- 1 day ago
- #considerthis
The global economy is changing. Geopolitical tensions, trade fragmentation, ageing populations, climate shocks are reshaping the global economy faster than most governments can respond. The assumptions that have underpinned economic development for decades are increasingly being tested. If the old model of growth is running out of road, what should replace it? On this episode of #ConsiderThis Melisa Idris speaks with Philip Schellekens, Chief Economist for Asia and the Pacific at UNDP.
Category
🗞
NewsTranscript
00:10Hello and good evening. I'm Melissa Idris. Welcome to Consider This. This is the show where we want
00:15you to consider and when you consider what you know of the news of the day. The global economy
00:20is changing. Geopolitical tensions, trade fragmentation, ageing populations and climate
00:27shocks. All of this are reshaping the global economy faster than most governments can respond.
00:34The assumptions that have underpinned economic development for decades are now being increasingly
00:40tested. So if that old model of growth is running out of road, what should replace it? Well that's
00:48our conversation I'm hoping to have today with my guest Philip Shellikens, the Chief Economist
00:55for Asia and the Pacific at UNDP. Philip, welcome to the show. It's good of you to join me.
01:00Thank you. So as I said, I think recent years have really highlighted the fact that the global
01:06economy is now entering, I would say, a different era. So let's start with an assessment of where
01:12we're at. This year in particular has been quite challenging. How do you think current
01:18geopolitical and global economic trends are reshaping growth and development, particularly
01:25in the Asia Pacific region? Thank you very much and it's a pleasure to be here and to be back
01:30in
01:31Malaysia. As you may know, I've worked on Malaysia for a long time, starting from the days I was at
01:37the
01:37World Bank and started the Malaysia Economic Monitor series. So it's very nice to be back here.
01:42Great. So about the changing development landscape, you know, now I'm Chief Economist at UNDP. At UNDP,
01:49we tend to really cast the net a little bit more widely and we like to look at development holistically
01:55and also paint a big picture, the long-term picture. On that note, you're quite right that the
02:03development landscape is probably far more turbulent than anyone could actually remember from the past.
02:09Because what we're seeing right now is that there are three clusters of risks that are combining. We
02:15have existential risks in the form of climate change, biodiversity loss. We could even say that AI poses an
02:23existential risk. We are also seeing, and that's the second cluster, growing headwinds to economic
02:30growth and job creation. So we have demographic change. We have new trends in globalization, as you mentioned.
02:35We have massive technological change. And then thirdly, we are seeing governance risks. We see that the space for
02:43future-oriented reform in many parts of the world is shrinking. Now, all of that would suggest to you,
02:50probably, that we are living in a world of a poly-crisis, where there are overlapping risks. They amplify each
02:57other.
02:57But I think that's the wrong way to look at it. I think we really need to also look at
03:02the opportunity in these disruptions.
03:04And actually, in every single of these mega trends that I mentioned, we can recognize the opportunity.
03:13Let me give you three quick examples. Aging. Aging, all too often, is considered to be an economic funeral.
03:21We look at aging as posing difficulties for productivity, for growth. But if you cast the net a little bit
03:30more widely,
03:31if you adopt a more holistic perspective, in my view, aging is a massive opportunity for societies to have more
03:38people
03:39who live long lives with purpose, with connection and with vitality. I think we need to look at it in
03:46a different way.
03:49Globalization. We are not seeing de-globalization.
03:52You don't think so? You don't think we're seeing the reversal of this?
03:55What we are seeing is de-globalization. So, like deflation and disinflation. We're not seeing a decline in globalization,
04:02but we're seeing a slower pace of it, slower growth.
04:05So, if I hear you correctly, we are not seeing de-globalization, but de-globalization. Talk to me about the
04:13nuance between the two.
04:14Well, think of globalization as meaning or referring to the pace of economic integration.
04:21That pace has not reversed. It hasn't become negative. It still remains positive.
04:25But the speed at which countries are integrating between themselves economically is declining.
04:34So, that's important to note. We should also remember that globalization in the past wasn't really global.
04:42It affected multiple regions profoundly, particularly Asia Pacific and within that particularly East Asia and Southeast Asia.
04:50But Africa and Latin America were not so much part of it. I used to work on Brazil.
04:56Brazil is one of the most closed economies in the world if you look at the exports plus imports over
05:01GDP.
05:02And we should also remember that globalization operates in different markets.
