The Pangkor Dialogue 2017; Rethinking Development

It is my great pleasure to be here this morning at the 2017 Pangkor Dialogue. To all visitors from near and far, may I take this opportunity to bid you a warm welcome to the city of Ipoh – a city filled with reminiscences of a glorious past, but also with the promise of a brighter future. Ipoh and the surrounding areas was once the centre of the world’s tin mining industry. Its many heritage buildings reflect the glory of days gone by, and today, Ipoh looks towards building a future as a sustainable city – a city where diverse cultures meet, offering opportunities for creativity, knowledge generation, the spread of ideas and the harnessing of technologies to generate greater levels of societal wellbeing and development.

  1. My address this morning will focus on the major trends occurring in the world today that are forcing us to re-evaluate how we think about development. Let me begin by saying that interest in the factors that underpin the economic growth and development of nations is as old as the discipline of economic inquiry itself. Adam Smith, the father of modern economics, stressed the importance of capital accumulation and increasing specialization in creating the foundations of wealth.


  1. The study of development took on new impetus following the Second World War as newly independent countries search for strategies to improve the lives of their population. Early theories of development focused almost exclusively on material development as the basis of economic growth. Simon Kutznets in 1955 introduced the concept of the inverted U-curve to explain that as countries develop, inequality would initially get worse, but once a threshold was reached, it would decline. Julius Herman Boeke introduced the concept of the dual economy. He postulated that the urban sectors of the economy are open to modernisation, while the rural subsistence sectors are being closed to it, hence creating the rural-urban divide.


  1. Walt Rostow, in his 1960 book, Stages of Economic Growth, focused completely on material accumulation as the basis of economic development. Rostow argued that countries go through phases of development – from traditional, to pre-conditions for take off, to take-off, to maturity, and finally to an age of mass consumption. According to Rostow, people will have to bear with suffering until they reach the maturity stage.


  1. While some of these ideas remain relevant, more contemporary perspectives on development stress the importance of policy; trade and investment; education and health; macroeconomic management and institutions; and technological change in explaining development.


  1. By the end of the 1990s, there was a concerted move to reduce the persistent problem of poverty that, after all the years of development, remained a serious barrier to economic growth. Hence the adoption by world leaders of the Millennium Development Goals in 2000. Issues of education, health and other indicators of human development were increasingly viewed as drivers of productivity and growth.


  1. Thirty years ago, the United Nations World Commission on Environment and Development published a report entitled “Our Common Future” which for the first time put sustainable development on the global agenda. The clarion call for sustainable development has since been well received throughout the world, and in September 2015, a historic special summit at the United Nations saw the world’s leaders adopting Agenda 2030 and the Sustainable Development Goals (or SDGs) as the way forward.


  1. In essence, sustainable development refers to the provision of material and non-material needs to all, in ways that can be sustained over the long term, while at the same time protecting the environment, and promoting peace and good governance. Unlike previous notions of development, sustainable development requires the simultaneous achievement of the following:


  • Steady and sustainable growth with good distribution;
  • Equitable access to resources and capabilities;
  • Equitable and widespread healthcare provision; and
  • A switch from dependence on fossil fuels to green processes.


Five global megatrends


  1. Today, we see major global trends and emerging issues that are calling into question previous notions of development. There is growing recognition that in a more globalised world, people have complex needs that no longer fit traditional approaches and assumptions. I want to focus on five of these trends.


  1. First, new technologies are transforming the world and how people are living their lives. Advancements in big data analytics, communications, robotics and artificial intelligence are pushing boundaries that are both expected and unpredictable. The speed and extent of change is such that some futurists believe we are reaching an historical tipping point, which will transform our world beyond recognition.


  1. This creates extraordinary opportunities for the world, where new technologies create opportunity for change and improved outcome for people. But the acceleration of technological change also presents major challenges for us all, as we navigate through the turbulent and unpredictable world. Advances in artificial intelligence, robotisation and biotechnology are already allowing innovations such as genetically modified insects and artificially enhanced humans. These are very welcome for their medical and humanitarian contributions. But such developments also raise deep and challenging questions about even what it means to be human.


