[Lecture] Digital Economy and Development: an ASEAN Perspective

good evening and welcome to the 13th Hong Xiu Qing lecture in the Han su Qing speaker and seminar series my name is candy buffet and I'm director of the center on Asia and globalization of the Lee Kuan Yew School of Public Policy today's lectures you know will be delivered by dr. Mary pangestu the lecture is titled digital economy and development and ASEAN perspective before I asked dr. pangestu to come up to the podium and deliver a lecture I'd like to say a few words and our speakers very distinguished career as well as the speaker series dr. Mary pangestu is an academic by training and is currently professor of International Economics at the Faculty of economics and business University of Indonesia she's also a visiting professor at the Lee Kuan Yew School she holds a number of other academic appointments she's senior fellow at the School of International and public affairs SEPA at Columbia University in New York a board member of the Indonesian Bureau of Economic Research and serves on the board of trustees of CSIS that is the Center for Strategic and International Studies in Jakarta many of you know dr. pangestu best for her life in politics and public service at the highest level for a decade she served as Indonesia's Minister of Trade from 2004 to 2011 and was Minister of Tourism and creative economy from 2011 to 2014 in addition to her political service dr. Peng Gaston is currently president of the of United in diversity foundation in Jakarta she's also president commissioner at Bank Tam baingan Pensione nacional or be TPN in indonesia and apologies for my horrible vasa our Indonesian dr. pangestu has made distinguished contributions not only to Indonesian public life she's also contributed to international public life she currently serves on the Leadership Council of the UN sustainable development Solutions Network and as a member of the global future Council on trade and investment of the World Economic Forum she's chairperson of the board of trustees of if pre that is the International Food Policy Research Institute in Washington DC and a board member of the International Chamber of Commerce in Paris dr. Peng Gaston is widely sought out as an advisor and serves in this capacity to the global Commission on the geopolitics of energy transformation of the International Renewable Energy Agency Irina in Abu Dhabi and the geopolitical International Advisory Board of McLarty associates in Washington DC as you'll appreciate dr. Peng Gaston has an extremely busy calendar we therefore delighted that she's made time for us to deliver the Hong Xiu Qing lecture for 2019 before I give the floor to dr. Peng Gaston let me say a few words about the lecture series the Hong Xiu Qing lecture series is funded by a gift from mr. Tay Liam we former CEO and group managing director sincere watch the speaker and seminar series is named in honor of mr. T's late mother Hong Xiu Qing speakers in the series of included Andrew Sheng former chairman of the Hong Kong Securities and Futures Commission SFC Takehiko Macau president of the Asian Development Bank Diwali Subaru former governor of the Indian Reserve Bank Richards Eckhouse a professional professor of behavioral economics at the Harvard Kennedy School Moises Naim former editor of foreign policy magazine in the United States and Rebecca Santa Maria currently executive director of the APEC Secretariat as you'll note we've had Asian and non-asian speakers these and other speakers are dealt with an array of topics including trade and finance public goods Asian geopolitics and of course ASEAN dr. Mary pangestu will address us on the issue of the digital economy and development taking an ASEAN perspective Southeast Asia digital economy is growing and could be a major factor in its development in the years ahead some estimates suggest that the digital economy could raise Southeast Asia GDP by up to 1 trillion dollars and I'm sure we get an even better sense of what the numbers and figures are when dr. Peng has to addresses us not surprisingly ASEAN has taken cognizance of its great importance and therefore today's lecture is apt and timely and fits nicely in our lecture series before I invite dr. Peng gas through to the stage let me just say a few words on the evenings proceedings after the address I will invite Dean Danny quoi and li kai-shing professor of economics to join dr. pangestu on stage to conduct the Q&A session and with that please join me in giving dr. Peng gas to a warm welcome Kunti for the very kind introduction good afternoon ladies and gentlemen friends thank you for coming to listen to me this afternoon I hope that I can share with you my thoughts on this topic I I started when I started to prepare for this paper I realized that I've taken a very very wide view on this topic but I thought that it is really going to be about sharing my journey around this topic because digital economy and the digital disruption that's happening is around us it's it's part of what we are doing what we are living through and it what I'm going to be sharing with you is my own journey through this and a snapshot if you like of the main trends and the policy implications that arise from these trends we may not be able to go deep on many of these issues but hopefully I'll be able to give you the main highlights and if any of you want to pick up on on any of these specific topics we can certainly do that in the Q&A and it is really about my own journey because I started when I started thinking about this or being exposed to this I was still in government as the minister of creative economy and this was around 2011 2012 Gore Jack was just born and go Jack at the time was just an SMS application and we already thought it was so great yeah and we did it we could not have predicted where go Jack would have ended up just five years later so it is just this journey that keeps on making raising more questions than answers and causing us to think more than then thinking through being able to predict you know I don't think anybody can really make predictions on this front and and you know you read a lot of literature on on digital disruption fourth Industrial Revolution all these technologies and it really gets quite confusing so I try to distill it as really it's about how you convert things in the physical world to a piece of information a piece of digital representation a piece of data that's the easiest way that I can understand the whole digital economy and so it's we as a person we become a digital identity the wearables we have our digital identity the sensors in everything that we we interact with have digital identity so you're going from the physical to the virtual whether its production to market or transactions or the economic system which is now going not just a traditional corporation but really what we call the crowd centric corporation it gets more valuable as there are more crowd being part of the corporation I like to use this number because it shows you what a different world we live in I don't have it on the slide but gojek is now worth nine billion dollars and they reach that valued at nine billion dollars and they reach that in what five six years compare that to seen our mass which is one of our traditional palm oil companies it took them 70 years to reach it million dollars so this is old world new world right and and that's really part of the value that comes from the data and and the the the reason why you have so much data being connected with online connections among people businesses institutions devices and processes they say there's like going to be 2 billion devices being connected by 2020 I don't know how maybe maybe that's going to be under predicted even then if if say 5g comes into the picture maybe it's going to be even more it's because you have this hyper connectivity of all the data being connected through through the internet of things the falling costs of mobile tech phone and connectivity and the fact that data processing and data storage has just exploded in terms of costs in terms of size in terms of speed and this allows you to have processes and access data to the individual and personalized level I think I think we all know this because we are living this world so this is to me what is the digital economy so that we understand what is it that we are talking about and it really allows the lower the lowering of the search costs allows you to have automation coordinate between different points of data to have automation happen to have