05:07And it's only the product market and within the product market, the goods market, the trade market,
05:12where we've seen quite a bit of globalization, especially in Asia through global production chains.
05:16In financial markets, we see a lot of globalization, right? Because prices are basically arbitraged away within a second.
05:25But the labor market is not globalized at all. And the market for the trade for services is much less
05:31globalized than the market for goods.
05:35So, we need a different conversation on globalization as well. And the last thing that we should recommend to countries
05:41is to look inward.
05:43Because the pie of economic activity globally continues to grow.
05:47The Asia Pacific region alone will contribute 80% to global middle-class growth between now and the end of
05:53the decade.
05:54So, Asia is really where the growing end-user demand is that we can latch onto.
06:00So, let's look at that differently.
06:02Okay, you've given me a lot to unpack here. Let's take it one by one.
06:06If I may focus on disk globalization, which I think is quite interesting.
06:10How do you think this will play out in the next decade or so?
06:14I'm so curious because you brought up an excellent point.
06:17The fact that trade and finance has really benefited from globalization.
06:23But how do we then globalize the labor market and then services as well?
06:30Do you see the trend of this slowing pace of countries integrating together?
06:36Do you see that changing or picking up speed in the coming years?
06:40It might not pick up speed because we've now come off a period of hyper-globalization.
06:46And the world that we are in today is a different world, not least because we now have China.
06:53And China, by the way, this year, 2026, is expected to cross the threshold towards a high-income economy.
07:01And if that happens, it will be announced by the World Bank in July 2027.
07:07China is on the cusp of becoming a high-income country.
07:11That's right. And it will have completed that journey in about 16 years, which is a record time.
07:19After having actually moved from lower-middle-income country to upper-middle-income country in just 11 years.
07:27So the world is different. We now have a China. We have seen this period of hyper-globalization.
07:33So it is normal to see a slowing in the pace of it.
07:37I am quite optimistic about the future. We need to see opportunities in those disruptions.
07:45The tariff war, the Iran war, the existential risks, the growing governance risks, they all present challenges.
07:53But governments who are anticipatory, who are adaptable in the sense they can adapt their strategies relatively quickly,
08:01and who are agile in the sense that they can deploy and redeploy human and financial resources quickly as well,
08:08they will be ahead of the curve. So that is the challenge. It's not that opportunities are no longer there.
08:14The global environment has simply become more competitive.
08:18And therefore, countries need to act faster in order to be ahead of it.
08:23So, definitely true. I mean, things will never go back to the way it once was many, many years ago.
08:27And I think for many decades, Malaysia and many other countries pursued this kind of export-oriented growth model,
08:38abundance of cheap labor and low-cost manufacturing.
08:41And I wonder whether we need to shift away from that.
08:44Something you said in the very beginning of the conversation really intrigued me,
08:47because you talked about how UNDP looks at holistic development.
08:51And I wanted to discuss that.
08:54When we think about human development, a more holistic model of growth,
09:00is GDP becoming a less useful measure of measuring economic progress?
09:08Well, GDP is instrumental. We only care about GDP because it serves an ulterior purpose,
09:15which is well-being, welfare, social welfare. So the goal is not to pursue GDP growth.
09:21The goal is to maximize for as many people as possible their well-being.
09:27So that's completely the objective. So we need a broader lens.
09:32And human development at UNDP, the way we look at it, is basically to afford all people just a chance
09:39to live the life they want to live.
09:42So it is not just about income. It's also about having access to good education, to health, to nutrition,
09:49but also to enjoy human rights, to have agency, to have voice.
09:54Now, having said that, so yes, we need to take that broader lens and we need to look beyond income,
10:01beyond the monetary dimension. With that I mean things like income, consumption, productivity, the economistic perspective.
10:10And we need to look at these other dimensions. This is what we do in the Human Development Index of
10:15UNDP.
10:15By the way, we look at also health and education. And if you want to take this one step further,
10:20the index I probably love the most is called the Social Progress Index, which doesn't even look at the monetary
10:26dimension.
10:27It only looks at the non-monetary dimensions. But at the same time, I would like to say, yes, we
10:33need to go beyond GDP.
10:35But beyond GDP cannot mean instead of GDP. Economic growth remains essential.
10:41I always say, if there is no growth, there's not going to be human development. It remains a foundation.
10:47And there's a strong correlation between income levels and other metrics of development.
10:54I also think we need to look at between GDP much more. What does that mean?
