George Yeo looks at China, India and Asia as it is unfolding and is likely to unfold particular in the face of the global economic crisis. He refers to the foresight of Needham and the evolutionary theory of Darwin. Here is a penetrating analysis.


What the Current Crisis Represents?


Madam Pro-Vice Chancellor, Kate Pretty, my old tutor, Professor Navaratnam, dear friends, ladies and gentlemen, it may seem inauspicious that Cambridge should be celebrating its 800th Anniversary at a time when the world is heading into a deep recession the likes of which have not been seen for a long time. From the perspective of Cambridge’s long history, however, this sharp economic downturn is but another discontinuity in the affairs of man of which the University has seen many and participated in not a few. Whether this crisis marks a major break in world history we don’t know yet. Turning points are only seen for what they are in hindsight.


What is becoming clearer is the severity of the crisis. No one is sure where the bottom is or how long this crisis will last. In the meantime, tens of thousands of companies will go bankrupt and tens of millions of people will lose their jobs _ at least. What started as a financial crisis has become a full-blown economic crisis. For many countries, worsening economic conditions will lead to political crisis. In some, governments acting hastily in response to short-term political pressure will do further harm to the economy.


In an editorial last December, the Financial Times commented that the US Federal Reserve was flying blind. But, in fact, all governments are flying with poor vision. Markets are volatile precisely because no one knows for sure which policy responses will work.


I remember an old family doctor once explaining how every disease must run its course. In treating an illness, he said, one works with its progression. Attempting to short-cut the process may worsen the underlying condition. While emergency action may be needed and symptoms can be ameliorated, the body must be healed from within after which its immunological status changes.


The Austrian economist Joseph Schumpeter understood the importance of creative destruction. The end of an economic cycle does not return the economy to where it was at the beginning. During the downturn, firms go bankrupt, people lose jobs, institutions are revamped, governments may be changed. And in the process, resources are reallocated and the old gives way to the new.


Charles Darwin, whose 200th birth anniversary we mark this year, understood all that. Life is a struggle with old forms giving way to new forms. And human society is part of this struggle.


The question we ask ourselves is, what is the new reality that is struggling to emerge from the old? History is not pre-determined. There is, at any point in time, a number of possible futures, each, as it were, a state of partial equilibrium. And every crisis is a discontinuity from one partial equilibrium state to another within what scenario analysts call a cone of possibilities.


Well, whatever trajectory history takes within that cone of possibilities in the coming years, there will be a great repricing of assets, of factors of production, of countries, of ideas.


Economic Repricing: Let me first talk about economic repricing. Many bubbles have burst in the current crisis starting with sub-prime properties in the US. All over the world, asset prices are plummeting. In the last one year, tens of trillions of dollars have been wiped out. How much further this painful process will continue, no one can be sure. Many months ago, Alan Greenspan, in his usual measured way, peering into the hole said he saw a bottom forming in the fall of asset prices; it turned out to be the darkness of an abyss very few knew existed. That bottom is only reached when assets are sufficiently repriced downwards. Public policies can help or hinder this process. Unfortunately, many stimulus packages being proposed will make the adjustment more difficult. For example, bailing out inefficient automobile companies may end up prolonging the pain of restructuring at tremendous public expense.


The repricing of human beings will be even more traumatic. With globalisation, we have in effect one marketplace for human labour in the world. Directly or indirectly, the wages and salaries of Americans, Europeans and Japanese are being held down by billions of Asians and Africans prepared to work for much less. China and India alone are graduating more scientists and engineers every year than all the developed countries combined. Now, while it is true that trade is a positive sum game, the benefits of trade are never equally distributed. We can therefore expect protectionist pressures to grow in many countries.


Governments will try to protect jobs often at long-term cost to their economies. It is wrong to think that we can force our way out of a recession. Beyond a point, the stress will be taken on exchange rates. If governments try to prevent the repricing of assets and human beings, international markets will force the adjustment on us. A country that is over-leveraged living beyond its means will itself be repriced through its currency. Its currency will be devalued, forcing lower living standards on all its citizens.


The world is in profound imbalance today. All the G7 countries are in recession. The West is consuming too much and saving too little while the East is saving too much and consuming too little. China, India and others need to consume much more of what they produce but they are unable to take up the present slack in global demand because their GDPs are still too small. In 10-20 years, they may be able to but certainly not in the next few years. In the meantime, the global economy may suffer a prolonged recession, a global Keynesian paradox of thrift


Political Repricing: When this crisis is finally over, which may take some years, out of it will emerge a multi-polar world with clearer contours. Although the US will remain the pre-eminent pole for a long time to come, it will no longer be the hyperpower and power will have to be shared. The Western-dominated developed world will have to share significant power with China, India, Russia, Brazil and other countries. Thus, accompanying the economic repricing will be political repricing.


