreign policy. The cut and thrust of politics may dominate our attention from day to day. But in reality, they are mere froth atop tectonic shifts in the geostrategic balance of power.

How should Singapore respond?

So what is a small country like Singapore to do in this brave new world we find ourselves in? Singapore’s foreign policy principles remain as salient today as they were in 1965. In a word, it has always boiled down to Relevance. In 2009 Mr Lee Kuan Yew delivered the S Rajaratnam Lecture. He said, and I want to quote, “We must make ourselves relevant so that other countries have an interest in our continued survival and prosperity as a sovereign and independent nation. Singapore cannot take its relevance for granted. Small countries perform no vital or irreplaceable functions in the international system. Singapore has to continually reconstruct itself and keep its relevance to the world and to create political and economic space.” These words are still absolutely relevant today.

So what should we do? First, Singapore must always remain open. Open for business, and open especially to talent. We must maintain a society that is fair, and we must maintain our reputation for integrity, and remain trusted by all. We are a small country with no natural resources. We cannot try to build walls to shelter our population, because hiding from inevitable change is not a survival strategy. So our doors, by definition, must remain open to all who wish to engage us, and in fact, we must actively create the conditions that will attract others to keep coming, just as Kai Fong said this morning. We will continue to strengthen our air, sea and digital connectivity, deepening our economic and investment links with partners across the globe. One of my favourite pictures which I like to look at is the map of submarine cables, which carry data, the currency of the future, and are the “new Maritime Silk Road”. We must entrench Singapore’s hub status in these new communications routes.

Just as we protected and treated the investments of MNCs and even the oil that was stored in tanks in Singapore carefully, for data, we must remain helpful, neutral and reliable. Our legal framework will continue to respond to these emerging technologies. We will have to have safeguards in place to protect intellectual property, data and privacy. As I said before, our reputation for integrity, reliability and straight talking is critical. We do not wish to be compelled to choose sides – I know this is a standard question and I will always be asked about this – we do not wish to be asked to choose sides in this strategic and technological contest, because we believe that synergies will be more powerful when we cooperate to create common rather than competing growth platforms. This core belief informs our approach to global governance

This brings me to my second point – that Singapore will always work to fortify the multilateral system and contribute actively to shaping new norms to govern the global commons. Our role on this has been established. Ambassador Tommy Koh playing a leading role in finalising UNCLOS, the “constitution for the seas”. Our Climate Change negotiators – I personally spent four and a half years trying, in our own way, to play an outsized role to seal the Paris Agreement for climate change. I have spoken about the current debate over cyberspace and outer space regulation. Singapore’s position on this is unequivocal – all must be involved in shaping the new rules, and the concerns of small states must be taken on board. But arriving at a consensus will not be easy, given that the stakes are high. But precisely because of this, new norms are necessary. And Singapore can always be counted on to send our best people to these international expert groups and negotiations so that we can make a positive, constructive, contribution.

Third, we need to continue to diversify our partnerships. Technological disruption will erode borders, revolutionise business models and shift production bases. New technology hubs will emerge. No advantage is engraved in stone. We should move away from conventional markets and “safe models” to capitalise on new opportunities – some of which are right at our doorstep. ASEAN – a dynamic region, with a rising middle class, and boundless potential for the next few decades at least. More than half of ASEAN’s population is under the age of 30, and many are digital natives. Google and Temasek’s 2018 e-Conomy Southeast Asia report described the growth of our region’s internet economy as record-breaking. Our region’s internet economy reached US$72 billion in 2018, more than doubling from 2015. So we believe it is essential to build thicker and deeper linkages across ASEAN cities, and to create new partnerships as we get onto these new technology ladders. Other countries and corporations are hungry to engage us, and we should reciprocate enthusiastically.

That is why we established the ASEAN Smart Cities Network under Singapore’s ASEAN Chairmanship last year, as a first step in this direction. I was pleased that it was extremely well-received by our neighbours. 26 pilot cities developed action plans from 2018 till 2025 and several of these projects have attracted partnerships between the private sector and the state sector. In future, the development of technology will not be driven top-down by state institutions, but by a trilateral collaboration between the state, the private sector and consumers. So I was very proud that ASEAN took a step towards harnessing that productive dynamic.

Conclusion

So let me conclude by saying that we live in extraordinary times. You know, not every generation gets to live through a revolution, but we are. Entire multi-billion dollar industries exist because technologies are changing in front of our eyes. If you think about the explosion in apps and services that are being generated, the pace is only going to accelerate. Disruption brings challenges, but also opportunities. We also recognise Singapore, by dint of our size, will never be a global superpower. But we can and we must master technology if we are to remain successful and preserve our independence to make decisions based on our own sovereign interests in this coming age. By playing our cards right, we can remain in a sweet spot, just as we have for the last five decades. We’ve done it before, by catching the off-shoring wave when we industrialised in the 1960s. In the 1970s, we bet on the right horse by doubling down on logistics management with our container port and airports. We then moved on to electronics in the 1980s. We can do it again with big data and smart technology. To do so, Singapore must continue to remain open, engaging all who wish to be friends and partners with us. We must strengthen our “convening power” not only for meetings like last year’s US-DPRK Summit, but we must be the best place for any MNC to assemble a multinational team in the world. Regardless of where people come from, this is a convenient, safe, beautiful, and conducive place for them and their families to work together and form multinational teams. We must continue to engage all major powers, but do so in a disciplined and principled way, and preserve our neutrality. I sometimes remind everyone, that is why, from time to time, Singapore must have the ability to say “no” to our neighbours, to say “no” even to our superpowers. Not as a capricious exercise, but to exercise in a principled and disciplined way to prove our neutrality, and that we are worthy of people’s trust. Our history has shown that we can work with all parties and partners, to create common space and pursue mutually beneficial outcomes. We will concurrently work to uphold international law and the rules-based international order, even in the new “global commons” of cyberspace and outer space. We are committed to ensuring that the multilateral framework, which has underpinned our peace and prosperity, continues to be preserved and remains relevant.

To bring this all home, we need Singaporeans to be fully prepared to collectively face this new age of disruption. Since independence, Singapore has relied on our people’s ingenuity and tenacity, and willingness to sacrifice and do whatever it takes to survive and thrive. The times we live in require us to double down on these attributes of Singaporeans. If we do not ride this next wave of technology, we will sink under it. This is why economic restructuring is a key priority for the Singapore Government. That is why we will continue to improve our education system and retraining and upskilling schemes such as SkillsFuture. This has to be not just a word, but a critical and inherent part of our strategy for survival, to enable Singaporeans to master technology. We will adjust our social security system in a fiscally sustainable way to give Singaporeans confidence to navigate these disruptive times. The government will do our part to equip and prepare Singaporeans, even as we explore new markets, build new partnerships and facilitate new business models and harness new technologies. Companies and individuals now need to be entrepreneurial and adventurous. We must be able to seize new opportunities and remain resilient in the time to come. If we succeed, we will navigate safely through this current Gilded Age, and a new Golden Age awaits us. Thank you very much.