‘Exactly 10 years ago, we were sitting at the Reserve Bank in New Zealand, watching in horror what was happening in the US – we had heard Lehman Brothers was in trouble.’
Thus began an illuminating presentation by Dr Alan Bollard, former Reserve Bank Governor and, since 2013, the Executive Director of the APEC Secretariat in Singapore.
Dr Bollard offered an overview of the six main drivers of economic disruption in the Asia-Pacific region - and the global responses that have followed. The impacts on the region are significant and still evolving.
The six main drivers of disruption
GFC after-shock. The events in the finance sector flowed through to the economy. Growth slowed internationally, with a drop of half a percent in developed economies and 2 percent in developing economies. The APEC countries - representing over half the world’s economy – experienced a sudden contraction in trade. Busy trading centres slowed; international shipping ports grew quiet.
People shock. The demographics of the region have shifted. There are now more millennials than baby boomers. A young Millennial was asked: ‘Would you rather be smiling on a bicycle or crying in the back seat of a BMW?’ She took the BMW. Her answer went viral. Asia’s new middle class buys differently, spends more money on health and education, and is more demanding of governments. Women get degrees, but defer marriage and children. They live in nuclear families rather than extended families, which has implications for government planning for old age.
Ageing shock, specifically lower, slower fertility and longer life expectancy - particularly in Japan, APEC’s oldest population, and Korea, with the lowest population increase. A middle-class baby born in Canada today can expect to live to be 100. Simply put, said Dr Bollard, ‘More nappies are now purchased for older people than for babies.’ But some APEC countries are growing old before they grow rich.
Tech shock, dubbed ‘the Fourth Industrial Revolution’ by the World Economic Forum, is also impacting the workforce. Data movement is 50 times higher. But Dr Bollard thinks we are not good at forecasting the effect of new technology on jobs.
Inequality shock. Inter-country inequality has ‘improved enormously’ within the region. But returns to labour are down, and returns to capital up. The top 10 percent, and especially the top one percent have further increased their wealth. ‘There are now more Asian billionaires than American billionaires,’ said Dr Bollard.
Populist shock should not be underestimated – and its impacts are still unfolding. Anti-globalisation views, epitomised by the election of US President Trump or the Brexit vote in the United Kingdom, have implications that are being felt – or anticipated – in and beyond the Asia-Pacific. However, survey evidence (e.g. by Pew) indicates that people vastly over-estimate the effect of migration or foreign investment.
Where to from here?
Trump’s talk of the ‘trade deficit’ indicates that he is thinking about manufacturing (steel, aluminium, cars), not about services. All up, the imbalance is >1%. The IMF estimates that the trade war will knock 0.5% off global growth. Institutional disruption has also been significant. The US has pulled out of the TPP and is hampering the WTO’s ability to undertake dispute resolution.
Because New Zealand is generally at the start of the supply chain, Dr Bollard concluded, the impact of the current trade war is limited. We have been spared the first-round effects. But, he added, ‘New Zealand must take a tough, clear, long-term view from all sides. We need to keep our eyes open.’
Watch the full video of Dr Alan Bollard's talk
Watch Disruptive Economic Changes in the Asia-Pacific (approx 42 minutes):