A bless in disguise?

Johannes Linn and Colin Bradford of the Brookings Insitution point out in their latest paper titled "Could the Financial Crisis Push Global Governance Reform?" that the Nov 15 economic summit in Washington DC of the heads of state from the G20 industrailised and developing economies could represent a major step toward a new architecture in global financial and economic relations as a first step in global governance reform more broadly.

The Nov 15 summit will be the first ever meeting of G20 countries at head of state level and gives the next president of the United States an opportunity to demonstrate a commitment to the G20 as a better global steering committee than the G7/8. Read full article.


Colin Bradford will take part in the inaugural launch of the S.T. Lee Project on Global Governance conference - a multidisplinary reseach project of the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy.

Why Asia stays calm in the storm

What does the Asian silence on the financial crisis really mean? Does it mean silent gloating, with a heavy dose of schadenfreude? Does it signify terror that Asian economies will also be blown away? Or does it reflect a sober calculation that calm and steady heads are required in such a storm? Amazingly, in the thousands of words spun in the incestuous western discourse on this crisis, little attention has been paid to Asian views, even though the calm and steady responses of China, India and Japan, the three anchor Asian economies, provide hope that there may be some pillars of stability in the swirling storm.

There is little gloating in Asia, even though some would be justified. In many ways, US and European policymakers are doing the opposite of what they advised Asian policymakers to do in 1997-98: do not rescue failing banks, raise interest rates, balance your budget. Millions of Indonesians and Thais would have been better off if their governments had been permitted to do what western governments are doing now. An apology from the west to Asia would not be inappropriate.

Nor are the Asians terrified. They learnt many valuable lessons from their financial crisis in 1998: do not liberalise the financial sector too quickly, borrow in moderation, save in earnest, take care of the real economy, invest in productivity, focus on education. Hence, while America was busy creating a financial house of cards, Asians focused on their real economies. This explains why the latest International Monetary Fund growth rate estimates for 2008 and 2009 for China are 9.7 and 9.3 per cent; and for India, 7.9 and 6.9 per cent respectively.

Equally importantly, Asian minds have never been captured by the strange ideological belief that markets know best and government should step aside. Most Asian policymakers are puzzled by former US president Ronald Reagan’s statement: “Government is not a solution to our problem, government is the problem.” Alan Greenspan, former US Federal Reserve chairman, only recently admitted the folly of his ways when he acknowledged that lending institutions could not regulate themselves. By contrast, virtually all Asian governments believe that the virtues of the “invisible hand” in the market have to be balanced by the “visible hand” of good governance. This Asian emphasis on good governance may serve as a real asset in the storm.

In the past, Asian governments expected western counterparts to be role models of good governance. One story illustrates how times have changed. This year, a European banker consulted the Reserve Bank of India to learn how to get a banking licence in India. He was briefed on the conditions and told that the Indian authorities would also assess his regulator. The European banker smiled and said: “No problem. We have excellent regulation.” The Indian officer replied: “After subprime, we are not sure of US regulation; after Northern Rock, British regulation; after Société Générale, French regulation and after UBS, Swiss regulation.” In short, the gold standard that the west assumed it had in the field of regulation has vanished. Asians realise that they must forge their own standard. Fortunately, there will be no rush to overregulate. Tony Tan from the Government of Singapore Investment Corporation said: “We should guard against overregulation and protectionism and a retreat from globalisation.”  His comments reflect an Asian concern: that the Americans and Europeans, hitherto the custodians of the liberal international economic order, will retreat into protectionism. Asian societies also know they are becoming the biggest beneficiaries of globalisation and must assume greater responsibility in stabilising the economic system.

As the world’s greatest emerging economic power, China has acted remarkably responsibly in this crisis. It has received with polite dignity the western bankers coming cap in hand to seek money. It did not remind them that barely a year ago many of the same bankers had castigated it for its conservatism in opening its financial sector. That caution has been vindicated. More importantly, China has continued to buy US Treasury bills at a steady pace to reassure the market it has not lost faith in them.

The Asian governments demonstrated their calm at the Asia-Europe meeting in Beijing last weekend. The premiers of China and India, Wen Jiabao and Manmohan Singh, gave thoughtful speeches. Sadly, the western media barely reported them. Mr Wen emphasised the development of the real economy; Mr Singh said: “In this age of globalisation we have a global economy but it is not supported by a global polity to provide effective governance.” Asian leaders have good ad­vice to offer. The west should pay heed.

While the US and European publics are losing faith in free trade, Asian economies continue to work on free trade agreements. Few westerners are aware China and the Association of South East Asian Nations have concluded an agreement that will create the world’s largest FTA, with 1.7bn people. Japan and India have similar FTAs with Asean. This growing interdependence will act as a pillar of stability and growth for the global economy.