coordination in supply chain and to also have innovation which is all these platform economies that you see these are the innovation so this is just to start out how I see it all of you may have a different definition of how you look at digital economy but this is how I see it and if we're going to talk about the digital economy we better know how digitized is the world how digitized is ASEAN so 15 years ago they were like close to zero Internet users in just 15 years more than almost half of the world's population 3.8 billion and now digitized in terms of Internet penetration how does ASEAN fare ASEAN is about 54 percent and it is much higher than Africa obviously and even higher than asia-pacific so in a way we are doing well and if you really want to know how digitized is ASEAN let's have a look at a number of figures on ASEAN and this is also another way I try to look at digital economy there are so many reports on on the digital economy and its impact but I like to take a look at it from the development perspective and there was this report done by the World Bank the World Development Report in 2016 which I thought provides a really good really good framework for how if you can make the Internet accessible affordable open and safe if you have connectivity in developing countries you can reduce the digital divide but you can only enjoy the dividends of the digital divide which is greater inclusiveness greater efficiency and innovation if you have a digital development strategy being connected in other words being connected is not enough you have to know how to be able to have the capacity to utilize that connectivity to get economic livelihood or economic gain from being connected and that that's really the whole discussion about development how do you not just have people connected in the in the telecommunications digital sense but how do they use that connectivity to better themselves be included be more efficient and be more innovative so it's about development strategy it's about the complementary policies that need to be there for you to realize that the digital dividends that is coming from the digital connectivity so in other words the prerequisite in the to begin with if you want to be enjoying the digital dividends from developed for for development for your country for ASEAN you better be connected in the first place so let's talk about what does it mean to be connected to be connected the kind of reproduced this graph camp came from the wdi report and they had developing countries in year so I put ASEAN in there and what is interesting about this is too it shows you that mobile penetration rate has been growing at a much higher rate than all the human development indexes like electricity water sanitation and so on and Internet penetration so mobile penetration has tripled in between 20 between 2000 especially 2005 to 2017 so just in the last 12 years tripled from 37 to 124 per hundred people for ASEAN yeah but the internet penetration rate has only doubled from 27 to 54 so the story is that everybody's connected through the mobile phone but the internet penetration has been much lower and we'll see in a minute the usage of the mobile phone is also not yet giving them economic benefit and the opportunity from mobile phone because of the cost coming down both in terms of the handphone cost both in terms of the connectivity cost has been tremendous this is to show you two two countries in ASEAN which leapfrog because of that Myanmar and Cambodia in the last five years Myanmar like that five times in terms of mobile telephony here 111 percent growth between 2010 and 2017 so just in seven years you know if you went to Myanmar in 2010 you would not be able to use your mobile phone they really changed after 2011 after the new government came in after democracy boom huge growth cambodia the same thing Laos is maybe the only the one that's struggling Indonesia similarly double-digit growth in the last seven years from 11% to now 32% internet penetration rate with a mobile phone penetration rate of maybe three times that so the point I want you to remember because we're going to come back to what does that mean for policy kind of question mobile penetration rate is high but internet penetration is much lower yeah because people are not being connected to the Internet for various reasons really - telecom policy so if you look at digitization of ASEAN Singapore is the most advanced followed by Malaysia and Brunei and the other countries are in the middle and Laos is at the furthest behind where's Laos es los yes I can't see it from here anyway a house is the lowest and the cost has come down the cost of mobile connectivity has come down so you want to be able to be accessible in in terms of the mobile technology and the connectivity you want to have it affordable and you want to be open and safe these are the three prerequisites for you to be part of the digital economy so this is a measure of the cost and the cost is coming down a lot except for Brunei and the Philippines I'm not quite sure why the Philippines is so high but the rest of us have come down and that's due to competition telecom sector is one of the most most open mobile phone telecom sector he's one of the most open in ASEAN and this is that it shows you that only Singapore in Malaysia apparently this is according to the to the data that we could collect from Oxford Economics I think or is it from ITU that Singapore in Malaysia has the higher digitization index and more secure Internet servers okay so this is about open and safe we'll come back to what is open and safe connectivity mean you know obviously it has a lot of other meanings speed is the other thing all right Singapore has the fastest speed much higher than global average but the rest of us with Thailand interestingly Vietnam being much more ahead than Malaysia Indonesia and the Philippines the speed of the connectivity again is important because if you want to be able to deliver goods and services through the internet the speed makes a lot of difference so one of the things that is going to be in terms of telecom policy again is the speed of the connectivity how about the Internet use is mainly being done it's asking the question how much time do a cm people spend on the Internet and the Philippines is the highest at ten hours and much higher than the worldwide average of six the rest of us in Thailand is second Indonesia is eight hours Indonesia spends two more hours than average on the internet and Philippines maybe because they have a lot of business processing office which they are working from the internet maybe or maybe they just spent a lot of time on the internet so time spent on internet and many of it it may not most of the internet connectivity is through the mobile phone and this is the difference between developing and developed countries in developed countries more people are accessing through the through the desktop or through the laptop in Asia including China it's mainly through the mobile phone so that might that means mobile phone technology such as you know when 5g hits is going to make a huge difference for countries and allowing us to leapfrog in in a big way so that tells you that we are connected mainly through mobile phone we are not some so great yet at Internet penetration but the main question is okay we're connected what do we do when we are connected I don't have the data for ASEAN but I don't have it for Indonesia this is household survey data so 80 percent is on social media so I see a lot of all my Indonesian friends smiling so I must be right so search for information on news and so on what we do for economic gain such as online trading financial banking sending and receiving email is still low 30 percent sending email the rest for internet banking online buying and all that is still around 10 percent I think the story is quite similar for many of the other ASEAN countries in other words the the room to grow for internet use and being connected through the mobile telephony for economic gain is still huge this is kind of it's a it's a sad story that that's what we're doing mainly social media but I think it's showing you the potential and this is the the pattern on social media yes of course Indonesia has the biggest social media population and social media is not just about you know it is it can also be economically used because allah a lot of Indonesians I think the number for Indonesia is that for online sales sixty percent is using social media forty percent is using the e-commerce platform