  1. Beyond such difficult philosophical questions lie the more immediate and equally challenging issues of the future of work and the workplace in an era of increasingly capable artificial intelligence and robotics. I will return to this issue of the future of work a bit later.


  1. Interestingly, emerging markets are increasingly becoming the locus of innovation in the world economy. There are locales on the African continent and in the Middle East where substantial innovation incubators are stimulating new, homegrown inventions, and not simply the adaptation or adoption of existing technologies. Major private equity firms, venture capitalists, and tech companies are also making significant bets on these start-ups, despite the uncertainties in those regions. Start-ups are re-shaping entire industries and even changing the very notion of the firm.


  1. Second, demographic dynamics, including population growth, ageing, migration and urbanisation are changing the very make-up of society. This year, 13 per cent of the global population will reach the age of 60 or over, with the most rapid ageing occurring in Europe, North America, Asia and Latin America[1], putting strains on welfare and healthcare systems. Africa, by contrast, has a young population, which provides an opportunity for a demographic dividend. As it has become easier for people to move, factors such as poverty, unemployment, conflicts and natural hazards are compelling people to migrate in large numbers in search of better lives. International migration has reached record levels, at 244 million migrants worldwide in 2015, a 41 per cent increase compared to the year 2000[2]. Internal migration is also growing, driving rapid increases in urbanisation. On the one hand, urbanisation fosters growth and provides a higher quality of life. On the other, it raises concerns about urban poverty, social tensions and disparities, changes in family patterns, and environmental risks.


  1. Third, while extreme poverty in developing countries has declined significantly, incidences of poverty and inequality still persist in many parts of the world and present considerable challenges. Because of gender, age, disability or geographic location, 800 million people today struggle to survive at the bottom of virtually every single socio-economic indicator we can think of.[3] Economic growth in many countries has also led to a widening gap between the richest and the poorest groups, both within and between countries. China, for instance, has lifted 700 million people out of poverty in the last three decades, but today it has one of the world’s most unequal societies. A recent study by Oxfam shows the combined wealth of the world’s richest 1 per cent to be more than that of the remaining 99 per cent of the global population; and the world’s 8 wealthiest individuals own the same amount as the bottom 50 per cent of the world’s population combined.[4] Excessive income and wealth inequality threatens to eventually drag downthe economic growth rate and make growth less sustainable over time.


  1. Fourth, we have an environmental crisis looming on the horizon. If we consider the desires of developing countries to narrow and eventually close the gap between their income levels and those of the developed world, we are looking at a potential threefold increase in world output by 2050. This begs the question of how economic improvement can be reconciled with environmental sustainability when the world is already pushing against the limits of planetary boundaries. Humanity is placing tremendous pressure on the climate, on oceans, on land use and on other species – pressure that could have disastrous effects on future generations and is already having disastrous effects on highly vulnerable populations (in dry lands, desert regions, coastal regions and other danger zones). These are effects that, unfortunately, the present generation may not have the incentives to deal with.


  1. If the predictions of climate change are accurate, and I for one believe they are, then there will be a greater competition for resources. This means that those at the bottom of the development ladder will have to bear the brunt of the damage and be priced out of any equation for further development. In the world’s poorest regions, warmer temperatures increase the risk of the spread of diseases, and less predictable weather patterns can do harm to crop yields, which in turn affect food security and income levels. A recent report by the World Bank, one of the first to connect climate and poverty, show that at present rates of greenhouse gas emissions, an additional 100 million people would slip into extreme poverty by 2030. Nearly half of them will be in South Asia. Food prices in Sub-Saharan Africa will jump by 12 per cent by 2030 due to falling farm yields. And extreme weather events such as droughts, floods, mega heat waves, mega storms, big cyclones, typhoons, hurricanes will displace millions more of the world’s most vulnerable.[5]


