Change and uncertainty in the Indo-Pacific: Strategic challenges and opportunities

Speech, check against delivery

28th IISS Fullerton Lecture, Singapore

13 March 2017

It’s a pleasure to be at this event hosted by the International Institute for Strategic Studies – and I thank you Dr Huxley for this event and I also acknowledge Dr Malaki, and former Minister Lim, Excellencies, ladies and gentlemen.

We live in uncertain times. Many of our assumptions founded on the international rules-based order that evolved after World War II, now appear less certain.

Globalisation has brought great prosperity to millions of people around the world, yet is under challenge from rising protectionist sentiment in some countries.

The decision of the British people to leave the European Union is a significant rebuttal of the international integration that was driven by a desire to not repeat the horrors of the 20th century’s two great wars on the continent.

Russia’s annexation of Crimea is the first attempt at redrawing Europe’s international borders since Hitler annexed Czechoslovakia and subsequently invaded Poland in 1939.

In this time of uncertainty and developing pessimism, history can be a guide.

The Singapore experience, for example, is instructive.

Singapore has often been buffeted by the winds of change, perhaps more keenly than other nations, and has experienced the highs and lows of international developments.

Singaporeans know the significance of 9 August 1965, the day a tearful Lee Kuan Yew announced Singapore’s traumatic separation from the Malaysian federation following a unanimous vote of 126-0 by that country’s parliament. 

Rather than being a day of celebration which is common when countries attain independence, many Singaporeans felt anxious and uncertain as to their future.

Australia was the first country to recognise Singapore just nine days after independence.

With a land area less than fifty kilometres across at its widest point compared to say, approximately 4,000 kilometres that separates the east and west coast of Australia, Singapore’s GDP per capita was a quarter of that of Australia, and seven times smaller than that of the United States.

At the early stages of its industrialisation, with few natural resources including a lack of drinking water that was imported from Malaysia, I am sure Singapore had its doubters.

It was a time when the region and the world was on edge - a restless place and apprehensive time.

In 1965, communism was in ascendency in many places - an ideology on the march.

Eastern Europe remained behind the Soviet Union’s Iron Curtain.

In Asia, communism had taken hold in the People’s Republic of China, North Korea and North Vietnam.

While the Soviet Union and China viewed each other as rivals, they viewed the West as a common enemy and believed Southeast Asia was there for the taking.

In such a tumultuous and precarious decade, few would have believed that this so-called ‘Red Dot’ would eventually become one of the Four Asian Tigers in the final quarter of the 20th century; or that East Asia would emerge this century as the most economically dynamic region in the world.

Past events are a reminder that every generation carries with it the belief that they are entering a period of immense change and uncertainty - that their time is one of great historical significance.

This conviction is only sometimes warranted.

There have been times of great revolution through technological change, political upheaval or both.

Change and uncertainty will always be with us.

Competition is ever-present and relentless.

In every age, decisions we make can lead us to a better place or toward catastrophe at the other end of the spectrum.

It is how we respond to the winds of change and choose to compete that ultimately decides our fate and that of others.

While we should remain clear-eyed about the challenges, I believe there is reason for us to be optimistic about our future in the Indo-Pacific.

Our region has gone through dark days and come out of them remarkably well.

We should embrace change rather than fear it.

Consider economic globalisation which has been made possible because of the technological advances that we have witnessed over the past few generations.

The world is growing ever smaller.

The capacity to send large amounts of information across the world at the speed of light means communication is instantaneous.

Cloud technology means we can access any and all information we have stored from virtually any location in the world.

Decisions made in a boardroom in New York, Frankfurt, Tokyo or Singapore will have a significant impact in other parts of the world.

Those with funds to invest can easily deploy them anywhere in the world to maximise return. If their capital is not welcomed – or more welcomed elsewhere – they can recall it almost as quickly.

From a computer terminal in London or Shanghai, they can buy or trade almost anything in all corners of the planet.

Advances in transport, logistics, engineering and fuel efficiency means it now costs about two-and-a-half cents to transport a small package on a super-tanker from the US to any port in Asia.

A machine in one part of the world can communicate intelligently and work with others around the world in real time.

Depending on one’s perspective, these advances can be awe-inspiring or threatening.

Far from resisting technological progress and change, our region welcomed these marvellous advances as a way to rapid economic growth and continues to do so.

Singapore, Japan, South Korea, Taiwan, Malaysia and Thailand were all beneficiaries of these changes.

In the last century, they made products for export cheaper, faster and more reliably than any other part of the world.

China and later Vietnam, Indonesia and Bangladesh have since joined this group.

