1. Thanks very much, Adam, for the warm introduction. Thanks to Peterson Institute for hosting me today. Let me focus my remarks as Adam said, on the prospects for growth, inclusion, and sustainability in a post-pandemic world. I would say from the outset that my views of the world are shaped by the circumstances of a small country:
a. After all, Singapore is a city state, without a domestic hinterland.
b. So in many ways, we are like the proverbial canary in the mine. Because we are often amongst the first to be buffeted by global economic storms.
c. It also means that we take a deep interest in the world, and keep looking out for risks and opportunities both for ourselves and the global system as a whole.
2. Like what’s happening with the current headwinds in the global economy.
a. Economies everywhere have still not fully recovered from the lingering effects of Covid-19, especially in restoring supply chains.
b. We now face another major challenge, precipitated by the war in Ukraine.
c. We are not out of the frying pan, but already into another fire.
3. These headwinds accentuate and interact with the structural challenges of growth, inclusion and sustainability in complex ways.
4. First, the issue of lacklustre growth and the secular decline in productivity growth in particular – something which many countries were already grappling with before Covid-19.
5. The dramatic fall in output following the Covid-19 outbreak was clearly the most dramatic shock to economies in living memory. But the world was hardly in good economic health beforehand. For the past decade, growth in advanced economies has been disappointing, despite macro-economic policies being generally accommodative. Economists have been trying to understand the reasons for this, and the risks of secular stagnation.
6. Now we are faced not just with the threat of slower growth but also higher inflation, induced by the pandemic and the Ukraine war, as well as the effect of domestic macroeconomic policies in some countries.
7. In short, the risks for both growth and inflation are weighed significantly on the downside. It is almost a certainty that inflation will be higher for longer. We will therefore face a sharper trade-off between growth and inflation. This complicates what is already a very difficult task for central banks, particularly in the advanced world – the task of balancing growth and inflation. And it remains to be seen whether central banks can successfully guide their economies to a soft landing.
8. Compounding these challenges to growth is a more fundamental and worrying shift in the global economic environment. The high tide of globalisation is ebbing. I do not expect a reversal of globalisation, but we could be heading into a new era of decoupled globalisation.
a. There is already renewed momentum by multinational corporations to re-shore production back to home countries, diversify supply chains, and stockpile inventories. In other words, the highly-efficient, just-in-time global supply network is being reconfigured to account for once-unimaginable tail risks.
b. Some diversification, no doubt, can improve supply chain resilience. But diversification is not decoupling. Will we see a further decoupling of trade, technology, or even finance, now that it can be used so effectively in response to war? Will we all start to reduce our dependencies on other countries, just in case they turn out to be unfriendly in future?
c. The hope for some decades has been that trade could tamp down geopolitical rivalry; but we are now seeing another logic at play, with geopolitics having the potential to undermine trade instead. It is too early to tell what decoupled globalisation will look like. But we must be prepared for a more divided world economically that will mirror a more divided world politically.
d. All this will have an impact on global growth, and will also hit the poorest and most vulnerable countries the hardest. It will make it harder for developing countries to converge with the advanced world.
9. This brings me to the second challenge of less inclusive growth, both across and within nations. It is not just the size of the economic pie that is causing concern; it is also how the pie is divided.
10. Compared with 40 years ago, the richest in most societies are further ahead than the poorest both in terms of how much they own and how much they earn. At the same time, intergenerational mobility has weakened. Social classes have become increasingly entrenched, and an individual’s starting point has increasingly determined his or her outcomes in life.
11. Within countries, there is also a geographical dimension to this divergence – some regions are growing and prospering as open, cosmopolitan centres; while others are lagging behind, and turning inward and more nationalistic.
a. Part of the reason is the rapid churn brought about by rapid technological advances. Labour-substituting technology has contributed to the shrinking of middle-class jobs in some industries, and this has often been concentrated geographically.
b. As a college student in Wisconsin and in Michigan in the early 90s, I could already see the decline in manufacturing jobs then. I can appreciate how the challenges must have increased manifold over the decades.
12. Inclusive growth has been made more difficult by the pandemic.
a. Unskilled workers and women have suffered disproportionately.
b. In Southeast Asia alone, Covid-19 has pushed nearly 5 million more people into extreme poverty. And the impact of school closures on human capital formation for our young has been pronounced.
13. So the consequence of these factors – weak and uneven income growth, high inequality, and weak social mobility – pose significant risks for us all. When people feel that the odds are stacked against them – when they cannot reach the top no matter how hard they try; when their children will never do better than them – social stability is affected, and things start to fall apart.
14. Third, the need for meaningful action on climate change grows greater. Global warming continues apace whether we care to notice or not.
15. With so much attention on the war in Ukraine and the pandemic understandably, the latest IPCC report
on the increasing severity of climate change did not attract headlines the way it should have.
a. The findings are sobering – even if the world were to follow through with all its current national climate commitments, we are still on track for temperatures to rise by 2.2 deg C by the end of this century.
b. In other words, we will not stay below the 1.5 deg C threshold, that scientists believe will result in irreversible impact on lives and livelihoods.