Following the spectacular opening of the Olympic Games in Beijing, Tony Blair wrote in the Wall Street Journal of August 26 last year: “This is a historic moment of change. Fast forward 10 years and everyone will know it. For centuries, the power has resided in the West, with various European powers including the British Empire and then, in the 20th century, the US. Now we will have to come to terms with a world in which the power is shared with the Far East. I wonder if we quite understand what that means, we whose culture (not just our politics and economies) has dominated for so long. It will be a rather strange, possibly unnerving experience.”


Those words were said by Tony Blair in August last year before the financial meltdown. How much more they ring true today. Sharing power is however easier said than done. But without a major restructuring of international institutions, including the Bretton Woods institutions, many problems in global governance cannot be properly managed. The meeting of G20 leaders started by President George Bush in November last year is a necessary new beginning. But it is a process. Prime Minister Gordon Brown is hoping that the next meeting on 2 April in London will sketch out the main elements of a global bargain. To be sure, the reform of global institutions is a process that will take years to achieve. During the transition, many things can go wrong. In his analysis of the Great Depression in the last century, the economic historian Charles Kindleberger identified a major cause in the absence of global leadership during a critical period when power was shifting across the Atlantic. Great Britain could not exercise leadership while the US would not. In between, the global economy fell.


In the coming decades, the key relationship in the world will be that between the US and China. Putting it starkly, the US is China’s most important export market while China is the most important buyer of US Treasuries. The core challenge is the peaceful incorporation of China into the global system of governance, which in turn will change the global system itself. This was probably what led Secretary Hillary Clinton to make her first overseas visit to East Asia.


Three Points about China: The transformation of China is the most important development in the world today. Much has been written about it, the re-emergence of China. But I would like to touch on three points.


China’s Sense of Itself: The first point is China’s sense of itself which was written about by Joseph Needham many years ago. Over the centuries, it has been the historical duty of every Chinese dynasty to write the history of the previous one. Twenty-four have been written, the first a hundred years before Christ by Sima Qian in the famous book, Shi Ji. And since then the later Han wrote about the Han and then the Xin, the Three Kingdoms and so on. So twenty-four in all. The last dynasty, the Qing Dynasty, lasted from 1644 to the Republican revolution of 1911. Its official history is only now being written after almost a century. When I visited the Catholic Society of Foreign Missions of Paris in January this year, I was told by a Mandarin-speaking French priest who served many years in China and in Singapore that out of the 90 volumes envisaged for the official history of the Qing Dynasty, 5 volumes would be on the Christian missions in China. When I was there at the Society, I met a Chinese scholar researching into the history of missionary activities in Sichuan province. No other country or civilisation has this sense of its own continuity. For the official history of the People’s Republic, I suppose we would have to wait a couple of hundred years. It was Needham’s profound insight into China’s sense of itself that led to his remarkable study of Science and Civilization in China. Ironically, China’s sense of itself was mostly about its social and moral achievements within the classical realm. It was Needham who informed the Chinese of their own amazing scientific and technological contributions to the world.


However, China’s sense of itself is both a strength and a weakness. It is a strength because it gives Chinese civilization its self-confidence and its tenacity. Chinese leaders often say that while China should learn from the rest of the world, China would have to find its own way to the future. But it is also a conceit, and this conceit makes it difficult for Chinese ideas and institutions to become global in a diverse world. To be sure, the Chinese have no wish to convert non-Chinese into Chinese-ness. In contrast, the US as a young country, believing its own conception to be novel and exceptional, wants everyone to be American. The software of globalisation today including standards and pop culture is basically American. And therein lies a profound difference between China and the US. The software of globalisation today, including standards and pop culture, is basically American. If you look at cultures as human operating systems, it is US culture which has hyper-linked all these different cultures together, in a kind of higher HTML or XML language. And even though that software needs some fixing today, it will remain essentially American. And I doubt that the Chinese software will ever be able to unify the world the way it has been because it (Chinese software) has a very different characteristic all of its own. Even when China becomes the biggest economy in the world as it almost certainly will within a few decades.


