One Man's View of the World

by Lee Kuan Yew

What do you get, then, when a motley crowd tries to march to a single drummer? You get the eurozone. Some countries surged ahead while others struggled to keep pace. In countries that fell behind economically, governments were under electoral pressure to maintain or even increase public spending, even though tax receipts decreased.

As at June 2013, the euro community has avoided catastrophe by throwing enough money at the problem. But the 17 governments need to face up to the more difficult question of what to do to address the fundamental contradiction in the euro project – monetary integration without fiscal integration.

The European Central Bank becomes the Federal Reserve, and instead of different finance ministers, you have one to supervise the budgets of all the eurozone countries. This will be a move towards what European Union enthusiasts call an “ever closer union” and will cause the eurozone to look more and more like the United States. Will this happen? Will electorates willingly hand over a significant part of their nations’ budgetary powers to a central authority and trust that authority to make decisions on taxing and spending that are fair to each nation and at the same time beneficial to the eurozone as a whole? It is a remote possibility and I frankly do not see it happening. But if it does happen, it would probably be the best outcome on balance for the rest of the world. The outcome that is more likely but less desirable is a break-up – a return to separate currencies. It will be painful and confusing for all involved.

Some might argue that the euro – and the European Union, by extension – should be seen as successful, since peace has indeed prevailed and war in the community is now unfathomable. But one could just as easily argue that peace was a result of other factors.

In the end, the euro’s record will be seen by posterity as a dismal one, and any attempt to salvage political credit for the single currency project will come up against cold, hard reality.

Even as Europe attempts to sort out the problems associated with the single currency, the continent cannot afford to take its eyes off other underlying causes of its relative lack of dynamism – the welfare state and rigid labour market laws.

If Europe is to avoid sustained lethargy and regain the energy and industriousness it was once known for, it has to make bold and painful reforms to reduce its elaborate system of entitlements and to liberalise hiring and firing rules for companies.

I was pleasantly surprised, for example, to be told that I did not owe any payment after receiving a brand new pair of glasses from the optician. They came with the compliments of the National Health Service. What a civilised society, I thought. What I did not understand at the time, but did later, was the potential of such blanket provisions to promote inefficiency and inaction.

Laws and policies, unfortunately, do not change as easily as global circumstances do. Entitlements, once given, are notoriously difficult to take back.

There is a tremendous penalty in votes for any government that has the guts to try. Margaret Thatcher of Britain used what political acumen and capital she had to try to reverse the policies. In the end, she succeeded only in half-reversing them. The other European leaders must have watched and seen her partial success. But they faced electorates that were in no mood to give up what had already been taken for granted over the years. The problem had become entrenched for many of these European countries.

The most pernicious effect of the welfare state, however, lies not in its inflexibility or its unaffordable nature but in the negative effect it has on the individual’s motivation to strive. If the social security system is designed so you get the same benefits whether you work hard or lead a more laid-back lifestyle, why would you work hard?

The spurs on your hinds are not there. The self-reliant attitude is more common in America because even as the unemployed are offered a helping hand, there are measures in place to make sure they are actively encouraged, even compelled, to find work.

It is a different philosophy, one based on the principle that work makes the individual and society better off, and underpinned by the belief that overly generous benefits tend to become a debilitating constra...

The European model has created a class of people who have grown used to the subsidies and therefo...

Europe is not budging on unnecessarily stringent labour market rules regulating the right of companies to lay off workers and the minimum length...

From very early on, I made sure that Singapore would not go down the same path on welfare and labour laws. Having watched the British as they were implementing some of their policies in the 1950s, I decided that that was the way to ruin. We have not allowed unions to compromise our competitiveness, and have instead engaged them in a tripartite relationship – with the government and businesses – that is based on non-confrontational negotiation.

We stopped all free prescriptions for medicines, making sure the charges came closer to reality over time. We have provided assets, not subsidies. The government helps you to buy a home and makes top-ups to your Central Provident Fund1

If you want to spend the funds, you are free to do so but you will have to face dire personal consequences when you retire penniless. If instead you keep the assets, allow them to appreciate in value and earn interest from them, you will reap the benefits in the long te...

Bitter years await Europe. The Europeans have chosen to go down the path of welfare and labour protection due to the unique historical circumstances they were in. Nobody can deny that their choices have resulted in kinder societies, with less of an underclass and a smaller gap between winners and losers when compared to America. But it has come at a price. If they were to forgo these policies, their GDPs would probably grow 1 to 3 per cent faster each year.

A distinctive set of countries sitting in Northern Europe has not been hit as hard by some of the problems facing many of the other countries in continental Europe. The Scandinavian countries, as I see it, deserve a wholly separate analysis because they are sui generis, or a unique case apart from the others.

When you are one people and one family, you will be less sceptical about having to pay taxes to support the less well-off among you, but when you have large numbers of foreigners in your midst and the law insists that there should be no discrimination in the disbursement of welfare benefits, the attitude changes.

