These blind spots created a delusion that finance was benign, the global economy was stable and there were no planetary or political costs from the “no limits” growth model.
As a civilisation, we are hitting the planet’s limits in terms of natural resources, consuming them 1.7 times faster than the Earth can regenerate them. And if everyone lived like the Americans, we would need five Earths to satisfy our rapacity.
03:05
Thai mackerel might be wiped off the menu, but why?
Thai mackerel might be wiped off the menu, but why?
And then there is modern development theory, which emerged after the second world war. Four models emerged: the US-led neoliberal Washington Consensus in favour of free trade, East Asia’s export-oriented industrialisation, the Soviet Union’s central planning, and Latin American import substitution industrialisation.
History proved that export-oriented industrialisation worked best within the free-trade framework associated with the Washington Consensus; the other two models largely failed due to too much inward orientation. If you don’t learn through open competition, you cannot reach economies of scale in small domestic markets.
In a broken world, globalisation is dead. Long live globalisation lite
In a broken world, globalisation is dead. Long live globalisation lite
The delineation won’t be as simple as the West vs the rest, not least because the rest includes China and Russia, both nuclear powers with huge manufacturing and military capacities, and other countries in the Global South spanning Africa, Latin America and South and Southeast Asia.
25:55
Biden is freezing out China’s tech industry
Biden is freezing out China’s tech industry
The other countries in the Global South can choose to side with either the West or the East depending on which side offers more goodies (or fewer threats and costs). Their development models cannot be independent of geopolitical strategy. The Association of Southeast Asian Nations looks to be firmly non-aligned; it will focus on development and trade, rather than follow any strict geopolitical ideology.
In other words, each society will change over time and must respond to the different challenges it perceives or recognises. Even the global disaster of climate warming affects different geographies differently, with some island economies sinking and others affected by water, food or energy calamities. There is no development model that fits all nations.
04:44
Cop28 climate summit closes with agreement to ‘transition’ from fossil fuels
Cop28 climate summit closes with agreement to ‘transition’ from fossil fuels
The crux of development finance is that there is a huge funding need if all countries are to get to net zero carbon emissions and this could be as much as US$9.2 trillion per year by 2050, according to consultancy McKinsey & Company, though conventional estimates are in the order of US$3-5 trillion.
Although the global financial system has combined assets of roughly US$461 trillion, not all countries are able to mobilise the funding needed to deal with domestic imbalances and tackle net zero goals at the same time. Indeed, the IMF has calculated that 10 countries are in debt distress and 26 countries are at high risk.
In a world of higher risks and volatilities, countries must all deleverage, focusing more on equity rather than debt. Risk-averse banking will continue to fund payments and liquidity needs, but tech and supply chain restructuring will require risky investments.
This is where Hong Kong, as one of the most vibrant equity markets in the region – or indeed any regional stock market – must step up and rethink how it can play a different role in development finance.
Without a fundamental response to the changing times, all economies face marginalisation or decline. The risk is the opportunity, but only for those brave enough.
Andrew Sheng is a former central banker who writes on global issues from an Asian perspective