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History Table of Contents
1997 Summer Conference
 
Summer Conference 1997
Canada and the Asia-Pacific Promise: Hope, Hype and Reality
The Strategic Centre of the World:
Economic Dynamism and the Search for Stability in East Asia

Questions

Miss Cox, you did not touch at all upon the biggest drag on India's economic development, which is the persistence of rural feudalism. The big difference between China and India is that China's rural productivity, not just in farm production per acre but also in small rural industries is just so far ahead of India's it is breathtaking. Every country that has moved into a truly modern mode has had a rural revolution, whether it's capitalist or Communist, that destroys rural feudalism. India has not yet destroyed rural feudalism. What is your comment?

Cox: We have to always remember when we speak of India that the changes that happened have happened since 1991. There is a lot of talk going in India about what's happening in the farming sector. I don't think I'd agree that feudal society you mention in the rural area has such a strong, firm hand. I'd be more concerned about the big industries that are coming in and who are manipulating the agricultural growth. It's too early to make comparisons between India and China, when it comes to the agrarian sector. It's doing fairly well.?After all, the country is feeding itself. That is an accomplishment. There was a time when it wasn't; there was a time when the world's population was concerned that it couldn't. The green revolution did come. There's a lot of talk about the ultimate effect of it but, in effect, they are taking care of themselves.

I don't want to avoid your question, but I think it's premature. I think we need to give this country some breathing space. We're so quick to make these continual comparisons between China-India, China-India. Well, one's a democracy; one is a dictatorship.

I went to Bangalore after the big fight against KFC and talked with the leaders of the people fighting against the entry of KFC. There's a lot of interesting movements that are taking place on the farm scene that have to do with organic farming. There's a lot of power in the farming sector. I don't know that I agree there is that great feudal power.

Give India some more time. It's a democracy. They fight things out. There's a consensus; a grass roots movement, it bubbles up.

The grassroots movement of Goa threw out Dupont. Admittedly, they went to another state, Tamil Nadu. Just wait, the grassroots movement of Tamil Nadu will kick them out of Tamil Nadu.

I think there is a bubble that goes all around the country. What I see as the main problem with all these smaller groups that we don't hear about is that they haven't figured out a way to collect together to become a cohesive force. But it will happen. But, it's a democracy. It's a little sloppy, it takes awhile.

How do you foresee the future in terms of global over- population?

Saravanamuttu: I think it is only of the variables. As I mentioned, the current interest seems to look at the effect that rapid industrialization will have on the environment. That doesn't touch on the question of population, per se.

Of course, if you have a growing middle class in China — let's say the middle class in China was something like only 10 per cent of the population — you can imagine the kind of pressure this would put on the consumption of resources, the kinds of pressure this would put on the government in terms of providing for amenities, such as housing, that come with rising middle class expectations.

So, I think it's not a question of population, per se. Some economists on the radical side have argued that population is not a problem, per se, it's whether you can gainfully employ people. If you gainfully employ people, can you also provide them with the amenities that come normally with a good standard of living. So, I think that is the problem.

Singapore, of course, is blessed with a very small population and for that reason it has managed to develop at a much more phenomenal rate than have the larger Southeast Asian countries, or Asian countries such as Indonesia. Again, if you take the example of Indonesia, there is a very upbeat assessment about Indonesia development now. There's some assessment which says that Indonesia, despite the 200 million population, is coping very well on a macro-economic level with its problems. There is a rising middle class and this is, of course, the actor that fuels continual development.

I wouldn't put it down to one variable. I think there are a whole series of problems which have to be tackled as we go along.

Valaskakis: I fully agree with what Johan said. When thinking in terms of population problems and the relationship between population and environment, there are two variables. There's a multiplicand and a multiplier. The multiplicand is the number of people. The multiplier is the lifestyles.

Right now it still is the case that one U.S. baby is much more a burden to the environment than 10 or 15 Chinese babies, because of the level of development. Once you have China reach per capita income levels of the United States, if they start consuming like we do in North America in terms of cars, television sets, energy consumption, that's the multiplier. And that multiplier is much more serious than the multiplicand. Levels of development and uncontrolled growth could be much more of a threat to the environment than the number of people.

Miss Cox, the word education hasn't surfaced, either last night or today. Yet, we attach a great strategic value to education in in-transition economies.

In Canada, we have some experience with the high end of education in India. For decades, we've been receiving graduates of the five institutes of technology, the Indian Institute of Science in Bangalore and a number of universities as graduate students. They are superbly prepared and many of them stay here for a number of reasons; probably the most powerful reason is that they find better opportunities to pursue their work here than in India.

All this holds for China, as well. There are in the United States and in Canada many distinguished Chinese academics teaching our students.