The really good news is that few Asians have lost their optimism about the future. They have no illusions about the crisis but are confident that they remain on the right trajectory to deliver the Asian century. This is why the key Asian economies will react calmly in this storm. Confidence in the future is a great asset in such times.

This article was first published in FINANCIAL TIMES.

Kishore Mahbubani is dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore. His new book is titled: The New Asian Hemisphere: The Irresistible Shift of Global Power to the East.

Do Chinese lie?

Charles W. Hayford of AsiaMedia surveys three books: Chinese Characteristics; Americans and Chinese: Passages to Difference, and Lies that Bind: Chinese Truth, Other Truths to illustrate how the discussion of Chinese and Western perceptions of honesty has progressed over time. Read full article in AsiaMedia.

Time for an Asian Social Stock Exchange

As I write this article, the storm in the financial markets continues -- stock markets in Asia, Europe and the US all are going through roller coaster rides, people fear bank runs and governments are pulling together trillion dollars worth of rescue packages. In this sadly crazy historic moment, when every current option is looking bleak and governments are busy cleaning up the private sector mess, perhaps it is a good time to look some distance into the future toward a gleam of hope for a kinder and gentler form of capitalism. My suggestion for that is to put together effective regional 'social stock exchanges' in each continent that can spearhead social good through capital markets. I believe Asia is ripe to take the lead in meeting this challenge.

What is a social stock exchange? It is a stock market where investors who care about social and economic returns buy stocks and bonds of companies that have strong economic and social returns. Interestingly, in a social stock exchange both not-for-profit and for-profit companies can participate. For-profit entities can either issue shares representing ownership in their companies or issue bonds. Meanwhile not-for-profit companies can utilise the stock exchange to issue bonds an action in itself that can bring operational accountability to the not-for-profit sector (as opposed to carte blanch donations from foundations).

Although Professor Muhammad Yunus discusses the idea of a social stock exchange in his latest book, Creating a World Without Poverty, and has been promoting it in lecture circles, the concept is not a new one. There are already several Social Stock Exchanges in operation or in the works, albeit each uniquely different from one another.

BOVESPA in Brazil was the first social stock exchange in the world. It was launched in 2003 with the objective of bringing together non-profit organisations and the social investors who are willing to support their programmes and projects. For BOVESPA investors, the return is solely in 'social profit,' where the investment brings about a more just society with opportunities for the poor and neglected. By providing capital for the non-profit organisations that list on this exchange and the providing social value for the investors who participate in this exchange, BOVESPA aims to change the labeling of non-profit organisations to 'Social Profit Organisations'. So far about 43 Social Profit Organisations have raised capital through this exchange. However, trading of stock in this exchange is still a distant goal.

Europe's answer to social investing is the FTSE4Good. Set up by FT Stock Exchange in London, FTSE4Good is an index for socially responsible investment. The definition of 'socially responsible' for this index is very broad and covers topics such as: working towards environmental sustainability, developing positive relationships with stakeholders, and upholding and supporting universal human rights. There are about 25 companies in this index. Given FTSE financial requirements, these companies are large for-profit entities which in many cases have very tangential effects on positive social change. Their 'social mission' often springs from the defensive posture of CSR rather than from a genuine effort to make positive social impact.

In North America, Green Stock Exchange (GREENSX) is attempting to become the Social Stock Exchange for that continent (and Europe). This Canada-based social stock exchange is aiming to launch by end of the year to trade shares in social businesses. GREENSX's definition of social business is a business that makes a profit but benefits society as well delivering a triple bottom line return (economic, social and environmental return). GREENSX's goal is to provide small green issuers access to public equity capital efficiently while ensuring liquidity for the investors. The success of GREENSX remains to be seen.

There is obviously a budding global interest in the notion of social stock exchange. Recently, Rockefeller Foundation donated $500,000 to the UK government to pay for a feasibility study for a social stock exchange. The Foundation picked UK as the site for the feasibility study because of the UK government's support for social enterprises. Existing UK government initiatives include legal reforms for separate incorporation for social businesses and plans for a social investment bank funded with unclaimed assets held by financial institutions.

All this is encouraging in a global perspective; now, how about Asia and, in particular, Bangladesh? Bangladesh is a country that continues to produce remarkable social enterprises, and given the state of the country and the world, it can be expected to keep the pipeline of social innovation flowing. The limiting factor is, of course, capital. Let us move a few degrees east in longitude, and there is a country, which -- though a small dot on the map -- is wealthy, is a player in the financial markets and is itching to make a mark in social business. This country is, of course, Singapore. Singapore is ready, able and perfectly positioned to be the home of Asia's first Social Stock Exchange. Bangladesh is ready, able and perfectly positioned to pepper that exchange with very effective social businesses. This is a match made in financial heaven.

