For a generation or even two since the ascendance of neoliberalism in the 1980s, the world has very much been conditioned to think that weak states with no regulation, low taxes, free movement of money, the financialisation of housing property, and cheap labour, are good for capitalism.
But while these conditions have made some capitalists very rich, it has resulted in very unequal societies with widening rich-poor gap and it is terrible from the point of sustainability as the environment is destroyed.
I am here to support the Good Capitalism Forum in the hope to redefine what is good for capitalism for the benefit of the many, and not merely what is good for capitalists.
It is hoped that the redefinition of what is good for capitalism will encourage a generation of enlightened capitalists who will campaign for strong states, just regulatory framework, higher tax, controlled financialisation and a decent-wages-decent-work model, in order for capitalism to continue to survive.
Capitalism was on the verge of collapse in 1929. It was Franklin Roosevelt’s New Deal and Keynesian economic ideas that gave capitalism a new lease of life.
Capitalism also experienced a near death in 2008. Since then, the world has been muddling through, we have not learned sufficient lessons from the crisis and were not bold enough to change the neoliberal institutional framework that caused the 2008 economic meltdown. This includes the financialisation of society, the property bubble, the lack of regulatory apparatus to temper greed, and the lack of middle-class jobs in the developed world – due to outsourcing of work to developing countries.
No one can guarantee that there would not be another crisis that threatens the survival of capitalism.
Flying geese model and low wages in Asia
In Asia, we are at the crossroads. We can see the end of the “flying geese” model that saw Asian economies benefiting from half a century of outsourcing from United States since the 1960s. Because today, the United States does not produce enough middle-class jobs to be the final destination of export for Asian produce.
In the flying geese model, Japan was the first stage, followed by the Little Dragons – Taiwan, Hong Kong, Singapore, South Korea; and followed closely by Malaysia, Thailand, Indonesia; and later on, Vietnam and now probably Bangladesh. China’s huge productive capacity flooded the US market since China joined the WTO in 2001, further quickening outsourcing from US. This model is unsustainable as at some point there are insufficient middle-class workers in the US to consume anymore, which is what is fuelling the Trump movement now.
The low wage model that Asian economies pursued to export to the US will have to come to an end with the demise of the flying geese model. Previously, suppressing wages helped make export cheaper. But at some point in the past twenty years, countries could not compete with China’s low prices. Now consumers in US are finding it hard to consume so much Asian products due to their own low wage and inequality situations especially post 2008. Asian economies are increasingly dependent on domestic consumption as the engine of growth.
Decently paid work force and equal society is good for economy
However, the low wage structure of 1980s Asia is still more or less intact, therefore a lot of the consumption comes through debts. In order to sustain the low wage structure, low end workers from Singapore work in Australia, low end workers from Malaysia work in Singapore, while Malaysia imports a huge number of unskilled labour from Bangladesh. This scenario will have to change to ensure the survival of capitalism in these societies.
A decently paid work force and a less even society is good for the economy.
Distribution should not be done only through welfare and handout. The main effort of distribution has to come through jobs and wages, and provision of good public services for all.
Neoliberals try to ignore the inconvenient truth that in a democracy, everyone – whether rich and poor – has a vote. Even in authoritarian party states like China, public opinion matters too, and public opinion will and should affect economic decisions.
Asian nations have been competing to lower taxes over the past two decades, very much in competition with Hong Kong and Singapore. But that will end at some point as Hong Kong and Singapore will have to raise taxes eventually. The two island economies benefited from not having a hinterland to worry about and grew rapidly in the 1970s through the huge demographic dividend from post war Baby Boomers, as well as migration from neighbouring hinterland in 1990s.
But the societies that were once very young, are now greying. Even if there is no hinterland to worry about, the need to care for the aged will require the government to spend more on healthcare. And being first world economies with a sizable underclass, the political fallout will force these states to do more. In the case of Hong Kong, it’s about housing. In the case of Singapore, it’s wages and healthcare.
Just and fair strong state model for Asia
For other Asian states, capitalists should campaign for higher taxes on the richest. I am not suggesting the case of turkeys campaigning for early Christmas. Quite the contrary, it is in the interest of the richest to see a strong middle-class society with a strong state.
A corrupt state is a terrible state to have. That is agreed by all. But after disposing a corrupt state, the opposite is not a weak state.
The Asian experience in the 1970s up to 1990s has shown us that having a strong state is good for the private sector as well as for the workers. The best Asian economies that successfully benefited from the flying geese model were the ones that had very strong governments to set conditions for industrial policy to work, for education to work, for the banks not to profit from speculations but to earn decent income from supporting industries, for ensuring that the workers have enough income to feed their families and raise their children to be a more educated generation for the next generation’s industries.
For Asian economies to have a clear path ahead, capitalists should campaign for strong state with integrity, and with just and fair regulatory framework that would allow good industries to grow through productivity gain. We must regulate businesses so that they pay workers decent wages. We must also facilitate world class education to serve as a catalyst for science and technological research which is often costly and not easy to fund privately, and safeguard our environment not to be destroyed.
For capitalism to survive, we need enlightened capitalists to campaign for strong states, just regulatory framework, higher tax, controlled financialisation and a decent-wage-decent-work model for all.
*Speech by Deputy Defence Minister, YB Senator Liew Chin Tong, at the Press Conference to launch the Good Capitalism Forum 2019, at the Mandarin Oriental, KL