 It gives me great pleasure to introduce Simon Commander, who is the managing partner of Alcheora, partners, which provides strategic economic policy advice to decision makers in government and companies. He's a visiting professor of economics at the IE Business School in Madrid, and he's a senior adviser to both the European Bank for Portrait and Development and the World a as help faculty positions at both the London Business School and Cambridge University, and he's going to talk to us about the future of Asian capitalism. Simon, thank you very much. Thank you. Can everyone here? Perfect. Well, okay, so if that is not the case, just put your hand up. So I'm not going to do a PowerPoint today. I'm not a great fan of them, but if any of you gyda chi'n gwybod y parwyr rai oedd y gweithio'r cyfnod yw'r wybodaeth i fyfyddo, ond rwy'n dechrau'r Adrien, ond rydyn ni'n fydd yn bwytau ychydig ar y cyfnod. Ffudio'r gweithio ymarfer yng Nghymru, y byw yw'r capital Ysgrifennu Asia, rwy'n dechrau'r cyfnod i fyfyddo'r cyfnod ychydig wedi'i cyfnod ymwysig, a rwy'n dechrau'r economiynau Asia. ac mae'r bywch eich angen i ddweud y byd yn y ffordd â all o Asiol, ac mae'r ffordd â chweiriau ac mae'r ffordd yn y cwyrch, yna yw'r ffordd llwyth gyda yma, a'r ffordd yn y capital, iawn, mae'r yma mae'r ddiwethaf ymddangos yma'r bwrdd o'r economiaeth. Ac mae'n waith i'n bwysig, rwy'n dechrau, yn Llywodraeth, sy'n bwysig yn Bwysig. Felly mae'n cyfnod o'n ymddangos ymddangos cyfnod a'r gweithio'n gyfnodol, ond y byddwch yn ymddangos, yma, wrth gwrs, mae Asia yn ddiffunct i'r cyffredinol, ddifunio'r cyfnodol, ymdannigau, ymdannigau, ymdannigau, ymdannigau, o'r ddim yn gweithio'n gweithio'n cyffredinol. Mae'n gweithio'r gweithio i'r cyfan ymddangos cyfnodol, But there are some very, very important commonalities, common features, that these common features are going to tell us, be informative about, do things? One, why it is that Asia has been the great success story of modern times and secondly why we shouldn't assume that Asia is going to be the success story of the future decades, i.g. o'r 21st century. Rydyn ni'nichi'n cael ei wneud y ddynas dysgigol o arddangos hynny, a'r hynny'n meddwl am gyda'r ddynas dysgol. Rydyn ni'n edrych yn ddegos iawn nhw'n newid maen nhw'n ei wneud i gael eu bod fynd arall. Pwy ffordd, y gallwn i'n meddwl am 20 gynnwys a ddyn nhw'n neud o gweithfyrdd, Adrian. Felly rydyn ni'n meddwl am yw'r ysgolwch yn y ffordd. Felly, rydyn ni'n wedi bwysig fel y gwel sy'n wneud y rwyntfodol of a book that I and my colleague and friends saw Lestrin publish recently, and it's called The Connections World. It's published by Cambridge University Press, and your libraries may want to have a copy or whatever. You can find it online as electronic versions as well. And in the book, we basically ask the question, why has Asia been a success? What have been the mechanisms that allowed it to be so important? And will these persist in the future? Now, just to put it in context, I mean, maybe it's already been said, but Asia accounts, depending on how you count it, for roughly 45 to 50% of the world economy. So that's a pretty big chunk. And it accounts for over 60% of the world's population. So whether you like it or not, or whether you're interested in Asia or not, you probably ought to be, because what happens there is going to determine not just how Asians, and here I'm speaking basically from Pakistan in the West to Japan and Korea over in the East and China, not just how they fare, but how the global economy fares. And just to put this in context, and here, by the way, for those of you who want to find out more, you can go to the IMF website. They publish regular updates. Their projections are normally wrong, but they're intelligently wrong, shall we say? And because projections about growth and the like are very, very hard to do with accuracy. But put it this way, if you go to the IMF site, what you will find is that since 2007, 2008, which as you must know, was the great financial crisis which afflicted this country and most of the rich world, particularly severely, really most growth in the world economy has been driven by Asia. And even today, as China slows down in part due to its policies vis-à-vis COVID, the lockdowns and the like, in part due to geopolitical tensions with the US and other countries, as China slows down last year growing really 2%, 3%, maybe this year 4%, 5%. Even so, Asia is going to contribute roughly 70% of global growth in 2023 and 2024. So that's a big number, is it not? Now, some people will say, quite rightly, well, that's not surprising. Why? From the perspective of an economist, you can think of economies at different levels of income. So let us say the UK is an economy with an income level of 100, just hypothetically. And we look at China and we would say that, and this is roughly right in relative terms, China is at an income level per capita of about 3035. So in other words, is an awful lot smaller than the UK or much of Europe or indeed North America. Now, it's a well-known feature of economies that when you're poor, you can grow and do grow much more than when you're rich. So what economists commonly say is the equilibrium rate of growth for an economy like the UK or the US is normally