Now, what's the next step? It is very simply for the Bangladesh government to have the vision and desire to initiate a ground-breaking discussion with the Singapore government. Bangladesh is well positioned to make its mark in the next economic revolution of conscious capitalism. It can take its rock star social entrepreneurs Yunus and Abed -- and get them to perform the ground-breaking concert for the social stock exchange for its potential partner Singapore.

Thus, my request to the Bangladesh finance ministry use this opportune moment -- initiate the courtship and get Bangladesh on the global financial map. We are all waiting.


Durreen Shahnaz is the regional managing director of Asia City Publishing Group and adjunct associate professor at Lee Kuan Yew School of Public Policy at National University of Singapore.

Worse than financial crunch

The world is heading for an "ecological credit crunch" far worse than the current financial crisis because humans are over-using the natural resources of the planet, an international study warns today.

The Living Planet report calculates that humans are using 30% more resources than the Earth can replenish each year, which is leading to deforestation, degraded soils, polluted air and water, and dramatic declines in numbers of fish and other species. As a result, we are running up an ecological debt of $4tr (£2.5tr) to $4.5tr every year - double the estimated losses made by the world's financial institutions as a result of the credit crisis - say the report's authors, led by the conservation group WWF, formerly the World Wildlife Fund. The figure is based on a UN report which calculated the economic value of services provided by ecosystems destroyed annually, such as diminished rainfall for crops or reduced flood protection. Read full article in THE GUARDIAN

Find out how you can reduce ecological footprint

Nobel Injustice

Martti Ahtisaari is a great man. He deserves the Nobel Peace Prize for his life work. But it was a mistake for the Norwegian Nobel Committee to cite his work in Aceh as a reason for giving him the prize.

As a recent story by Agence France Presse put it, Ahtisaari’s “most notable achievement was overseeing the 2005 reconciliation of the Indonesian government and the Free Aceh Movement rebels, bringing an end to a three-decade-old conflict that killed some 15,000 people.” But it was Indonesia’s people and leaders who should have received the Nobel Peace Prize for the Aceh political miracle.

More fundamentally, the mentioning of Aceh in this Nobel citation raises serious questions about the mental maps used by the Nobel Prize Committee in making these awards. The committee members increasingly seem to be prisoners of the past. They continue to assume that we live in an era of Western domination of world history.

But that era is over. Increasingly, the rest of the world has gone from being objects of world history to becoming its subjects. By giving the Nobel Peace Prize to the Indonesians instead of a European mediator for Aceh, the Nobel Prize Committee would have recognized that the world has changed.

Three other big benefits would also have resulted from giving the award to an Indonesian. First, the West associates the Islamic world with violence and instability. Few believe that Muslims are capable of solving their political problems by themselves.

But this is precisely what the Aceh story was all about. Two key Indonesian leaders, President Susilo Bambang Yudhoyono and Vice President Jusuf Kalla, showed remarkable political skill and courage in working out the peace deal for Aceh. A Nobel Peace Prize for them would have shown the West that Muslims can be good peacemakers and, equally important, it would have sent a message of hope to the Islamic populations of the world that have seen their self-esteem eroded by stories of failure.

Aceh was essentially a spectacular Muslim success story. Hence, the Nobel Peace Prize Committee has squandered a valuable opportunity to send out a message of hope to the world’s 1.2 billion Muslims, one that would have rid the world of the grand global illusion that peacemaking is a “white man’s burden.”


Kishore Mahbubani is Dean of the Lee Kuan Yew School of Public Policy, National University of Singapore. His most recent book is The New Asian Hemisphere: The Irresistible Shift of Global Power to the East.

This article was first published in PROJECT SYNDICATE.

Financial Crisis 101

The Eternity of Geo-Politics

By Kishore Mahbubani

When I was a diplomat I used to say that diplomacy was the world’s second oldest profession but I always hastened to add that it bore no relationship to the oldest profession. The reason why it is old is because since human beings began organizing themselves into tribes and societies, there were rivalries, struggles for power which often led to conflict, frequently over territory. Diplomacy was therefore invented to handle the eternal challenge of geopolitics.

In the modern and more civilized world order we live in, where the prospect of any direct war between any two major powers is a remote possibility (partly because of the advent of nuclear weapons), many of us would like to believe that geopolitics has taken a back seat in the face of growing global interdependence. One stark reality about the 21st Century that we should hoist in is that geopolitics will return with a vengeance, even though many of the rivalries and contests will be played out beneath the surface. The naked eye will not catch these new geopolitical contests. We will need a sophisticated vision to understand the new geopolitical terrain that is rapidly emerging. And the terrain could become treacherous.

