The Association of Southeast Asian Nations (ASEAN) stands at a critical juncture. For over five decades, the region’s explosive growth has been fueled by a single, highly effective economic model: export-led industrialization. Manufacturing-focused economies have attracted massive foreign investment, created millions of jobs, and transformed several nations from agrarian societies into middle-income countries. Yet this model is showing signs of irreversible strain. Rising protectionism, technological disruption, artificial intelligence, and shifting geopolitical power dynamics are fundamentally reshaping global trade flows in ways that threaten the foundations of ASEAN’s prosperity.
Recent discussions at the Asia Future Summit revealed an emerging consensus among regional leaders and economists: ASEAN must fundamentally reimagine its economic strategy or risk losing decades of progress. This transformation requires not just incremental policy adjustments, but a wholesale reorientation toward regional integration, internal consumption, and the development of homegrown multinational corporations. For Singapore, which has long been ASEAN’s most developed economy and a crucial nexus point for global trade, this transition presents both profound challenges and unprecedented opportunities.
Part I: The Core Challenge – The Erosion of ASEAN’s Export-Led Model
The Foundation of Five Decades of Growth
To understand the urgency of ASEAN’s current predicament, one must first appreciate the remarkable success of the export-led industrialization model. Beginning in the 1970s, countries like Singapore, Malaysia, Thailand, and Indonesia pursued a deliberate strategy: attract foreign manufacturers seeking cheap labor, abundant resources, and proximity to major markets, particularly the United States. This approach proved devastatingly effective.
The model relied on several interconnected advantages. Labor costs were dramatically lower than in developed economies. Governments offered tax incentives, streamlined regulations, and investments in basic infrastructure. Natural resources—rubber, tin, oil, timber—provided additional comparative advantages. Supply chains gradually solidified around existing clusters of manufacturers. By the 1990s and 2000s, ASEAN had become indispensable to the global manufacturing ecosystem, particularly for electronics, textiles, automotive components, and consumer goods.
The economic results were transformative. Per capita incomes soared. Hundreds of millions of people climbed out of poverty. Cities expanded rapidly. Educational attainment increased. Healthcare systems improved. Entire middle classes emerged. Singapore became one of the world’s wealthiest nations. Malaysia, Thailand, and Indonesia experienced decades of double-digit growth. The Philippines and Vietnam, despite later starts, achieved impressive development trajectories. ASEAN’s combined GDP grew from roughly $50 billion in 1970 to over $2 trillion by 2025.
Yet this remarkable achievement rested on a fundamentally fragile foundation: the willingness of developed nations, particularly the United States, to continuously absorb ASEAN’s manufactured exports while allowing the region to maintain competitive advantages through low wages and limited environmental regulations.
The “Race to the Bottom” Sustainability Crisis
As Malaysian Deputy Minister Liew Chin Tong succinctly articulated at the Asia Future Summit, ASEAN’s prosperity has historically been driven by competition to attract investors by cutting wages and environmental standards. This dynamic, which he termed a “race to the bottom,” was always inherently unsustainable from multiple perspectives.
Economically, the model created a trap. ASEAN countries competed against each other rather than cooperating strategically. When one country attracted a factory, rivals felt compelled to offer even more aggressive incentives to retain their share of investment flows. Wages remained depressed not because productivity was low—many ASEAN workers demonstrated exceptional skills and efficiency—but because governments feared losing investors to neighboring economies willing to accept even lower compensation. This suppressed consumer purchasing power throughout the region and prevented the development of substantial internal markets.
The environmental costs have been staggering. Decades of rapid industrialization with minimal regulation have produced some of the world’s most polluted air and water systems. The Citarum River in Indonesia and various waterways in Thailand bear the scars of uncontrolled industrial discharge. Air quality in major manufacturing zones regularly reaches hazardous levels. Carbon emissions accelerated dramatically. Forests were cleared for industrial zones and palm oil plantations. These environmental degradations now impose enormous long-term costs on health, productivity, and livelihood, particularly for the poor who lack resources to escape pollution.
The social consequences have been equally troubling. Manufacturing jobs, while better than agricultural labor, often offered minimal benefits, limited skill development, and no meaningful career progression. Wealth generated by manufacturing flowed disproportionately to foreign corporations, domestic elites, and government officials, while workers captured only a fraction of the value created. This dynamic exacerbated income inequality across ASEAN nations and within them. By 2025, many ASEAN countries ranked among the world’s most unequal societies, with Gini coefficients exceeding 0.40 in several nations.
Perhaps most critically, the model created a structural vulnerability: ASEAN developed extreme dependence on external markets over which it had no control. When the US economy faced recession, as it did in 2008 and 2020, ASEAN’s growth collapsed. The region became hostage to American consumer demand, American monetary policy, and American trade decisions.
