Globalization Needs New Equilibrium

Globalization with tendency to adopt western norms needs new equilibrium by creating union of eastern and western norms. Therefore, an equal and fair international regulation reform is needed.
The message is revealed during the closing session of World Economic Forum (WEF) on East Asia entitled ‘Responding New Globalization’ in Jakarta on 27 June. The event which was participated by more then 600 CEOs, global businessmen, government officials, and scholars from various countries was closed by Thai Prime Minister Abhisit Vejjajiva.
Pascal Lamy, director general of the World Trade Organization (WTO), insisted that international community reassesses global architecture system. He underlined that current global management is referring to norms implemented 65 years ago which were truly western norms.
Lamy said: ‘Many developing nations in this planet which feel the norms do not belong to them. Therefore, new globalization norms need to reassessed. What is missing is platform of norms, which could tie all nations together.’
Lamy also mentioned that national interest becomes a problem in globalization era because added value is unequal. Exploitation of natural resources in developing nations has also caused injustice.
Therefore, Lamy urged that a more serious discussion on the ideology and philosophy to set norms which could strengthen modern global management.
Thai Prime Minister Abhisit Vejjajiva supports Lamy’s idea. He underlined that the world needs to create new globalization by implementing management reform which directs to a fairer international system. Therefore, it makes possible for all nations to acquire the benefits of globalization pressure. He said: ‘All this time we have been passive observer of globalization.’
He said: ‘Globalization is about how we actively respond an extraordinary process. Therefore, it has made us to be a passive witnesses and victims.’ To create a new globalization, an equal and fair regulation reform is needed. In addition, new globalization still have to refer to market mechanism; yet, it must be well-implemented, so that efficiency is created.’
Vejjajiva supports the idea of new norms formulation suggested by Lamy. Vejjajiva said: ’We must find a more inclusive, fair, and sustainable new growth model. We need new policy which is more inclusive based on the principle of equilibrium, equality, and sustainability.’
He also revealed that Asian countries and other countries can no longer depend on past solution such as state spending, dependency on tax, and regulation. He said,’Because we will fall into a unsustain welfare trap and irresponsible consumption by doing that’.
Dominic Barton, worldwide managing director of McKinsey & Company, is optimistic that Asian region can respond the globalization pressure. Referring to its successful rise of economy, Asia has the rights to lead the new globalization.
Infrastructure
Dominic Barton and Stuart T. Gulliver, group chief executive of HSBC Holdings, suggested Asia to focus on infrastructure development in facing globalization, because infrastructure in this region is still insufficient.
However, Asian countries would better focus on 1 or 2 successful infrastructure projects which could be a reference. Gulliver said: ‘Just choose 1 or 2 concrete infrastructure projects and then develop them well.’
Barton views the infrastructure problem is not on the funding, but more to priority. In East Asia, the need for infrastructure is crucial, especially roads, bridges, and electricity. He said: ‘To undergo infrastructure development cooperation between the government and private sector is needed.’ Gulliver added that Asia, which owns huge savings needs to utilize it for infrastructure development. Furthermore, the region needs to eliminate obstacles in financial sector by developing insurance and pension industry, as well as developing bond market.’
Gulliver mentioned that the world is experiencing 2 stages. First, industrial nations (the West) develop industry in the East to acquire cheap labor in generating cheap products then sell them to the West. Second, western consumers buy the products and that is the origin of financial crisis, especially in the United States and the United Kingdom.
Competitiveness and Environmental Problems
Meanwhile, CEO of Pertamina Karen Agustiawan who is also cochair in WEF underlined that energy architecture development is needed in Asia to cope with competitiveness and environmental problems as an attraction for investment in oil and gas sector. This effort must have the support of the government and people.
She also mentioned Asia's commitment to develop alternative energy. Unilever CEO Paul Polman stressed out about issues of lackness in fuel supply in globalization. Polman was concerned about lack of clean water, climate change issue, and food crisis. According to him, the world exploits two thirds of the natural resources which can not be renewed. If we do not change the current way to deal with this issue, the world will lose direction. He said: ’Therefore, a new business model is needed.’
Polman observed that companies no longer think about nationalism, but more to how generate cheap products with high quality through creativity and innovation.
Intellectual Property Rights
In another occasion, Lamy brought up issues regarding intellectual property rights which is less protected to a certain level. Lamy said: ’If we agree that there must be accessibility to natural resources, why do not we agree that intellectual property can also be accessed. The difference in natural resources is that we must invest for it.’
Regarding intellectual property rights, Sehat Sutardja, CEO of United States' Marvell Technology Group, believes that intellectual property is natural resources in a different form. Intellectual property rights is more valuable than natural resources. Taiwan and China has human resources which could be utilized for new innovation. The people start to realize that science is the most important resources. It could be the same or even more valuable than natural resources.
China is believed to have the awareness by investing big in universities. Taiwan also invests big in semi conductor.
He said: ‘I think that intellectual property rights is a property with a different form of natural resources. However, intellectual property rights could create a magnet for developing science.’
There were public worries regarding technology development in the middle of Indonesia's rapid economic growth. Technology advancement is considered to be too fast. Therefore, it causes challenges such as transparency, unequal distribution of wealth, and revolution. With huge natural resources and productive population, Indonesia is worried on whether it could be involved in world economy and use technology to improve economic growth.

