November 13, 2017
thoughts on

ASEAN Leaders’ Interface with ASEAN Business Advisory Council

November 13, 2017
Organized by:
ASEAN Business Advisory Council
Featured on:
Philippine International Convention Centre, Manila
featured on
Philippine International Convention Centre, Manila
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Under the 4th Industrial Revolution, we face massive disruption. We need to reform our ASEAN institutions to get ahead of these changes and respond at a regional level.

President Duterte, Your Majesty, Your Excellencies, ladies and gentlemen. 

In my remarks, I would like to highlight three critical ideas that are discussed in our report. 

  • First: In the Fourth Industrial Revolution, we face a future of accelerating disruption. ASEAN must get ahead of these changes or we will be left behind.
  • Second: It is critical that the nations of ASEAN respond to these transformations at a regional level, not just a national level.
  • And third: In order to build a regional response, we need to reform our ASEAN institutions. We must ensure that they have the right resources.

On the first point, we all must understand the impact of the Fourth Industrial Revolution.

Earlier this year, Jack Ma, the chairman of Alibaba, gave a speech in China on the Fourth Industrial Revolution. He said that the Fourth Industrial Revolution “will see much more pain than happiness in the next 30 years”.

These are unsettling times. The technologies emerging around us are transforming our world, from the nature of jobs and work, to the way that societies function.

Without question, they will drive new forms of wealth and wellbeing, and continue to improve our lives.

But as well as benefits, the Fourth Industrial Revolution will bring big challenges.

There will be huge disruption to jobs. Robots and artificial intelligence are replacing workers in factories. Increasingly, they will challenge services jobs too. The International Labour Organisation calculates that 56% of jobs in ASEAN are at high risk of automation.

And yet, ASEAN will see its workforce grow by 11,000 new workers every day for the next 15 years. Where will we find 60 million new jobs, when the ones we already have are under pressure?

Our industrialisation pathways will come under pressure. As the cost of automation falls, low-cost labour will no longer attract manufacturing investment. It is likely that ASEAN’s export story will struggle.

If we see jobs disappearing, it will drive up inequality, and breed discontent and instability. 

But if ASEAN can position itself properly, the Fourth Industrial Revolution could be primarily a powerful force for prosperity. 

My second point relates to how we respond to the Fourth Industrial Revolution. Many nations are already acting. Thailand has its Thailand 4.0 strategy. Singapore has its Smart Nation strategy. Malaysia recently launched its Digital Free Trade Zone. 

But responding at a national level is not enough. ASEAN must think at a regional level. 

Consider the treatment of data. The Fourth Industrial Revolution is built on data. It needs to be able to flow easily across national borders. If data is not allowed to flow, countries will miss out on the opportunities. 

For example, the internet of things is allowing companies to monitor machinery, such as jet engines, and adjust performance in real-time from remote control centres. Telemedicine is letting farmers in Myanmar access health services from doctors in the Philippines. None of these business models will work if data cannot move between countries. 

Of course, there are important concerns around data privacy and security. There are also questions of how to collect tax in this new world, and how to apply legal protections to consumers when services are provided across borders. 

This is why ASEAN must respond to the Fourth Industrial Revolution from a regional perspective, not a national one. We must craft regulations that work across all countries. 

One aspect of the Fourth Industrial Revolution that is critical to the business community is the question of scale. In the past, we had diminishing returns to scale. But under the Fourth Industrial Revolution, the cost of adding an extra customer is approaching zero. Instead of diminishing returns, we see network effects. Just look at Google or Facebook or Tencent. The more customers you have, the more profitable you become. 

For us here in ASEAN, this is troubling. Companies in America and China grow big because they have giant domestic markets. And because they are big, they have the resources to invest in innovation. But in ASEAN, we struggle because our home markets are small. 

In a world where size is becoming more important, ASEAN companies must be allowed to grow to regional scale to stay competitive. We need more commitment to the ASEAN single market. 

The third point I want to make is about ASEAN institutions. Are they equipped for us to adopt a regional approach to the Fourth Industrial Revolution? 

Without question, the ASEAN organisation has done a fantastic job promoting regional prosperity. But the future will be very different. The ASEAN Way needs an upgrade. We must keep the best parts of it – the importance of national sovereignty and consensus – but we also need an upgrade. 

In particular, we must improve the ability of the ASEAN Secretariat to craft and implement new policy. We need to strengthen the Secretariat. How could this be achieved? Our report makes seven recommendations. Let me highlight two of them. 

The first suggestion is to turn the Secretariat into a “platform organisation”. Think of the Apple or Android operating systems on your phones. In both cases, Apple and Google run the platform on which third parties develop the apps. Apple and Google govern the platform, but they let third parties develop the apps. 

In a similar way, the ASEAN Secretariat could become the “operating system” for regional integration. The Secretariat would govern the platform for regional integration. But third parties would do the job of developing policies and regulation. 

These third parties would be multi-stakeholder groups with deep expertise. For example, if ASEAN wanted to write rules for self-driving cars, they would convene a group of regulators, car makers, insurance companies, urban designers and so on. This group would do the work of creating new policies. Meanwhile, the ASEAN Secretariat would ensure the group worked in the right way. The Secretariat would make sure they were obeying the rules of the operating system, i.e. crafting regulations in the right way and consulting the right people. 

This platform model would allow the Secretariat to harness the resources of a wider group of people and to make them work in a standardised fashion. 

A second recommendation is to increase the funding of the Secretariat. Today, all countries contribute the same amount, US$2 million a year, giving a budget of US$20 million. This is not enough. By some estimates, ASEAN needs US$220 million a year. 

Many of the goals of ASEAN, like the ASEAN Economic Community, are a long way behind schedule. As the Fourth Industrial Revolution unfolds, we risk falling further behind. 

Our report recommends a funding model based on the size of a country’s GDP, with big economies paying more than smaller economies, like at the United Nations. 

In summary, our report contains three key points: 

  • First: Under the Fourth Industrial Revolution, we face massive disruption. ASEAN must get ahead of these changes. 
  • Second: The nations of ASEAN must respond to the Fourth Industrial Revolution at a regional level, not just a national level.
  • And third: In order to craft a regional response, we need to reform our ASEAN institutions.

Finally, let me end with a request. This report is merely a starting point. It serves to raise awareness and highlight possibilities. What we need from here is action. So, my request to ASEAN Leaders is that we set up a working group to take this forward.

The working group would be made up of regional stakeholders. Their goal would be to reflect deeply on the impact of the Fourth Industrial Revolution on our region, and, more importantly, to examine the modus operandi of our ASEAN institutions. If we do not act, ASEAN will suffer in the Fourth Industrial Revolution. But if we take proactive steps, then we will not only survive, but we can thrive.

The working group needs to be neutral, impartial and truly multi-stakeholder. And, as such, you might consider our ASEAN Regional Strategy Group, working with the ASEAN Secretariat and other regional partners, as one way to convene this group.

Thank you.  

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