so a lot of Indonesians and in other countries use Facebook use Instagram to do their e-commerce so that's that's the connectivity story okay now we go back to let's go back to this picture again how does digital technology give us inclusion efficiency and innovation across businesses people and government okay and I can't give you the whole story it would take too long I'm just gonna give you some highlights but and then we're gonna talk about the risks so here's the benefits part of it and a lot of it is snippets from data as well as I guess I can tell you some some stories behind some of the data so this is as the most quoted report on e-commerce in ASEAN which is the Google tamasic develop a Southeast Asia ecommerce ecommerce development which is telling you that in the neck in the next ten years the size of the internet economy is going to go from thirty two billion to two hundred and forty billion sorry it's a bit small to see and a lot of that is going to be coming from right hailing as well as online media online travel and e-commerce this is a typical pattern for the development of Internet economy in in most countries when they start and the size of the Internet economy is a percentage of GDP is the highest for Vietnam so I think Vietnam is the one to watch Vietnam seems to be ahead of even the the main six ASEAN countries except for Singapore Malaysia Vietnam four percent of GDP is coming from Internet the rest of us is about three percent the lowest is at one point six percent for the Philippines and we are all gonna especially Indonesia double-digit growth in terms of the Internet economy as well as the e-commerce market which is valued at about six hundred billion dollars so this is this is the size and this is an ASEAN story we always talk about ASEAN as being the seventh largest economy in the world if we put all their GDP together so similarly they're going to be maybe number two or number three in terms of the size of the e-commerce market if this is why the ASEAN integration in e-commerce is important if you could have an ASEAN ecommerce market we'll come back to a little bit of that story - this is just again showing the this you know it's still small retail as e-commerce as part of retail is still small but there's a room to grow if you think that we are going to be growing where China is gonna go are we going to be reaching 20% so in China 20% of their retail trade is already through e-commerce in ASEAN is only at around 2% this is an estimate nobody really knows how to estimate these numbers because we don't have accurate numbers on e-commerce but this is an estimate and in even the u.s. is much lower than China yeah so a lot of people think that ASEAN is about five years or eight years behind China so you will but things can change that it's not a linear path but if we're gonna go in the direction of China then there's still a lot of room to grow for e-commerce and the other potential in ASEAN so innovation and these digital technologies they usually grow when they service an unmet market and and servus market which is in the case of ASEAN Financial Inclusion because 50% of ASEAN still do not have access to banking services they don't have adults that don't have bank account in ASEAN right and this has led to the growth the next growth of e-commerce is normally the FinTech and all the all the platforms end up doing payments lending and so on anyway so that's the natural progression they enter into the FinTech and they are servicing those who don't have bank accounts and then the banks are under threat and the banks have to digitize and governments also have to respond so one of the responses I think quite innovative response of the Indonesian government was to allow branchless banking so it allows banks to use agents who are normally the ones selling the prepaid cards in villages in remote areas to receive payment on behalf of the bank right and I I'm from one from a bank which is focusing on the bottom pyramid on the micro lending we have in the last three years employed three hundred thousand agents for branch for branchless banking and we've been able to expand our business without opening banks we are having to open a bank branch so it's really lowering the cost of Financial Inclusion this is just an example of of opportunity and this is why FinTech in in in ASEAN in the last three years especially have really really grown whether its peer-to-peer lending whether its payments whether it's lending but a lot of them are still linked to the banking system this is very different from China because in China they they did not have they did not serve the micro enterprises they just the banks just serve the large enterprises in Asia is a bit in in our part of the world in Southeast Asia it's a little bit different because the banks were already entering into the micro enterprises so it's more of a collaborative model other examples of benefits this is we do surveys on on grab-and-go Jack drivers and we found that their income has increased and they have income higher than the minimum wage so you know it's benefiting the drivers we also have data on benefiting those who take it the riders how much time they save and how much they're being helped in terms of convenience and time and so on and the vendors that are on these platforms are also having a huge benefits the SME merchants lots of numbers on that I don't have time here's a nice this is a study recently done by CSIS for grab to show you all the benefits that come from the merchants from the riders from the consumers so that's the benefit that's part of the digital dividend that's the benefit from development that you are including people who have did not have gainful employment or decent jobs before you are helping SME merchants I mean the whole concept of Alibaba was to help SMEs and so on so this is reaping replayed in Asia and it started out with ride-sharing okay so typically it starts out with the right sharing I'll give you another example of how digital helps creation of jobs it's the delivery of labour services through digital technology there are many many examples the business processing office that offices that are part of the Philippine export of services is one example in Indonesia we we do animation services we do design services if you look at if you watch Garfield next time half of it is being produced in Batam ok even though the the IP is Hollywood Garfield but half of it is being produced in bottom and and even BPO services of the Philippines they are being threatened now by BOTS right because call centers routine work and repetitive work are being replaced by robots so they actually have to go to the next level of giving services which are more designed more discretion more creative and so on and that's where Indonesia is now entering into the space my example you can look up in YouTube if you want to know the whole story this is a case study we actually did it's it's a combo camp on a village near Central Java in Madeline where there's this village that started out doing outsourcing for web design on a platform from Australia called 99 design and it started with somebody who was looking after the walnut the varoom internet yeah where people can go and access the internet so in his spare time he found that you could actually enter competition with design and win money yeah $200 $300 $400 then he taught the rest of the villagers to use the internet to use programs to design logos websites and so on they don't speak English that's overcome with Google Translate they don't have bank accounts so they use PayPal and they self-taught they're usually just high school graduates they self-taught themselves to design logo on YouTube on internet and probably they didn't use paid program probably they use some some better program for for the design but their income went up the whole village became better off the crime rate went down because all the young men stay up at night working on on logo designs rather than getting into mischief you know all sides I think we did we did a full-blown case study on this if you really want to watch it it's very interesting look up kampung designer on the youtube so that's just some stories about the benefit how about the how about the inclusiveness story on government and public sector lots of stories here eat government many examples of government in different ASEAN countries in Indonesia in Indonesia a lot of our government stories come from city level we had in Jakarta we had this Q was it Q yeah it's called Q it's created by some young