Have you noticed in India an attempt to capitalize on this expatriate high-end intellectual elite to bring them back and help in economic development? I know that some companies have been bringing back software engineers and so for years.

Also, has anyone seen that as an active policy in China? I can illustrate instances of great renown going back, but are there policies — active policies — in this area?

Cox: I think it's the quality of life that makes them stay here. I was just working with a company and helping them locate a managing director. Business Today, a fine magazine, just did a study of corporate packages and the person who was in the position to hire this Indian was astonished at the amount of money that is currently being paid in many of the major industries of India.

The salaries are booming. The perks are unbelievable. You get a wardrobe perk, you get a credit card, you get free trips abroad, you get a whole house, you get a phone, you get two servants, you get a car. The inducements now to come back are astonishing.

There's a large shortage of well-qualified management, in particular; people who can run a company. That's where India fell short. They had family-owned businesses. Even many of those family-owned businesses are now searching for the appropriate, qualified professional manager to take over their dinosaur, because so many of these Raj-licensed industries had such a hodge podge of companies under their mantle.

The opportunity in India is phenomenal for highly- qualified people. But, the quality of life in India is pretty bleak. I live in what is considered to be an upper class neighbourhood. I pray for water when I wake up. I pray for power just to get me through three hours of my computer work. I Pray for my phone to work.

So, you have a lot of reasons to stay away that have nothing necessarily to do with job opportunities. They are coming. Article after article in the major Indian business magazines talk about the dearth of really qualified management. I think more and more will come back. And I think there's a buzz, a real buzz in India. I think more companies are reassessing: Is it a good thing to bring a non- resident Indian to India? Should we not take from the pool of talent that's there? If you bring a non-resident Indian, it creates a certain amount of friction within the country itself.

I think the job scenario can do nothing but change; can do nothing but get better. Where I worry is where is that infrastructure, what about the environmental pollution? Delhi is a gas mask city. You cannot go out without a gas mask. Even when I boil and filter my water, I know I'm drinking a lot of arsenic and lead. It's the quality of life, I think.

Prof. Valaskakis, traditionally, when Canada's been asked and the Canadian government's been asked, what are your priorities? Our answer is everywhere. With economic constraints, that's less and less possible, so we're going to have make some bets about where we want to develop our strongest economic and trade relations in the future. When we consider the already profound relationship with the United States, the historical links with Europe and the new relationship developing with Latin America, what level of prioritization, what movement of resources from those regions in terms of our trade and economic links to the Asia Pacific region would you recommend?

Valaskakis: I would say the safest policy is the one that doesn't choose; that actually takes Canada to have a multilateral vocation and play all three because, even if the Asian market is as big as a lot of people think it is, why do we think Canada will elbow everybody else and take a lead in it? For every Team Canada trip we do, there's others who do similar trips. They don't call Team X and Team Y, but everybody's aware of exactly the same thing so we shouldn't put all our eggs in the basket.

Obviously, the Asian market is a tremendous market and we have comparative advantages in that we have an Asian population in Canada, but that we also have a European population. So, I think the policy of Canada strengthening the multilateral system, which is basically official policy, and actually put our eggs in all the baskets is the safest policy, because we never know what's going to happen in the future.

I don't think it's a question of priorities. Another thing that has to be considered is that the geographical bias may not be a very relevant question, because today everything is done with strategic alliances. It's not that you trade with Asia and you trade with Europe, there are strategic alliances which lead to global trade.

One of the characteristics of today's products is that they tend to be stateless. Look at the comparison between a Honda and a Chrysler. A Honda has much more American content and a Chrysler has much more Japanese content. Yet, typically you think of Chrysler as an American car and a Honda as a Japanese car. So, if you get away from the pure geography then you think in terms of networks. So, the question is, how can Canada best plug into the international and global networks in order to maximize the returns to us? And I think the answer to that is keep the networks global and don't necessarily exclude some in favour of others.

Mr. Saravanamuttu, you mention the current difficulties that Thailand is experiencing as a result of its long-term current account deficit. My understanding is that a current account deficit isn't necessarily a problem if your international investors believe the composition is adding to the future prosperity of the country and overall there's a confidence that things are moving in a particular direction. The factors leading to Thailand's position is a result not only of a current account deficit, but the basket of currencies that it was being floated against the Baht devaluing as a result of not holding its position and also the weakness of the financial institutions, because of the loans in the real estate sector that accumulated in the past decade.

My question is more related to the effectiveness of regional institutions. I think over the last little while we've noticed that a number of issues have come about in the region and some of the regional institutions, ASEAN being one of them, haven't come across as effective in their ability to try to address or to aid in finding a solution. Clearly, in the future it would be desirable for Asia to have regional institutions that appear to be somewhat effective. I wonder what you see as the future role of these organizations, particularly from the position of ASEAN?

