Salzburg Global Seminar - Long-Termism and Sustainability Must Form the Lynchpins of Our Economic Philosophy
29 June 2017   |   By : Tan Sri Dato’ Seri Ranjit Ajit Singh, Chairman Securities Commission Malaysia
Executive chairman of the Securities Commission (SC) Malaysia calls for greater efforts to make the economy and financial system more inclusive and sustainable for all. 

Below are the remarks of Ranjit Ajit Singh from his opening address at the 2017 session of the Salzburg Global Forum on Finance in a Changing World - Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? 

Mr. Stephen Salyer, President & Chief Executive Officer, Salzburg Global Seminar, Sylvie Matherat, my fellow co-chair of the seminar, distinguished participants, ladies and gentlemen, good morning. I am delighted to be here in the lovely location of Salzburg. 

And as I stand here, I am reminded that the best test of any human construct or invention lies in its ability to adapt and remain relevant in the face of the only constant of this world – change. The Salzburg Global Seminar on Finance in a Changing World aims to do just that – to stimulate important conversations on major trends unfolding across today’s financial landscape, as well as the implications they bring, and the responses they necessitate, in this small but highly influential gathering of leading policymakers, regulators, market practitioners and experts in the global financial services sector. 

I would like to take this opportunity to thank Stephen Salyer and Tatsiana Lintouskaya for their gracious invitation to be here today and convincing me to co-chair this very important event.

Fragmentation in today’s world 

Ladies and gentlemen, I would like to take some time this morning to offer a few of my observations on global developments and the impact of fragmentation on the financial system. While I do not profess to have solutions for the challenges that confront us, I hope that this will provide some perspectives in our conversations over the next two days. 

The theme of this year’s Seminar is timely, as policymakers and regulators around the world respond to the impact of ongoing political and socioeconomic developments. In my view, there are several permutations to fragmentation that transcend economic, social and geographical boundaries. 

Open and integrated financial markets are under threat from political and economic challenges stemming in part from growing backlash against globalization and calls for protectionism policies among many countries. The backlash stems partly from concerns of growing social fragmentation with growth not being evenly spread across the income spectrum, reflecting an increasingly widening inequality gap.

Today, we live in a world where the richest 1% is said to own more wealth than the rest of the world population [1]. Globalization has also resulted in increased inequality within countries, which is particularly pronounced in some advanced economies of the world. 

In contrast, one-third of all food produced for human consumption in the world (around 1.3 billion tons) is lost or wasted, with most wastage occurring in developed markets [2]. In terms of climate change, the share of national GDP at risk from climate change is expected to exceed USD1.5 trillion in 301 major cities (expected to account for two-thirds of the world’s GDP) around the world by 2025 [3]

There are also structural implications arising from technological progress and innovation on employment and job displacement, which are very real. While automation has the potential to increase productivity and economic growth, it also raises concerns on implications to jobs, skills, and wages. 

Such developments, if taken to extreme, may even fragment the existing social order. Despite recent geopolitical outcomes, the pivot away from globalization that we see is very much a symptom of deeper rooted socioeconomic imbalances, rather than a root cause of its own. It has also been aggravated by the challenging external environment of heightened uncertainty, low growth and high debt and growing inequality.

Ladies and gentlemen, 

The second aspect of fragmentation relates to economic fragmentation. We have been observing a realignment of global markets, in terms of the presence and significance of emerging markets within the global financial landscape. Emerging economies contribute nearly 60% of global GDP, as compared to 10 years ago when they accounted for only about 30% of global GDP [4]

Global population, in turn, is expected to reach over 9 billion by 2050 with the majority of this growth driven by emerging markets [5]. The significance of emerging markets was reinforced by the IMF Managing Director Christine Lagarde in a speech where she said – “Emerging and developing economies are home to 85% of the world’s population, and these 85% matter to the global economy more than ever, and they matter to you more than ever – because of strong linkages through trade, finance, economics, geopolitics, and personal connections that you experience every day” [6].

In shaping the global agenda, it is critical therefore to consider the heterogeneity of markets with varying economic and social dimensions, and are motivated by different needs. The agenda cannot be one that is premised on a one-size-fits-all model that is driven, and sometimes dictated, by advanced markets. Given the number and growing economic significance of emerging markets, there needs to be a more balanced debate on international regulatory reforms and better inclusion of these considerations in international policy formulation. Otherwise, we risk perpetuating this divide and fragmentation even further. 

Ladies and gentlemen,

The third aspect of fragmentation relates to an area close to what I do and that is regulatory fragmentation. The world’s capital markets currently make up more than half of global financial assets. Further, a corollary of the narrowing of traditional financing channels as banks adopt a more conservative lending appetite (in line with more stringent prudential requirements) is the greater reliance on capital market-based financing. Prudential regulation and financial stability issues, however, continue to dominate global policy regulation and often is not reflective of the significant role of capital markets in the overall financial system.