group of Millennials to check on issues related to Jakarta so if you're if the light on your street went out you can submit your request to clue and then within two or three days it would be fixed so that kind of thing happened and of course in terms of elections in 2014 voluntaries voluntee fallen tears throughout indonesia they had this cow alpha me Lu let's what scowl let's what it's our safeguard let's guard the elections that we have Watchers people who are watching in each election post and submitting the result as they are being counted and we have a disruption in our political system also political party I think one of the candidates is graduate from lky we have so what they did was they posted if you want to be a member of parliament and you want to join our party to become member of parliament apply online here's the requirement recruited online and then when you are selected you pass the screening you get interviewed by a panel of experts and the whole panel is put on youtube so everybody knows who you are and what the interviews asked you how did you answer everything is transparent and they plan to have using digital technology to be reporting from Parliament and so on so this is just some examples that's inclusiveness efficiency how about efficiency for sure making everything faster easier should lead you to greater efficiency and therefore greater productivity and therefore greater growth that's kind of the economic argument we have some correlations between internet penetration and GNP per capita but this is just correlation is internet greater internet penetration causing you to have higher GNP per capita that needs empirical work but at least the correlation is there some other numbers I've been as an economist I've been trying to find the correlation between digital technology and growth and productivity haven't really been able to find it but let me just share with you what at least people are doing what the numbers tell you ICT capital versus non ICT capital as a contribution to growth you know those of you who are economists know that to grow you need capital you need to have growth you need capital labor and capital is divided between ICT capital and non I see T capital so the red color is the ICT capital the blue color is the non ICT capital and the yellow is the total factor productivity so in some cases there is a contribution from the increase in ICT capital to TFP productivity but again more empirical work is needed on that finally I did find we just recently in 2018 there were a number of papers done by PwC by some academics using CG modeling what they do is they put a Productivity a technology shop on each sector and then they impute and and the technology shop comes from other studies you know in automotive if you adopted Robert ization and AI this is the potential impact so they did it for every sector and then they shocked you that they put a technology shock the technology shop produces a productivity increase which then leads to growth and on average for the world it should lead to 1% increase in growth and obviously it a lot depends on the technology shock if you have a big technology shock like I don't know what it is but a huge innovation in something that makes the producing or something to become totally different then it would be a much bigger shock but on average its 1% so one of our researchers applied this for Indonesia and the result for Indonesia is that Indonesia would grow at 0.55 percent higher on average every year if we did adopt the digitization in every sector okay so this is the potential that means we can grow close to 6% in other words yeah so for me this was a very powerful result telling you that okay how do I get to that 0.5% how do I have digitization across sectors across firms and across workers because that's what's gonna need to be done how do you have the adoption rate and they're all the studies also look at okay how do cut we also did a number of other studies so the key is okay you know that if you did a technology shop you'd have an increase in productivity but how do you know that the firm's or the sectors in your country are going to adopt that technology and it turns out that whether or not a country or a sector or a company adopts faster or not depends on a couple of things can they have access to the ICT capital to begin with right are there tariffs are there hindrances are there local content requirements that allow that reduce the type of technological equipment that you can use for instance cost the cost of it can be high is there a role for government to give tax incentives for you to adopt new technology competition if you are facing competition you are most likely to try to adopt new technology digital capacity this comes back to okay we are connected you know the technology is there but you don't have the capacity human wise to be able to utilize and adopt the technology whether it's the SMEs or the workers in your in your country so the opportunity is there but the challenge is also there so if you look at firm level Indonesia is we don't have data on the level of usage of firms on robotics and AI and so on we have done a survey of CSIS did a survey and we found that 56 percent of corporations Indonesia are already using robots robotics and automation but at a very simple level of you email and web sites Indonesia is still one of the lowest and again Vietnam stands out as being the highest in in in the use of their firms using Internet and email and website this is just a measure of firms adopting digital technology of being digitized and in the world Development Report they also show you that firms in Vietnam which use web and Internet have a higher level of productivity so we try to replicate the study for Indonesia using wallbang Enterprise Survey data and we came up with a similar result that firms are more productive and more likely to export so again export and competition is also another another variable that makes companies digitized okay so that's the efficiency story that's the benefit from development right growth and efficiency and higher growth will be achieved innovation the last part of the story of the benefit is innovation okay the innovation comes from the platform economies that are not uniquely to us unique to ASEAN but was something that happened ten years ago is it when did Facebook happen 2009 right - 15 years ago so Facebook and uber uber sorry more most like uber is 2009 I know your Facebook I forgot my friend is from Facebook but I think I'm talking about about uber uber was 2009 I think here so the the right sharing platform was this notion of platform economy where economists call it a two-sided market because the it gains more value the more you have two sides of the market more uber drivers more consumers will use uber more consumers more uber riders and the value of the platform comes from the scale and the data that is built up on that platform and these platforms then earn money from data I think this is a very well-known story and you monetize it from the data this is this is the the innovation that comes from the platform economy and the pattern of innovation is comes through this process where the disruption usually comes from you know the media is the first to get disrupted then travel then retail and the ride-sharing forgot to put ride-sharing in there right sharing then is the one that has been able to create a lot of data and from that right sharing data they enter into e-commerce they enter into everything else including payment the last the golden goose is the payment so if you somebody asked the Minister of Communications and Information in in my country I said oh what's going to be the biggest bank in five years because you know digitization of banking and so on and so forth and his answer was it's not going to be a bank it's gonna be Alibaba because Alibaba and these ecommerce platforms are going to have such huge numbers giving the financial services they may they may actually buy banks but takeover banks so everything becomes much this is part of the innovation that happens and we we see this happening and we of course have ASEAN based unicorns which is kojic and grab okay and they are right sharing platforms and this is the story of Gajic and grab and in this story you will see how the valuation has increased just in five years and how Indonesia they are Indonesian founders and Malaysian founders but there I think they are actually based in Singapore and that's because of the financial sector regulations and and so on and so