Ladies and gentlemen, welcome to Melbourne, my home city, and the venue for the 2000 Asia-Pacific Economic Summit of the World Economic Forum, the first to be held in Australia.
By bringing together leaders from government, the private sector and other walks, the World Economic Forum can significantly advance our understanding of economic developments and how it can be harnessed to benefit our citizens.
Because there has been a lot of comment and some protest about this Forum, I want to state quite clearly at the outset, that economic growth is the basis of rising living standards, better education, better health care. Economic growth is the best poverty-busting policy yet invented. Economic growth, particularly in the latter part of this century, has raised millions of people out of poverty, particularly in this region of the world.
The first half of the century witnessed the rise of nationalism and world war, a global depression, the rise of protectionism, a world war, a cold war, the scourge of totalitarianism, and the economic failure of communism.
Angus Maddison, the doyen of scholars of long-term growth performance, estimates that the large Asian economies were experiencing average real per capita growth of only about a per cent a year as they entered the 20th century, and their per capita incomes actually contracted between 1913 and 1950.
The great bulk of the 20th centurys economic gains were concentrated in the second half. In that period, global economic integration through trade and investment flows resumed, and economic growth recovered within the successful multilateral framework of the IMF, the World Bank and the GATT (now the WTO). Through their increasing openness and the benefits of trade and investment across national boundaries, large Asian economies averaged annual per capita GDP real growth of more than 3 percent over that entire fifty years.
In this part of the world the Asia Pacific Region countries that have opened up to investment and liberalised their economies have unquestionably benefited and raised living standards among the poor. Nor have these benefits been only in terms of the ability to purchase market goods and service captured in GDP figures:
- In 1950, life expectancies in China and India were only 38 and 36 years, respectively. By the close of the century, those figures had risen to 71 and 61 years respectively.
- In just the last 20 years, infant mortality in the low and middle-income Asian and Pacific Economies has fallen from 119 per thousand live births to 77.
This extraordinary Asian-Pacific experience contradicts the popular notion that the poor have got (or will get) more numerous or poorer because of globalisation.
For the world as a whole, a clear majority of those who were poor as recently as 1970 have in fact got richer, in both absolute and relative terms: over the last 30 years, about 70 percent of the population of developing countries have experienced sufficiently fast growth in real per capita GDP to converge towards rich countries levels.
Claims that poverty is worsening are usually based on counting countries, not people.
- Major developing countries in this region with large populations have enjoyed quite strong income growth, lifting millions out of poverty. In East Asia alone, the number living in extreme poverty was halved in only 10 years.
- In contrast to the Asian-Pacific success stories, a number of countries with smaller populations, many in Africa, have experienced economic stagnation and have become poorer in relative terms, or even in some cases in absolute terms.
Mostly, these countries have not opened their economies to open trade or investment. In some countries, they have been penalised by developed countries that will not open their markets to developing poor nations. These countries face many obvious social, health and political challenges, their economic institutions are still weak. Their share of global trade has actually halved over the last 20 years, partly because of their isolation from global trade opportunities and by agricultural protectionism in higher income countries.
The contrast with the low and middle-income countries of the Asia-Pacific is again striking. While openness to the benefits of globalisation led the share of exports in GDP to grow strongly in the Asia-Pacific over the last 20 years, the share in sub-Saharan Africa actually contracted.
I view this indicator of falling trade shares for the poorest countries as not a sign that they are being exploited by globalisation, but an indicator that they are missing the great opportunities that can be created, with the right policies and institutions, from increasing trade and investment flows.
As we know, the rapid growth and rising living standards in the East Asian region came to a dramatic halt with the Asian Financial Crisis of 1997. The economic damage was severe. In the region, Japan, Korea, Thailand, Indonesia, Malaysia, Singapore, Hong Kong and New Zealand went into recession. China, Chinese Taipei and Australia were the only countries which continued to grow. The Australian economy actually strengthened. Many of the Asian economies are growing strongly again.
In 2000 - 2001, China, Korea, Singapore and Malaysia are likely to grow at 5 percent rates or better, and Thailand and the Philippines at around 4 percent.
Growth in Indonesia remains modest, and perhaps best illustrates the remaining challenge of consolidating structural reforms to encourage the return of confidence and the resumption of capital inflows on a sustainable and stable basis.
Notwithstanding Indonesias difficulties, for the region as a whole, the ground lost in the crisis has now been recovered. But the adjustment has been particularly severe and the work of restructuring is far from complete.
The Asian crisis indicates that openness to the global economy, and integration in it, while necessary for real human progress, is not itself sufficient to guarantee that that progress will be secure and stable. Security and stability requires better domestic policies and institutions, better lending and investment assessments (including by the private sector in the industrial economies), and better performance from the international institutions.
There is a long and complex task of structural reform still to be completed in Asia and not just in the crisis economies themselves. The institutional strengths required for good prudential supervision and transparent, sustainable economic policies are still being built, and financial sector and corporate restructuring still have a way to go.
