EFN Asia panel at Jeju Forum 2017

The Economic Freedom Network (EFN) Asia participated once more at the annual Jeju Forum for Peace and Prosperity, a big international conference held at Jeju Island, S. Korea. I am reposting this report submitted to the organizers within an hour after the panel discussion. Originally posted at the EFN website.

I add two photos here, taken from EFN’s fb page. From left: Wan, John, Razeen, Young-Han.

This is 3,200+ words, 7 pages, enjoy.
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Session Outline

Name of Session: Asia’s Contribution to the Global Open Market
Session Organizer: Friedrich Naumann Foundation for Freedom
Date: 1 June 2017, 14.50-16.20
Moderator: Dr. John Delury, Associate Professor, Graduate School of International Studies, Yonsei University
Welcoming Remarks: Dr. Lars-André Richter, Head Friedrich Naumann Foundation for Freedom Korea Office

Discussant(s)

Dr. Razeen Sally, Associate Professor,
Lee Kuan Yew School of Public Policy, National University of Singapore

Wan Saiful Wan Jan, Chief Executive
Institute for Democracy and Economic Affairs, Malaysia

Dr. Kim Young-Han, Professor, Department of Economics, Sungkyunkwan University

Summary of Presenters & Discussants’ Remarks

Dr. Lars-Andre Richter

Friedrich Naumann Foundation (FNF) is a German non-profit organization, founded in 1958 post-war West Germany. The main goal at the time was to help re-establish democracy in West Germany. Shortly after, FNF opened offices abroad, including in Tunisia, India and Indonesia. The office in Korea was opened in 1987. We promote liberty in Korea through a variety of programs including democracy building, projects with market economy, human rights, rule of law and also the re-unification issue, bringing in the unique German experience of re-unification. In fact, FNF has projects in both Koreas. The North Korea program started in 2004, focusing on economic policy. The session today at the Jeju Forum is hosted by both FNF and Economic Freedom Network Asia (EFN Asia), FNF support’s network of liberal minded think tanks and individuals.

(From left: Wan, John, Razeen, Lars, Young-Han)

Dr. Kim Young-Han

Threat of the Protectionism by the US Trump Presidency

– Why Protectionism by the Billionaire US President?

Trump thinks that the current format of ‘the Global Open Market System’is unbearable and unsustainable for the US blue collar workers. Are US blue collar workers simply irrational? No, they are absolutely rational.

– The US blue collar workers know that there is not and will not be an effective trade adjustment assistance system in the US. Winners get everything with no room for losers in global open market according to the US experiences. (The same with the Brexit case.)

– How much of a threat caused by the Trumpian Protectionism?

Very threatening and disastrous. If Trumpian Protectionism is spilled over to major trading countries, the global trade war is the next stage, just like the experience before the two World War. The current one-sided protective measures of the US are highly likely to provoke retaliatory measures from trading partners.

– Is Trumpian Protectionism Sustainable?

Not really, since it’s self-defeating. Why? The source of gains from free trade: Efficiency Gains via Reallocation of economic resource from inefficient sectors to efficient sectors. In the US, without the effective trade adjustment assistance mechanism, resources in the inefficient sectors became laid-off instead of being reallocated. What Trump tries to do is to keep inefficient sectors protected as inefficient, which is self-defeating and unsustainable. He suspects Trump will realize this after 3-4 years.

– Can other powers fill in the US role?

The Share in the Global Trade: EU takes roughly 40% of the world trade, followed by Asia which takes 33%, and North America (17%). If the US goes back to protective regime, it is bad, while the other players can keep the remaining 83% under free trade regime. The EU might play a more meaningful role in leading the global free trade regime and also Asian powers like China. But he does not think so.

– The requirements for the leadership the global free trade regime: Leader has to prepare itself and operate on a rule-based trade policy and National Treatment for all players (treat all players as domestic players). The EU is more prepared, but not China. Furthermore, Big Players with market power are likely to resort to bilateral arrangements based on one-sided bargaining power. Therefore, relying on a multilateral platform is better than relying on a big guy leading power. Rebuilding the Multilateral Free Trade Regime via WTO is the solution.

The Role of Asia in Rebuilding the Global Free Trade Regime

– Datawise, Asia takes significant market power, i.e. 33% of the global trade. Historically speaking, all Asian countries’ economies, such as Japan and South Korea, have emerged via the global free trade regime with no regret against the multilateral free trade regime, WTO. A multilateral free trade regime as WTO is welfare dominant to a single country leadership (by whether the US or China). Asia has kept the spirit of multilateral or plurilateral free trade regime via ASEAN and ASEAN+3, and even ASEAN +6. Asian economy with her complexity in terms of diverse stages of economic development and asymmetry of economic size and power works as a miniature of the global economy with gradual and sustainable unit of economic integration.