forth so but both are already ASEAN based and they have one is valued at 9 billion apparently and the other one is valued at 11 billion they have now entered into a grab is already in six other ASEAN countries kojic is now in another two ASEAN countries and grab and go Jack are competing with each other another issue with these digital economy and platform economies is the winner-takes-all model so if you end up in the world with Google Amazon Google Amazon YouTube Facebook are we going to end up in in our part of the world with go jack and grab or go Jack or grab is one going to grab the other or is what I'm going to be merged with the other you know this is they're competing with each other in the same market before that they were competing in different market and use you know developing their own strategies now they are actually competing with each other and each one of them have different big investors behind them from China as well as from the Google's the Microsoft's all all the major players are here showing you that asean is a very fast-growing digital economy market that can only continue to grow if you if you looked at all my numbers previously there's still a lot of gap in terms of the growth and how much we are behind china how much some of the ASEAN countries need to catch up that is yes we are still behind but that is the potential for growth that's going to be exponential I would say give it three years give it five years it's going to happen very very rapidly and grab as we know took over uber and this is part of the competition issue so another issue with these innovative platform models is it's a competition issue it's a taxation issue and ownership issue so grab just let's take grab as an example they took off when they took over ooh BRR in Singapore the competition policy Authority of Singapore did an investigation and I think they were fine was that 9 million Singapore dollars because they will they have the majority of the market and they had raised the price by fifteen dollars or something along those lines so you can have a winner-takes-all outcome with these kind of innovative companies which raises competition issues for a taxation in Indonesia we are having a big debate whether we should be taxing the e-commerce merchants the small medium sized enterprises who are merchants in these platforms because this idea came up during before elections it was killed but it doesn't mean that it's not going to come back again the other thing is should you be taxing Google for the activities they do in Indonesia or not this is another big debate we're having do you tax Google at the point of production because they claim they are based in Singapore I produce everything in Singapore I am only selling in in Indonesia so if if you don't tax an automotive company producing in another country and exporting to another country you don't you don't tax the automotive except for sales tax why should you tax income tax also to me yeah Google this is from a Google perspective Indonesian government is saying no you are spent you are earning most of your revenue sales revenue in Indonesia so you should be paying taxes in Indonesian big debate and still going on some compromises coming up but taxation is another issue obviously Google is facing the same issue in Europe in different states in America and so on so that's another dimension that is important this is to show you how Indonesia has progressed just in five years so as I said to you five years ago when I was Minister go Jack was just an SMS application now go jack is our biggest unicorn and we have another few unicorns and they're all in those fields tokopedia is ecommerce travel oka is travel bucola Park is also English Commerce and these are the tap the telecommunications companies a lot of this is in media so this is the space that you see in in Indonesia Indonesia is probably the the most the biggest one just because we are the biggest market it's also growing in the other ASEAN countries I think they want to watch is Vietnam and probably you know Mia and Cambodia at a different level there at the very at the beginning but again that would be another area to be looking at so the e-commerce site in ASEAN it's between shoppi Lozada Alibaba and bucola vocal Appa this is Indonesian ecommerce but shop is in Southeast Asia lazada is also in Southeast Asia and they are competing in each in each of the ASEAN markets there are ecommerce platforms maybe not as big as tokopedia but some are quite big so who is behind shoppi it's $0.10 who is behind lazada it's Alibaba and there is a difference between the pattern of Chinese investment coming into this region compared to Amazon Amazon comes in as Amazon whereas the alibaba's the 10 cents they come in by acquiring or working together with existing platforms so let's see what's going to be the outcome but it shows you that because the major players the major investors like Sequoia like Softbank and all that they're also in this space it shows you that ASEAN is growing and ASEAN is going to be the next big growth area ok so let's close with the risk before we talk about policies I'm really conscious of time here what are the risks predictably if you have data then the government can have your data and if the government is not accountable they can also use the data to control and and do things that we would not wish the government to to be involved with with what we're doing but probably the biggest scary thing for many of us we assess people governments and companies is how do you deal with the inequality that they're going to be job losses with automation with digitization how do you deal with the job and the skill changes that need to happen and finally of course we just talked about that scale without competition so the concentration and the winner-takes-all model that happens can really really be very scary if we don't deal with it let's just let me just focus on inequality because that's kind of the real the real scary part of the whole story for many of us yeah and and the one that doesn't really have good answers inequality is increasing if you look at all the global trends the share of labor out of national income is falling and most of the work loss is being lost in the middle skills is the repetitive skills is the routine I shouldn't say skills tasks you know people say you must take make a distinction between jobs and tasks so clerical jobs are not the ones that are lost but clerical jobs that are repetitive and routine tasks will be gone but clerical work which still requires discretion or judgment will still stay so the focus now is on tasks not on jobs but the middle skill level jobs are the ones that are gone or have stagnant wages and this is exactly what happened in the US and that's the reason people say Trump won and in in developing countries it's similar it's the middle level skills and the lower level skills so the challenge is how do you respond to technology and build up skills I think we all know this I'm sure all of you should be having this conversation in your companies in the universities and everywhere we don't know the answer but just some numbers to not scare you but to inform you that at least one study by Oxford Economics is saying that 10% of ASEAN six workforce will be displaced by automation in the next five years right so this is summer and Indonesia is one of the ones that will be most effective and it's a lot of it is in the agriculture sector because of the unskilled nature of the agriculture workers technological displacement will be mostly in agriculture affecting 13% of the workforce or 10 million workers jobs lost agriculture and but jobs gained in other sectors so jobs tasks this is kind of the challenge for for us and okay I'm already running out of time so let me just close with I'm not going to be able to go through the policy issues in great detail so maybe we can tease it out let me just highlight what are the policy issues in general and just highlight to you a few things that are happening globally yeah we can see that there's the benefit and then there are the risks and the benefits don't come about if you don't have connectivity right so and the and the whole value of the digital economy happens because of data flows so data flows is a central part of the story of digitization you have to have a freedom of data flows but at the same time you have to balance it with managing the tensions such as security issue privacy issue disruptions competition and the fact that a lot of times the regulatory agency is behind