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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

Kimon Valaskakis,
Canadian Ambassador to the OECD, Paris

(Note: The opinions expressed are the speaker's and do not necessarily represent official positions of the Canadian Government.)

What I'd like to invite you to do is have a look at Asia, not from Ontario, or Ottawa, but from Paris; not from the Champs Elysees, but from the Chateau de la Muette, where the OECD, (Organization for Economic Co-operation and Development) has its headquarters.

The OECD is actually a 29-member organization of the richest and among the most powerful countries in the world. Twenty-two of the 29 members are actually European, while the other seven belong to APEC, the Asia Pacific Economic Cooperation organization. The seven members that are APEC are the United States, Canada, Mexico, Japan, Australia, New Zealand and most recently Korea.

As an indicator of the moving nature of the world, the APEC members of OECD -- the seven members -- contribute more than half the budget. And one of the deputy secretaries of the OECD is Japanese, so the Asian influence is important and it's taken very seriously.

But one of things we can do by looking at the Asian trends from the Paris vantage point is [to] try and get some perspective, try and get both geographical, but also historical perspective, on what is happening.

Now, what are the facts?

As the moderator and others have put it very succinctly and very well in saying: There has been an Asian miracle.

What has happened in the last 30 years is that this continent and the Asia Pacific region, in particular, has gone from poverty to being an industrial colossus. This is true. The rates of change have been amazing and all the projections we are talking about, about shares of world income, could happen if present trends continue.

Indeed, at this stage the Asia region is a source of 40 per cent of the world income. It could be the source of 60 per cent of the world income by 2020.

True, of the 10 most powerful countries seven could be from Asia in 2020 which, unfortunately would mean that the G-7 in 2020 may not include Canada, because we are at the margin of the G-7 at this stage and we probably won't be in it if all the Asian countries develop as they do.

So, all the projections would, indeed, lead to Asia being a very important place if present trends continue. And I say, if present trends continue.

As a person who has done a lot of strategic planning and a lot of forecasting, one of the things you should distrust most is present trends.

In fact, Herman Kahn, the father of futurism, has said there's two major errors to be done in forecasting. " The first one is to assume present trends will continue. The second is to assume present trends won't continue."

Initially, you can't be sure. But, one thing that is a general observation is that rates of change, themselves change. And any kind of projection on the basis of a constancy of rates of change is highly suspect.

If you look at the rate of growth of a baby into an adult. A baby in its first year doubles its weight, from say seven pounds to 14 pounds. If it continues at that rate, then in the second year its 28, the third year it's 56. Very quickly it becomes a monster by the age of four or five.

Now, this doesn't happen because feedback loops come in and they stabilize growth rates and the most probable curve in terms of growth is an S-curve, where you accelerate at one point, then it tapers off, it reaches a limit, then it becomes almost a plateau.

So, what I'd like to suggest to you is that if Asia is going to fulfill the potential that is being billed and that is being advertised in the papers it will have to meet five challenges.

These five challenges are the stumbling blocks, which will make the difference between victory and defeat for that continent vis-a-vis all the others.

Now, what are these challenges?

The first one, but not necessarily in any order because they're almost all of equal importance, is collective security. This was touched on yesterday in the keynote address and was mentioned by the moderator today.

There is an unstable situation in Asia in terms of collective security. There is no NATO [North Atlantic Treaty Organization] in Asia. Europe has a NATO. Asia has nothing equivalent to a NATO. It has bilateral alliances, but it does not have a collective security arrangement.

One of the things you can observe in the world today is that most conflicts are sub-national in character. They take place within a country. You talk about Bosnia, Lebanon, Algeria, you talk about all these things — that's sub-national.?The one exception could be Asia. In Asia you could still have cross-border conflicts. You could have North Korea attacking South Korea. You could have China attacking Taiwan. You could have India and Pakistan fighting. There could be all sorts of possibilities. There are no security arrangements which would prevent that.?And that I think is a major danger, because as push comes to shove — as well may be the case in Asia — this is something we have to look out for. It could make the difference between success and failure.

So, security arrangements, or the lack of security arrangements, is a major stumbling block.

The second major stumbling block is environment.

Eastern Europe has totally neglected the environment during the Russian tenure. Asia is well behind the rest of the world in terms of environmental protection and this has been somewhat unnoticed because of the previous low levels of development on the continent.

But as the continent is beginning to develop and grow and industrialize, then the environmental question is coming up front and centre.

And one of the major questions we have to ask ourselves is, can the world afford a China at the per capita income level of the United States, consuming energy and resources at the levels of the United States?

Environmentalists may not answer positively to that question. They may say, no, we can't afford that.

Not only is there a question of the threat to depletion of resources and limits to growth, as used to be the case in the early 1970s, but there's also something very important that we monitor carefully at OECD, which is climate change.

Climate change and the emission of greenhouse gases, which is at this stage mainly the result of industrialization in the West, but could be the result of industrialization in Asia.?Once we have the climate change taking place, a number of experts claiming that climate change is taking place — that the floods we see in Eastern Europe and the droughts in other parts of the world are all connected with a global changing climate which is man-made because of the greenhouse gases. So, we have to be very careful about that.