– Condition for “Sustainable Global Open Market System”

1. i) Effective Trade Adjustment Assistance Mechanism: Losers (i.e., workers in the importing competing sectors with comparative disadvantages) should be reallocated to Winners’ sectors (jobs in the export sectors with comparative advantages) via Effective Trade Adjustment Assistance Mechanism.

1. ii) Multilateral Free Trade Regime with strong surveillance and reputation building mechanism with respect to the Big Guys with market power.

Dr. Razeen Sally

He has three main points to make. First, where we are in the global economy, particularly on trade. Second is on protectionist threat. Third is on what can be done in and by Asia to keep the market open.

– Where are we in the global economy?

Economic globalization has not been reversed, since the global financial crisis, but it has stalled. There has been a global growth slowdown. Trade to GDP worldwide has not increased, since about 2006. Foreign direct investment flow has decreased, since the crisis Cross-border flow of finance has Decreased considerably, as expect from the global financial crisis.

– But particularly on trade, something unusual is going on. Since the beginning of 19^th century until 2008, world trade grew faster than world output, which is the indication that trade is the engine of growth. But since 2012 until the end of 2016, trade growth barely kept pace with world GDP growth at about 3 percent or less. This is highly unusual and tends not to happen except in war and deep recession. This is particularly worrisome for Asian nations, whom depend on exports. But still too early to tell if this is a new trend.

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Day 1 of Conference 2014

* Originally posted on November 06, 2015.

The Economic Freedom Network (EFN) Asia 2014 Conference started today at the Harbour Grand Hong Kong. Nice venue, great forum with great speakers, and many participants from Asian countries, from the US, Canada and Germany. The event is jointly sponsored by the Lion Rock Institute (LRI) in HK, EFN Asia in Bangkok, and the Friedrich Naumann Foundation for Freedom (FNF) in Berlin Potsdam, Germany.

Opening and Welcome Addresses were given by Bill Stacey, Chairman of LRI, and Siegfried “Siggi” Herzog, the new FNF Regional Director for East and Southeast Asia. Below, Siggi giving the welcome message.

The MC for the day was Wan Saiful Wan Jan of IDEAS Malaysia. From the Philippines, there are five of us here — Dr. Vic Abola of  the Philippine Economic Society (PES), Tony Abad and Rhea Lyn Dealca of the Foundation  for Economic Freedom (FEF), Narwin Espiritu of FNF Manila, and me. FNF Philippines Country Director Jules Maaten arrived late today as there are a number of FNF activities in Manila until yesterday.

Dr. Razeen Sally delivered the Keynote Address, “Capitalism in Asia: Economic Growth and Inequality”. Very articulate and clear defense of capitalism or market economy, innovation, competition, mass production and rising standard of living of the people in many parts of the planet. He concluded his speech with good and bad news.

The good news is that the world and its people today are much wealthier, healthier, higher economic freedom, mature institutions, compared to the people a century or many decades ago. The bad news is that governments almost anywhere are getting more interventionist and bureaucratic, often with no distinction between macro and micro, meaning even micro (community, firm, household and individual) levels are being monitored and regulated (micro-management).

Two distinguished reactors followed. Parth Shah of the Center for Civil Society (India) and Choi Byung-il of Ewha Woman’s University (S. Korea) gave their thoughts on the subject of growth and inequality, while LRI Chairman Bill Stacey (middle in this photo) was the moderator.

I met a number of old friends whom I met last time about four or five years ago. Like Neena Moorjani, now with the Asian Trade Center in Singapore, andArpita Nepal of Samriddhi-Prosperity Foundation  in Kathmandu. Below, a group photo of participants from South Asia (India, Pakistan, Bangladesh, Sri Lanka,…)

The next round was the “Asian Cafe”. Participants moved around in 5 groups representing 5 Asian economies and a resource speaker from each country gives a brief discussion about their country and the state of growth and inequality there. Here, Peter Wong (right, facing the audience), Exec. Director of LRI, spoke about HK. Many of the questions were about the protests by the “Umbrella Movement” or “Occupy Central” movement.

The last panel in the afternoon was about “Property Rights and Equality”. Below, Lorenzo Montanari of the Property Rights Alliance (PRA) and Americans for Tax Reforms (ATR) in Washington DC, briefly discussed about the result of the International Property Rights Index (IPRI) 2014 Report.