not much more than two, two and a half max 3% per year. What's the equilibrium rate of growth in a country like India or China? Well, significantly higher most likely than five, even more. And if we look back over the last 30 years or the like, then China itself has grown by roughly 10% per annum for the greater number of years and a country like India is presently growing at about 6% or 7% per year. And it's growing without fueling inflation, without fueling overheating of the economy. Okay, so that's the context and that's why in some sense we ought to be interested. Now, let's pick up on a couple of things that are really quite different about Asia when thinking about why it's been successful. Now, if we think of this country or the US or the like, we think of government as a regulator and politicians and we also think of companies. And most companies essentially do one or two things and try and do it well and profitably. They're not very diversified and they're very good reasons for why they're not diversified. And for what it's worth their stock market value reflects whether they're diversified or not. In fact, if you're very diversified form of company, the value of your stocks tends to be lower than if you're more focused. Now, in Asia is quite different in two important ways. The first, let's start with business. The really important businesses, the businesses that have been driving many of these economies are either in state-owned hands. Those are decreasing in number but some are still important. Or more importantly, there are business groups. And these business groups are owned by families, for the most part, often dynastic. Just to give you some examples for those of you who know a little bit about Asia, you have the Tata Group in India or Billers in India. You have a whole range of family-owned business groups in Indonesia, Malaysia and the like. So the family-owned business group is very important. And the feature about these groups is that they do lots of things. They work in many sectors. They can do airports. They can do infrastructure. They can do ports. They can do mining. They do a hell of a lot of things. And this, at least to most economists, is a bit odd. The second feature about Asia that is really quite different from, say, this country, perhaps a bit less from the States, is how closely connected these business groups are to politicians and to politics. In fact, in the book we show both in a network analysis and also in a variety of other ways that the connections are absolutely central to these systems. And what do they mean? What do they deliver? Well, the politicians get contributions. They sometimes get jobs, jobs for themselves or their family or their constituencies. And the businesses get access to sectors, permits, licences and the like. Also access to public contracts and so on. So this relationship that ties up businesses and politicians is immensely important in Asia. And it cuts across all these countries, irrespective of whether they say they're capitalist or socialist or whatsoever. And in point of fact, in China and Vietnam, which are the two one-party States that we deal with in the book, the relationship between politics and business is particularly tight. But we also argue that it's very, very tight in the other countries, despite having democratic or at least contestable political systems. Now, why is this important? Well, it tells you on the good side that these connections can do very well with creating big projects, infrastructure and other projects, coordinating between the public sector, the government and the private sector to achieve strategic goals. This is not just about China, it's right through the region. And that's the good side. And this is what economists call, as it were, the intersections of industrial policy and the market. And the mechanism that achieves that is the coordination that arises because of these close connections. Now, the less good side, of course, which will be probably obvious to many of you, is that these sorts of cosy relationships can often be very corrupt relationships and sometimes highly inefficient relationships, both at the level of the business groups and at the level of the economy. And in the book, we argue that those good things, which have been important in driving all this growth and development, stand to be in the way of Asia's future unless some changes are made. And why is that? Well, the first, and this will be no surprise to most of you who study economics or have had some engagement in some way with the subject, the first is because this sets of relationships, these networks, stand in the way of competition. Far too often, large and important bits, large value-added bits of the economy, are dominated by business groups whose connections to politicians are, in a sense, their trump card. And let me just give you a sense of this. Now, one measure of this is known as concentration, and there's a thing called the concentration ratio. And one measure of that is the revenues of, say, the top five or 10 companies in a country relative to the national income or GDP of that country, all right? So that's known as the country, CR5 if it's five companies, CR10 if it's 10 companies. Well, in South Korea, which is an enormous