16. With the Ukraine conflict, we can expect reliance on fossil fuels to increase even further in the short-term. This may be necessary to cope with the short-term energy shortages, and to keep the lights on. But it also means we must redouble our efforts in the medium and longer-term, to set the right price for carbon, regulate emissions and invest in cleaner, low-carbon technologies.
17. I’ve painted a picture on growth, inclusion and sustainability. How do we respond to these challenges? Clearly, there are no easy answers.
18. For more than a decade, expansionary monetary policy has succeeded in buffering economies and financial systems against severe shocks. But this has had its downsides, and has likely reached its limits. As the balance of macro-risks shift towards inflation, the era of easy money will come to an end.
19. Fiscal policy therefore has to play a more important role. Part of this is about being able to respond quickly with immediate stimulus when needed. Many countries have done so over the past two years to stave off the most severe downsides of Covid-19 and to mitigate longer-term economic scarring.
20. In Singapore, we too spent significant resources to tackle the public health crisis and to help workers stay engaged in training or work in one form or another – our fiscal balance worsened by 10%-pt of GDP at the peak of the crisis. We have been able to afford this because we are fortunate to have a strong balance sheet and substantial reserves. Our actions have enabled employment and incomes to recover to pre-Covid levels, with the unemployment rate in Singapore now back to about 3%, even with the many restrictions on activity that have helped to keep our Covid-19 deaths at one of the lowest rates in the world.
21. Of course, it is not possible for any Finance Minister to sustain such extraordinary levels of spending over extended durations. In fact, virtually all advanced economies will emerge from Covid-19 with massive increases in their levels of public spending and debt, and this is from what were already extremely high levels by peacetime standards. Public debt in many countries will likely reach levels not seen since the end of the second World War. With interest rates rising, there will be a need at some point to taper spending or raise revenues to ensure more sustainable budgets over time, and to gradually rebuild fiscal space to deal with future shocks.
22. More crucially, the issue is not just about the amount of spending, but how and what we spend on. We need to re-purpose fiscal policy and renew the social contract. This is not a call for bigger government per se. Rather it is about the state playing a more active and purposeful role to achieve important longer-term goals – to raise productivity, to tackle inequality and rekindle social mobility, and to catalyse the green economy.
23. It is in this spirit that I would like to share three suggestions.
24. First, we should re-purpose fiscal policy and the role of the state towards building public goods and longer-term collective capacity.
25. Across a range of countries, there has been a drift in fiscal policy towards spending on individual entitlements, rather than public goods and supply-side investments. For example, there are studies of the US budget which suggest that in the 1960s, around two-thirds of the budget went to public goods of one form or another – infrastructure, defence, schools, hospitals, transport for example; and one-third went to some form of benefits to individuals. Today that balance has more than reversed.
26. Social transfers are certainly necessary to help us deal with immediate problems, but only a focus on building collective capacity can sustain long-term growth. So wherever we are, we need to get the balance right.
27. How can we make public spending work better for the common good? There are several good ideas from global experience and research.
a. First, the payoffs from spending on rejuvenating and expanding critical infrastructure can be immense. For example, new infrastructure is needed for the digital economy, including in digital payments. Such digital payments are already ubiquitous in many Asian countries, including China, India and Singapore, and we are continuing to work on cheaper and faster cross-border solutions.
b. Investing in early child development is another area with high payoffs. For any given dollar of social spending, investing in early child development is likely to be more pro-growth and pro-equality than the same amount spent in other areas. It can improve life outcomes, blunt inequalities inherited from birth and home, and reduce downstream costs in redistribution.
c. Similarly, inclusive neighbourhoods with a good socio-economic mix and quality public facilities matter greatly to a child’s life outcomes. So too is the critical work on rejuvenating areas which have experienced economic decline. This often involves state-supported strategies, in partnership with the private sector and educational institutes, to attract new industries. Indeed, we are seeing such urban renewal efforts taking place now across many American cities.
28. Another critical area of reform is in retirement benefits and healthcare. These are the largest government expenditure items in many advanced economies and they are set to grow further with rapidly ageing populations. Essentially, the biggest threat to the sustainability of public spending is posed by the upward march of senior lifespans. Something has to give in the longer-term.
29. Balancing pension budgets means that benefits per year must grow more slowly than wages and salaries per member of the working age population. In healthcare, too much of the spending today is allocated for medical treatments, only after people fall sick. We must invest more upstream in preventive care. We must centre the healthcare system around the patient – design incentives to keep them healthy, and to be cared for at the most appropriate setting.
30. In short, such investments by the state and designing the right incentives, whether in eldercare, healthcare, early childhood development or infrastructure, are the bedrock for building inclusive and sustainable growth.
31. But it will not be possible for governments alone to fund these investments or to resolve many of today’s complex challenges. This brings me to the second suggestion, which is to foster a refreshed common agenda between the public and private sectors.
a. This will need to go beyond traditional models of public-private partnerships for specific projects.
b. We must forge wider, deeper and longer-term collaboration between the Government and industry and work towards shared goals that advance the broader interests of society.
