Transcript SW MICPA Bursa MForum 20Oct08

MICPA-Bursa Malaysia Forum
2008
Global Business Trends:
Developments & Responses
Steven C.M. Wong
Assistant Director General
Institute of Strategic and International Studies (ISIS)
Malaysia
[email protected]
The views and opinions expressed are the speaker’s.
Central Themes
Macro Proposition #1:
The global financial crisis today reflects
issues that go beyond sub-prime
mortgages, collateral debt obligations,
credit default swaps, etc.
The crisis manifests the problems in the
way that the world economy is organised,
powered and managed - and of global
capitalism itself.
Central Themes
Macro Proposition #2:
Economic and business success will come
from pragmatically negotiating the realities
of the changing situation and not clinging
to ideology and concepts.
Countries (and companies) are likely to
respond by (1) doing the same things, (2)
doing same things but testing out new
ideas, (3) changing course and taking bold
decisions.
Central Themes
Macro Proposition #3:
How countries and businesses respond is
based on incentives and penalties for
performance and risk-taking, and how
these are changed (reformed).
The appropriate responses will therefore
depend on strengthening micro social,
legal and political foundations, in addition
to the economic.
Central Themes
Macro Proposition #3 (A):
Reforming political, economic and social
incentives and disincentives requires:• Understanding the full consequences
(cause-and-effect) of policies and actions
• Ensuring that there are no rewards for
undesirable, and no penalties for desirable,
behaviour
• Making it politically and socially
unacceptable, in addition to legal
sanctions.
Central Themes
Macro Proposition #3 (B):
There must be consistency between the
practices of political, social and economic
institutions.
Where there is conflict, virtuous behaviour
cannot be assumed.
Institutions are only as effective as public
confidence and social cohesion allow them
to be. Distrust and non-cooperation are
deadly for good governance.
Message 1
In the short- to medium-term, the world
economy appears to be in for a trying time.
Main stresses expected are:
- Falling real incomes
- Low/no employment creation
- Negative wealth accumulation
- Worsening income distribution
Real interest rates will eventually have to
rise to compensate for the low productivity
of capital.
Message 1
Suppliers of capital will continue to be
dominant but more cautious.
Focus will still be on more under-valued
investments though not necessarily
productive capacity.
Pursuit for greater performance,
productivity and standards will continue to
demand organisational change.
Message 2
The world economy comprises multiple
interacting components that cannot be
isolated from one another.
Example: US housing prices → private
wealth → consumption → imports ... Etc./ →
subprime mortgages → ABS → CDO →
CDS, ... Etc.
Governance of these components is nonexistent, loose or fragmented. They are
largely based on non-harmonised national
laws and regulations.
Components
Goods
Services
Investment
GLOBAL
ECONOMY
Human
Resources
Currencies
Credit
Message 2
Governments need to take a more
integrative approach in formulating
economic policies. Slips through the
cracks can be very costly.
-Tensions and trade-offs among the
components need to be explicitly taken
into account.
Mindsets and methods (the software) need
to upgraded. Not as easy as putting under
the catch-all of human resource
Message 3
The world economy is not “flat” but it is
flattening. The end result is very likely to
one with fewer national barriers but still
undulating and uneven.
Reason? Economic and business may
have gone global but politics (and society)
is still local. National interest is not dead
by any means.
Differences in political and social
capacities will give rise to competitive
Message 3
Expect a rise in regulation as response to
recent market ‘excesses’ and renewed
governmental pressures and new forms of
protectionism
Expect more linkages with the
environment, corporate social
responsibility, human rights, democracy,
etc.
The temptation to de-link and turn inwards
will have to be constantly avoided.
Message 4
Now more than ever, creating interestbased strategic alliances and networking is
the name of the game.
Global corporations are now the primary
change agents and cultivating them will be
a major challenge.
The aim must be to integrate into global
value/supply chains and not just goods but
also services and investment.
Message 4
As global corporations become more
dominant, competition intensifies but so do
opportunities for collusion.
Economic partnership arrangements need
to be rethought. The idea of regions
producing more of the products they
consume has become of less relevance.
Business convergence and integration will
further accelerate with e-business (“cloud
computing”?) platforms.
Message 5
Despite the emergence of new economic
centres, the risk of being consigned to the
periphery still remains very real.
There is a race-to-the-top for some
knowledge-dominant economies and a
race-to-the-bottom for many.
Renewed importance of economic
geography and the art of growing
innovation clusters.
Message 5
Labour’s share of national income has
fallen to very low levels in most countries
especially if top executive pay is stripped
off.
This has serious welfare, macroeconomic
and productivity implications.