David Austin: Danny Quah is a noted economist, teacher and writer. He has a long list of qualifications and accomplishments, and currently he's Dean and Li Ka Shing Professor in Economics at the Lee Kuan Yew School of Public Policy. His work focuses on income inequality, economic growth, and international economic relations.
Lately he's been studying the global power shift and the rise of the East, and alternative models of global power relations. He's also quite a student of pop culture, and if you stick around, you'll hear exactly what I mean.
I see here you have your list, your kind of current projects overview. It seems like they're all in a way bits and pieces of a big bigger story that you're trying to tell. What is that bigger story that you're trying to tell right now?
Danny Quah: Part of this work that I'm doing is already about what many might consider ‘big picture’, which is the state of the world, the international system, world order, the set of rules and conventions by which nations undertake engagement with one another.
So that seems to be a pretty big part of the picture already. The second part of the picture that I work on has to do with global changes in inequality, how different societies are responding to what we're seeing in terms of the disparities between rich and poor. It has become one of the enduring stories of the 21st century so far, that this gap between rich and poor has grown large in a way that many of us did not notice. Then when we turn around and look at it, the rich are far, far richer than the poor in orders of magnitude that we had not seen for a long time.
The unifying picture is that the world needs to think about these challenges in an integrated, global way. What one nation does to solve its problems often has unintended consequences on other nations and unless the world can come together to think about these challenges in a coherent way, we will be reeling from one extreme to the other.
David Austin: Then maybe we should break it down a bit and why don't we talk about inequality first. You were talking about how increases in inequality do not equate to immiseration of the poor and the middle class. And you said that the research data shows that in the US although there's high equality with low and falling mobility, that's not true of all countries. China and France, for example, show the opposite. Can you tell us a little bit more about that research? And what does it mean to you?
Danny Quah: Yeah, certainly. I find this part of the research touches and excites people sometimes in ways that I find they're quite angrily responding to this research. Actually, this research makes a simple point.
It says that we are all so obsessed with how inequality has grown, we have perhaps lost sight of what really matters to humanity and to societies. For me, what really matters as societies evolve is that whatever else happens, the poor in society have got to have meaningful, satisfying lives where they continue to improve in their well-being. A good way to think about that is just that they have to show upwards mobility. That what we want is that, as societies continue to grow, upward mobility also comes about. And for me, that is the overriding concern, over and above what else happens to inequality. Of course, it's not that the two are unrelated. If society were stagnant, then if inequality is rising, then you've actually got the poor becoming worse off, because the rich are making off with more and more of what society is able to generate. But societies are not stagnant, and in the real world, in the 21st century, for all of the 20th century and for a lot of the 19th century, societies have been growing. So the picture becomes a bit more complicated.
David Austin: What about in the US ?
Danny Quah: Here's the fact - in the United States as inequality rose in the late 20th century early 21st century - Inequality rose so much that the poor, the people at the bottom of the income distribution in the United States, actually became absolutely poorer. It's not just that they were poorer relative to the rich. In absolute terms the average person in the bottom half of the US income distribution today is worse off than the average person in 1980 in the United States.
This is remarkable. The United States is the world's largest, richest, arguably most successful of economies and yet it has done a miserable job taking care of its poor.
It is natural to think that that's happening everywhere in the world because this is the United States. If it's happening in the US, how could it be different everywhere else in the world? But the fact is, if you look at all societies, all countries, and all economies where since 2000 inequality has risen, there are actually quite a lot of them. In 80% of those cases the poor have actually been lifted as well. The bottom half of the income distribution in 80% of the cases where inequality has risen have actually become better off. The extreme example of that is China.
David Austin: And what about in China?
Danny Quah: China saw its inequality rise to dramatic highs, but the people at the bottom half of China's income distribution today are four times better off than they were 30 years ago. That's a remarkable rate of increase. That's the rate of increase that's higher than the top 10% in America is becoming richer. So we have two extremes among the world's large populous economies. One extreme is China where inequality, yes, is lamentable, but it has come hand-in-hand with the poor becoming much, much better off.
This, of course, is consistent with a fact that is relatively well-known. And that is that over the last 40 years, China has lifted six hundred million people out of extreme poverty. What this fact says is that it's not just lifting up the very, very poorest of the poor, the lift in income is happening across the entire bottom half of China's population.