The panel moderator and speakers in that session were, from left: Ken Schooland of Hawaii Pacific University, Andrew Work, co-founder of LRI and currendly editor-in-chief of the Harbour Times, Barun Mitra of Liberty Institute in  India, Michael Feng of CASS/Unirule Insitute in China, and Thitinan Prongsudhirak of the Institute of Security and International Studies in Thailand.

Many insightful ideas from the four speakers. We adjourned about 4pm, and we go back at 6pm for the cocktails and later, dinner program. Fred McMahon of Fraser Institute (Canada) will discuss the result of the Economic Freedom  of the World (EFW) 2014 Report. Then HK’s Finance Secretary John Tsang will give a Keynote Address during dinner.

An after dinner program will be held in  honor of LRI’s 10th Anniversary.
Photo credits — from Jadranko Brkic, FNF S and SE Asia, Olaf Kellerhoff, Lorenzo. Thanks.

Middle income trap at Business 360

* This is my article for the December 2013 issue of Business 360, a monthly magazine published in Kathmandu, Nepal.
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Economic freedom is a major factor for an economy and its people to move from a low income country (LIC) to middle income country (MIC), and ultimately to a high income country (HIC).

People need to be given enough leeway to be creative and innovative in introducing new products and services to their consumers, resulting in continuous and endless process of innovation and healthy competition among the various players in the economy.

This fact is among the lessons drawn from the two-days Economic Freedom Network (EFN) Asia  conference in Bangkok, Thailand in October.

Among the prominent speakers of the conference was Dr. Razeen Sally of the European Center for International Political Economy, also a vising faculty at the National University of Singapore (NUS). He said that  a poor country or LIC must “get the basics rights” to catch up with growth. Among such “basics” are 1^st generation reforms, “product market liberalization.” This includes the following:  macroeconomic stability in fiscal and monetary policy, rule of law and property rights, free international trade, and good skills and education of the people.

The next generation reforms are more structural and more complicated.  They are the “factor market liberalization” reforms.  Increasing globalization and free market does increase income inequality among the people. While this is a natural economic result, this is also a political challenge how to face this reality and find ways to address it.

Penalizing more efficient, hard working people via higher taxation, more business regulations and restrictions is not the way to do it. Rather, it is encouraging those in the lower end of society to keep working. They may feel “poor” when in fact, their economic status is already comparable to the upper middle class of a LIC or even a MIC.

In the last session, I was one of four rapporteurs for the four discussion groups on other issues raised during the conference. Among the issues raised in our group was shared by Dr. Chung-ho Kim of Freedom Factory Ltd. in Seoul, that many  people in HICs like S. Korea  feel and complain that they are poor, despite the high standard of living they enjoy compared to what the poor in low income and middle income countries experience.

I made this chart in my report on stage that day.

Middle income is broadly defined as having a per capita GDP income at purchasing power parity (PPP) valuation of between $3,000 to $16,000  per year. Thus, an economy with per capita GDP of only $3,000 or less for many years is said to be caught in a low income trap shown by growth path AB. Economies which have been stuck at $16,000 or less per capita GDP for several years is said to be caught in a middle income trap, shown by growth path AC.

There are several factors why an economy can be stuck at AB or AC path. Foremost of which are: lack of economic freedom of the people — where a big portion of the economy is held by a few oligarchs or business cronies of high political leaders or monarchy. Another reason is the lack of the rule of law, where rules are applied differently to different people due to arbitrary powers of lawmakers.

These two factor can also contribute to a retrogression of an economy from a lower  middle income to an LIC and go back to low income country. Or for an HIC to become an MIC.

The way some member- economies of the European Union are being managed, it is possible that they might plunge into growth path A’E someday, meaning may fall back to MIC status. When entrepreneurs are shacked by too many taxes and regulations, either they will experience production shrinkage or quit altogether, migrating to another country where their economic freedom is more respected. Heavily regulated country will experience more debt and fiscal constraints as the number of net tax payers will flatline if not decline.

Whether aspiring to move a status, ensuring the economic freedom of the citizens and limiting the role of government to enforcing the rule of law and protecting property rights, are the basic ingredients of success.

The ASEAN Economic Community

* Originally posted on July 23, 2013.

The Economic Freedom Network (EFN) Asiahttp://efnasia.org/ posted today a new report on scooping of the ASEAN Economic Community (AEC) future, less than two years from now.