The Structural Shift: Why the Model Is Now Failing
As of 2025, multiple forces are simultaneously eroding the foundations of export-led industrialization in ASEAN. These are not temporary cyclical challenges that will reverse with economic recovery, but rather structural transformations that are fundamentally altering the global economic landscape.
US Protectionism and the End of Open Markets. For decades, ASEAN’s strategy implicitly assumed that the United States would maintain relatively open markets and continuously absorb the region’s exports. This assumption has now been shattered. The Trump administration, returning to power in 2025, has made clear its intent to protect domestic American manufacturing through aggressive tariffs. Previous rounds of tariffs during Trump’s first term (2017-2021) demonstrated the serious impact on ASEAN exporters. Now, with even more protectionist rhetoric and a second mandate, the trajectory is unmistakable: the era of easy American market access is over.
China, once itself an export competitor, has now effectively closed its market to ASEAN goods through subtle non-tariff barriers and preferential treatment of domestic companies. The European Union similarly maintains complex regulatory frameworks and carbon border adjustment mechanisms that impose costs on ASEAN exporters. The comfortable assumption that ASEAN could perpetually export to developed markets at high volumes while those markets remained open has definitively ended.
Technological Disruption and Automation. Manufacturing is undergoing a technological transformation that directly threatens the viability of low-wage, labor-intensive production. Robotics, artificial intelligence, and advanced automation are making human labor increasingly irrelevant in manufacturing. A modern electronics factory requires far fewer workers than it did two decades ago, and the workers it does employ must have substantially higher skill levels than the typical ASEAN factory worker. This trend will accelerate dramatically over the coming decade.
For ASEAN, this technological shift represents an existential threat to its competitive advantage. The region built its growth on abundant, cheap labor. But if labor becomes a minor cost component in manufacturing—a rapidly emerging reality—then ASEAN loses its primary source of comparative advantage. High-wage countries like Germany and Japan can automate production and still compete successfully. But once manufacturing becomes capital-intensive rather than labor-intensive, capital-rich developed nations will naturally reshore production to be closer to their primary markets.
Artificial Intelligence and the Transformation of Services. Beyond manufacturing, AI is beginning to transform service sectors where ASEAN had hoped to develop competitive advantages. Business process outsourcing—which represented a significant source of employment and foreign exchange earnings for countries like the Philippines and India—faces disruption as AI language models become capable of handling customer service, data analysis, and routine business tasks. While this transition will take years to play out fully, it signals that the region cannot simply transition from manufacturing to services as a growth strategy, as this path too is being disrupted.
China’s Rising Competition and Industrial Overcapacity. China has shifted from being ASEAN’s manufacturing competitor to being a regional hegemon with overcapacity. Chinese manufacturers, facing domestic demand that cannot absorb their industrial output, are aggressively exporting throughout Southeast Asia and beyond. Chinese companies benefit from capital access, government support, and advanced technology that ASEAN competitors struggle to match. Simultaneously, China’s Belt and Road Initiative and other regional initiatives are positioning Chinese firms to capture resources, markets, and supply chains throughout ASEAN, leaving less opportunity for local companies to develop competitiveness.
Supply Chain Reconfiguration. The global supply chains that enriched ASEAN for decades are being reconfigured for geopolitical resilience. Companies that once consolidated production in a single low-cost location are now diversifying across multiple geographies to reduce vulnerability to political disruption, tariffs, or pandemic-related shutdowns. While this creates opportunities for some ASEAN countries, it also means that individual nations can no longer rely on being the indispensable location for specific production. Investment flows are becoming more volatile and conditional.
Climate Change and Environmental Accountability. Developed nations are increasingly imposing carbon tariffs, sustainable production standards, and environmental regulations on imports. The Carbon Border Adjustment Mechanism (CBAM) in the EU and similar mechanisms being contemplated in other developed economies will make ASEAN’s environmentally intensive manufacturing increasingly expensive. Companies will be forced to either upgrade environmental standards—raising costs and reducing competitiveness—or face tariffs that price their goods out of markets. This represents a permanent structural shift, not a temporary regulatory phase.
The Demographic Time Bomb
Compounding these structural challenges is a demographic crisis that ASEAN has largely failed to confront. While the region still possesses a younger population than Northeast Asia or developed economies, this demographic advantage is eroding rapidly. Birth rates have fallen throughout ASEAN as female education and workforce participation have increased and as economic development has traditionally accompanied lower fertility.
The window during which ASEAN benefits from a “demographic dividend”—a large working-age population relative to dependents—is closing. Within the next 15-20 years, several major ASEAN economies will experience aging populations and labor force decline. This fundamentally changes the equation. The region can no longer rely on an ever-growing population of young workers to fuel labor-intensive growth.
Moreover, unless current workers are elevated into higher-productivity, higher-wage employment, the transition to an aging society will occur amid widespread poverty and insufficient pension systems—a recipe for social instability. Liew Chin Tong articulated this challenge starkly: “We must ensure that in the next 20 years, our people become a lot more richer before we get old.” Without such transformation, ASEAN risks becoming old and poor simultaneously, while developed economies become old and rich.