10:59Well, I think one issue with, for example, the income classification, the way the World Bank classifies countries into high
11:07income,
11:08upper-middle, lower-middle and lower, and remember Malaysia right now is an upper-middle income country,
11:13is that it is distribution neutral. It looks at the average income in a society.
11:19Now, apply that to the world and you look at the average income at the level of the world,
11:24well, I think we need to go below the average and we need to look at between countries.
11:28Because there's many reasons why inequality between countries could rise.
11:33And we just wrote a report last year about why AI actually could herald an era of rising between country
11:42inequality.
11:44So we need to really pay more attention to that.
11:46So the answer to your question is absolutely. We need to think more broadly than just income.
11:51But we should not negate the importance of income and we should also look within income much more at the
11:57distribution of income.
11:58Well, you began with the growth story of this region of Asia-Pacific and how, well, really quite remarkable,
12:04looking at the rise of China as well.
12:07Why do you think that within this region in particular that there is still so much, there's massive disparity,
12:14equality, equality is still very persistent.
12:18If it's one of the fastest growing regions in the world, why is it that we're still seeing so much
12:25inequality?
12:26Why has that not translated into more equal opportunities?
12:30Well, those are two different topics.
12:33You're talking about growth and then the distribution of the benefits of that growth.
12:39Look, and when we talk about the region, perhaps we should define what we mean with the region.
12:44Because it is such a huge region, yes.
12:46So why refer to it as Asia-Pacific, going all the way from South Asia and even at UNEP we
12:52include Iran in that.
12:53So Iran, Afghanistan, Pakistan, all the way to the Pacific Islands and from Mongolia to New Zealand.
12:59So these are about 30 economies and territories.
13:01And all running at different speeds.
13:03Running at different speeds and also witnessing very different disparities.
13:08So I always call Asia-Pacific as still a region of structural exclusion.
13:15We still have in this region 1.3 billion people who live outside the formal sector.
13:21And we see this in Malaysia in the gig economy, for example.
13:25Okay, the gig economy may be relatively formal in the sense that people pay taxes,
13:29but it still has characteristics of the informal sector in the sense that people live from day to day,
13:35from paycheck to paycheck and are subject to a lot of vulnerability.
13:39We have 700 million people, women in this region, who are basically out of the labour force.
13:45We have about 500 million people who are multidimensionally poor,
13:50which means that they are deprived in income, education or health simultaneously.
13:56And we have over 100 million people who are extremely poor.
14:00So the percentages may look good, but because the region is so large,
14:05we also need to look at the absolute figures and make sure we leave no one behind.
14:09Now at the same time, these numbers, they describe to some extent absolute deprivation, right?
14:16They are people who are below a poverty line.
14:20You talk about inequality, which is a different concept.
14:22I was just last week in China.
14:24I think the discussion in China has really very much shifted from a focus on poverty to a focus on
14:31inequality.
14:31And I think the reason is simple.
14:33The reason is that we've seen a massive out-migration from the countryside,
14:38from the inner parts of China to the coastal areas.
14:42So when people who used to work in farms, you know,
14:46their point of comparison was basically their mother and father, their family.
14:53And, you know, they were happy with the move to the coastal areas.
14:58And poverty was reduced.
14:59But as they established the hukou, or they become more entrenched in the cities,
15:05the debate shifted actually from poverty to inequality.
15:08And people started to compare themselves with the others in the coastal area.
15:12And so the debate has very much shifted.
15:14And you see that also across Asia-Pacific.
15:17We still have these pockets of poverty, but they're declining.
15:20And the attention is shifting much more to inequality.
15:23And that's a good thing, right?
15:24That we're looking at maybe closing that inequality gap?
15:27We're not closing necessarily the inequality gap.
15:30What we're doing is we're closing the poverty gaps.
15:33Inequality, even though in recent decades, has been declining globally,
15:38thanks to declining between-country inequality.
15:41Between countries, as you mentioned.
15:42Within countries, in many countries, you see actually a rise of inequality.
15:46So relative to others in the society of a particular country,
15:52inequality may be rising.
15:53Even though the average income level may be getting closer to those who are richer
15:58in the rest of the region.
16:00So we've seen declining between-country inequality mainly because of the rise of China and India.
16:05But we've been seeing in many countries rising within-country inequality.
16:10Now our concern is that soon between-country inequality may start rising again because of AI.
16:16Okay, talk to me about that.
16:18Because historically, technological revolutions have always created new jobs,
16:24new opportunities, social mobility even.