Cities of the 21st Century: The second point I wish to highlight today about China is the astonishing urban experimentation taking place today. China is urbanising at a speed and on a scale never seen before in human history. Chinese planners know that they do not have the land to build sprawling suburbia like America’s. China has less arable land than India. Although China already has a greater length of highways than the whole of the US, the Chinese are keenly aware that if they were to drive cars on a per capita basis like Americans, the whole world would boil. Recognising the need to conserve land and energy, the Chinese are now embarked on a stupendous effort to build mega-cities, each accommodating tens of millions of people, each the population size of a major country. And these will not be urban conurbations like Mexico City or Lagos growing higgledy-piggledy, but cities designed to accommodate such enormous populations. This means planned urban infrastructure with high-speed intra-city and inter-city rail, huge airports like Beijing’s, forests of skyscrapers, and high tech parks containing universities, research institutes, start-ups and ancillary facilities. In March last year, McKinsey Global Institute recommended 15 ‘super cities’ with average populations of 25 million or 11 ‘city-clusters’ each with combined populations of more than 60 million. Unlike most countries, China is able to mount massive redevelopment projects because of the Communist re-concentration of land in the hands of the state. If you think about it, the great Chinese revolution was fundamentally about the ownership of land. This is the biggest difference between China and India. In India and most other parts of the world, land acquisition for large-scale projects is a very difficult and laborious process.


As we looked to the US for new patterns of urban development in the 20th century with its very rational grid patterns, we will have to look to China for the cities of the 21st century. Urbanisation on such a colossal scale is reshaping Chinese culture, politics and institutions. The Chinese Communist Party which had its origins in Mao’s countryside faces a huge challenge in the management of urban politics. From an urban population of 20% in Mao’s days, China is 40% urban today and, like all developed countries, will become 80-90% urban in a few decades’ time. Already, China has more mobile phones than anybody else and more internet users than the US.


China’s Political Culture: My third point is about China’s political culture. Over the centuries, China has evolved a political culture that enables a continental-size nation to be governed through a bureaucratic elite. In the People’s Republic, the bureaucratic elite is the Communist Party. When working properly, the mandarinate is meritocratic and imbued with a deep sense of responsibility for the whole country.


During the Ming and Qing Dynasties, there was a rule that no high official could serve within 400 miles of his birthplace so that he did not come under pressure to favour local interests. This would mean that for a place like Singapore, it would never be governed by Singaporeans. A few years ago, that rule was re-introduced to the People’s Republic, and indeed, in almost all cases, the leader of a Chinese province is not from that province. Neither the Party Secretary nor the Governor, unless it is an autonomous region, in which case the number two job goes to a local, but never the number one job. It is as if on a routine basis, the British PM cannot be British, the French President cannot be French and the German Chancellor cannot be German.


Although politics in China will change radically as the country urbanises in the coming decades, the core principle of a bureaucratic elite holding the entire country together is not likely to change. Too many state functions affecting the well-being of the country as a whole require central coordination. In its historical memory, a China divided always meant chaos, and chaos could last a long time.


To be sure, China is experimenting with democracy at the lower levels of government because it acts as a useful check against abuse of power. However, at the level of cities and provinces, leaders are chosen from above after carefully canvassing the views of peers and subordinates. As with socialism, China will evolve a form of ‘democracy with Chinese characteristics’ quite different from Western liberal democracy. The current world crisis will convince the Chinese even more that they are right not to give up state control of the commanding heights of the economy.


With the world in turmoil, many developing countries are studying the Chinese system wondering whether it might not offer them lessons on good governance. For the first time in a long time, the Western model has a serious competitor.


I make these three points about China to illustrate how complex the process of incorporating China into a new multi-polar global system will be. The challenge is not only economic, it is also political and cultural. Yet, it must be met and the result will be a world quite different from what we are used to. Developing countries will no longer look only to the West for inspiration; they will also turn to China and, maybe, to India as well.


The Nalanda Revival: The simultaneous re-emergence of India and China, together making up 40% of the world’s population, is endlessly fascinating. Two countries cannot be more different. One is Confucianist and strait-laced, the other is democratic and rambunctious. Or to use Amartya Sen’s words, “The Indian is argumentative”. Yet, in both countries, we can feel an organic vitality changing the lives of huge numbers of people. The re-encounter of these two ancient civilizations is itself another drama. Separated by high mountains and vast deserts, their historical contact over the centuries was sporadic and largely peaceful. In recent years, trade between them has grown hugely, making China India’s biggest trading partner today. But of course, we must remember that during the Raj, China was also British India’s biggest trading partner. But they are suspicious of each other. India remains scarred by its defeat by China in 1962 during the border war, a point which Chinese leaders seem not to understand fully. We in Southeast Asia have a strong vested interest in these two great nations who are our immediate neighbours having peaceful, cooperative relations. Let me talk briefly about a project which may help bring South, Southeast and East Asia together again. This is the revival of the old Nalanda University in the Indian state of Bihar.