India and Myanmar should be next. 

No-one should begrudge any country the ambition to lift its people out of poverty.

On a GDP per capita basis, Japan is 185 times more prosperous than when it regained full sovereignty in 1952. 

Singapore is more than one hundred times richer than when it became a Republic in 1965.

China is 36 times richer since it embraced market reforms in 1978.

These are true economic miracles.

When Lee Kuan Yew informed Singaporeans about their separation from Malaysia, East Asia accounted for a mere 14 per cent of global GDP.

The figure is now 27 per cent.

By 2030, it could be as high as 40 per cent.

We live in a region that has achieved the most rapid increase in wealth over a seventy year period in human history.

My optimism that this can continue is always tempered by the realisation that, as always, significant challenges remain.

The export-orientated model for growth has been so remarkable that almost every economy throughout the Indo-Pacific is seeking to replicate what Singapore, Japan, China and others have done.

One problem is that older models will not work as well as they have in the past, as the field of competitors grows and there are changes in the nature of manufacturing.

When Singapore embarked on the export-orientated path in the late 1960s, the combined populations of Asian nations such as Japan and South Korea doing the same thing was about 150 million.

These nations made products for consumers in advanced economies with a combined population of over 400 million, mainly in North America and Western Europe.

This balance is reversed now and will continue for future generations.

There are one billion or so consumers in the handful of advanced economies around the world while there are two billion people in developing countries in East Asia alone wanting a larger slice of export markets.

The figure becomes even more lopsided if we include India.

There are now too many countries and too many firms making too many products for too few consumers.

Even the rising middle classes in the Indo-Pacific will not be able to make up the shortage in global consumer demand, to support the export-led growth model for the number of nations aspiring to that path.

Advances in manufacturing technologies such as in robotics, automation and artificial intelligence will ensure that an increasing number of workers throughout the region will be competing for jobs that are declining in number or may one day cease to exist.

In short, globalisation and technological advances will only intensify rather than alleviate regional and global competition between nations and firms.

We cannot reverse globalisation, the advance of technology, or eliminate competition.

It is a fact of life that we compete or we fall behind. 

It is how nations choose to compete that really matters. 

Competition can bring out the best and the worst in nations as it does in people.

There has been a concerted international effort to ensure that more powerful nations do not bully their neighbours.

History tells us then when ‘Might Makes Right’ prevails, it sets humanity on a dark path towards conflict in our international relations.

When the strong impose their will on the weaker state, it invariably leads to the latter’s resentment of unfair agreements imposed on them.

The better alternative is the existing rules-based order which has served the region remarkably well.

It has underpinned the economic miracles even if some economies outpace others at different times.

The evidence is overwhelming that countries buying into the system of rules have fared much better than those which have not. 

Nevertheless, the regional order is under strain as nations occasionally use their economic or military weight to push the envelope while accusing the rules-based order of being a relic from a different era.

It is clear that the case in favour needs to be remade and reinforced.

One reason why the rules-based order underwrites stability despite shifts in power and wealth is that such an order does not privilege previous winners nor constrain opportunity for newcomers. 

Its basic principle is the rule of law where governments, firms and individuals enjoy rights and fulfill obligations regardless of wealth or power.

In a world of increasing economic competition, it becomes more important that countries abide by rules rather than break them.

They move ahead by undertaking domestic reforms that make them more competitive and attractive to others.

They cannot thrive long by merely protecting earlier gains.

This is precisely what Australia and Singapore have done in concluding and deepening our Comprehensive Strategic Partnership.

It will enhance the ability of our two countries to compete more successfully through agreements including collaboration between our well-educated and skilled workforces, freeing the moving of people and capital, and the commercialisation of our best ideas.

We live at a time when technology and the movement of people are breaking down sovereign economic borders, and in which many fundamental challenges can only be solved by cooperation across borders. 

There is no option other than to work together to adapt and thrive.

Ensuring peace and stability in a time of strategic competition becoming more intense is at least as great a challenge as managing economic competition. 

Strategic competition is occurring largely due to the dramatic increase in wealth occurring throughout our region.

Managing growing prosperity is overwhelmingly a blessing and is in marked contrast to the period after the Second World War when devastation and poverty brought misery to millions.

Nevertheless, even in happier times, there are complexities.

Rising prosperity means that countries naturally seek to expand their sphere of influence and to protect their growing interests.

Military outlays in 2015-16 in Asia expanded by over 5.5 per cent which easily outpaces the one per cent overall increase in global military spending.

By 2020, combined military budgets in the Indo-Pacific will probably exceed US$600 billion, matching military spending in North America for the first time.