Growing US-China Tension

Tug-of-interest between the United States and the People's Republic of China in Asia continues to rise. The tension of two giants could adversely affect regional geopolitics. However, the US-China tensions become a golden opportunity if countries in the region are able to expand its influence and do not depend on the interests of both countries.
'US-China relations in the future are uncertain and very challenging. But that does not mean there is no chance. It is just a golden opportunity because we can extend not only to leverage the U.S. and China, but also other regions,' said James T Riady, chief executive officer (CEO) of Lippo Group, during discussion of The G2 Impact on Asia in the event of the World Economic Forum (WEF) on East Asia in Jakarta, on 12 June.
According to James Riady, the countries in Asia could expand its influence (leverage) -- in form of business to business (B to B) to other countries in the Association of South East Asian Nations (ASEAN).
'This is to maintain the geopolitical balance in order not to be too dependent on the G2 (US-China). It is also important to make G2 not over-confidence and not only taking profit from Asia. In contrast, G2 learn to 'give' to this region,' said James.
Market Distortion
James Riady said: 'China and India participated in the shift, including 500 million middle-class individuals in it. There is a tremendous shift due to the free market. This creates market distortions, creates a term of G2 which often only make a profit, not give,' he said.
James added, current Asian economic situation is much better than the 1998 economic crisis. But the other side, now emerging crisis due to the US-China relations.
Yang Xiyu, a senior fellow at the China Institute of International Studies confessed worry that deteriorating relations G2 lately become a geopolitical threat in Asia. 'In geopolitics, there is a degree of uncertainty related to the US-China threat. There is bad competition. Each wants to maintain its interest in getting maximum profit in region,' he said.
Nevertheless, added Yang Xiyu, there will positive bilateral relations if G2 is able to work well together and effectively. 'If not, confrontational relation style will be created,' he asserted.
Previously, it was mentioned that emergence of China as new force is closely related to premises era of globalization which has three main trends, namely a shift in innovation, technology, and expertise from the Atlantic to the Pacific.
Yang Xiyu expected that China's attitude toward globalization is independent and interdependent or ready to compromise. It is ease to cooperate widely.
Role of Japan and South Korea
John Ehara, partner and representative director at Unison Capital (Japan), suggests, the concept of globalization has encouraged China continues to advance and become a significant trading partner for Japan. In fact, there is inequality of trade relations. Japanese firms constrained to grow in China.
In contrast, Chinese companies are very expansive in Japan. However, elements of the United States also still have significant effect on Japan. It eventually became big issue in the country.
Oh Joon, South Korea's ambassador to Singapore, said China also became the largest trading partner for his country. 'The question that often arises, how this cooperation is associated with South Korea and the United States?,' he said.
Joon believes China has actually practiced the capitalist economic system, not much different from what is already applied to the United States. Thus, good relationship between the United States and China will create significant economic synergies and huge benefit, both for G2 as well as for other countries in the region.

Is East Asia Facing Strong Economic Crisis?