The Geopolitical Dimension
The structural challenges facing ASEAN’s export model are amplified by geopolitical shifts that have fundamentally altered the strategic context in which the region operates. For decades, ASEAN benefited from a stable, US-led international order that, despite periodic disruptions, maintained relatively predictable rules for trade and investment. That order is fragmenting.
The US-China rivalry is intensifying, with both powers increasingly demanding that countries choose sides. Developed nations are implementing “friend-shoring” policies—deliberately shifting supply chains away from perceived adversaries and toward trusted allies. This creates opportunities for some ASEAN countries but also pressures them to make geopolitical choices that may conflict with economic interests.
China’s growing economic and military power means ASEAN can no longer ignore regional hegemonic dynamics. The South China Sea disputes, while not directly threatening trade routes (which remain open), create underlying tensions that could potentially disrupt regional stability. More importantly, they signal that ASEAN’s ability to remain strategically non-aligned—a cornerstone of regional stability and prosperity—is under increasing strain.
Russia’s invasion of Ukraine in 2022 and the subsequent fragmentation of global finance and trade systems have demonstrated that economic interdependence does not guarantee peace or stability. This realization has prompted some governments to reduce economic dependency on potentially unstable partners—another force fragmenting the integrated global economy that once enriched ASEAN.
Part II: Key Opportunities and Pathways Forward
Internal Consumption and Regional Market Development
The most immediately actionable opportunity for ASEAN is the development of its own vast internal market. With a population of 700 million, ASEAN is comparable in size to India and larger than the entire European Union. Yet this population remains impoverished compared to developed economies and even to the regional income levels that existed in developed nations at similar development stages.
Crucially, this massive population lacks adequate purchasing power to constitute a significant consumer market. As Liew Chin Tong emphasized: “We can have 700 million population, but 700 million population of poor people doesn’t help to create a market.” This insight cuts to the heart of ASEAN’s dilemma. The region possesses the essential ingredients for a massive internal market—size and growth potential—but has failed to develop the income levels that would activate this potential.
By deliberately shifting economic policy toward raising incomes, improving productivity, and developing domestic industries to serve regional consumers, ASEAN could tap into a source of growth entirely independent of external market access. This would require substantial restructuring of economic policies, educational systems, and industrial strategy.
Building a Middle Class Consumer Economy. One critical pathway is deliberately fostering the emergence of a broad middle class throughout ASEAN. Currently, wealth distribution remains highly skewed. Developing a consumer economy requires not just increasing average incomes but also reducing inequality so that income becomes more broadly distributed across the population.
This approach would require public investment in education, healthcare, and infrastructure in underserved regions. It would necessitate labor policies that ensure workers capture a fair share of productivity gains rather than having all value accrue to capital owners. It would demand progressive taxation that redistributes wealth rather than concentrating it among elites. It would require financial inclusion policies that bring hundreds of millions of currently unbanked individuals into formal financial systems where they can access credit and build assets.
Such policies are often characterized as anti-business, but this represents a fundamental misunderstanding. A broad middle class with purchasing power is precisely what generates sustained business growth and profitability. Consumer economies with healthy demand create more employment and business opportunities than low-wage, export-dependent economies. The historical experience of developed economies demonstrates unambiguously that middle-class development generates more total economic activity than inequality-based models.
Developing Regional Supply Chains. Currently, ASEAN countries compete intensely with each other for the same foreign investors and the same export markets. This competition prevents the region from developing complementary economic specializations. Teo Siong Seng recalled how, decades ago, there were discussions about specialization—Malaysia focusing on agriculture, Thailand on car parts—but such plans “went out the window.”
A more strategic approach would deliberately develop regional supply chains where different ASEAN nations specialize in different production stages or product categories, with components flowing between countries rather than finished products flowing out to external markets. Vietnam might excel at certain electronics manufacturing stages; Malaysia at advanced automotive components; Indonesia at raw material processing; Thailand at agricultural value-added processing. These flows would be internal to ASEAN initially but could eventually support regionally-headquartered companies with sufficient scale to compete globally.
Such regional integration requires eliminating non-tariff barriers that currently fragment ASEAN markets. The ASEAN Free Trade Area (AFTA) has been in place since 1992, but its impact has been limited by the persistence of protectionist regulations, inconsistent standards, and inefficient customs procedures that make intra-regional trade considerably more difficult than trade with external partners. Deeper integration would require harmonizing standards, streamlining regulations, and genuinely opening member markets to regional competition—steps that require overcoming significant political resistance from entrenched interests in each country.
Developing Homegrown Multinational Corporations
Another crucial opportunity is the deliberate development of regional multinational companies that can compete globally. Currently, most significant companies operating within ASEAN are foreign-owned or, at best, single-country national champions. True multinational corporations headquartered in ASEAN remain remarkably rare, particularly in high-tech or high-value sectors.