the curve on any particular technological development you can take ride-sharing as an example where we've had demonstrations by taxi drivers by taxis against the disruptors and so on and lack of the understanding of certain issues by the policymaker is that okay I don't know what's gonna happen I've just control it because I don't know what's gonna happen it's better for me to just control I just want to play safe right and normally like in the case of Indonesia we try to ban go-jek when we had demonstrations by the traditional object and guess who complain the consumers consumers complain very loudly and the president had to reverse the Minister of Transportation temporary ban he said I'm gonna have a temporary ban on go-jek until I figure out what I should do with go-jek right this is like two three years ago and then the consumers protested the president went back said okay Minister you have to just let go Jack go again while we figure out what we need to do and then subsequently you know policies on safety security and drivers came came out after that but go Jack was still allowed to go so that's some of the issues that we face and governments have a really difficult task of how do I manage transition both for the old sectors traditional sectors and for the workers who are going to lose their jobs right so do we need to do yes we do need to do rescaling retraining but what skills what training who pays for it and should we should I give incentives to companies to do this or should should government get involved should government's give a social protection measures to manage the transition these are I think what governments are facing businesses need to innovate and be agile and it is about you know at the end of the day maybe because I'm an economists I still come to the conclusion that if we want to have innovation and efficiency remember adoption of technology and the businesses being innovative being efficient needs at the end of the day continued importance of openness whether its goods so that the ICT goods can come in services that support digital economy whether it's computer related services design services R&D services logistics and delivery services and investment you want investment to come in are you gonna or are you going to limit the amount of investment that comes in right and labor and those are the four parts of freedom of Trade and movement that we have in the ASEAN Economic Community vision but now we have to talk about data right and when we talk about data it's different from goods it is about systems being to be able to talk to each other and trust a lot of trust in the data issue and and also trust governance and privacy issues which are the difference with goods so I'm thinking I've run out of time so without going to the rest of my slides you can look at them maybe maybe just just once like because I for those of you who don't know this data just like when we do work on trade we look at openness of trade and we look at tariffs on goods we look at investment restrictions on services in digital economy ECP is a european-based think-tank they have been measuring digital restrictiveness so if you want data flows to be free basically this is what you have to address so it's a similar kind of a approach like what you would do in trade in goods and and China is the most restrictive so China allows 100% foreign ownership but they do other things to restrict the the players to play in China the other Indonesia Vietnam and Thailand are also relatively restrictive a lot of that is localization of server and so on and so forth so in closing the issues that are on the table now are all related to data flow removing restrictiveness in data flow and but still allowing countries to have security and privacy and also privacy that data governance data flow with trust data free flow we trust this is the g20 agenda of Japan dff chief data governance we trust what does that mean nobody really knows but it means basically if I don't trust your privacy or security systems I'm not going to allow the data flow so there's gonna be a huge discussion on what does trust mean in your system in your country and data localization data service requirements will be increasingly questioned because it is part of the CP TPP it is actually part of your ASEAN e-commerce agreement but you still have an exception exception under public policy right so what does high-security the data that you want to keep in your country mean you have to start defining it this is some of the debates that we will be having and e-commerce agreement under the WTO is in place we can talk about what the issues are in there I mentioned two already but these are the issues that we will face globally yeah and therefore what you do nationally and I in ASEAN you need to take into account those issues thank you Mary for truly spectacular tour de force of the digital economy issues that in ASEAN we confront I've been corralled into helping moderate in the Q&A so if you want to so my job really is to be just the Guardian at the gate those who want to ask questions if you can't make your way to the microphone so that you know we can always hear not just all of us here in this room hear your question but also our friends on social media that we're live-streaming on we'll also then be able to hear you when people are sort of getting up to the microphones maybe Mary I could kick things off by purse being a little bit of a devil's advocate if I may just to so get the the discussion going why let me try and suggest that the digital economy is actually not all it's cracked up to be okay and why do I say this the big successes that we think about that you described that we celebrate in ASEAN as the unicorns the darlings of the digital economy go Jack grab it is true that a lot of their value-added is in manipulating and organizing data it is true that they're moving to all kinds of different services but the bottom line of it is that they're moving people from one place to another the business that they are in the bottom line that they are in is not about producing digital content that consumers can consume the same way that media companies movies Hollywood produces what go jack and grab for all the wonderful cool trendy things that they are they're about moving physical molecules they're not about creating new content in the form of zeros and ones and digital data they're about moving people physical molecules food physical molecules from one place to another they're actually very much part of the non digital economy they are successful because of the success and the thriving growth in the non digital economy do you agree with this idea that we have well over played overestimated overblown the success of the digital economy in the darlings of the asean digital unicorn space yes and no I think no in the sense that they they are still moving physical things so it's still the old economy if you like but they're doing it in a more efficient way so you have been you still have the benefits to the workers and to the consumers so you can you can actually calculate that right in terms of the inclusiveness and in terms of the of the of the of the efficiency as well as the innovation so there's a value still to it even though there's no digital if you like content right but somebody made a disk and so the the the yes part of it is where I'm coming at so someone described to me just a few days ago the difference between digitization and digitalization do you know what the difference is I didn't know that I thought I heard this person said so he said digitization is what you are saying so it's using the digitization to make something that already is a transaction like ordering a taxi now you're ordering an uber but you are digitizing it so you're making it more efficient because you have these platforms but digitalization is the real digital content which is a driverless car so that's digitalization and I believe that's coming right so the digitalization we are still at that's at the stage weights digitizing everything which reduces search and information cause it makes coordination in an information much more making you able to really be efficient and innovative but you haven't actually gone to the digital content in zero one but it will come with AI and and all that I think excellent you know there's this distinction that in some of the the discussions here much made of b2b business to business or business to consumer but of course in certain parts of the Internet economy space there's a lot more attention paid