We can all feel that our world is undergoing a great transformation. It may even be a great metamorphosis, akin to that of an egg becoming a chicken, a tadpole becoming a frog or a caterpillar becoming a butterfly. In these three cases, we know what the result will be eventually. However, in the case of our current great transformation, we have no clue what the result will be.
However, I believe that it is becoming increasingly clear what is the egg, the tadpole or caterpillar we are leaving behind in this great transformation. A quote from a recent article by Paul Krugman provides a clue. In a review of Thomas Piketty’s seminal work Capital in the 21st Century, Krugman says that the surveys of wealth distribution in the United States “have long pointed to a dramatic shift in the process of US economic growth, one that started around 1980. Before then, families at all levels saw their incomes grow more or less in tandem with the growth of the economy as a whole. After 1980, however, the lion’s share of gains went to the top end of the income distribution, with families in the bottom half lagging far behind.”
The date of 1980 is significant. That was the year that Ronald Reagan became president. With Margaret Thatcher, he launched a major intellectual revolution which led many of us to believe that markets are right and governments are wrong. Reagan famously said that “government is not the solution to our problem; government is the problem”.
As part of this celebration of markets, we also welcomed inequality in the belief that growing inequality also encouraged economic growth. This was partially correct. I will never forget a story Dr. Montek Singh Ahluwahlia, India’s Deputy Chief Planner, told me. In the early 1990s, a group of Chinese economists came to New Delhi to brief Indian economists on their economic reform plans. When they finished their briefing, Dr. Ahluwahlia told them, somewhat hesitantly, that their economic reform plans would lead to growing inequality in communist China. The leading Chinese economist beamed and said, “We certainly hope so.” And there can be no doubt that China has experienced both significant economic growth and rising inequality since then. China’s Gini coefficient has risen from 0.29 in 1981 to 0.42 in 2009.
We have stopped celebrating rising inequality. We have also stopped believing that markets are the fount of wisdom and that governments are inherently flawed. Now the pendulum is swinging the other way. We now realise the important role that governments have to play. One of the countries that did not fall completely prey to the Reagan-Thatcher revolution was Singapore. In his lecture at our School on 17 April, Prof. Ha-Joon Chang noted that Singapore was one of the most pragmatic countries on the planet, trying out every theory of economics without becoming an intellectual prisoner of any one of them. He emphasised the importance of “cross-fertilising” different theories of economics instead of thinking of them as inherently opposed to one another.
In this great transformation that is taking place, it is clear that the role of schools of public policy will become even more important. We have to understand markets. We also have to develop good governance. Several articles in this issue discuss the new public policy challenges we face, including in the fields of pensions and social security. With this and future issues of Global-is-Asian, we hope to throw light on the great transformation taking place. We hope that it will also help to provide glimpses of the new world that is emerging.
Kishore Mahbubani is Dean of the LKY School of Public Policy, and author of The Great Convergence: Asia, the West, and the Logic of One World