Rising powers may exert newfound strength to challenge existing territorial or strategic boundaries or to impose their political will on others.

This inevitably leads to tensions.

Should these tensions lead to conflict, which nobody wants or could afford, this in turn would disrupt the great momentum toward greater prosperity that all countries cherish.

The strategic environment is also vastly different to what it was in the several decades after the Second World War.

When Japan, South Korea and the Southeast Asian Tigers were rising, they did so as part of a network of American-led alliances and partnerships cobbled together after the Second World War.

Indeed, these countries welcomed American strategic leadership and actively facilitated the American presence as they continue to do now.

It is a testament to benign and constructive leadership over many decades that Washington has few strategic enemies in our region.

In fact, there is only one: the pariah state of North Korea.

In more recent times, China is rising as an economic partner and geo-political and geo-strategic competitor with the United States and other nations.

This brings with it its own challenges, not least because China is disputing maritime boundaries in the East and South China Seas as do a number of Southeast Asian countries with respect to the South China Sea.

In recent weeks, I have met with senior members of the Donald Trump administration including Vice President Mike Pence, Secretary of State Rex Tillerson, and National Security Adviser General McMaster.

We discussed regional challenges in considerable detail and constructive ways for the United States to become even more engaged in the Indo-Pacific.

Many regional nations are in a strategic holding pattern and waiting to see whether the United States and its security allies and partners can continue to play the robust and constructive role that they have for many decades in preserving the peace.

If stability and prosperity are to continue, the United States must play an even greater role as the indispensable strategic power in the Indo-Pacific.

The United States is uniquely placed to do so.

It is the pre-eminent global strategic power in Asia and the world by some margin.

It is a country which does not have territorial disputes with other countries in the region.

As far as our region is concerned, the United States is a geographically distant power dependent on the agreement of Indo-Pacific states to host military assets and is obliged to use its power and influence to provide public security goods to the region and not simply pursue its narrow national interests.

This provides reassurance to many countries closely observing how larger countries will seek to wield their power and influence in the region.

Critically, the domestic political system and values of the United States reflect the liberal rules-based order that we seek to preserve and defend.

The importance of liberal values and institutions should not be underestimated or ignored.  

While non-democracies such as China can thrive when participating in the present system, an essential pillar of our preferred order is democratic community.

Domestic democratic habits of negotiating and compromise are essential to powerful countries resolving their disagreements according to international law and rules.

History also shows democracy and democratic institutions are essential for nations if they are to reach their economic potential.

The only countries in the world who have escaped the ‘middle-income’ trap to become wealthy, high-income and advanced economies are democracies – with the exception of a small number of oil-rich Middle Eastern states.

Liberal-democratic institutions such as rule-of-law rather than rule by executive privilege, civilian control of the military, independent and competent courts, protection of property and intellectual property rights from state appropriation or theft, and limitations on the role of the state in commercial and social affairs remain the prerequisites for stable and prosperous societies, as they are for the creation of a vibrant and innovative private sector.

While it is appropriate for different states to discover their own pathway leading toward political reform, history shows that embrace of liberal democratic institutions is the most successful foundation for nations seeking economic prosperity and social stability.

Australia is an active and vocal advocate of the liberal rules based order because the continuation of the long and prosperous peace depend on it.

With a combined GDP of US$2.5 trillion, ASEAN has an opportunity for leadership.

It can do that through advocacy of a rules-based order that protects the interests of the large and smaller nations that makes up its membership.

I note ASEAN upholds democracy as one of its core values in the Charter and I urge ASEAN members to champion democratic norms and liberal institutions throughout the Indo-Pacific.

As one of the guardians of regional norms, ASEAN should never underestimate the moral force it can exert in the form of collective diplomatic pressure on countries that might think or behave differently.

I am pleased that Prime Minister Malcolm Turnbull will welcome all ten leaders of the ASEAN states for an ASEAN-Australia Special Summit in 2018 and I am delighted the Summit will occur in a year when Singapore assumes the Chairmanship of ASEAN.

ASEAN is an institution celebrating its fiftieth year in 2017 and was established to preserve peace and stability in the region.

This remains its vital and important mission.

Every generation faces change and uncertainty.

These inevitably bring challenges and opportunity.

The Indo-Pacific region has a long way to go.

We have no option but to preserve and strengthen the liberal rules based order if peace, stability and prosperity is to continue.

We are two small countries by population. But we have highly skilled workforces, are advanced and innovative economies, and remain open to the world.

Both of us have powerful friends and are respected voices in the region.

Working together, I am optimistic that Singapore and Australia have the opportunity to frame our future.