32. There are many ways to strengthen such public-private collaborations.
a. For example, in R&D, we must work together to drive technological breakthroughs in areas of pressing need, such as green solutions to tackle climate change, even when the technologies are not yet bankable or investable.
b. The US, of course, has lots of experience in this area. Take for example DARPA’s role in developing the internet and GPS systems or NASA’s work with SpaceX. Or most recently the role Operation Warp Speed has played in developing effective Covid-19 vaccines in record time.
c. Another area where we need stronger public-private partnerships is continuing education and lifelong learning – to equip workers with the relevant skills for the evolving jobs of the future. This is a key priority in Singapore. On the demand side, we have set up individual learning accounts for everyone, with periodic top-ups by the Government into these accounts. On the supply side, we are working with employers and training institutes to design training programmes relevant to the industry. We aim to integrate these efforts, strengthen the overall ecosystem, and to ensure a good match between the skills demanded by the industry, and those offered by the workforce.
33. Taken together, what I’ve spoken about amounts to a major refresh of the common national agenda between the public and private sectors. But at the same time, we cannot ignore the global commons.
34. And this brings me to my third and final suggestion, which is to strengthen multilateral cooperation on global public goods.
35. The financing of global health security, for example, has to be seen as a strategic investment in global public goods that benefits every nation – rich or poor. This has to go beyond incremental change within existing parameters. We need a fundamental reset to strengthen the global health system.
36. Amongst other things, we will need to massively scale up our network of pandemic surveillance systems, strengthen vaccine manufacturing and distribution capabilities, as well as help low and lower-middle income countries build up their national healthcare systems to tackle new health threats before they spread beyond their countries’ shores.
37. We must ensure proper and sustained funding for these global public goods, and also strengthen resourcing for the WHO so that it can play its central role more effectively. The G20 High Level Independent Panel has made its recommendations on these issues, which are now being studied and built upon by a taskforce of health and finance officials. A key proposal being discussed is a $10 bn Global Health Security Financial Intermediary Fund to ensure more reliable funding to prepare for future pandemics. The contributions to such a fund, when spread out equitably over different countries, are affordable – they work out to less than 0.02% of their GDPs. It’s an insurance premium well worth paying for, because future pandemics are likely to happen more frequently, and they can be as severe or even more severe than Covid-19.
38. The previous and current G20 Presidencies of Italy and Indonesia, with the energetic support of the US Administration and several other nations, are actively working to build a broad international consensus around these initiatives. Singapore fully supports them and stands ready to do our part. I appreciate that there is already considerable fatigue around Covid-19, and there are many other important global priorities to tackle. But we cannot afford to take our eyes off the ball, and fly blind into the next pandemic. So I hope we will be able to make further progress on these issues at the coming G20 Finance Minister’s meetings.
39. Likewise, we need international cooperation on the global commons to tackle climate change.
40. The scale of investments needed here is much larger – not billions but trillions every year over the next 30 years. That is why governments alone cannot afford these investments. We must find ways for the public sector to crowd in and incentivise the private sector. There are many examples of how this can be done, including ways to achieve a fair sharing of risks on such investments through blended finance.
41. We will also need to improve the availability, quality and comparability of data – to enable companies, financial institutions and investors to measure progress towards sustainability goals; and implement a consistent set of global standards for disclosures and reporting. Indeed, there has been an increased momentum of critical climate finance initiatives over the past year, and Singapore is actively involved in many of them. We must all do our part – as regulators, standard setters, investors, asset managers and financial service providers – to scale up green finance globally.
42. More broadly, we will have to fortify multilateralism and the global rules of the game.
a. Over the past half a century, the open, rules-based international order has helped keep the world relatively stable.
b. It was never perfect; there was never agreement on all global issues. But this stability fostered international cooperation and gave birth to an era of unparalleled economic transformation – many countries prospered, and millions were lifted out of poverty.
43. Today, the world seems more divided than ever before. The future has never seemed more uncertain. But amidst our differences, we must find enough common ground with one another to solve our collective problems.
a. We must keep our international system open and inclusive.
b. We must arrive at new sustainable working arrangements between countries, including reworking and strengthening global institutions where necessary.
c. Failure to cooperate internationally, preserve stability and invest in the global commons will have disastrous long-term consequences for the entire world.
44. Let me conclude. Governments and societies today face immense uncertainty and deep structural challenges.
45. Our response must be to drive inclusive and sustainable growth. This will require:
a. A re-purposing of fiscal policy and the role of the state;
b. A renewing of the social contract; and
c. A reinvigorating of the open and rules-based international order, with stronger commitments to multilateral solutions.
46. This is an ambitious agenda, but it is not impossible to achieve. Our current challenges have ignited an intrinsic desire to create hope and do better for the future. Let us seize the moment to build a more prosperous, united, fairer, and greener world.
 “Climate Change 2022: Mitigation of Climate Change”. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, published on 4 April 2022. https://www.ipcc.ch/report/ar6/wg3/