Marzunisham Omar: Globalisation - contents and discontents
Welcoming remarks by Mr Marzunisham Omar, Assistant Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the World Bank International Conference "Globalisation:
Contents and Discontents", Kuala Lumpur, 15 January 2019.
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Globalisation has contributed to the world's unprecedented economic growth and prosperity.
Global output has increased more than six-fold in the past 50 years. A billion people have been
lifted from abject poverty in just one generation.
Although the gains from globalisation are vast and widely-acknowledged, its fruits have not been
equitably shared by all. The growing sense of discontent and injustice among the marginalised
have led to a retreat from globalisation in the recent period.
This reminds me of what the late Kofi Annan once said: "Globalisation is a fact of life. But I
believe we have underestimated its fragility".
Globalisation has, and will always, exist in a tension. The challenge is finding the right balance
between various, and often contrary, objectives. The retreat from global integration and
multilateralism today serves as a wake-up call for us to reflect on the realities of globalisation, to
re-examine our policy choices and to recalibrate our way forward.
With rapid technological advancements becoming an increasingly polarising force, the
sociopolitical and economic issues at hand are more pressing than ever.
It is my great pleasure to welcome you today to the World Bank International Conference on
'Globalisation: Contents and Discontents'. Thank you to the World Bank for giving me the
opportunity to say a few words.
This morning, in my brief remarks, I will touch on globalisation from three perspectives, namely
trade, financial and human capital.
Trade Globalisation
A key manifestation of globalisation is the exponential increase in international trade. Exports as a
share of global output have tripled since the 1950s, while foreign direct investments have
increased seven-fold. This phenomenal development has been facilitated by economic
integration, technological advancements and the proliferation of trade agreements.
The benefits of globalisation of trade and investment have been experienced across the board -
economic growth and productivity have accelerated; businesses have greater access to
resources and markets; workers have broader job opportunities; and consumers have a greater
array of goods and services to choose from. Collectively, these gains have translated into the
unprecedented improvement in income across the world.
This is certainly true for Malaysia. We are no stranger to international trade, ever since the rise of
Malacca as an important global port more than 600 years ago. Despite accounting for only 0.2%
of the world's land mass, Malaysia is currently the 25th largest trading nation in the world and a
key player in the global value chain. Our financial system is highly integrated with the international
markets. Malaysia's economic and financial integration with the rest of the world has undoubtedly
contributed significantly to our economic progress in the last few decades.
And yet, there is increasingly growing pushback against globalisation, especially in the advanced
economies. This is driven primarily by the view that open trade has worsened income and wealth
inequalities. The recent work by Thomas Picketty as well as Branko Milanovic's "elephant chart"
have shown how income inequality has worsened in the recent period. In 2016, the top 1%
earned more than double the share of global income compared to the bottom 50%.
It is no surprise then that accusations of free trade causing job losses and disproportionate
depression of wages have shifted from economic textbooks to the forefront of policy discussions
today. The next decade promises to be even more challenging, with rapid technological
advancements poised to accelerate job displacements and potentially worsen income
inequalities.
Malaysia faces this challenge. As we liberalised our economy over the years, there were
industries and workers affected by rising competition. As our economy evolved, we moved away
from uncompetitive sectors while new opportunities opened up. Policies were implemented to
facilitate these industries' transformation, while assisting the displaced workers. These include
enhancing upskilling programmes, strengthening social safety nets and ensuring sustainable
fiscal redistribution.
There are legitimate concerns on trade liberalisation. In my view, the solution does not lie in
retreating behind our own borders. Instead, it lies in upholding the rules of fair trade and in us
being proactive and adaptive in assisting those who have been adversely affected by
globalisation. It is also clear that it is no longer sufficient just to focus on pursuing strong growth.
We must also foster inclusive growth.
Financial Globalisation
Beyond international trade, financial globalisation has also expanded tremendously. Cumulative
global bond and equity market flows are now more than 80 times larger than that in the year 2000
and far exceeded trade flows.
There is no doubt that financial integration, if properly managed, can catalyse a more efficient
allocation of productive capital and know-how transfers, with the intended benefits.
However, financial globalisation has also been accompanied by highly-volatile short term portfolio
flows, which frequently led to major disruptions to emerging economies' financial markets. At the
extreme, global financial flows can lead to the build-up of domestic vulnerabilities, such as
currency mismatches, external indebtedness and broader financial imbalances. When financial
globalisation becomes in itself a source of shock, financial markets can be easily overwhelmed.