In this regard, I think there are some lessons that can be drawn from Australia.
Australia weathered the Asian crisis well because of timely reforms that brought Australian economic and prudential supervisory policies (and business governance) up to world's best practice. But our reform agenda is by no means complete. We are still implementing important tax reforms and must remain alert to the implications for future policy of accelerating changes from e-commerce and e-finance. Furthermore, we must ensure there is no slippage with the reforms that have been achieved.
As reforms made the Australian economy more competitive, work practices improved, and businesses sought ways to raise productivity, including through profitable applications of the new information and communication technologies. Earlier this year, in its study entitled Is There a New Economy", the OECD identified Australia as one of only six of its 29 members to have significantly lifted trend real per capita growth through the 1990s.
The Australian reforms were introduced steadily, not in response to a crisis, but to prevent one. But achieving Australias reform initiatives took political leadership and a Government prepared to take hard policy decisions. And make no mistake about it, reform is politically hard - reforming the tax system, an obvious reform accomplished in nearly every developed economy years ago, was the subject of irresponsible political opportunism by domestic political forces.
The Asian economies must push the pace of reform, while the US economys demand for their exports is strong and the global growth environment is helpful. There may be a tendency to feel that reform initiatives can be eased when growth has resumed. But this is exactly the time when reform efforts should be enhanced.
The external and internal environments that most of the countries in the region currently face are unlikely to remain so helpful indefinitely: global economic growth might slow, and Asian domestic fiscal settings that are now quite accommodating, will eventually need to be tightened if public debt is to be kept manageable.
In the mid 1990s, Australia designed and implemented its reforms through its analysis of others best practice.
Over recent years we have seen increasing efforts to codify international best practices into various standards or principles some of Australias reforms are now used as international models but further work is still to be completed at the international level on accounting standards, emergent insolvency law standards and the OECD principles of good corporate governance.
Governments can now access principles for effective prudential regulation of banks, the IMFs systems for data publication, and the principles it has derived from its members experience for making fiscal and monetary policies more transparent both to voters and to analysts.
I like to think of these economic and commercial standards and codes in an analogy to the protocols behind the success of the Internet.
The Internet has swept the world where earlier, proprietary systems of electronic data interchange made only limited inroads. The Internet triumphed because it is an open system, built on protocols and an agreed programming language that enable computers everywhere to exchange information.
Everybody benefits from instant global exchange of information, including those who want to organise protests against globalisation!
I believe the recently developed, key economic standards and codes will become the protocols of the globalised business world.
If implemented, they will reduce the volatility of capital flows as informed decisions are made and capital properly priced on the basis of open information.
I believe that international codes, appropriately expressed as either general principles (such as for corporate governance) or more detailed standards (such as for prudential supervision of banks), are the protocols for building a stable open system of business and government.
These codes and standards can be very helpful to both the reformist leaders in Asia, and to international lenders and investors
They are, of course, not an end in themselves but represent a reference point as to the policy prescriptions necessary to achieve sustainable growth. They need not be implemented slavishly, but should be adopted in forms that are suitable for the domestic situation. It is also important that the policy reforms be seen as being locally owned, and not something that is dictated to a country by an external body.
The international business community has a key role to play to prevent the recurrence of past bouts of extravagant, misguided capital inflows that were subsequently drastically reversed. As strong investment growth returns to Asia, substantial external finance is again rapidly returning through foreign portfolio and direct investment, and foreign lending. That funding will be essential for living standards in the Asian economies to resume their convergence on levels in the richest countries.
But this time, the private sector must be more discriminating, focussing its lending and investment on companies that use credible accounting standards and good corporate governance, in a framework of functioning insolvency laws.
They also need to pay more attention to the state of prudential regulation in local financial sectors, and to choosing jurisdictions in which government statistics and polices are transparently reported, and therefore more easily diagnosed and corrected should they again begin to drift off track.
What can the international community of governments do to bolster reformist leadership in Asia?
Australia has been active in the World Bank, the IMF, the OECD and the Financial Stability Forum to develop the use of the standards and codes I mentioned earlier in order to improve transparency.
But most of all, we have tried to assist governments implement required reforms by being a strong contributor to bilateral technical assistance along with multilateral assistance through the World Bank, IMF and the Asian Development Bank.
In addition, for several years we have participated in, or led, APEC Finance Minister initiatives in projects to build institutions and human capacity in banking and securities supervision, corporate governance, insolvency law, and accounting standards. In fact, just this weekend, I participated in the 2000 APEC Finance Ministers meeting in Brunei, where further progress was made in helping to build the domestic institutions that will facilitate freer and more stable capital flows within the Asia Pacific region
As I said earlier, I am optimistic as to the prospects for the region. I am also a realist. If the recovery currently underway is to be sustained, it is essential that the countries in the region continue, if not enhance, their structural reform initiatives. There are a range of international codes and principles that set the benchmark as to what needs to be achieved. But their achievement will take political and business leadership. I am sure that this Summit will help lift awareness of what is required.