  1. Fifth, violent conflict and humanitarian crises are undermining the livelihoods of millions of people, affecting their prospects for any further development. As of January 2017, the number of people in need of humanitarian aid, mostly as a result of violence, conflict and disaster, has risen by 12.5 million to 141 million people[6]. This is four times higher than the number at the turn of the century. If these people were a country, theirs would be the tenth largest in the world. Most of them are either refugees or internally displaced populations. A frightening number are dying at sea and many more are finding their way blocked by closed borders. Displaced populations are increasingly being forced to live in conditions where they have no access to livelihood or adequate shelter, let alone to education, nutrition or adequate healthcare. They rely on humanitarian aid for their very survival. Yet, despite today’s global GDP of US$78 trillion, the resources available to help those in dire need are grossly insufficient. In 2016, more than 40 per cent of the required amount for humanitarian assistance was not met.[7]


  1. In light of these trends and emerging issues, our notion of what constitutes progress and development has to evolve in order to address current challenges. I want to highlight three issues.


  1. Firstly, at the most basic level, we need to re-examine the indicators that are commonly used to measure development. It is not a foregone conclusion that a fast-growing economy alone will make for greater social wellbeing and a stable economy. National economic performance has traditionally been tracked using GDP and other macroeconomic indicators. Since the 1990s, composite indices such as the UNDP’s Human Development Index, which measure a range of social welfare indicators including health and education, have become increasingly popular. But there has also been growing recognition that success in relation to national development goals cannot effectively be captured through the use of such indicators alone. One reason is that rising economic prosperity has, in many cases, been accompanied by other serious challenges such as environmental degradation.


  1. Continuing efforts to address the shortcomings of existing measures of development include the establishment by then French President Nicolas Sarkozy of a Commission on the Measurement of Economic Performance and Social Progress. The Commission concluded that a range of separate indicators is required to capture the different elements of wellbeing, with GDP still used to measure economic activity, supplemented by social and environmental indicators. Traditional objective measures of wellbeing can themselves be further strengthened through the use of subjective or self-reported indicators. So while we continue to focus on measures of GDP and material wellbeing, we should recognise that a broader range of indicators is necessary to monitor more fully trends in development and prosperity.


  1. Bhutan realised this more than four decades ago and has famously rejected GDP as the measure of progress. Instead of GDP, Bhutan championed “gross national happiness”, which seeks to achieve wellbeing through the spiritual, physical and social wellbeing of its people.
  2. The concept of happiness as a basis for development has since gained traction on a global level. The first World Happiness Report, published in 2012 by the United Nations, seeks to supplement economic variables such as income and employment, with indicators such as health, family life, social safety nets, the freedom to make life choices, generosity and perceptions of corruption.


  1. The cluster of high performing countries at the top of the World Happiness Report, (which includes Norway, Denmark, Iceland, Switzerland and Finland) point to certain policy features that they share in common. These are countries where fiscal policies are used to generate relatively equal societies allowing for greater social mobility and income security. Indeed, the Report found a strong correlation between equality and happiness. Meanwhile, at the bottom of the list are countries that are either conflict-stricken, poverty-stricken or both. Countries such as the Central African Republic, Burundi, Tanzania, Syria and Rwanda[8].


  1. My second point relates to the future of employment. Many of today’s jobs will not exist in the future. There are many dire predictions of the coming wave of technological change on employment. One study suggests that at least 50% of seven hundred different current job categories may be fully automated in the coming years. Moreover, the growing gig economy, leapfrog economies, increasing automation, digital nomads, accelerated technology and artificial intelligence is profoundly changing not just what types of jobs are going to be available in the future, but also the types of workplaces. The transformation of the workplace will affect the whole range of jobs from ‘blue’ to ‘white collar’. Many careers that require years of specialist training are now within reach of AI software, especially when combined with advancing robotics.