to the all true all line of work which is online to offline which is the space that Alibaba plays in another huge player is a space that go jack and grab and others lots to to discuss by see that people are already lining up there the microphone so let's begin sir you first thank you for your lecture I've been from unto you my question related to trust and the issue of the bill be passed in Singapore protection from online falsehoods and the new position so like no one in your views and you see such bills being passed in countries like Indonesia other and beyond that's the first question the second question will be you mentioned very quickly about taxation so how do you see that unfolding in Indonesia with regards to the digital economy thank you we can its obtained yeah we can collect a couple of questions then you can take them or you can answer this now up to you which would you prefer let's take a few so coming over and decide please again identify yourself and then ask you a question thanks for posing you should have an old party MBA student at Cal KY School of Public Policy so I have actually two questions first thing is that how do you see the digital economy in the rural market especially in countries like magmar and Laos second thing how do you see the correlation between digital literacy especially again in the rural market because a digital literacy not only in terms of benefits off that still economy but also about the threats especially the security and all so how do you see this marriage taking notes James thanks James country from the leak Ronnie's going to bend down a little bit I wanted to ask you a question about how these changes will affect patterns of globalization and the model of globalization that allowed East Asia to become rich was predominantly driven by labor-intensive exports Automation reduces the value of labor in manufacturing and that the trends that you're talking about make digital flows more important both as a component of services but also manufactured goods so in addition to the positive things you've talked about do these changes bring into question the ability of lower middle-income countries in this part of the world to use labor-intensive manufacturing as a development springboard help ease knowing okay easy to remember my name is William cking okay as an Indonesian I work on policies and future technologies I am AIA dan qua title one very important thing the constant change for civilization is to expand integrations the driver for economy is transportation communications therefore that is what I share that biotech cannot rightly economic and that is why you see the policies changed since then so technology has integrated us into one global village the integration among men has come to maturity so we face diminishing written down though we have to expand integrations with mother nature and that is how you can have clean energy and clean water I wish to share with professor Mary they thought after its discussion because I have seen the waterway in Jakarta there is a solution in Singapore that can filter the water without getting choked from here I thank you very over you really interesting issues very wide range okay the trust and the I think you are referring to like a hoax anti hoax anti hoax laws anti fake news laws I think if I did I catch that question correctly yes so I understand Singapore just pass anti hoax law yeah Indonesia also has had lots of discussions on this and we did we did try to pass something but I'm not sure how how it it came out but there were a few what do you call it they did they were able to trace who were the source of the hoax and you know there were a few people who were caught and sang given sanction but my own view on this is that you can have this kind of laws but it's going to be so difficult to actually control you know the moment you try to put filters and controls that are being manned by a government or by a security agency I think you know it's kind of the the the verses of it is the freedom of information the freedom of expression which which is always the counterbalance so I think it's going to be very difficult to draw that line I'm more inclined to to have the responsibility be taken by the platforms themselves and the wisdom of the crowd you know there's this terminology called crowd wisdom so that you you as the crowd that because I think they are also trying to target whatsapp group discussions and by the way in our election analysis was app group was an important I think in India the same thing it has been an important tool but there has to be the crowd wisdom in itself to be able to police it at the end of the day it will emerge and that comes from education comes from all kinds of of measures yeah and the platforms themselves they need to be they need to be to have their own way of detecting if something is really bad that they should take down immediately right the the case of the New Zealand the shooting in New Zealand it took how many minutes 20 minutes or something was it was Facebook was it Facebook or yeah was Facebook I was large they took it down right something like that should never happen right and if something like that happens then the platform needs to there should be some sanction against the platform so but no matter how good your algorithm is it may be very difficult to actually detect something so you might have to do a Wikipedia kind of thing where you know people people need to be also vigilant and and report if if something like that happens things like that I'm more it that that's my own view because I just don't think that if you put an agency or a government in charge of figuring out whether something is a hoax or something is fake you're going to have a lot of problems I think in terms of the that the cost would be on the freedom of expression and democracy taxation I think it seems there's this big discussion going on right now and it is part of the discussion of the DA in the WTO it's between customs duties and taxes so taxation on sales is probably very legitimate even in the u.s. different states have different sales tax so if you buy on the e-commerce platform you pay a different sales tax depending on on which state you're going to buy it in right so with ASEAN I think sales tax would be the way to go but the moment you enter into customs duties on electronic transmission which is at the moment under moratorium in the WTO since 95 there are those who want this to be the moratorium to be lifted so that you can impose customs duties on electronically transmission transmitted transactions and that's going to be very difficult to to implement so and then you have a question in ASEAN you have zero duty between ASEAN countries are you going to have zero duty on the electronic transmissions because I think that should be the way to go if we want have one ecommerce market in hacia and then we should have zero also right so I think that's where some of the discussions will be going on the taxation of corporations now that's a different issue because the issue is about the different tax corporate tax rates Singapore has the lowest corporate tax rate that's why Google is having their office here and they want to pay their income taxes here of course right there may be other reasons right yes yes of course but it's the same issue that Google faces in Europe why did they locate in I when did they move from I think Holland to Island you know they're looking for the lowest tax rate this has never been a salt issue in ASEAN you know it's kind of like should we compete with each other to lower our tax rates or not it's it's it's it's not an ASEAN it should be as an finance ministers issue but I don't think that's in the works you know to say have a uniform tax rate but how do you have a more equitable tax payment if the in if the company is domiciled in the lowest corporate tax rate location but it's doing business its main businesses and revenues are being earned elsewhere it's a question because it that's going to be the big issue digital economy in global market potential for Myanmar I think I think it's going to be growing just like it has grown in Indonesia and Philippines and Vietnam Myanmar and Cambodia are looking very much like they're going to be leapfrogging and if you think about Myanmar they don't really have a banking sector yeah so are they gonna leave immediately to buy just bypass you know have nots nobody needs to have credit cards or debit cards they just go directly to to the FinTech for instance so there's going to be a lot of