For example, there are instances where prudential regulations are being expanded to reach capital market and non-bank entities which by their nature are different from banks. There is also greater focus on issues relating to market regulation, which have traditionally been within the realm of securities regulators further creating duplication and potential fragmentation in regulation. 

To reflect the multiple dimensions of global financial regulation and to minimize these unintended consequences on capital markets, there needs to be concerted efforts to increase the representation of capital market regulators in international financial policy-making. Today capital market regulators (both from developed and emerging markets) are severely under-represented in the configuration of some international organizations at a time when market-based financing is increasingly growing.

New paradigms of globalization 

The important question for policy makers, regulators, and market practitioners is not whether we should accept or reject globalization, but rather, how do we ensure that that global policy making and regulation leverage on each other and do not perpetuate fragmentation even further and impose undue costs and disruption to the market. As global finance interconnects us, there needs to be, as the Salzburg Global Forum in their efforts of Bridging Divides seeks to do, much greater emphasis placed on bridging the divides and creating greater links to financial development to minimize the risk of further polarization. 

There is also a need to redefine the paradigms of globalization and re-orientate our development philosophy towards more inclusive access to opportunities that transcend geographical and socio-economic boundaries Growth must be sustainable across generations and be able to support optimal quality of life for those living within the ecosystem. This includes strengthening the safety nets to ensure sustainability of our retirement systems against the backdrop of an aging population. Are the needs of the aging population being catered to and do they have opportunities for wealth creation through effective savings and pensions structures?

To ensure a meaningful response to many of these issues I described earlier, it is clear that long-termism and sustainability must form the lynchpins of our economic philosophy. This is a central theme as we contend with not only finite but depleting resources, as the forces of globalization impact inclusivity and social inequalities. 

Sustainable capitalism 

Ladies and gentlemen, 

A healthy financial system is vital for the well-functioning of the global economy. It is however observed that finance has also gained a momentum of its own and has become somewhat detached from the real world of industry, manufacturing, services, agriculture, thereby outpacing growth in the real economy and distorting public’s trust and confidence in the financial system along the way. 

In order to make finance work for the real world, rapid financial proliferation should be balanced with a more democratized financial system to meet the needs of diversified stakeholders across different segments of society. It cannot be solely anchored on small but influential segments of the economy, whether they be the more advanced markets, the larger companies and institutions or the wealthy and elite individuals.

One clear example is the disconnect between the traditional financial system and the younger generation, where structural inadequacies within the system have helped catalyze new forms of alternative financing and investments enabled by technology (crowdfunding, mobile payments, and investments etc.). 

With its ability to provide long-term financing to encourage and sustain business activity, innovation, and infrastructure development, it is critical to have deep and interconnected capital markets that can safely and efficiently allocate investments needed to achieve these outcomes. Global challenges, such as climate change, require significant investments, with the World Economic Forum estimating that an additional investment of US$700 billion per annum is needed to provide for clean energy infrastructure, sustainable transport, energy efficiency and forestry [7]. Due to the sheer scale and duration of financing required, it is argued that capital markets have the appropriate mobilization and risk diversification capacity to fulfill this demand. 

Further, Islamic finance, based on principles of equitable and participatory growth with emphasis on risk sharing, can also play an increasingly pivotal role in promoting sustainable finance. As Islamic finance transactions need to be supported by genuine economic activities, it is also therefore firmly linked to the real economy.


Ladies and gentlemen, 

Globalization in its current form is not a viable option, nor is fragmentation or permutations of it, the solution to the challenges we face. What is required is a common set of minds to shift the global ecosystem to make the economy and financial system more inclusive and sustainable for all. A world which incentivizes short-term maximization at the individual level over long-term optimization at the aggregate level is not a world that produces sustainable outcomes for the present as well as the future generation. 

We are at a critical juncture. As stewards of global finance, our actions - or even inaction - in the coming years will be a crucial determinant of the state of resilience and integrity of our economies. 

I wish you a productive discussion in the days ahead. Thank you.

[1] Oxfam (January 2017), “An economy for the 99%”, Briefing paper 
[2] Food and Agriculture Organization of the United Nations (FAO) 
[3] Harvard Business Review, (2017), “If You Think Fighting Climate Change Will Be Expensive, Calculate the Cost of Letting It Happen” 
[4] Christine Lagarde, (4 February 2016), “The Role of Emerging Markets in a New Global Partnership for Growth”
[5] United Nations Department of Economic and Social Affairs (2015), “World Population Prospects: The 2015 Revision”
[6] Christine Lagarde, (4 February 2016), “The Role of Emerging Markets in a New Global Partnership for Growth”
[7] World Economic Forum (2013), “The Green Investment Report: The ways and means to unlock private finance for green growth”
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