I already like the current set up, especially the visa-free entry to visit any of the nine other members of the 10 member-countries of the Association of South East Asia Nations (ASEAN) for visits less than 30 days, or less than 15 days in some countries. Thus, it is very convenient for me and other Filipinos to visit Singapore, Kuala Lumpur, Jakarta, Hanoi, Bangkok and other cities in the region.

Once the AEC materializes, the flow of economic activities and movement of people among residents of the 10 countries will become even easier and simpler.

Economic freedom, people mobility across countries. To a certain extent, they are “ends” by themselves in terms of public policy. The challenge to advocates of free market and economic freedom is how to further expand this to cover not only our region but also to the whole Asian continent and later on, to the rest of the world.

Here are two new articles from EFN website.

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Asia Driving the World: How leading ASEAN CEOs see the future of the fastest-growing region and beyond

Tuesday, 23 July 2013 13:16
Bangkok, Thailand

The event is full with top ASEAN business leaders. They discussed broadly about the future of Asia, especially ASEAN, with the 2015 launch of the ASEAN Economic Community (AEC) expected to present huge economic opportunities for businesses both within the group’s 10 member countries and beyond.

These top business figures include Kyoichi Tanada, president of Toyota Motor Thailand, Chartsiri Sophonpanich, president of Bangkok Bank, Timothy Ong Teck Mong, chairman of Asia Inc Forum of Brunei, Ngo Thanh Tung, chairman of Vietnam International Law Firm, Paul Blanche-Horgan, chief executive officer at Ezecom Corp from Cambodia, U Zaw Zaw, chairman of Max Myanmar Group, and many others, with  Suthichai Yoon, Nation Multimedia Group chairman, the host of the event and also the moderator in the discussion.

“Business Visions 2020” was the main idea of the discussion. These high-profile executives from all over the region shared their ideas on business perspectives, trends and the opportunities that lie ahead once the AEC starts in 2015. Nevertheless, several issues still have to be addressed.  With so diverse cultures, rules and regulations, a number of obstacles will have to be overcome if the region’s economies are to be integrated into a single market. In particular, social inequality, local administration, governance and a number of other key issues will have to be tackled.
Timothy Ong Teck Mong from Brunei made several good arguments about the difference of ASEAN countries, yet the potential after better integration is huge.

For example, getting construction permits in Singapore took about 26 days; 110 days in Vietnam; and 652 days in Cambodia. In addition, applications for business start-ups in Singapore took three days; 47 days in Jakarta; and 101 days in Brunei and Indonesia.

More importantly, he said, the gap between Asean’s poorest and its wealthiest citizens, measured in terms of per-capita GDP, was huge – a factor of almost 16, compared to a factor of just two in the European Union.

Business leaders agreed that other key factors for continued growth include good governance in both the corporate and state sectors, and social responsibility among Asian entrepreneurs to ensure that all members of society benefit.

Asia’s Story of Growing Economic Freedom
Friday, 12 July 2013 14:05
By Razeen Sally
Policy Analysis No. 725 from Cato Institute

The global financial crisis reinforced a sense that the world is “shifting East”—to Asia. The essential story of modern Asia is its unprecedented expansion of economic freedom, enabled by market liberalization. Economic freedom, however, remains substantially repressed across the region.

There are three key policy challenges to expanding economic freedom in Asia today. The first is to open up financial markets, which remain backward and repressed by command economy controls. The second is to renew trade and foreign-investment liberalization, which has stalled since the Asian crisis of the late 1990s. And the third is to open up energy markets, which, even more than financial markets, are throttled by government interventions.

Increasing Asian consumption of fossil fuels will increase carbon emissions. Mainstream advocacy of carbon reduction in Asia should be met with skepticism, given its potential to lower growth substantially. A far better approach is one based on adaptation to global warming through market-based efficiency measures.

Asia’s poorer economies should concentrate on “getting the basics right” for “catch-up” growth. These are “first-generation” reforms of macroeconomic stabilization and market liberalization. Asia’s middle- and high-income economies need to focus also on “second-generation” reforms—more complex structural and institutional reforms to boost competition and innovation. Diverse political systems can deliver catch up growth. But autocracies are badly fitted to deliver second-generation reforms for productivity- led growth. The latter demands a tighter link between political and economic freedoms.

The Asian miracle is not the product of superior technocratic minds who concocted successful industrial policies. Rather, freedom and prosperity bloomed on Asian soil because government interventions were curtailed and markets unleashed. Classical liberalism, however partially implemented, has worked in Asia. It is a system to which Asians should aspire.

Original website for full analysis,
http://www.cato.org/publications/policy-analysis/asias-story-growing-economic-freedom