Liew Chin Tong articulated this vision explicitly: “Maybe in 10, 15 years, we have a mini Huawei or mini Samsung or a mini TSMC. And it is possible that if we put our heads together, we put a policy together, and we take a different policy path.”
This is not mere aspiration but a realistic possibility, given ASEAN’s existing economic and human capital base. Southeast Asia has produced successful entrepreneurs and innovative companies. What is lacking is not capability but rather an enabling environment and sufficient scale to compete with established global players.
Creating Strategic Industries and Technology Hubs. Developing global-competitive companies requires deliberately nurturing specific high-potential industries. Some natural candidates for ASEAN include renewable energy technology, advanced agriculture and food processing, digital platforms and fintech, advanced manufacturing, and biotechnology. These sectors offer opportunities to leverage ASEAN’s natural resources, demographic advantages, technological capabilities, and growing consumer base.
Rather than relying on foreign companies to locate facilities in the region, ASEAN governments could invest in research institutions, provide patient capital through development banks, offer tax incentives for companies in targeted sectors, and protect emerging industries until they achieve sufficient scale and capability to compete globally. Such “picking winners” strategies are often criticized by economists, but every currently-developed economy employed such strategies during its development, and contemporary examples like South Korea, Taiwan, and China have demonstrated their effectiveness.
Singapore could play a particularly important role in this regard, leveraging its access to global capital, advanced educational institutions, and technological expertise to incubate and scale promising regional companies. Rather than Singapore competing with other ASEAN nations for investment—a race to the bottom—Singapore could position itself as a financial and innovation hub for the entire region, helping Malaysian, Thai, Vietnamese, and Indonesian entrepreneurs develop globally-competitive firms.
Building Regional Financial Systems. Currently, ASEAN entrepreneurs seeking capital must largely rely on foreign venture capital funds, multinational banks, or domestic sources in wealthy Singapore. Developing regional companies requires accessible, patient capital provided by regional investors who understand local markets and conditions.
This requires developing deeper capital markets, regional venture capital and private equity funds, and financial institutions that can provide long-term financing to companies during their growth phases. Singapore’s advanced financial sector could serve as an anchor and model for this development, with regional financial centers emerging in other major economies.
The Johor-Singapore Special Economic Zone as a Model for Integration
The Johor-Singapore Special Economic Zone (SEZ), agreed upon in January 2025 by Malaysia and Singapore, represents a concrete example of how deeper regional integration could function. This cross-border economic zone aims to streamline cross-border trade and investment in key sectors, reducing the friction that typically accompanies border crossings and creating an economically integrated space where companies can operate across both countries as if in a single market.
Teo Siong Seng suggested that this SEZ could “serve as an example to see how Asean can work together to really make ourselves more confident” and could potentially be expanded as a model for broader ASEAN integration.
This approach offers several advantages. By focusing integration initially on a limited geographical area with high existing trade volumes, it avoids the complexity of harmonizing policies across all ASEAN nations simultaneously. Success in the SEZ creates political momentum for broader integration efforts. It generates tangible economic benefits that can be measured and demonstrated, building support for further integration steps.
The Johor-Singapore SEZ could serve as a template for other bilateral or subregional integration zones. A Thailand-Laos-Vietnam economic zone could leverage these countries’ geographic proximity and complementary economies. An Indonesia-Singapore-Malaysia zone could build on the existing Malacca Strait economic linkages. Over time, these zones could be knitted together into a more comprehensive ASEAN-wide integrated market.
Coordinated Responses to Common Challenges
Rather than each ASEAN nation negotiating separately with external powers, the region possesses significant untapped leverage if it can coordinate responses to common challenges. Dr. Yose Rizal Damuri specifically highlighted this opportunity regarding China’s industrial overcapacity.
Currently, when China floods ASEAN markets with subsidized exports of steel, solar panels, or other products, each ASEAN nation responds individually, typically by requesting negotiations or imposing limited tariffs that do little to address the underlying problem. The result is minimal effect on China’s behavior while producing trade frictions that damage regional relationships.
If ASEAN nations coordinated responses—using collective frameworks, common standards, and unified positions—they could wield substantially more leverage. Rather than China negotiating with ten separate countries with limited negotiating power, it would face a unified regional position backed by 700 million consumers. This fundamentally changes the negotiating dynamics.
Similar logic applies to other challenges: tariffs imposed by developed nations, investment screening regimes, critical minerals access, and technology transfer requirements. Coordinated ASEAN positions would carry far greater weight than individual country positions.
This coordination is particularly important regarding economic security issues. Developing nations individually often find themselves coerced into unfavorable arrangements by larger powers. But if ASEAN establishes common frameworks for investment screening, critical minerals access, and technology transfers, individual nations gain protection through collective strength. This reduces the ability of external powers to play ASEAN countries against each other.
Addressing Social Inequality and Youth Discontent
Dr. Yose Rizal Damuri identified social and economic inequality as “among the biggest sources of unrest in South-east Asia.” This is not merely a humanitarian concern but a fundamental economic and political challenge to ASEAN’s stability and growth prospects.
Recent years have witnessed escalating youth-led protests across the region—in Indonesia, Nepal, Bangladesh, and elsewhere—driven by frustration over limited economic opportunities, inequality, and political corruption. Liew Chin Tong specifically warned about the need to prevent “Gen Z protests” as a first priority for ASEAN leadership.
This unrest reflects a fundamental problem: despite decades of growth, many people throughout ASEAN remain poor or insecurely employed, with limited prospects for upward mobility. Meanwhile, elites and foreign investors capture disproportionate shares of the wealth generated. This creates a powder keg of discontent that could potentially destabilize countries and the region.
Addressing this challenge requires deliberate policy choices to ensure that economic growth benefits broadly distributed populations rather than concentrating wealth among elites. This includes quality job creation, education and skills development, progressive taxation, social safety nets, and governance reforms that reduce corruption and enhance accountability.
Part III: Singapore’s Unique Position and Critical Role
Singapore’s Economic Transformation Challenge
Singapore occupies a peculiar and precarious position within ASEAN’s evolving economic landscape. As the region’s most developed economy and its most thoroughly integrated into global financial systems, Singapore has benefited enormously from the export-led industrialization model that built ASEAN’s prosperity. Singapore’s success as a regional hub for trade, finance, petrochemicals, and advanced manufacturing is intimately connected to ASEAN’s role in global supply chains.
Yet this very success creates vulnerability as ASEAN’s economic model transforms. Singapore’s per capita GDP of approximately $72,000 places it among the world’s wealthiest nations, but this wealth rests substantially on Singapore’s role as an entrepôt—a middleman facilitating flows of trade, capital, and information. If ASEAN’s trade orientation fundamentally shifts from exporting to external markets toward internal regional consumption, or if global supply chains reconfigure in ways that bypass Singapore’s traditional intermediary role, Singapore’s economic model faces existential pressure.
Singapore’s challenges differ from those facing other ASEAN nations. While Malaysia, Vietnam, Thailand, and Indonesia can pursue development through expanding domestic industries and internal consumption, Singapore has almost no domestic market. A nation of 5.7 million people cannot support a consumer economy of sufficient scale to replace external trade as an economic foundation. Singapore must remain globally oriented or risk economic stagnation.
Simultaneously, Singapore’s high-cost economy—with per capita wages among the world’s highest—renders it uncompetitive for routine manufacturing or standardized services. Singapore cannot pursue low-wage manufacturing competitiveness as other ASEAN nations can. Instead, Singapore’s advantage lies in advanced financial services, petrochemical refining, port operations, air transportation, and knowledge-intensive sectors. Yet these sectors too face disruption from automation and AI.
This creates a fundamental tension. Singapore needs ASEAN to remain prosperous and integrated into global economy—both to maintain demand for Singapore’s services and to prevent regional instability that could threaten Singapore’s security. But Singapore’s prosperity depends on remaining fundamentally different from other ASEAN nations—wealthier, more developed, more globally connected. This tension is not insurmountable, but it requires strategic navigation and purposeful leadership.
Singapore as Regional Financial and Innovation Hub
Singapore’s most promising pathway forward lies in deliberately positioning itself as the financial and innovation hub for ASEAN’s transformation. Rather than competing with other ASEAN nations for low-wage manufacturing or commodity production, Singapore can focus on facilitating and financing the region’s economic upgrading.
This strategy has several components. First, Singapore’s advanced financial sector can serve as the primary source of capital for developing regional companies and supporting infrastructure investments across ASEAN. Singapore’s capital markets, banking system, and access to global investment can be leveraged to channel capital into high-potential ASEAN enterprises. As other ASEAN economies develop, they will require substantial infrastructure investment—ports, transportation networks, digital infrastructure, power generation—and Singapore’s financial expertise and capital access position it to profit from providing this financing.
Second, Singapore’s world-class educational institutions, research facilities, and technological expertise can serve as innovation hubs for the entire region. The National University of Singapore, Nanyang Technological University, and various research institutions possess capabilities that few other ASEAN institutions match. By deliberately extending these institutions’ reach to serve regional students and researchers, Singapore can position itself as the intellectual center for ASEAN’s technological development.
Third, Singapore’s open, business-friendly regulatory environment and strategic geographic location make it an ideal location for regional headquarters of multinational corporations—both external companies and the emerging ASEAN champions that Liew Chin Tong envisions. By facilitating corporate headquarters operations, Singapore captures high-value economic activity while maintaining relatively low employment requirements given its high labor costs.
Singapore’s Role in Regional Integration
Singapore possesses particular advantages in facilitating ASEAN regional integration. As the wealthiest and most developed ASEAN economy, Singapore has incentives to ensure that less developed members achieve prosperity rather than stagnating in poverty. Teo Siong Seng articulated this perspective: “Singapore believes that there is no point to do well if your neighbours are not doing well.”
This perspective, while seemingly altruistic, reflects enlightened self-interest. A prosperous, stable ASEAN region benefits Singapore economically through expanded markets for Singapore’s services, increased investment opportunities, and greater regional stability. Conversely, an ASEAN region characterized by poverty, instability, and underdevelopment poses serious risks to Singapore—including potential migration pressures, regional conflicts, and reduced economic opportunities.
The Johor-Singapore Special Economic Zone represents a concrete manifestation of this approach. By deliberately developing integrated economic zones with neighboring Malaysia, Singapore creates prosperity in its immediate region while generating economic benefits for itself. The SEZ can serve as a model for similar arrangements involving Singapore and other ASEAN nations, gradually knitting the region together through overlapping economic integration initiatives.
Singapore can also play a crucial diplomatic role in encouraging ASEAN-wide integration and coordinated responses to external challenges. As the most credible and trusted ASEAN member in international forums, Singapore’s advocacy for regional coordination carries substantial weight. Singapore can use its diplomatic platform to encourage other ASEAN nations to prioritize regional integration and collective action.
Challenges to Singapore’s Hub Role
Singapore faces significant challenges in pursuing this hub-and-facilitator strategy. First, other ASEAN nations may develop their own financial centers and innovation hubs, reducing their dependence on Singapore. Malaysia, Thailand, Vietnam, and even Indonesia possess the population and economic scale to develop sophisticated financial sectors and educational institutions. As these institutions mature, they will inevitably capture some capital flows and talent that might otherwise gravitate to Singapore.
This process is not inherently problematic and may actually benefit Singapore long-term. A region with multiple sophisticated financial centers and innovation hubs is more dynamically developed than one with a single dominant center. Competition among regional centers can drive continuous improvement and innovation. Additionally, as neighboring economies develop, their increased prosperity will generate more capital and opportunities for cross-border investment and collaboration.
Second, Singapore’s high labor costs and limited natural resources create structural disadvantages for certain types of economic activity. Singapore cannot compete with other ASEAN nations on cost factors and should not attempt to do so. This requires accepting that some economic activities will inevitably shift to lower-cost ASEAN locations and focusing instead on high-value activities where cost factors are secondary.
Third, Singapore’s authoritarian governance model and restricted civil liberties, while providing political stability, may constrain Singapore’s ability to attract and retain global talent in knowledge-intensive sectors increasingly dependent on creative talent that values personal freedoms. This tension between Singapore’s existing governance model and the requirements of emerging high-tech industries deserves serious consideration but extends beyond the scope of this analysis.
Singapore’s Interests in Broader ASEAN Transformation
Perhaps most importantly, Singapore has compelling interests in ensuring that ASEAN’s transformation succeeds. If ASEAN nations successfully develop domestic industries, raise incomes, and create robust internal consumer markets, Singapore benefits from increased markets for its financial services, transportation, and trading services. A prosperous ASEAN provides superior long-term opportunities for Singapore’s wealth management industry than a poor, stagnant ASEAN.
Additionally, if ASEAN successfully coordinates responses to external challenges and develops collective frameworks for economic governance, Singapore’s security and prosperity improve. An ASEAN capable of presenting unified positions to external powers is less susceptible to great power manipulation and more capable of maintaining the regional stability upon which Singapore depends.
Conversely, if ASEAN fails to transform its economic model and instead continues along the current trajectory, the region faces mounting instability. Youth unemployment and frustration would intensify. Income inequality would worsen. Environmental degradation would accelerate. Eventually, some combination of these pressures could produce political instability, conflict between nations, or even state failure. Such scenarios pose existential threats to Singapore’s prosperity and security.
Thus, Singapore has fundamentally aligned interests with broader ASEAN success. This creates opportunities for Singapore to position itself as a leader in facilitating the region’s transformation while simultaneously benefiting from that transformation. This alignment of interests, if properly recognized and acted upon, could serve as a unifying force for ASEAN’s next phase of development.
Part IV: Structural Barriers and Political Challenges
The Problem of Fragmented Political Economies
Understanding the challenges ASEAN faces requires acknowledging the profound political obstacles to implementing necessary transformations. Teo Siong Seng observed that “we don’t move as one… We all have a different dream,” referring to ASEAN’s 58-year history of limited progress in collective action. This fragmentation is not accidental but reflects deeper structural realities.