But America shown the opposite outcome. Even as inequality in the US has risen, the poor have actually become poorer, and that I think is the case that most people are familiar with because America figures so prominently in everyone's minds. It is natural to think that if this is happening in America, it's also happening everywhere else but actually in 80% of societies, that's not the case.
David Austin: Tell me what do you mean by a bifurcated marketplace for world order? It's quite a mouthful. So can you break that down for us?
Danny Quah: So the phrase that you're referring to, a bifurcated marketplace for world order or "bifurcated world order", refers to the possibility that the world as we now know will fracture into two different systems.
That seems to be happening along trade lines and is potentially going to happen along lines of technology. We see this in the current US-China trade conflict that has now spilled over into a contestation over control of the communications and technology infrastructure. There is the possibility of the United States shutting off China's access to both markets and technologies. And similarly, China will then have to develop its own side of markets and new technologies, and America will no longer be able to rely on, for instance, China's Huawei 5G technology. So the world could potentially splinter.
So when I say a “bifurcated marketplace”, I refer to the possibility that these two very large, very important parts of the global supply chain will actually attempt to decouple one from the other, and when that happens, the world will split into two halves. So in that world, we will no longer be able to rely on the best of American ingenuity, the best of Chinese manufacturing engineering to together, make a product that is good for the entire world. Each side of that will have to figure out where its comparative disadvantages have rested and attempt to repair them. So the world will end up less efficient.
Not everyone who's thinking about this has the same view at this point, of course. There are those who are predicting quite disastrous consequences. My own view is that the two halves of this world, if it does come to that, will have to learn how to get to be, each within its own domain.
David Austin: How likely do you think that is that they can get along?
Danny Quah: I think it's possible. I mean, rather lightheartedly, we might say that 30 years ago, there was the "Apple Mac" world and then there was the "IBM PC" world, and the two worlds did not communicate with each other. Now over time, they eventually did converge but it was a struggle to do that. We might have to do that on an even larger scale with the Chinese and American technology systems if we do see bifurcation.
There are political changes happening in each of these two large societies, and we will see how those unfold. But there is an underlying trend. That underlying trend is not an optimistic one. For decades after China opened up its system, the view was that "Let's do business." We will be just simply transacting economically in a way where China gets to leverage its comparative advantage. The rest of the world has advantages in technology, managerial skills, know-how, there will be a way to couple together these two large systems in a global spanning value chain, and that's worked tremendously well. Part of China's massive race for wealth has come out of leveraging the comparative advantage that trade affords it. But what has changed, where the trend has changed is that there seems to be a souring of the mood towards China within the West, and it's not just Donald Trump. Within the West there is emerging more and more a narrative that China is evil.
And the way that narrative goes - let me be very clear - I don't subscribe necessarily to all of it. But the way that narrative goes, is: “China is not a liberal society. It has disdain for human rights. It does not subscribe to our liberal values. It does not believe in democracy. There will never be elections held. It is an autocratic state and the Chinese Communist Party is basically Leninist. It will do everything it can to maintain itself in power.” And in that narrative there's no middle ground. The more powerful China becomes, the more threatening it is to the rest of the world. Those of us who maybe spend a bit more time in China, see a gap between that narrative and what actually happens in China.
It's true that China is not a democracy. It's true that there are no elections held that actually bring Xi Jinping or anybody else into the kind of power that they have. But it attempts to operate a system of government in a way that although different is nonetheless responsive to what its people want.
A fact that many people like to recite, is that scores of millions of Chinese tourists leave China every year. Every year scores of millions of Chinese tourists return to China. It is not a North Korea or a cold war East Germany. It is a society where many people who are very knowledgeable about what happens in the West are free to come and go, and willingly return to participate in the growing economy that is China.
So I think there are different views on this. But the point is, that within the West there has now emerged this narrative of "China is evil" and it's no longer just about trade deficits. It's not necessarily about the technical aspects of technology, as it is a return to a kind of cold war mentality, in a world that is actually very different from the Cold War now, with a global value chain that is tightly coupled. So in that view, what we're moving into is a very dangerous world where the advantages that we've built up are now all at risk and the capacity for disaster at outcome is ever greater. Nuclear power proliferates in the world. There are many people with access to modalities of cyberterrorism. And so the world is much more dangerous.
David Austin: The Narrative of an evil China or at least the growing narrative in the west and the relation to the fact that they are just gaining in power.
It's Thucydides trap when one power threatens to rise and displace another one, that war is a result.
Which brings us to another article that you've written, A Thucydides Fallacy. What do you think about that element? And why is it a fallacy?