  1. Moreover, in the middle-income countries, it is not simply a question of the demand and supply of jobs in the market, but an issue of youth disinterest in the types of jobs available. Profound job displacement, particularly in fragile economies in parts of Asia and Africa, is predicted. With 1.4 billion people, China potentially could face more than 600 million people in search of new ways to work and live, if it keeps up with Western automation levels. Unlike much of the 20th century, we are now seeing a falling ratio of employment to population, and many of the underlying trends in technology are likely to accelerate the disruption to jobs in the services sector. In parts of Asia and Africa, where the youth bulge is emerging, there is a risk of masses of young people left idle without jobs, potentially leading to unrest and mass migrations into cities, further exacerbating challenges there.


  1. The benefits of these emerging technologies will not be felt by all alike, and the digital divide can create further inequality for those left behind.


  1. These developments have profound implications on how our institutions of education prepare our young men and women to address the disruptive force accelerating technological change. This is why policy-making on education, especially in STEM fields, is all so important. The choices we make now in these areas can help shape and determine how these processes play out in the future.


  1. My third point concerns governments’ ability to access funding to meet the Sustainable Development Goals. In the foreseeable future and in many countries, governments’ ability to strategically mobilize various sources of financing for development purposes will be difficult, given continuing fiscal crises and the rolling back of many essential services. UN estimates suggest that developing countries will need more than $2.5 trillion a year to achieve the SDGs by 2030. The same is true of humanitarian crises. Climate change, unpredictable natural disasters that are escalating in severity and compounded by political instability, poverty, the emergence of new diseases and the persistence of old ones, will likely bring an escalation of humanitarian crises that will require financing far beyond the current capacity to deliver.


  1. New financing models are required to mobilise adequate resources in order to close the development and humanitarian financing gap. There are today a number of new financing models being considered. These models are projected to unlock private capital and help further leverage public funding to mobilise various new sources of investment for social services and development goals. These range from equity based crowdfunding and P2P, to alternative currencies, smart remittances, impact investment, social impact bonds that provide a part of the solution to address the financing gap.


  1. In this respect, the role of Islamic finance is particularly important. Of the ongoing humanitarian crises in the world today, 90% occur in OIC member states. Thirty-one out of 33 conflicts today occur in Muslim-majority countries. Various Islamic financial institutions are working to address the issue of how wakaf, zakat and other instruments such as sukuk can be channelled effectively and efficiently to meet development and humanitarian needs. This will not be easy, given the task of coordination and harmonisation that is required. But the very potential is there for Islamic finance to provide solutions to the global development and humanitarian financing needs. The Islamic Development Bank (IDB) has estimated that the market value of wakaf in India alone could be as much as US$24 billion. Similarly, the IDB’s research on zakat in 2015 conservatively estimates between US$232 and US$560 billion circulating annually. Just one per cent of zakat would make an enormous difference to the scale of the global funding deficit for the year 2015.


Concluding Remarks 


  1. As we look forward into an uncertain future, we can also learn lessons from history. The story of our recent past is one of previously undreamt of human progress, however uneven and incomplete. Life expectancy has tripled since the industrial revolution, while the lives of hundreds of millions have been significantly improved. We must now ensure that the even more amazing gains that are likely to be made this century are managed effectively and for the greater good.

[1] United Nations, Department of Economic and Social Affairs (DESA), “World Population Prospects: The 2017 Revision”, 2017.

[2] Ibid.

[3] United Nations, “The Millenium Development Goals Report”, 2015.

[4] Oxfam, “An Economy for the 99%”, January 2017.

[5] World Bank, “Shock Waves: Managing the Effects of Climate Change on Poverty”, 2016.

[6] United Nations Office for the Coordination of Humanitarian Affairs, “Global Humanitarian Overview 2017”, 2017

[7] Ibid.

[8] Sustainable Development Solutions Network, “World happiness Report 2017”, 2017.

%d bloggers like this: