In the past three decades, only a handful of countries have managed to achieve that status, and importantly, to sustain their position. In fact, the road to becoming a high-income economy is more difficult today, as countries are confronted with challenges and uncertainties like never before. According to the OECD1, the present landscape has “new rules, new environmental constraints, new technologies and more competition”. We will need to adapt to these changes, while managing other shocks that may come our way. What we don’t want is for the economy to take one step forward, only to be pulled two steps back. Along these lines, allow me to share four points on how Malaysia can more confidently transition towards a high-income economy. An economy centred on innovation My first point is on putting innovation at the centre of our economic development. Malaysia has come a long way. From being a commodities-based economy, we have diversified into high-end manufacturing and modern services. This helped us advance into a middle income economy in the early 70s. Yet, since then, we have struggled to achieve productivity- and innovation-driven growth needed to become a high-income economy. Even today, the deficit in the innovation capability of our economy remains. For instance: Malaysia does not spend enough on R&D. In fact we spend less than half of other frontier economies like Korea, Taiwan and Singapore. Our R&D efforts have focused on generating scientific knowledge, but less on applying that knowledge. This has resulted in low commercialisation of R&D.
Of course the City is in competition with other financial centres elsewhere in Europe. But as I have often pointed out before, at the macro-economic level such competition is a positive-, not a zero-sum game from which we collectively, borrowers and lenders and market intermediaries, all stand to gain. I have every confidence in the ability of the City to thrive in this competitive environment - but it will thrive not at the expense of the rest of Europe but alongside other European financial centres. And in that context suggestions that we should be somehow artificially disadvantaged are irrational. The third challenge confronting the City - and a much more fundamental one - is the accelerating advance of information and communications technology which is currently sweeping across the whole of the global economy. In the financial services sector in particular it is the major driver of change and innovation. It makes possible the introduction of a whole raft of essentially new financial services and products, and it is radically changing the way in which they and existing services and products are delivered, whether in wholesale or retail financial markets, at a fraction of the existing cost. In wholesale markets it will affect the whole spectrum of activity - from trading through payments and settlements, across the whole range of financial instruments, across national boundaries - not simply within Europe although that is an immediate focus of attention - and it has the potential to alter fundamentally the relationships between end-users of the markets, intermediaries and exchanges.