Danny Quah: Very interesting connection that you've raised here. So the Thucydides trap idea is sometimes also conveniently thought of as a narrative that the world is destined for war. In fact, that is the title of a very well-known recent book on this topic.
So the destined for war narrative harks back to Thucydides' writings on the battles between Athens and Sparta during the Peloponnesian Wars. The reason that I say there's a fallacy here, is that Thucydides described not just the destined for war trajectory, he also remarked on how it was going to be the great powers that determine how the world looks. So the way he talked about it, the great powers, the strong, do what they will, the weak suffer what they must.
The Thucydides fallacy is a fallacy about how small states are simply innocent bystanders, is the fallacy in that in today's world, small states are more than just innocent bystanders, they can affect outcomes. We might say, "Well, how is that?" How is that possible because when great nations go to war with each other they are like the elephants of Southeast Asian jungles. They will trample everything between them.
David Austin: Okay. How can small states have agency? How can they avoid being trampled?
Danny Quah: My argument is we need to get away from thinking about international politics, international outcomes only in terms of wars. Unfortunately Thucydides said "destined for war" which makes it sound so natural for people to go along with that. But for me, there's another great political philosopher, who observed that killing is not the same as politics. What it really takes to govern the world, to lead the world, is not just that you've got the greatest guns, the biggest guns, but that you have legitimacy and you show wisdom in making the right choices. So my favourite political philosopher was talking about how killing was not the same as politics when he was trying to advise his Queen, who at that point had assembled three fire-breathing dragons 10,000 Unsullied and had freed the slaves of Meereen.
She was Daenerys Targaryen and the political philosopher I'm referring to Tyrion Lannister, who counseled her on how one should be a wise leader. So too the great powers in the world today need to remember: killing, the military, the great armies that they've got, is not the same as being a leader of the world.
They need to attract what in the US Declaration of Independence is called, "the consent of the governed." They need to attract the consent of the governed and for that, small states have huge agency.
David Austin: Well, then that brings us to Singapore. They're probably one of the best examples of a small state that right now is in the middle of this US-China dynamic. Obviously Singapore has deep connections to both countries . What kind of agency would you recommend Singapore take in this in this growing battle, if we can call it that ?
Danny Quah: To be very clear, Singapore has consistently said it wants to be friends to everyone. It has to be, you know, based on the principles that it has of sovereignty, self-determination. It seeks to be friends to all and the way it can do that in this model that you and I have in mind of this, one very obvious way is to try and work through multilateral agencies.To continue to support the multilateral institutions that we have, the recently signed Singapore Convention on Mediation is a step in the right direction. Singapore has shown over and over how as a small state, it has been instrumental in nudging along global conventions that bring together, in a multilateral way, in a collaborative way all the nations of the world. Singapore will continue to play that role. Singapore also shows the significance of ideas, of expertise, of wisdom in how you run things, and how you run markets and how you run governments.
David Austin: So looking forward, let's start with the big scary thing. We've talked about war, we've talked about the kind of the scary things that are happening, the tensions the possibility for cyberattacks. Do you think the world is ready to prevent war?
Danny Quah: That's the, 80 trillion dollar question at this point. Wars are terrible things to happen - the loss of life, the rebuilding that has to be done afterwards, the tragic destruction of trust and goodwill across the entire nations and peoples.
I have heard historians say however - I don't think entirely tongue-in-cheek - I've heard historians make the argument to me - the wars are also a great leveler. Historically, what wars have done is tear down those power hierarchies and allowed ordinary people to rise again in the income distribution. In the United States after the Second World War, that happened with land-grant universities, and the GI Bill, that allowed a lot of people who are not yet part of the University system to come into it.
I'm not suggesting that that's the way we should go, but it is something that we need to take a cold hard look, at the entire range of possible outcomes, should the kind of war break out. My own prediction on this is that I hope we have learned over the last thousand years, and in the 20th century, the two world wars that were fought, that that is not something we want to go through again and that cool heads need to get together, more conversations need to take place that will get us around this. My hope still, is that we will get around that. What humanity needs to do is to collaborate with one another on grand projects that improve the well-being of all of humanity. And it is in this collaboration that we build trust with one another. The grand projects are what we need. And my hope is that we will be able to again rebuild trust across the world in these nations.
David Austin: Thank you so much.
Danny Quah: Thank you very much. Thank you.
(Photo: _paVan_)