success and an impressive place in more senses than not, but also in Vietnam and in Thailand, a few other countries. The top 10 companies, most of which are either state-owned or these private business groups, account for more than 40% of GDP, their combined revenues account for more than 40%. To put that in context, if I do the same exercise for the US, the top 10 companies in the US, and you can imagine what some of those are, might be Amazon, might be Google and whatever, their share of GDP is not more than two or three percent. And the only country that is a bit higher than that in Western Europe would be Germany. So these countries are very different, and even India and China, which are really enormous economies, the top 10 companies account in both places for roughly 15% of national income or GDP and on a rising trend, particularly strongly in India. So to cut to the quick, business groups and their cozy connections to politics may drive a lot of good things, but they also deliver outsized benefits to those groups and close others out, so competition. And this means that Asia is still characterised by what economists call a dual economy. There is the formal sector in which the business groups and other leading companies operate, and this is actually quite a small part of the total economy in many cases, at least in employment terms, but not in GDP terms. And then there's a huge chunk of the economy in which most Asians of one sort of the other find employment, by and large the informal economy, where jobs are low productivity and therefore low wage. So this duality persists, and it persists in part because of this structure. The second and very significant point that I want to make is that these agglomerations of economic influence and power also are great drivers of inequality. Partly on wages, this is what's known as earnings inequality, so if you have a job in one of the business groups, you probably get paid well, you're high up the pecking order, but the majority of people who have jobs in the informal economy get lousy wages and the gap between the two is very large, so earnings inequality is substantial. But there's an even bigger point. This system is very driven towards wealth inequality increases, the extraordinary magnitudes. The wealth controlled by really very few people is a very high share of total wealth in all these economies. Now you couldn't say, well, isn't that true in Western Europe and in the UK? Well, to some extent that is true, but I think it's even more striking in nature. And in part it's also striking because so much of it is recent. In 2000, i.e. 23 years ago, China did not have a single billionaire, supposedly. Maybe some measurement error there, but gross emoto, there wasn't a single billionaire floating around in a country of then not far shy of a billionaire. In 2023, there's, I think, north of 300. And in India, they had billionaires back in 2020, 2000, but they had a great deal more. And this is going on right through Asia, even in little Vietnam, with its Communist Party, but also it's very powerful and very dynamic business groups. Vietnam now has about four or five billionaires. So tremendous accretion of inequality, particularly through wealth, but through earnings. There are other features that we can come to as well, but I don't have a lot of time, so I'm going to pass on. By the way, most business groups have, frankly, lousy corporate governance. If you're unwise enough to be a minority shareholder there, you better look out for yourself, because you will undoubtedly at some point either get expropriated or diluted. So there are lots of things that this system generates, which give undue benefits, outsize benefits to the owners and controllers of these business groups. But the big, big things are the impact on competition, the impact on inequality and the impact on the labour market and employment and the perpetuation of this journalism. So we argue in the book that these are not good portents for future growth, partly because they are likely to give rise to what economists again call distributional contests or fights over who gets the pie. When you have very large amounts of inequality, it is extremely unlikely, based on historical experience, that you will not have, in a sense, contestation about that. And this may take the form, as it has done over the last 50 years in Latin America, of economic populism, not so inflation, not so very foolish macroeconomic policy and the like, because they have not been able to resolve these disputes. But it can also give rise to big outright political disturbances. And one indicator of that is if you look at modern-day Thailand. So Thailand, on one hand, is a sort of semi-feudal economy. It has a king, very libidinous king, as it happens, with some peculiar habits. It has a court, it has an army, which is strongly monarchist, and it has a bunch of politicians who, by and large, queue to the same line. But it also has political parties that don't like the system of preference and whose leader, the time, back nearly 15 years ago, Flexin Shinawatra, got elected on a fairly populist programme of large government spending, large benefits to poorer peoples. He was then ousted, sent into exile in effect, and so on. Right now, this