Saravanamuttu: I was unable to touch on every aspect of the Thai crisis. It is not just a problem of current account deficit, but that was a crucial factor. Of course, there was this bubble economy, as some put it, that was created by heavy investment in the property area and because they were not able to yield the expected profits. There was a call back on loans, etc., which brought the whole thing down.

I still want to stress, however, that this is not necessarily just a hiccup, but it is a major crisis for Thailand. Although it's a crisis for Thailand, I want to stress that this doesn't mean, as the speaker last night suggested, that is a collapse of the East Asian miracle. One case doesn't necessarily prove the point.

Certainly the Thai economy is in trouble. There's a lot of work to be done to address that issue domestically and they are presumably doing that today. There will be more prudent financial policies in the offing.

Your main question was about the regional institutions and whether they were in a position to do this. I don't have the inside information on this, but I am told that when there was a crisis there was a considerable amount of assistance on the part of the other ASEAN countries, or at least some attempt on their part, to assist the Thai government in their currency crisis.

However, this is done on a level that is not official or formal. There is no mechanism, as such, to handle this problem. As you know, the Association of South East Asian Nations, of which Thailand is a founding member, has been busy dealing with problems other than such problems. The whole thrust of ASEAN in the last few years has been to address the problem of regional security. The ASEAN regional forum was set up precisely to do this and it has done an excellent job.

I disagree again with the keynote speaker that there are no mechanisms on the security front in the Asia Pacific region to balance the power of China. I think the Asia regional forum was precisely a security architecture set up to address the post-Cold War situation, where America and the Western powers had effectively withdrawn in terms of alliance formations in the region.

But that doesn't address the question you pose about economic issues. I think your question underlines the importance of addressing economic issues. It is not just a question of trade, because the other thing that the regional body has done, ASEAN, is to set an agenda for a free trade area by the year 2003. Trade is already an agenda for virtually the whole globe. You have the World Trade Organization basically doing that. Now, of course, we have APEC in the region, which is behind the idea eventually of a free trade area for a much larger region.

I think there is a need for a regional organization, such as ASEAN, to address more nitty gritty questions of economic weaknesses within the East Asian economy. If those kind of issues can be tackled, then I think there is some hope behind the hype.

I'm interested in official corruption. We've seen in Africa how devastating it is for African economic and social development as billions of dollars are siphoned out of the country and yet there's no educational infrastructure. It seems to play out in a different way in Eastern Asia. We know from the early days of the Bre X, the earlier airline scandals of payoffs in Japan. How does official corruption play out in East Asia, recognizing it's dangerous to generalize, and what effect does it have on economic and social development and where's it likely to go as the economies and political structures mature and change?

Valaskakis: At OECD, one of the projects now is to come up with an anti-corruption convention, anti-bribery convention. The United States has been a major engine and pusher behind that, but other countries have followed. The idea is to begin asa a first step — it's not just Asia, but the whole world — to begin by making bribery payments not tax deductible.

Right now they're tax deductible in most countries, except the U.S. and Canada. In most of the other countries they're tax deductible. So, that will be the first step and you would be surprised at the resistance that there is to such a proposal.

The next step will be to criminalize bribery payments, but this is extremely difficult because, first of all the distinction between an agent's fee and a true bribery is difficult. Sometimes it's a finder's fee and how do you distinguish between that? It is a problem and it is distorting markets, because you find out that it's a lose-lose situation. If everybody bribes, then no one has an advantage in bribing and it ends up cancelling each other out.

So, there is movement to get away from that. But, it's not easy because of the reasons I mention. And it's also not easy because in many of the fact that in many countries the civil service salaries are so low that without corruption they can literally not survive. Work is being done. It has to be international work. I don't think Asia should just be targeted, but the whole world should be targeted. The only solution would be an inter-governmental agreement to set up the rules and abide by them.

Saravanamuttu: Seeing it from the vantage point of Southeast Asia, I know this has been a problem for a long time, but I'm not sure what you mean by official corruption. Do you mean officially-sanctioned corruption?

The situation you discussed where a low level public servant is supplementing income. That's like a restaurant tip. It's a little different when members of the Royal family in Indonesia are bellying up to the mining companies to see who's going to pay the most to see who gets the rights.

Saravanamuttu: There is a difference between nepotism and corruption. In some instances in Southeast Asia you would find that members of the Royal or unroyal family — in the case of Indonesia — do get some advantages over others. In Malaysia, too, the Prime Minister's children are very active in business. They would argue it is purely by the strength of their own business competence and business ability that they are there.

So, it's difficult to pin down those kind of situations as corruption, per se. However, it is now a policy, certainly in Malaysia a bill has been suggested for Parliament, the anti- corruption bill. Malaysia has for a long time had an anti- corruption agency, which has been rather active in chasing down persons who have been corrupt in a criminal sort of way. If it's clearly criminal you pin the person down and you can bring legislation down on the person.

So, it's not as though the whole of East Asia is totally corrupt. I'm trying to dispel that image. There are agencies within East Asian governments which deal with corruption. But, they do have, in some instances, limited jurisdictions. And the question of nepotism is always very difficult to deal with and you'll find it even in North America, I believe.

Identifying with my identity as an Asian, I would direct this question to all three of you. Implicit in your presentation was an understanding of Canada and Asia Pacific promise. I would urge you, if possible, to be explicit about it and, specifically, be asking in what sense are we using this word promise. Is it promising, or is it in the more legalistic sense of a promise which is intended to be fulfilled? And, if so, whose promise has that been, how was it made — through free and informed consent, or imposed as a conditionality — and what might the content of that promise be?

Let me be a little more specific to draw you out on that, particularly because when Asia was the poverty basket of the world largely we were subjected to benign neglect. Now, all of a sudden there is a kind of maligned concern, especially on economic interests, in looking to that region as delivering aspects of the promise that are primarily economic, our people as being the consumers of your products or the producers of products for you with what cost to our resource base and to our value system.

There is an economic dimension, but there is also an important social, cultural and political dimension to it in terms of whether one is looking to that region for — not best practices of Western style political structures, Western style social ordering — but whether one is looking at the region also in terms of what it's offering by way of alternatives regarding celebrating pluralism and diversity with peace and co-existence, rather than out of a dominance model; trying to organize economies in which the informal sector of the economy does not fit within the theoretical analysis of the formal sector and, yet, it's so important in many cases.

And political structures, which are struggling towards participation rather than representation. I'm not asking this in thinking there's any one correct answer; one morally correct, or one politically correct answer, even. But, I just think it's a basis of sharing an understanding and dialogue.

Cox: It's been really illuminating and intriguing to watch the various companies as they try to come into India. You really get to see a lot of companies fall all over themselves making these horrendous mistakes, because that is one country where, if you don't do a lot of ground work and figure what you're doing, what you're offering the country, how you intend to include the country in this promise — because India's one place where they're not necessarily sure they want McDonald's.

Some of the multinationals really have to fight to get into India and they're not really doing as well as they expected. I think companies coming into India are slowly learning, some through great pain, that they have got to enter into partnerships; that they've got to get just the permission of not just the government, but go right to the heart of where they're setting up shop and get the will and win over villagers.

And they have to make some kind of social commitment to those people, very often within the village; give something back to that community so that if they are giving up their land, or whatever, they are getting something back from which they can benefit.

It's not easy to get 100 per cent approval in India for your businesses. It's a little easier if you're involved with infrastructure, but you have to present a very solid case where you are bringing in advanced technology, hopefully; you are going to be employing local people and not just to clean up the mess. And if you don't, there are a lot of activists who are watching every move you make.

The other point is that this is a global network, so if they find out — especially after Bhopal. They know more about your company than you think. If you think you can pull the wool over their eyes, you're wrong. They knew everything about Dupont. They knew what they were going to be doing and Dupont didn't think so.

India is perhaps a little different, because it has had this historic grassroots movement right from its inception. So, it can galvanize and I think companies are learning — some by mistakes.

Valaskakis: I think we have to make a distinction between what people think is the promise and what I personally think should be the promise. People think the promise is, essentially, more trade. One is reminded of the saying at the beginning of the British industrial revolution, where they used to say that, let every Chinaman increase his shirt sleeves by one inch and the mills of Lancashire could go on forever.

That was the assumption. The Chinese would buy our textiles, our wool, and therefore we visualize markets; we visualize all these billions of people as consumers of our products. While that is partially true, of course, but we're not the only producers of the products and everybody's looking at the same markets. One would have to look at the comparative advantages that we as Canadians have over others, just because the market is there doesn't mean it is ours.

So, the promise I would say is only partially markets. That's the superficial promise.

The real promise, I would say, is what we can learn from Asia in terms of harmonious development because of one of the characteristics of the 30-year miracle is not just the economic growth, but it's more that the economic growth took place under conditions of relatively good social cohesion. The winners and losers were not as bad as in the British industrial revolution, or in the Soviet expansion.

That itself is a minor miracle. As I said earlier, it may not last. But, there is a notion of Asian consensus; a notion of a way of doing things — the Japanese, the Chinese, the Confucian ethic. All these things are something that we in the West can learn about. And I would argue that that Asian promise is much more exciting than merely the Chinaman increasing their sleeve lengths by one inch.