16:26It's the great equalizer to some degree.
16:29How do we ensure that your concern that inequality could rise because of AI,
16:36that that doesn't become a bigger divergence that we're seeing,
16:40that it in fact is the equalizer that we're hoping for?
16:44These are sort of two questions.
16:46One, how do we look at AI and income?
16:49And the other one is, how do we look at AI and jobs?
16:51And there may be two different answers to that.
16:54What about AI and income?
16:55How it affects income inequality between countries?
16:59Look, it's quite clear that AI presents a massive opportunity.
17:04And let's look at AI a bit more holistically than is usually done.
17:08Usually we look at AI and economic growth and jobs.
17:12I think we should look at it much more holistically and look at the effect on people,
17:17the effect on the economy more broadly, the effect on governance.
17:20So what we did is we did a study last year with nine institutions around the world,
17:27across the geopolitical divide.
17:29So we worked with Tsinghua University, University of Science and Technology in China,
17:33two Indian research institutes with two departments of MIT, the LSE, Max Planck and a few others.
17:41And we asked the question, if you take that holistic lens and you look, let's say,
17:46at 15 different sectors of society that you categorize under people, economy and governance.
17:51So for example, you look at biodiversity, climate change, you look at health, education, governance,
17:57many different things.
17:59Actually, in all of these 15 sectors, you can think of ways where AI will help
18:04and ways where AI will disrupt.
18:06So it's very messy.
18:08And frankly, we don't have a crystal ball.
18:10But what is quite clear to me is that the countries that are richer right now
18:17will be in a better position to take advantage of the benefits of AI,
18:23because they have a better starting position.
18:25They might have electricity to start.
18:27They might have better digital skills, a narrower digital divide.
18:33Many aspects might be better, which make them have a leading position
18:38to take advantage of the benefits of AI.
18:41And conversely, the disruptions of AI could be felt more deeply
18:45by the poorer countries, even though, for example, in the area of jobs,
18:50poorer countries might not be as exposed to the disruptions of AI
18:53because they have less knowledge workers.
18:55But poorer countries might not have good social protection mechanisms,
19:00might not have the fiscal buffers to deal with the disruptions of AI.
19:03So in these 15 sectors where you have positive and negative effects,
19:07the concern is that in almost all of them, richer countries can grab the opportunities
19:12much better than the poorer ones.
19:14And the poorer countries could be in a worse position to basically deal with the disruptions.
19:19And that will be a driver of between-country inequality.
19:22Yeah, as you mentioned a bit earlier, how do we make sure that that doesn't happen?
19:26We are early enough in this age of AI that maybe we can help correct this imbalance?
19:33Yeah. So we need to steer AI.
19:35We need to make sure that we are not reacting to AI, but we are ahead of the curve.
19:40And we are steering it and we need to try and make sure inclusion is sort of baked in
19:47into the design of AI systems, but also make sure that AI works for development
19:52and that new development solutions are deployed in an inclusive way
19:56to the developing countries that can use them.
19:59There's also massive opportunities for greater collaboration across countries.
20:03For example, small Pacific islands can share a data center together.
20:08They can rent a space on a data center together.
20:11We can pool resources.
20:13There are many, many things that we can think of.
20:15Sorry, Philip, I have to ask you.
20:16When you say we need to steer AI, who's we?
20:20Who should be in the driver's seat steering AI?
20:23Yeah. So this is exactly the problem that I mentioned.
20:26We have existential risks, fresh headwinds to growth and job creation,
20:33and then we have growing governance risks.
20:35One of the growing governance risks is that precisely at a time where we need more coordination
20:41or collaboration across countries, multilateralism is receding.
20:45Yes.
20:46So that's the problem.
20:47So this is how these risks interact.
20:49And I think we need to look at a much more holistic way at how this changing development landscape
20:55is interacting between the different risk clusters.
20:58So this is indeed a challenge, but we still need to work on it.
21:02We've referred to plurilateralism as coalitions of the willing that can work together.
21:08So the decline in multilateralism should not prevent us from taking the right steps.
21:13This is the wrong time to be retreating from multilateralism.
21:18In the time that we have left, let's focus in on Malaysia.
21:22From where you sit right now, what do you think is most at stake for Malaysia?
21:29What global headwinds?
21:30You talked about the three different kind of existential risks, headwinds,
21:34and governance risks that you talked about earlier.