year, they had an election. Actually, the electorate voted for parties that were not associated with the court and the current government. And actually, the main and leading party wasn't allowed to form the government. Now, there's a big story about that. We live it aside. But the point I'm trying to make is that when you get these tensions and when you get undue rewards flowing to small groups, you necessarily give rise to political just as much as economic tensions. Okay. Finally, what can be done about it? Well, actually, what can be done about it really starts at home. I worked for many years in the World Bank, and we went around telling people what to do. And for the most part, they never listened. Or if they did listen, they buggered it up. And the reason for that is that some advice from outside is rarely neutral advice. It has its own party pre. But if it doesn't come from within, and if there aren't constituencies within, they rarely get brought to the table and implemented. So if we were just making, as we try and do in the book, some suggestions to people in these countries as to sorts of policies that might improve things, well, there are all things about corporate governance, basically giving minority shareholders more rights, might make some difference, perhaps not that much. Is it likely to happen? Probably not in the near term. Secondly, there are issues to do with the big holding companies and other institutional forms for these business groups. They could be changed too. Actually, the Koreans have tried to change it over the last 40, 50 years. It didn't go anywhere because mainly these business groups, Samsung and the Light, are extremely artful and have managed to somewhere like that. And then there's taxation. Now, taxation has two levers you can pull here. The one is to say, we will tax companies that are part of business groups more than other companies. So if you're part of a business group, you will face a higher tax rate than he, if he's not. And that is possible. But of course it requires political will. And the second is actually perhaps even more powerful, and it probably would have surprised you, and it's something called inheritance taxes. Well, those of you know a bit about this country know that the inheritance tax here is about 40% over a relatively low threshold of about $320,000. In India, for example, in China, there is no inheritance tax. Now, in Japan, after the Second World War, they introduced a 55% inheritance tax, which was extremely effective in breaking up the combina, these business groups that dominated in Japan. And it's very interesting to see that in the last five years, and South Koreans have done exactly the same. They've put in place a 50% inheritance tax. And one consequence of this is that many of these business groups, including Samsung, are now radically rethinking whether they want to continue operating as family-owned and family-run businesses. And it's a combination of measures like this that can induce changes at the margin. So let me end. There are a number of other proposals we have in the book. I don't have time to talk about it for now. So let me end. Asia, as I started, is the great success story of modern times. If you look at the number of people in extreme poverty in Asia, in East Asia, China and the like, it's probably down to about 4%. By the way, extreme poverty is really a lot of poverty. It's about $2.5 a day. If you look at South Asia, it's about a quarter of the population. So there's still a lot in India, Barcelona, Bangladesh and the like. If you look at national poverty lines, it's much higher. But even so, growth success has eaten in to the endemic and cruel poverty that existed throughout much of Asia until relatively recent. So without dynamic economies, poverty will not only have a recrudescence, but will, in a course, have a way, blossom again. So it's very important that we do that. Now, can Asia grow? Well, the naive optimists say, of course it can, because the level of income of Asia is so low relative, say, to this country, there's just much more scope to grow. The convergence or catch-up idea I mentioned at the beginning. But it's not automatic. It's not a mechanical relationship. And I think the point we try and make in the book is that there is scope for Asia to accelerate and continue growing. But if it just keeps the same structures and relationships that I mentioned, it will struggle to do so. It will struggle to do so both for economic reasons through suppression of competition and the perpetuation of dualism and also for political reasons, as I partly indicated in the entire example. So on that note, I think perhaps I'll end it if that's all right. Thank you very much. Thank you very much, Simon. I think you've given us quite a lot to think about. Any questions? Please. I had a question about de-globalisation and what's coming in after in 20 years. Or do you think that's a little bit the same for, I don't know, if I've got needs like you? Yeah. Shall I take it individually? Yes, okay. No, very good question. The de-globalisation thing is the conjecture, if you like, is mainly driven by the fact that, of course, China and the US in particular are loggerheads and a lot of US companies are retreating, trying to find