Through Chinese historical records, the world is aware of the existence of an ancient Buddhist university in India which for centuries drew students from all over Asia. At its peak, Nalanda accommodated ten thousand students, mostly monks. It had a magnificent campus with a nine-storey library and towers reaching into the clouds, according to the extravagant but remarkably accurate account of the 7th century Tang Dynasty Buddhist monk Xuan Zang. Xuan Zang’s journey to India to bring back Buddhist sutras was such an odyssey, it has long been mythologized in Chinese folklore – the Journey to the West. He spent a number of years in Nalanda. Unfortunately, Nalanda was destroyed by Afghan invaders at about the time Oxford and Cambridge were established 800 years ago and again initially, mostly for monks. The Indian Government has recently decided to revive this ancient university as a secular university, offering it for international collaboration. A 500-acre site not far from the ruins of the old has already been acquired. Like the old, it will be multi-disciplinary, drawing on the Buddhist philosophy of man living in harmony with man, man living in harmony with nature, and man living as part of nature. A mentors group chaired by Amartya Sen has been appointed by the Indian Government to conceptualise its establishment, of which I am privileged to be a member. I hope the new Nalanda University will help usher in a new era of peace and understanding in Asia. I also hope it will have strong links to Cambridge.


Cultural Repricing: A multi-polar world is a messy world. It means that no particular value system will hold complete sway over others. The current crisis has already caused many people to question the nature of capitalism, socialism and democracy. Chemically-pure capitalism, to use a phrase coined by former French Premier Lionel Jospin, has become a dirty word. In contrast, John Maynard Keynes seems to have been repriced upwards again and all of us have been dusting the old copies of The General Theory that we have on our shelves. A recent Newsweek cover proclaimed that “we are all socialists now”. Even Karl Marx is being re-read. Ideas, cultural norms are all being repriced as countries search for ways out of the crisis. If high unemployment persists for many more years, dangerous ideas and ideologies may reappear as they did in the 30’s.


Without American leadership, multi-polarity can easily lead to global instability. And there is much expectation of what a new Obama Administration, sensitive to cultural nuances, can do to restore order and growth in the world. Unfortunately, there are no quick or easy solutions. We should expect instead a fairly long period of untidiness and confusion. Most importantly, we should be sceptical of absolute or ultimate solutions for these are often the most dangerous.


The Inspiration of Darwin and Needham: In responding to the current crisis, let us be inspired by two Cambridge men, Darwin and Needham. Darwin’s publication of The Origin of Species 150 years ago represented one of the greatest intellectual leaps by mankind. At the British Museum of Natural History, they call it “The Big Idea”. It was a very big idea. Natural selection has an obvious analogue in man’s intellectual and social development. Like biological species, human ideas and systems are also subject to selection through wars, revolutions, elections, economic crises, academic debates and market competition. Those which survive and flourish should, we hope, raise civilization to a higher level.


Needham understood China like few other men did. As Simon Winchester wrote in his recent book on Needham, The Man Who Loved China, Needham might not be surprised to see the huge transformation of China today.


Both Darwin and Needham were drawn from our university tradition of being sceptical without losing our moral sense. Only by being sceptical can we be objective, can we see ourselves critically and learn from others. Only with a moral sense will we be motivated to work for a larger social good. It was China’s corruption and inability to learn from others in an earlier period that led to its long decline. The Qian Long Emperor told George III during Lord McCartney’s mission in 1793 that China had nothing to learn from the West. That marked the beginning of China’s long decline.


Human civilisations learn from one another more than they realise, more than we realise. In a collection of essays published by Needham on the historic dialogue of East and West in 1969, he chose for his title Within the Four Seas. That title was from the Analects of Confucius, who said, “Within the Four Seas, all men are brothers”. In the heyday of Third World solidarity in the 50’s, the Indians had a saying _ “Hindi-Chini, bhai bhai” (Indians and Chinese are brothers); [this slogan was given during Chou En-lai’s visit to India;  a woman member of the Chinese delegation enquired what the slogan meant? She wanted to know the Hindi word for sisters; when told,  she started shouting “Hindi Chini Bahen Bahen”;  added by the Editors]. In these confused times, we need to learn from one another on the basis of a deep respect for each other as human beings.


(Speech by Singapore’s  Minister for Foreign Affairs George Yeo at the distinguished lecture at the university of Cambridge on 27 march 2009 on the occasion of  Cambridge University’s 800th anniversary)

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