When the leaders of the Association of South East Asian Nations (Asean) gather for their 31st Summit in the Philippines this week, they will also celebrate “[email protected]” – testimony to Asean’s endurance and durability, as the longest-running regional grouping of developing countries in the world.
A major item on the agenda will be regional security and addressing the rising tide of terrorism. This takes Asean back to its roots, having been born as a politico-security pact during the Vietnam War in 1967.
Indeed, Asean’s role in sustaining peace and stability in Southeast Asia is often undervalued. It’s easy to see why. War cannot go unnoticed but peace can, easily. Asean deserves its share of the credit for delivering the peace dividend. Moving forward, its economic success may depend on a different kind of revolution.
Inclusive, innovation-led growth
The summary of Key Outcomes from the 49th Asean Economic Ministers Meeting in September noted that the overall thematic priority of this year’s summit would be “Inclusive, Innovation-led Growth”. This would be supported by three strategic measures: increasing trade and investment; integrating micro-, small- and medium-sized enterprises (MSMEs) into global value chains, and developing an innovation-driven economy.
The trade slowdown appears to have bottomed out, and there are early indications that both domestic private investment and foreign direct investment are showing signs of recovery in countries like Malaysia and Indonesia, and continue to increase impressively in the Mekong countries. To sustain this growth, reforms will need to continue. Achievements on tariff liberalisation have been partially offset by a rise in nontariff measures which are a more significant barrier to trade.
A new and growing trend in cross-border investment involves MSMEs, so much so that the last Asean Investment Report took this as its theme. And an innovation-driven economy has to address the challenges and opportunities presented by the so-called Fourth Industrial Revolution (4IR).
All three strategic items are linked, especially the last two, as discussed in a joint Asian Development Bank-World Economic Forum report titled What does the 4IR mean for Asean Regional Economic Integration? to be presented to leaders at the summit. The report notes the differing level of preparedness of member countries, negatively correlated to their level of development, and how this may widen rather than narrow development gaps if not addressed.
The 4IR brings challenges and opportunities
One of the major challenges of the 4IR will be the loss of jobs caused by automation and increasingly advanced robotics and artificial intelligence. Job losses will affect some countries more than others. Low-skilled, repetitive jobs (such as assembly line workers) are most at risk, but increasingly service jobs (such as business process outsourcing) will be threatened.
As an immediate response, enabling greater mobility of unskilled workers would curtail unemployment in sending countries and help sustain growth in receiving countries, while also helping counter growing economic inequality within and between countries.
In the midterm, new industries will grow and workers will need new skills. Investing in human capital must start now. The skills needed extend beyond technical capabilities to include innovative problem solving. What’s more, the accelerating pace of change calls for adult training and life-long learning not just early life education. In addition, mutual recognition agreements must expand to cover new occupations, while expediting the harmonising and streamlining of employment visas.
Integrating MSMEs into global value chains
One of the major opportunities of the 4IR, as highlighted in the report, is the potential of “disruptive technologies” to empower MSMEs. More than 90 percent of enterprises within Asean are MSMEs and they provide most of the employment in member states.
MSMEs are often constrained by lack of access to business and financial services. Blockchain technology has the potential to increase the security of cross-border financial transactions and logistics even in countries where these services are relatively underdeveloped. This technology has the potential to benefit the smallest firms in the poorest countries of Asean.
The rise of online marketplaces also provides platforms for MSMEs to access regional and global markets.
The 4IR, therefore, provides an opportunity for Asean to meet its goal of greater inclusion by integrating MSMEs into global value chains. But it also presents a challenge to the region to invest in human capital to continue to trade and attract investment, and to enable innovation-driven economies.
Given the unequal impact of new technologies in the region, the promotion of inclusive growth must also be seen as a key pillar in underpinning peace in the region. Growing economic inequality could quickly contribute to social unrest and political instability.
Embracing the 4IR, and inclusive, innovation-led growth will be essential to securing another 50 years of peace in Asean.
Jay Menon is lead economist and Anna Fink an economist at the Asian Development Bank.