potential for leapfrogging in ways that are going to be very innovative how about digital literacy and the threats from security I think the the most important thing that countries need to have in their digital strategy is really on the connectivity the physical the physical telecommunications connectivity and the ability for the Internet to be used in that connectivity and that's a telecom policy okay so it's spectrum backbone and so on and so forth that's still a big homework and the second homework is the digital literacy once you're connected how do you have the capacity to get value from that platform and that requires you to have to be digitally literate you know your population your businesses and so on and that's probably the number one homework for countries like Myanmar and in Cambodia and even Indonesia you know we are a large part of our population still needs to to be addressing the digital literacy before you even talk about the upscaling and the rescaling which is more of a singapore malaysia problem right so the different stages of ASEAN develop have s/m countries are at different stages of development in terms of digital literacy and there needs to be a continuum of effort on that and also I think your question is is absolutely correct the secure the security and such as a security issue but maybe it's an education issue because this this whole notion of hoax and fake news you know we watched it just recently in the recent elections this debate between quick count and real count so the the opposition was saying no no no they didn't win yet that was just a quick count not the real count and and then the they posted a lot of information on the social media and a lot of people thought that that's true yeah but there was just no understanding of that so information does need to be that it's just it's not just a security issue but a kind of a wisdom issue James question yes absolutely I think this is the biggest worry because we are already seeing automation and robotics being used in labor-intensive industries and they are replacing labor but the question is we are doing some interviews on Footwear in the footwear companies and garment companies and I'll just share you to two of my insights we still need to do more research to find out what is the real the real pattern that's coming out what we what they are saying is that we are replacing the the repetitive work and the routine work but we are shifting them that we have to reduce the number of labor but we retrain them to do more the systems management right that's one response and in the footwear case they were saying that we did this because the labor laws in Indonesia are very very stringent on retrenchment and minimum wage and then we faced rights so that's another reason why we we switched to robots because the robots don't strike and they can work 24 hours right and we have to compete with Vietnam and China who are much more efficient and much more productive yet so that's another answer the third answer I would give you is this is interesting because I she's the the person that I interviewed on this was a garment is the largest garment exporter in Indonesia and so when we asked her so what does digitization mean in your case are you gonna end up you know reducing the amount of labor that you're gonna have and she said no I have been i am using automation I am using some robotics but what I'm doing now is I'm having three shifts instead of one shift so it's the augmentation in other words so not all labor is replaced but the existing labor is made more productive by the technology yeah and she said to me another interesting thing that to me industry 4.0 is not about the robot or the automation it's about the end-to-end the supply chain so that I can be linked this is the the openness of data is very important so that I can have my protocol in my digital system talk to the protocol of my buyer so that I know exactly when they're running out of the red sweater and that and I'm also linked to the procurement part of my global value chain so red sweater running out immediately there's a message to the procurement order red material red thread whatever whatever and then immediately it goes into the order that's what I'm dreaming of yeah so while you are going to be so probably I'm asked answering your question in a long-winded way but I think my to two takeaways is that the adoption rate is still slow but it's gonna happen in the next three to five years so we still have a little bit of time in terms of the labor intensive sector but in three to five years it's going to be much reduced but it's going to be a different type of labor use and the value from the digital economy for the labor intensive sectors are still going to be there if they transform and digitize their whole value chain as as a response right and the labor can be retrained and shifted to do other things that are still in that value chain what was the last question of the holistic nature of the development of the digital economy yeah I'm not quite sure yeah it's a holistic nature of the development of the digital economy and the digital economy can help to me I do a lot of work on sustainable development as you would have noticed from what Kunti was reading and I can see that technology digital technology can really help give answers to to the sustainable development question whether it's the smart grid for energy whether it's a smart transportation system that that can make sure you can have less traffic jam and and so on and smart energy is a lot of to do with renewable how you can have the off-grid and underwritten and so on and so forth and I think it you know the possibility of drones and satellite images can really help you to monitor where where environmental destruction is going on and and data you know I think I think data is increasingly going to be very important too for many things whether it's food policy environmental policy and it can also do politicize the debate you know having accurate data can be politicize a lot of debates I'll give you a concrete example a straight Minister I always had fights with the Agriculture Minister on rice because every day all against the import of rice but the Minister of Trade has to make sure there's enough rice so that the price is stable so we always dispute on the rice production data right it's an estimate after all but lots of debate continued debate and when you're late importing rice the price goes up right so the people suffer this debate was put to rest with drone with satellite technology drone technology and still on the field technology it was actually one of the systems developed by if pre that's why you know and it's settled the debate last year and and the president has agreed this is the one data that we are going to use from now on and it has a high level of accuracy so that they can be no more debate and you can be politicize decision making very fascinating [Laughter] Conte is giving me signals I was actually gonna say that we're gonna have to call this call this having other commitments and I see them leaving but I just wanted to say Mary you've introduced brought to us so many interesting issues so many so many fascinating challenges conceptually analytically you know the new data the new mechanisms that you're telling us about and and the wonder one of the wonderful things about this is how the impact on the well-being of ASEAN is significant it's not just some academic discussion I think you know I can sit here and listen to you for hours with all you know all the insights that you're bringing all the fresh data that you've got but as Kanye and I have just engaged in this frenetic conversation I'm gonna have to call this evening to a close I want to thank the audience for all your attention and all your enthusiasm but most of all I would like you to join me in thanking Mary for a wonderful [Applause] [Music]

Channel: Lee Kuan Yew School of Public Policy

Views: 11,719

Rating: 4.8816566 out of 5

Keywords: international affairs, global governance, mari pangestu, digital economy, ASEAN, digitalization, economy, digital development, asean economy, lee kuan yew school of public policy, national university of singapore, lecture, digital disruption, asean digital economy, singapore digital economy, digital asean, fourth industrial revolution, jakarta economy, jakarta digital economy, jakarta startup, smart city, digital government, future governance, the future of asia, gig economy

Id: gjrx89sKpRA

Length: 83min 26sec (5006 seconds)

Published: Thu Jul 25 2019