[SCMP Column] Hope for the future

November 19, 2016


For the past week I have been watching angst-ridden business leaders in the APEC Business Advisory Council wrestling in Peru with how best to respond in a world economy that from almost any perspective seems to be falling apart. Everything that the trade-liberalising ABAC has worked for over the past 25 years seems to be under threat as Trump and Brexit redefine global attitudes to the economic liberalism that has defined the post-Second World War era.

As Trump talks of killing the Trans-Pacific Partnership, renegotiating Nafta, slapping huge tariffs on China and Mexico, and preposterously defining China as a currency manipulator, there seems to be some comfort around the ABAC tables – and at the nearby meetings of top APEC officials all gathered in Peru for this year’s APEC Leaders Meeting – that the commitment to liberalization among most APEC members remains strong.

But the nagging question is whether we are sitting here in Lima cocooned in a dream world, unhinged from a new and destructive protectionist reality that in coming months will spread from Brexit and Trump to right wing activists in France, Austria, Netherlands and Germany.

The second nagging question is what on earth to do about it. The conviction remains strong that globalization and strong trade growth have brought massive net benefits to us all, but there is an emerging recognition that business groups like ABAC have done a terrible job back in our home economies building broad community recognition of those benefits – and even less to address the alarm of those that have been casualties.

This weekend’s APEC Leaders meeting looks set to become one of the most fractious that APEC has seen in its 27 year history. Obama is cutting his visit to the minimum, and will back away from discussion on the plight of the Trans-Pacific Partnership. Jokowi from Indonesia and President Park from Korea have “little local difficulties” that are keeping them at home. Thailand’s military president will not join. Trudeau from Canada is also staying home. Loose-cannon Duterte from the Philippines is flying in reluctantly, cross at the long journey.

In some respects, Peru is a therapeutic place in which to address these unprecedented challenges. For those of us obsessively focused on developments in Asia, in particular China, and on a story of steady positive improvement over the past 30 years, a place like Peru is a sobering reminder of how things might be different – and why globalization and trade deliver such net benefits. The trade-liberalising government headed by President Pedro Kuczynski elected last June remains steadfastly committed to trade and investment liberalization, voted into office by a population scarred by recent memories of demagogic turmoil.

On the face of it, few economies could be more different from Hong Kong than Peru. Almost-daily earthquake tremors, and frequent volcanic eruptions are a constant reminder of the power of nature and our own vulnerability. Compared with Hong Kong’s complete reliance on imported foods, Peru is near-self-sufficient, with the tropical eastern parts of the country, rich in volcanic soil, providing fruit and vegetables that seem to have been on steroids – avocados as big as papayas, and papayas as big as watermelons.

Unlike resource-poor Hong Kong, Peru is teeming with natural resources – and these would be more important still had it not been for an unfortunate war with Chile in the 1880s that resulted in the loss of the copper- and nitrate-rich Tarapaca region on Chile’s border. Even today, Peru is the world’s third most important producer of copper, behind Chile and the US, with large mining industries also based on gold, zinc and lead. Offshore, it is the source of 10% of the world’s fish catch – most of it anchovy and jack mackerel which often end up as fish meal for China’s fish farms.

In contrast to Hong Kong’s strong steady growth and political stability since the 1970s, Peru has only in the past 15 years tasted stability, and been able to capitalize on its resource wealth. Botched farm reform in the late 1970s gave birth to a fanatical Mao-influenced group called the Sendero Luminoso – the Shining Path – which terrorized the country until the early 1990s, and made it a no-go area for any tourist, foreign businessperson or investor.

In the ‘80s alone, more than 200,000 families lost their homes, and tens of thousands were killed. It was only when the Shining Path’s fanatical leader Abimael Guzman was captured and imprisoned in September 1992 that normalcy gradually returned. This is not a country yet tempted to flirt with autocratic and megalomanic populists, as the US has just done. On the contrary, it has roared ahead on the back of liberalizing government and open trade, recording stronger growth than almost any other South American economy. GDP growth and exports have grown by an average of almost 10% a year.

Trade with Asia has become particularly important – and illustrates clearly the value of Peru’s membership of a group like APEC and the four member Pacific Alliance embracing Peru, Chile, Mexico and Colombia. Exports to Asia have risen by an average of 23% over the past decade, with China now Peru’s third largest export market. As a result, Asia now accounts for around a quarter of Peru’s trade, compared with just 18% in 2000. Despite Peru’s “resource curse” – the global collapse of commodity prices and demand has hurt the economy hard – commitment to globalization and open trade remains unflinching. The selection of President Kuczynski was an encouraging and symbolic reaffirmation of this commitment – in stark contrast with the moods in the US and the UK that have conceived Trumpism and Brexit.

So sitting here in Peru it is possible still to be optimistic that the liberal economic institutions built since the second world war remain intact, and will protect us against the worst excesses of protectionism and xenophobia that have recently erupted. But one message has been driven forcefully home among the business leaders here: if our economies are to remain open, and the net gains of globalization to be protected, then we have to a much better job addressing the concerns at home among those that feel they have been left out.
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