other sources of suppliers and the like and so on and so on. Having said that, the empirical evidence so far is actually quite weak. Now, it may be because de-globalisation takes a long time to happen. If you have a company set up in Shenzhen or some bit of China and you have supply chains in and around the region, you can't just say, okay, well, politics has got nasty, I'll pick up sticks and go elsewhere. It doesn't work like that. It takes time and it takes write-offs and costs associated with it. So, I think de-globalisation is a genuine risk, but I think policy makers are aware of it. What I suspect will happen is that at an aggregate level, de-globalisation may not amount to a huge amount, but there will be some redirection of trade and investment within the globe. We already see that as companies seek out more opportunities in Vietnam, say relative to China and so on, and quite a lot of the companies are now playing up India as a big alternative. But just bear in mind that, A, Vietnam's a small economy with not the best of infrastructures and although India is a very big economy with parts of it very dynamic, the most dynamic parts are in a sense squatted upon by some of the business groups that I've just mentioned. So, it's hard to get into them first start. And secondly, a lot of the infrastructure in India, as any of you who might have visited will know, leaves a great deal to be desired even to this day. So, I think there's a bit more rhetoric than perhaps reality. I hope that gives a take on it. Please. Yes. Yes. What a good question. Well, look, the current direction of politics and the economy in China is definitely not to move towards more contestability to more democracy. It's going quite the other way. And that, to me, is sad. It's pretty undesirable. And I think we'll have unpleasant consequences for China and the Chinese economy as it happens. Now, will the links between business and government or and the party, the unique political party, grow stronger or weaker? Well, the evidence so far suggests that those links which were very tight were loosened from Deng Xiaoping's period onwards have actually, in a sense, been ratcheted up again. And right now, many of the leading companies, you can think of Tencent or Alibaba or Baidu or Huawei, for instance, these have far tighter links to the party and to controls from the party than they did even five years ago. Now, some of them were always very tightly linked, Huawei in particular, because it has an important military dimension. But these FinTech and social media and gaming companies like Tencent and Alibaba had far more autonomy four or five years ago than they do right now. Now, you can see why an authoritarian leader and a party, Xi and the party is at the moment, might think that's a good idea. I think it will back far why. Well, in their own way, many of these companies have actually been quite innovative. I mean, it's no accident, is it that Elon Musk thinks of himself and we tend to think of him as being quite innovative, wants to take Twitter or X, actually the way that Tencent and Alibaba went. What do I mean by that? Well, if you have Alipay and the like, you basically do everything within an ecology set up by the company, you buy goods, you use your email, you do social media, you do everything there. There's no boundaries of privacy and the like and no accident that Musk would like to repeat those. I don't think you'll be able to, because there are regulatory constraints in the States and elsewhere, thankfully. But these companies, my point is, have been actually quite inventive and quite. Now, when you put very tight muzzles on them, inventive people don't tend to react well. They either leave or they actually emigrate. And I would think that the pressures on these companies to be inventive and innovative will become greater rather than. And what it might also mean is that these companies will increasingly be steered towards a much narrower focus on the priorities of the government and the party. And let me just give one example and then built up. AI, so we all know how insurgent AI is and how potentially disruptive it is. Well, AI is very well developed in China. It's no surprise, probably for any of you. Some of it's been developed just in China. Some of it has been developed between collaborations, which are now, by the way, becoming much more difficult between Chinese scientists and Chinese diaspora, mainly in the US scientists too. But the evidence suggests that a lot of that AI has been directed and supported through public funding towards security and military applications. And there you see the rub. You can use the power of the state to direct invention and innovation, but the preferences of the state may stand in the way, not only of important things like civil rights and the like, which perhaps they don't care so much about, but also ultimately in term, again, a more general and more decentralized dynamism. So I hope that partly answers your question. Thank you. Well, Simon, thank you very much. I think we're going to have to call a halt there. I suspect there are many other questions that could be asked. So short break, five to ten minutes if that's all right to try and keep up. And Simon, thank you very much indeed.