“My name is Lee, but I am Chinese. So if you don’t want a Chinese tenant, tell me so, and I don’t have to make the journey to look at the flat.” Lee is quite a common English surname and I wanted to avoid from the outset any unnecessary misunderstanding. True enough, there were landlords who advised me politely not to make the trip. That was British society at the time – still predominantly white and in many ways discriminatory towards non-whites.

Britain is also much more heterogeneous. Anyone walking through the city centre of any major English city will be able to tell you that.

The attention these days is more focused on the Indians, Pakistanis and Bangladeshis, who tend to live together in certain neighbourhoods in large numbers. There are schools that are completely dominated by ethnic minorities because the immigrants have not intermingled.

The religious element adds to the complexity of the problem. Many migrants happen to be Muslims and, in recent years, they have become more vocal about wanting to build mosques with minarets. The visual impact this has on the traditional European architectural landscape has done nothing to assuage the fear already building up among local populations that the culture and the communities they have grown up in are being changed by troublesome outsiders.

The people of Europe are not as open to immigration as the people of America. They have not succeeded in integrating immigrants already residing permanently among them. America is more receptive to newcomers because it is fundamentally an immigrant society, with the Pilgrim Fathers arriving just 400 years ago.

In the last two to three years, European leaders – including David Cameron, Nicolas Sarkozy and Angela Merkel – have separately declared that multiculturalism has failed in their countries.

When Europe emerged from the devastation of two world wars, the idea of European integration seemed most natural. Here was a continent of countries that held many things in common. They had all lived through the Renaissance and the Enlightenment and had come away with one European culture, a similar way of thinking about themselves and the world. Christianity was the dominant religion. Going further back in history, these countries shared a heritage from the days of the Roman Empire, which gave them a certain uniformity in the way they organised society.

Integration holds great promise apart from just peace. A Europe that achieves singularity in purpose would have much greater economic clout and, more significantly, a much bigger voice in international affairs. Put simply, it would be a more powerful Europe.

If the Europeans were to deepen its integration efforts and go on to have one finance minister, and perhaps even to having one foreign minister and one defence minister, their augmentation in hard-power terms would be enormous. Consider the people of the United States of America. They are basically Europeans who have been transferred to another continent and have dropped their tribal loyalties and their different languages. If Europe integrates to the same extent and becomes the United States of Europe, there is nothing the Americans can do which they cannot do. Europe as one entity is more populous than America (500 million versus 310 million) and has an economy one-sixth larger than America’s. Such a Europe would certainly be in the running for the world’s leading superpower.

Even though English is already the second language in all the other countries, those on Continental Europe will never accept it as the single working language.

What then will be Europe’s place in the world? They will be smaller players on the international stage. In the face of dominance by the major powers such as the US and China, and maybe later on, India, Europe will be reduced to the role of supporting actor. Most of the European countries will be treated – quite rightly – as ordinary small states. Germany might be able to carry its weight alone, thanks to its population and its economic success, although it will not want to raise its head above the parapet because it is still filled with guilt for having killed six million Jews during the Holocaust.

But otherwise, Europe cannot hope to count for much at a table where the US, China and India are seated, even if some European leaders may still be reluctant to admit it because of their historical sense of self-importance and their long experience in playing the game of international affairs. In the end, you are comparing nations of 40, 50 or 80 million against 1.3 billion Chinese and 1.2 billion Indians. The Chinese, especially, will find that a fragmented Europe makes life easier for them. They can deal with each country individually, rather than in a group. Each European country will be more dependent on the Chinese than the Chinese are on them. This will be even more so as China’s economy moves towards being driven by domestic consumption.

Yes, because they do not spend more than they earn and their workers are highly skilled. They produce some of the best machinery in the world, and the best cars – Mercedes, Volkswagen, BMW, Porsche. The Germans will continue to do well because it is in the nature of their society. They nearly conquered the whole of Europe. They’ve got the drive and they are prepared to organise themselves.

Do you see a more dynamic or less dynamic Britain in 20 years’ time? A: It will be so-so. It is a country that had built up a great empire, then dismantled it after the Second World War because it was forced to by the Americans. After they lost India, Pakistan and Bangladesh, the rest did not matter. And if you look at the attitudes of the Australians, the New Zealanders and the Canadians, once loyal Commonwealth members, the Commonwealth now means nothing to them. In their eyes, the important players are America, Nato and the informal equivalent of Nato in the Pacific. They are attaching themselves to the next big power, with which they think they share the most in culture and geopolitics.

How did the Europeans manage to create such a wonderful life? A: They were industrialised before the other countries, before China, and they captured the rest of the world. The British had the British empire and the French had the French empire. The Belgians had Congo – a little state of fewer than five million people owning the vast African country, with its enormous mineral resources that the Belgians exploited. Then decolonisation came and they were reduced to size. The age of empire – the way Europe dominated the world – will never come back, at least not in that form. It may come back in some other form.

There are experts, particularly from America, who argue that austerity is the worst possible solution at a time of crisis, and that while it may be needed in the longer term, growth is what is needed in the short term to stimulate the economy. Where do you stand on this? A: Between the two, I would take the Europeans who are more familiar with their own problems than the Americans, who are always optimistic that next year will be sunny.