ASEAN consists of 10 nations at vastly different development levels, with different political systems, different ethnic compositions, different historical experiences, and different strategic interests. Indonesia, with 270 million people and vast natural resources, has fundamentally different interests than Brunei with 400,000 people and limited resources. Singapore’s interests as a city-state and financial center diverge substantially from Vietnam’s interests as a developing manufacturing economy. Such diversity makes consensus decision-making extraordinarily difficult.
Moreover, each ASEAN nation contains powerful domestic constituencies with interests in maintaining the status quo. Import-competing industries oppose trade liberalization that would expose them to regional competition. Large landowners oppose land reforms or agricultural consolidation that would reduce their holdings. Corrupt officials oppose governance reforms that would enhance transparency and accountability. These constituencies often exercise disproportionate political influence, limiting governments’ ability to pursue transformative policies even when leaders recognize the necessity for change.
The export-led industrialization model, while failing at the macroeconomic level to deliver sustained prosperity, creates significant winners—multinational corporations operating in ASEAN, large exporters, real estate developers, financial elites, and government officials capturing rents from foreign investment. These beneficiaries of the status quo wield substantial political power and resist fundamental change to a model that has enriched them.
The Coordination Problem and Free-Rider Incentives
ASEAN faces a profound collective action problem. Individual nations have strong incentives to defect from collective strategies if they believe doing so will generate short-term advantages at the expense of their neighbors. When the US imposed new tariffs in 2025, Liew Chin Tong noted, “some lamented that Asean countries missed an opportunity to show solidarity by responding individually rather than collectively, with separate delegations heading to Washington to negotiate their own terms.”
This pattern reflects rational behavior by individual governments seeking to protect their own interests. From any single nation’s perspective, negotiating individually with the United States might yield better terms than collective negotiation. If eight other ASEAN nations negotiate collectively while one nation negotiates individually, the individual nation might achieve tariff exemptions or special treatment unavailable through collective negotiation.
Yet when all nations behave this way, the result is collectively disastrous. The US can negotiate separately with each nation from a position of strength, extracting concessions from each while maintaining its negotiating leverage by threatening to shift investment or market access to compliant nations. A genuinely unified ASEAN position would possess substantially greater negotiating power. But achieving that unified position requires each nation to resist the temptation to defect in pursuit of short-term individual advantage.
Resolving this coordination problem requires building institutional structures and trust relationships that make defection costly and coordination beneficial. This is fundamentally difficult and cannot be achieved through rhetorical exhortation alone. It requires creating binding commitments, dispute resolution mechanisms, and mutual understanding that long-term benefits from cooperation exceed short-term gains from defection.
The Domestic Political Economy of Transformation
Even setting aside interstate coordination problems, implementing necessary transformations faces formidable domestic political obstacles within individual nations. Deliberately shifting from export-led to internal-consumption-focused development requires policies that harm existing beneficiaries of the export model.
Manufacturing workers whose jobs depend on exports to the US face uncertainty if their firms must transition to serving regional markets. Large exporters must diversify their customer bases. Financial institutions profiting from currency volatility and short-term speculative capital flows must adjust to serving long-term regional development. Landowners benefiting from cheap land prices must accept rising property values but also rising pressure for land reform. Corrupt officials must accept governance reforms and reduced opportunities for rent-seeking.
Meanwhile, the benefits of transformation—higher wages, more secure employment, better environmental conditions, stronger social safety nets—accrue to ordinary citizens over long periods of time. These constituencies lack the political organization and resources to overcome entrenched interests defending the status quo.
This asymmetry reflects a general pattern in development economics: the concentrated interests of existing beneficiaries typically overcome the diffuse interests of ordinary citizens who would benefit from reform. Overcoming this requires either leadership willing to expend political capital for long-term benefits or some exogenous shock that discredits existing arrangements and creates political space for transformation.
Liew Chin Tong alluded to this challenge when responding to a question about convincing leaders to pursue long-term reforms: “How leaders could be persuaded to pursue long-term economic reforms when the impact will be seen only after the current government is gone?” This question captures the fundamental tension between political incentives favoring short-term considerations and economic requirements for long-term transformation.
The Technological Disruption Wildcard
Adding uncertainty to all these challenges is the accelerating pace of technological change, particularly artificial intelligence. The transformations currently being discussed in ASEAN policy circles—developing regional companies, building internal consumer markets, creating knowledge-intensive sectors—all assume that the technological landscape will remain relatively stable. Yet current trends suggest otherwise.
AI is advancing with remarkable speed, potentially disrupting multiple sectors simultaneously. Manufacturing will continue automating, but also customer service, data analysis, coding, financial analysis, legal research, and numerous other knowledge work activities that represent ASEAN’s hoped-for transition sectors. If AI reaches the capability levels some researchers suggest is possible within 5-10 years, the entire basis of development strategy for ASEAN could be disrupted.