Asia will have to do something about the environment at the collective level because one of the things that is characteristic of the environmental questions is that they're not national; they're macro-regional or they're global, but there's no such thing as sovereignty over the environment. You cannot decide that your going to do something in your country because everything is interdependent.

So, that is a major threat and a major challenge that will have to be met. And it's not quite sure how this challenge will be met, other than through international agreements and global agreements involving all the countries in the world.

Challenge number three.

Asia has not yet faced what all the other OECD countries have been facing, which is technology downsizing; downsizing due to technology.

In the OECD countries it's been the pattern that we do more with less; more with fewer people. Every industry that I know of, with very few exceptions, is downsizing. It is reducing its number of employees, it's flattening the organization charts.

Now, this is a trend which is coming in the face of one of Asia's major strengths; a highly-disciplined, highly-inexpensive labour force working well within an institutional framework.

What happens when technology downsizing starts hitting Asia?

It's already hit Japan, an OECD member, and the Japanese are discovering unemployment; something they didn't know the meaning of before.

Japanese unemployment is heavily underestimated in the official statistics. In the official statistics and the Japanese way of measuring things, if you work just one hour a week you're not unemployed; you're employed part-time. But, your not unemployed.

So, that means that you can transform full-time jobs into part- time jobs and still maintain your statistical high employment when, in fact, a lot of people are being unemployed.

So, Japan is discovering unemployment. Korea is discovering unemployment.

What is more serious is what happens when China begins to discover unemployment.

I raised the question with a China specialist who came to speak to us at OECD, who wrote a book a few years ago, called When China Will Awaken. Now he's written a second book saying China has awakened and it's a danger to the world.

One of things I asked him was, what's going to happen with industrial downsizing in China?

He said this is a serious problem, but much more serious is agricultural downsizing. He says right now there's about 700 million people in Chinese agriculture and with new technologies only about 50 million people are needed.

So, there's about 650 million redundant people in agriculture. What are you going to do with these people? They're going to come to the cities to do what?

For export-led growth, it would require enormous, absolutely incredible export-led growth, which would not be capital incentive to absorb all these people. So, this is by no means a clear case and a clear solution.

It's going to be a major problem of what to do with this enormous surplus population. Hundreds of millions of people will join the industrial labour force and want employment.

Challenge number four.

Delocalization. Asia has been picking up jobs from the West as a result of cheap labour and as a result of good and disciplined labour.

The trend is beginning to be reversed. The Korean ambassador to OECD has been complaining of job losses from Korea to Wales, United Kingdom, because in Wales the wages are actually lower than in Korea.

So, the patterns are changing. Korea is suffering delocalization to the United Kingdom and Indonesia. If this pattern continues, then basically we have the same problems arising there.

Japan is delocalizing. The Japanese industries are going everywhere.

And then there's a big question, which is, ultimately as technology progresses and as we move even more and more towards robots and automated factories, who's to say that the automated factories are going to be in Asia?

Why should they be in Asia? They could well in Europe. They could well be in other places. If you're going to have a Silicon Valley, would you put it in Tokyo or would you put it in California or the south of France. I think even the Japanese would put it in the south of France or in California.

You have to ask yourself whether, in fact, the technology delocalization is now going to change the whole issue.

The final issue, perhaps the most important, is social cohesion.

This is a term that's now current in OECD and is becoming current in all the countries. And it actually touches the issue that economic growth creates winners and losers. These winners and losers, with an adequate compensation package from the state, could become all winners.

But, in the absence of compensation packages from the state and governments and with the collapse of nation-state governments in the face of globalization, the winner and loser gap — which in some countries takes the form of income gaps and in other countries takes the form of employment gaps — creates a social fracture; a lack of social cohesion, which is revolutionary in nature.

We can see it in all the OECD countries. It takes different forms.

In Korea and Japan we begin to see it, because these are the countries that have made it to the industrial level.

Are we not going to see it in all the other countries and how is Asia going to deal with that enormous problem? If it can deal with it, if it can find a formula, then that formula can be imported in the West and Asia will have been a leader in that field as it has been in many other fields. But, it's not certain.

So, I'd like to suggest to you that the optimism about Asia is well founded, if it is conditional.

And it has to be conditional on the meeting of these five challenges. These five challenges are just the tip of the iceberg.?If the natural trend continues, if Asia follows the same pattern as Europe, then it will be facing the same problems as Europe and North America and, therefore, we will have to look at solutions there and we'll have to look at global solutions for problems that are increasingly global.

One of the things that has struck me in my experience after two years at OECD is really that the 29 countries have basically the same problems.

As new countries join the club, they join the club and acquire the same problems, too. So, we have to deal with these issues in a collective fashion.

As I say, the optimism, the miracle, all these things have happened, but I'd like to introduce an element of balance by saying unless we're talking about supermen and unless we're talking about super-human endeavours, the human condition is the same everywhere.

And, therefore, we have to expect similar results from similar causes and act accordingly.