Who will you rate, amongst all the European leaders you have met in the last 50 years, as the one who has impressed you the most? A: I cannot say. Historically, Winston Churchill stands out. He was a great leader because the world would have gone differently had he not been so defiant in the face of the most impossible odds to hold out against the Germans. His attitude was one of total defiance. “We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills. We shall never surrender.” He had a delivery which was lisped, but which carried total conviction and carried the British people along with him, whereas the French did not have such a leader and they caved in. Marshal Pétain was produced from retirement and settled for Vichy France. Winston Churchill was in a class unto himself for that period in history. Without him and the Royal Air Force, the British would have been overrun by the Luftwaffe. But the spirit he injected into his pilots saved Britain. Then the Japanese attacked Pearl Harbor and that pushed the Americans into the war. So it was good luck on his part. But he held out for a year on his own.

Japan has experienced two “lost decades”, and is currently entering a third. Between 1960 and 1990, the country’s GDP grew at an average annual rate of 6.2 per cent. From post-war devastation, the Japanese people picked themselves up, worked extremely hard and built the second-largest economy in the world, with help from the Americans. As Japanese businesses snapped up real estate in the West, alarmed analysts at one time warned that Japan Incorporated was poised to take over the slowing-down developed world – not unlike how some talk about China today. But in 1991, the asset bubble in Japan burst, marking the start of an extended period of depressed growth.

The Japan of today is still the second most inventive country in the world after the United States, as measured by number of patents filed worldwide. But inventions come from young, not old, people. In mathematics, a person peaks at about 20 or 21. No great mathematician produces greater works after that age.

Q: What are the geopolitical implications of a diminished Japan, especially given China’s rise? A: Even if they were bustling with more children and had a growing population, the rise of China is such a huge problem for them that it makes no difference. They cannot stand up to China and they certainly cannot do what they did in the 1930s, when they tried to and nearly did conquer large parts of China. They need the US security guarantee. The Japanese on their own cannot overwhelm or block the Chinese. But the Japanese in alliance with the Americans can. And they will keep the alliance, but they will be a weaker partner, a smaller, declining partner.

I have never been to North Korea. I have never felt the urge to go there. It is a most unusual country. Even in China, people are living with certain basic rights. In North Korea, you have a population that is totally suppressed and completely isolated from the outside world. To say that the Kim family has built a personality cult would be a grave understatement. To the mesmerised Korean people, the Kims are semi-deity. They hold the family in awe, not realising that they are actually living a hoax. All these sturdy-looking men and women marching are part of a big charade. Far from being a socialist heaven-on-earth, North Korea is one of the worst-run countries in the world, failing even in the most basic of tasks, such as ensuring that the population is fed.

The Japanese thought they could destroy the American fleet and secure a decisive advantage in the war. But American industrial production capabilities were such that they could rebuild the fleet and more. It did not take them a long time to get back on their feet and punish Japan. In the end, it is your industrial capacity that determines your national strength, not the number of ships and guns you have. If you have arms not supported by a solid economic foundation, you may be more prepared for war, but it may well be a war that you have no ability to sustain. The North Koreans will know this. They are not stupid.

China does not want to see reunification by war or peace. China treats North Korea as a buffer state. A reunified Korea will be one dominated by the South, with American troops possibly being allowed to go all the way up to the Yalu River, which is on the Chinese-Korean border. To have American troops at their doorstep is a most unsavoury prospect

As North Korea dithers, South Korea will continue on its path of growth. It has done well and can do so for many more years. It is open to the world and especially to China, taking full advantage of its giant neighbour’s markets and labour resources. When I visited South Korea a few years ago, every other businessman I met had business interests in China. The Koreans also make up the largest group among the foreign student population, learning the language and building important relationships, or guanxi, for the future.

South Korea already leads the world in a number of products, including LED screens. Their chaebols – Samsung, LG and Hyundai, among others – can hold their own against the world’s most successful multinational corporations, and they are strong in R&D. For an emerging economy with a population of 50 million, what they have achieved is highly impressive.

The Koreans are among the toughest of all the peoples in their region because Korea was where the invading hordes of Mongolia stopped. They had trouble crossing the waters to invade Japan and many just settled in Korea. And so, the Koreans have the blood of the most aggressive warriors from Central Asia. They are a tough lot. You continue to see that streak in them, to a certain extent. Furthermore, they have a well-educated population that is industrious, hardworking and examination-conscious. They will maintain their high qualities.

India was never a single homogeneous entity. It was a concept thought up by the British. And despite the best efforts of the British and the Indian nationalists, India as a nation is still more of an aspiration than a reality.

To compare the two civilisations, India and China, therefore, is to compare apples with oranges. To ask if India can achieve what China can is to ask if you can make an apple into an orange. The results of these fundamental differences between India and China are quite apparent. One country gets things done. The other talks incessantly but seldom finds the will or ability to get up and go. India simply does not have the same push or the singleness of purpose that you see in China.

The caste system is a further complication for India. It is another key factor that holds back development in the country. According to the rules of the caste system, when you marry downwards, you automatically lose caste.