The East Asian economy is believed to sustain in facing crisis in the future. Countries in east Asia have prepared joint protocol in facing crisis.
In addition, the high growth with a strong domestic consumption base becomes the stability support in the region. East Asia region has also become a new power in the middle of global imbalance and declining economy in half of developed nations.
Challenge in Developing Financial Infrastructure
Meanwhile, the swiftly capital inflow to Asia is a blessing as well as challenge in developing financial infrastructure in the region, especially bond market. The swiftly capital inflow does not need to be responded with income control, which actually might be a boomerang. This was discussed at the World Economic Forum (WEF) on East Asia, which was inaugurated by Indonesian President Susilo Bombang Yodhogono in Jakarta. The WEF showed 15 discussion panel groups with various topics, such as effort to prevent crisis in Asia, geopolitical risk, maintenance of Indonesia's growth momentum, challenge of food and energy security, infrastructure obstacles, regional disaster relief, and impact of United States-China relation on Asia, in the first day.
Stuart T. Gulliver, CEO of HSBC Holdings, and Michale Buchanan, chief economist of Asia Pacific Goldman Sachs, said that Asia has a huge economic power shown by the high economic growth, strong domestic consumption, rapid export growth, and huge number of savings.
However, this region is also facing some problems. Among of them are the need of a huge infrastructure fund, potential of inflation increase due to increase of food and energy price, and potential of asset bubble.
Minister of Finance Agus Martowardojo, Deputy Governor of Central Bank (BI) Muliaman Hadad, and Rajat Nag, managing director general of Asian Development Bank (ADB), also reminded that the problem of asset bubble potential despite the quite strong fundamental in general.
Martowardojo and Hadad admitted that Indonesia is also monitoring the potential of asset bubble in property sector and financial market, including the stock market. However, the potential is not yet been seen. Hadad said,'But we are concern with the asset bubble problem'.
Nag and Gulliver believes Asian countries are getting stronger in facing a potential crisis in the future due to the prudent macro and micro policies despite facing various risks.
Nag said: 'Asia is getting stronger because the governments join together with the principle of being prudent in managing their macro economy. Asia has proven itself to be more than predicted'. He added that Asia is ready to cooperate to mitigate risks which may emerge in the long run.
CEO of Lippo Group James T. Riady also has an opinion that Asia is far stronger because it succeeded in going through crisis in 1997-1998 and 2008. Asian countries have succeeded in consolidation. He said: 'In general, fiscal is more healthy, capital balance is stronger, and debt ratio to GDP is better, including Indonesia.'
Cooperation of ASEAN+3
This region is also believed to be able to compete with western countries' economic hegemony in which half of the nations are in recession. Funds are flowing from developed nations to Asia. The cooperation of ASEAN+3, India, or Middle East is believed to be the new global balance of power.
According to Minister of Trade Mari Elka Pangestu, Buchanan, and Hadad, Asia is ready to face crisis because there is a cross border protocol mechanism. For example, if there is a liquidity crisis, there will be Asian countries' joint action. Asia is also actively designing global financial safety net with G20.
Pangestu added that ASEAN has made a food security concept, such as preparing rice reserves. ASEAN members or ASEAN+3 members (plus Japan, South Korea, and China) agree on increasing transparency in food and energy stock to prevent speculation on the commodities. Pangestu said: 'There are many joint initiatives, which can be a defense in anticipating crisis'.
Meanwhile, Sehat Sutardja, CEO of United States' Marvell Technology Group, predicted that Asia will grow to be the world's largest economic center in the next decade. Currently, there is a transfer of economic growth machine from the West to Asia.
Sutardja said: 'The transfer is more rapid when China develops low cost manufacturing.' However, Indonesia will play an important role in providing human resources, infrastructure, and technology. Indonesia's population with 230 million people and the better education level will improve the supply of professional human resources who could become leaders of international scale companies.
He said: 'Indonesia will play an important role. I want to watch if improvement in infrastructure with high technology in Indonesia could reduce social gap.'
Capital Inflow
Panelists also discussed about the swifly capital inflow. It is triggered with the low interest rate in United States and uncertainty in Europe.
According to Buchanan and Gulliver, the capital inflow is an opportunity for Asian countries to develop its bond market. Gulliver said: 'This is a great opportunity and, therefore, Asia must develop its financial market infrastructure, especially bond.'
Moreover, Asia has the power because of its huge savings. The funds can be directed for investment in bond market. He said: 'The Western countries do not own huge savings.'
Despite the swiftly capital inflow, it still has risk of sudden reversal. The panelists reminded Asia not to implement income control. What it should do is developing financial market infrastructure, especially bond.
Martowardojo and Hadad also ensured that Indonesia will not implement income control. According to Martowardojo, the government will be focus on strengthening macro fundamental so that funds flowing to portfolio could be directed to long-term direct investment.
Other Asia's power is the huge domestic consumption base. This is called by the panelists as the pillar of power owned by Indonesia, India, and China.
Gulliver underlined that Indonesia has a very prudent policy which makes it relatively immune to global crisis. Low debt ratio and strengthening of rupiah. Strong economy makes capital inflow to Indonesia quite high.
Deglobalization
Meanwhile, Klaus Schwab, founder and chairman of WEF, and Brian A. Gallagher, CEO of United Way Worldwide, reminded nation leaders, businessmen, and civil community leaders about the risk of deglobalization or failure of global system to resolve current complex issues. Schwab said: 'The number risk is currently deglobalization.'
Regarding the need of balancing the unequal income in the world, Schwab said: 'Globalization creates many opportunities, but we do not have the mechanism to understand the causes and the effects from inclusive growth.'
He underlined that mechanism responding the risks in nations, regions, and international communities is frequently unable to resolve complex problems faced by the world. Continuous unemployment problem is one of the examples. Therefore, business model and new policy are needed.
Kishore Mahbunani, dean of Lee Kuan Yew School of Public Policy of the National University of Singapore, added that global financial crisis has shown that old approach and political decision have no effect anymore.
For Europe, crisis can be controlled as long as nations in crisis, especially Greece, succeed in debt restructurization or reprofiling, budget efficiency, and capital injection. He believes that crisis will be over and there will be no second round effect. He said: 'It is proven by the stress test on banks in Europe.'