21:36What, for Malaysia more specifically, should we be wary of?
21:41And is there anything in the economy that gives you optimism about where we're headed?
21:45So maybe on these three quick points.
21:47First of all, we need to stop the doom and gloom perspective on Malaysia.
21:55I'm doing a set of presentations this week around the theme,
21:59Malaysia is not in a middle income trap.
22:02Now that might surprise you.
22:04But there are fundamental problems with the concept of middle income trap.
22:08I always say that the 2024 WDR of the World Bank has two typos in the title.
22:14The title is the middle income trap.
22:15And the issue is that a trap is not a trap.
22:19It is a policy challenge.
22:21So let's get rid of the fatalism.
22:23It is a policy challenge to change the drivers of growth to shift them.
22:27And secondly, that policy challenge is not exclusive to middle income countries
22:32or upper middle income countries.
22:33It applies across the income spectrum.
22:36So what does that mean for Malaysia?
22:37First of all, yes, it is true that Malaysia has been a long time in the middle income category.
22:43And it may take some more time.
22:47But that is entirely up to policy makers to influence.
22:52So there is agency.
22:53There is opportunity.
22:54That is one point.
22:55The second point is that once Malaysia crosses the finish line of a high income country,
23:02there is still a huge agenda ahead of us.
23:04It is not a finish line.
23:05Development does not end at the high income threshold.
23:09In fact, if you look at the ratio between the richest country on earth, which is Bermuda,
23:15and the high income threshold, that is a ratio of about 10.
23:18That is about the same as the ratio of the threshold between high and low income.
23:23And I also always say all countries are developing countries.
23:27We are all chasing a moving frontier.
23:30And the same will apply to Malaysia.
23:31So the challenge is not so much, I think, to reach the high income level,
23:36but to set in place policies that will sustain momentum also much after that.
23:43So that is one point.
23:44It is not a finish line.
23:45So let's change the framing.
23:47The second point is what to do.
23:50And look, when I concluded my work at the World Bank here in Malaysia,
23:56I said I talked about effective leadership and governance.
24:00That was about 15 years ago.
24:02I think the same conclusion applies.
24:05And I also always say I am an economist,
24:08but I do believe that 90 or more percent of development challenge ahead of us
24:13for Malaysia, for the region, for much of the world,
24:17has nothing to do with economics.
24:19It is about governance and effective leadership.
24:21So that is the fundamental point I would like to make.
24:24Countries who are successful are those who are able to anticipate.
24:28Now, anticipate in two ways.
24:30Not just predicting what is coming at us, but also imagining a different future
24:35and then shaping it and then sticking to it.
24:38Long-term orientation, sticking to the plan.
24:42Adaptability, ability to adapt plans as new information and priorities arrive.
24:46And agility, ability to act on it.
24:49That is really important.
24:50Nurturing political will, future-proofing it in the sense that the next administration
24:55is not going to overturn what was done before.
24:58We have a shared trust and a shared vision for the country across political divide.
25:03And then we implement it well.
25:04We need a capable public sector to implement.
25:07So that is my second point.
25:09In order for Malaysia to get to the high-income stage,
25:13and much more importantly, to continue the journey afterwards,
25:16effective leadership and governance.
25:18Now typically, what most people look at, what most advisors to governments do,
25:24it is always 50 to 60 percent of reports and whatever advisory work is about diagnostics.
25:30Why are we here?
25:31What are the problems and the solutions?
25:33And then the solutions actually are the other 30 or 40 percent.
25:37Implementation dimension is always expose the aftermath.
25:40And then the final point I would like to make about how we should then direct effective leadership
25:46and governance towards strategies, what should be done.
25:49I would make it very simple and say that what Malaysia needs is two things.
25:54We need a more competitive economy and a more compassionate society.
25:58A more competitive economy that will require making sure we have the capabilities in place,
26:04talent, technology, finance.
26:05We expose Malaysia to much greater competition internally and externally,
26:10so we drive innovation.
26:13And updating inclusiveness policies is important to have a truly compassionate society,
26:19making sure that social protection is needs-based, is targeted to the needs of people,
26:24and then preparing for that new future of work where skills will be the new infrastructure.
26:30Philip, I've really enjoyed our conversation. Thank you so much.
26:32Thank you very much for having me. Thank you.
26:34That's all the time we have for you on this episode of Consider This.
26:37I'm Melissa Idris signing off for the evening.
26:39Thank you so much for watching. Good night.
Comments