In Malaysia, two-way capital flows have increased by almost three-fold in the aftermath of the
Global Financial Crisis. Similar to other emerging economies, we have also experienced several
episodes of sharp capital flow reversals. Supported by firm macroeconomic fundamentals, our
deep and broad financial markets were able to intermediate these flows in an orderly manner.
The experience of emerging economies in dealing with capital flow volatility underscores the
need to always keep our "own house in order". While this is necessary, it is not sufficient. Often,
we have seen how external developments that are beyond our control, such as the Taper
Tantrum and trade tensions, could trigger periods of sharp capital flow volatility in emerging
economies with severe consequences. There are "innocent bystanders".
It is therefore imperative that the risks arising from financial openness be better managed.
Similar to legitimate concerns on trade openness, emerging economies also have legitimate
concerns on the negative effects of financial globalisation. More needs to be done to have, to
quote IMF's Christine Lagarde, "safer capital flows".
Allow me to put forward two areas for deliberation. First is on financial safety nets. In this regard, I
welcome efforts to strengthen regional and global financial safety nets. To this end, ASEAN+3
countries achieved a significant milestone under the Chiang Mai Initiative Multilateralisation when
the fund size was doubled to USD240 billion in 2014. Moving forward, an important consideration
is to bring the various bilateral swap arrangements and regional financial safety nets together
with the IMF's safety net into a coherent framework that will enhance their complementarities and
thus, effectiveness in supporting emerging economies in dealing with short term capital flow
volatility.
Second is with respect to domestic policy space for emerging economies in dealing with capital
flows. Clearly, capital flow volatility poses considerable challenges to emerging economies'
policymakers in safeguarding financial and macroeconomic stability. While the global community
continues to debate and explore possible solutions to manage spillovers and spillbacks of
policies in advanced economies, for emerging economies, there is a need not just to preserve
existing tools available to us, but to constantly refresh our policy toolkit to deal with the
multifaceted risks confronting our economies and to be flexible in implementing them.
Pragmatism is key. Policy configuration will need to be pragmatic and premised on the risk that
is being managed. Indeed, macroprudential policies have been found to be effective in managing
financial cycles and associated risks, such as excessive credit growth and asset price inflation.
Nevertheless, sizeable shifts in capital flows could cause disorderly financial market conditions
and excessive exchange rate movements. In pursuit of preserving stability, policymakers must
therefore be able to avail ourselves to a broad range of policy toolkit.
Globalisation of Human Capital
Lastly, I will briefly touch on what globalisation means for the average person in today's economy.
Being skilled alone is no longer a guarantee of employment. With offshoring of jobs, workers are
now competing in a fluid workplace, against a global workforce. A job that is available locally
today can be effortlessly transferred to a different country tomorrow.
Essentially, the increasingly dynamic nature of work underscores the importance for workers to
constantly adapt, re-skill and up-skill. A global workforce also means that borders no longer limit
the search for preferred jobs. In fact, globally, 258 million people, almost the size of Indonesia's
entire population, are living in a country that is not of their origin.
Another aspect is the intensification of globalisation of information. Technology has brought the
world into the palm of our hands. Last year, 3 in every 4 persons were active on a social media
platform. In fact, if Facebook were a country, with 1.5 billion active users, it would be the largest
country in the world today. In the span of a decade, social media has become a bona fide global
marketplace, marketing tool, recruitment platform and social scene.
All this points to the double-edged nature of globalisation: While it may have brought people
closer together, it also introduces the challenge of promoting greater appreciation of cultural,
ideological and sociopolitical diversity.
Conclusion
Globalisation, once envisioned to be a beacon of unity, has fueled increasing polarisation in
recent years.
Let's remind ourselves that in this globalised world, it is important for the contented to appreciate
the struggles of the discontented. And, for the discontented to not lose sight of the potential that
globalisation holds. And for all of us, to remember - that 75 years after Bretton Woods - the
creation of a safe, fair and mutually beneficial global system is still not an easy pursuit. It is,
nonetheless, a necessary one.
Once again, I would like to welcome everyone to Sasana Kijang. The World Bank, a product of
Bretton Woods, along with the IMF and WTO, has brought to Malaysia an amazing gathering of
thought leaders and experts on globalisation from all over the world. The next two days will
indeed be a fine example of globalisation in action.
Let me end with a passage from John Maynard Keynes which I think is appropriate for the
occasion.
"Yet the new economic modes toward which we are blundering are, in essence of their nature,
experiments. We have no clear idea laid up in our minds beforehand of exactly what we want.
We shall discover it as we move along and we shall have to mould our material in accordance
with our experience. Now for this process bold, free and remorseless criticism is a sine qua non
of ultimate success. We need the collaboration of all the bright spirits of the age."