History teaches us that whenever a dominant power begins to lose power relatively, new opportunities are created for rising powers. We are living in such an era. The United States is slowly beginning to lose the unquestioned dominance it had over the global order. Fortunately, for the world, the United States has been on balance a benevolent power. The 1945 rules-based order it created (with multilateral institutions like the UN, IMF, WB and GATT) were a great gift to the world. This multilateral fabric explains the remarkable explosion we have seen in both global economic growth and global trade. Without the United States acting as the ultimate guarantor of this global system, we would not have had the global stability we have seen.

The American people were happy to see United States act as a custodian of this benign multilateral order because they believed that with global stability and trade liberalization, they would naturally emerge as the biggest winners of the system. Now, in a remarkable reversal, fewer and fewer Americans believe that they will benefit from global openness. Instead, more and more of them believe that they will lose their jobs and prosperity to China and India.

In the next ten years, there will be an intense debate in United States on how much global responsibility it should take on. We cannot tell the outcome. Short term populist pressures could lead to greater protectionism (and we have seen many warning signals from the US Congress). If the United States walks in that direction and stirs all kinds of national retaliations, we should be prepared to see the gradual unraveling of our benign global order.

The big problem that the world faces is that there is no other natural global leader to take on the benign role that the United States has played. The other natural candidate is the European Union (EU). Indeed, it has hitherto played a helpful and constructive role in supporting the benign role of the United States. However, it has no capacity to step into the shoes of the United States as the global leader. The reasons are complex but they have to do with highly divisive decision-making process of the EU. The result of having to reconcile the interests of 27 member-states is that the EU is driven down to the lowest common denominator. The Irish veto of the Lisbon Treaty process destroyed the chance of having a single Foreign Minister to represent the EU’s global voice. To paraphrase Henry Kissinger, we also lost the prospect of having a single telephone number to call in Europe.

To make matters worse, the EU has become geopolitically incompetent. Much to the chagrin of my European friends, I have pointed out the EU’s greatest civilizational achievement of creating zero prospect of war inside the EU has to be balanced against the failure of the EU to create zones of security and prosperity outside their immediate borders. Hence all the long-term threats to the EU are going to come from their immediate neighboring environments: North Africa, Middle East, the Balkans and the Caucasus. The recent unfortunate Georgian episode provides a vivid and powerful case study of the EU’s geopolitical incompetence. However, it must also be emphasized that the new models of rules-based global cooperation will in one way or another be inspired by the EU models of cooperation. Hence we must give the EU the credit it deserves.

By contrast to the EU, the most geopolitically competent great power in the world today is China, which has the prospect of emerging as the world’s greatest power with its economy surpassing that of the United States. History teaches us that relations between the world’s greatest power and the world’s greatest emerging power have always been tense. Hence, if history is a guide, we should be seeing rising geopolitical tensions between United States and China. Instead we are seeing the exact opposite phenomenon. Why?

The reason is simple. China is emerging as the most geopolitically competent rising power. Luck has helped. Both 9/11 and the recent Georgian fiasco, which created new tensions between the West and Russia, were geopolitical gifts to China. But the Chinese also know how to capitalize on their luck. They have been shrewdly helpful to the United States on some of its crucial geopolitical challenges, including Iraq, Iran and North Korea. The United States reciprocated by squeezing President Chen Shui-bian when he was in power. Hence, the Taiwan issue which could have been the flashpoint for the US – Chinese rivalry (as it did when President Bill Clinton almost sent aircraft carriers through the Taiwan Straits in 1996) has become a vivid example of a new US-China cooperation. This is a geopolitical miracle which should go into the Guinness Book of World Records.

China has carefully adopted a low profile, wisely adhering to Deng Xiaoping’s advice not to aspire for global leadership. But this low profile has now become a double-edged sword. It has defused American worries about China. But it also prevents China from aspiring to become the custodian of the global system. India, the other possible candidate, is also not ready to do so. Hence, at a time when rapid globalization is creating a small global village where village leadership is critical, we have a situation where all the major powers – US, EU, China and India – are shunning global leadership. This is a prescription for trouble. If the benign global order deteriorates and we move away from a rules-based regime, we will inevitably see new geopolitical rivalries and contests emerge. When that happens, the need for the world’s second oldest profession to perform well will never be greater.

The only consolation for Singapore is that it does well in geopolitical competence. Now that I am no longer a diplomat, I can create my own index of geopolitical competence. In this index, I give the former Soviet Union a 2 (for losing a great empire without a shot), the EU a 4 (for reasons given above), the USA a 7 (for remaining as the world’s greatest power) and China a 9 (for emerging as a great power with so much skill and deftness. And I would give Singapore a 10 out of 10. This is a result of extraordinary leadership we have enjoyed. Hence, at a time when we may be moving into treacherous geopolitical terrain, the real challenge for Singapore is to maintain this extraordinary leadership.


Kishore Mahbubani is the Dean of the Lee Kuan Yew School of Public Policy, National University of Singapore.