This creates a paradox for ASEAN nations. On one hand, developing AI capabilities and participating in the AI revolution offers potentially enormous economic opportunities. Nations and companies that successfully develop AI technology and applications could achieve enormous wealth creation. Yet the transition period—in which AI eliminates existing jobs faster than new opportunities emerge—could be catastrophically disruptive.
ASEAN’s relatively less developed educational systems and less sophisticated capital markets disadvantage the region in developing world-leading AI capabilities. Most cutting-edge AI research concentrates in the United States, China, and a handful of developed nations. ASEAN is likely to be primarily a consumer of AI technology developed elsewhere, not a developer of frontier technology. This makes the region vulnerable to technological disruption without meaningful opportunity to capture the wealth generated by AI development.
Part V: Specific Policy Recommendations
Immediate Priorities (2025-2027)
1. Establish ASEAN Economic Coordination Council. Formalizing coordination mechanisms for economic policy-making would create institutional structures supporting collective action. This council, operating at ministerial level, would coordinate responses to external tariffs, establish common frameworks for investment screening and critical minerals access, and develop unified positions in trade negotiations. Success requires binding commitments and dispute resolution mechanisms that make individual defection costly.
2. Accelerate Johor-Singapore SEZ Implementation and Replicate the Model. The Johor-Singapore SEZ should be implemented rapidly with ambitious scope, demonstrating concrete benefits of border integration. Simultaneously, Malaysia and Singapore should work with Thailand to develop a Thailand-Singapore-Malaysia integration zone. Indonesia and Singapore should explore similar arrangements. These bilateral zones create momentum toward eventual ASEAN-wide integration while avoiding the complexity of negotiating ten-nation agreements simultaneously.
3. Establish ASEAN Development Bank. Mobilizing sufficient capital for regional infrastructure and company development requires dedicated financial institutions. An ASEAN Development Bank, potentially capitalized jointly by member nations and supported by development partners, could provide long-term financing for cross-border infrastructure, regional companies, and development projects in less-developed regions. This would reduce dependence on external capital sources and keep development finance circulating within the region.
4. Launch ASEAN Innovation and Technology Initiative. Establishing regional research centers in high-potential sectors—renewable energy, advanced agriculture, biotechnology, digital platforms—would begin building technological capabilities and innovation ecosystems. Singapore could anchor this initiative but implementation should involve major research institutions across multiple ASEAN nations. This would create intellectual property and technological capabilities that benefit the entire region.
5. Initiate Comprehensive Trade Facilitation Reforms. Current non-tariff barriers fragment ASEAN markets despite AFTA’s nominal free trade status. Harmonizing technical standards, streamlining customs procedures, recognizing professional qualifications across the region, and establishing digital trade platforms would substantially reduce transaction costs for intra-regional trade. These reforms are technically straightforward but require political commitment to overcome protectionist resistance.
Medium-Term Priorities (2027-2032)
6. Develop Regional Supply Chain Integration Strategy. Working sector by sector, ASEAN nations should identify opportunities for specialized production complementarities where different nations focus on different production stages or product categories, with components and intermediate goods flowing between countries. This would require detailed analysis of comparative advantages, technological capabilities, and infrastructure. Initially, automotive components, electronics, and agricultural value-added processing would be priority sectors.
7. Establish ASEAN Regional Capital Markets Platform. Developing a unified regional securities market where companies from any ASEAN nation can list and raise capital would democratize access to financing and create a truly regional investor base. This requires harmonizing securities regulations, establishing common disclosure standards, and creating interconnected trading systems. Singapore’s highly developed capital market infrastructure could serve as an anchor.
8. Create ASEAN Venture Capital and Private Equity Fund. Establishing a regionally-focused venture capital fund capitalized by ASEAN governments and private investors would provide patient capital for emerging companies in high-potential sectors. Rather than requiring ASEAN entrepreneurs to access Western venture capital on terms favoring foreign investors, regional capital would allow founders to retain greater equity stakes while still accessing necessary financing.
9. Launch Comprehensive Education and Skills Development Initiative. ASEAN’s development depends fundamentally on human capital. A region-wide initiative to improve primary and secondary education, establish world-class vocational training systems, and increase access to higher education would build the foundation for economic transformation. This should include scholarships enabling talented students from less-developed nations to study in regional centers of excellence while committing to return home.
10. Establish Environmental and Social Standards Framework. Rather than competing on low environmental and labor standards, ASEAN should establish common minimum standards that all member nations agree to maintain. This prevents race-to-the-bottom dynamics while allowing nations to compete on innovation and efficiency rather than regulatory minimization. Common standards would also improve marketing of ASEAN products as sustainably and ethically produced.
Long-Term Structural Reforms (2032-2040)
11. Develop ASEAN Single Market and Production Base. Building on medium-term integration steps, ASEAN should work toward genuine unified market where labor, capital, goods, and services move freely across borders. This requires freedom of movement for workers, mutual recognition of professional credentials, complete elimination of tariffs and non-tariff barriers, and harmonized regulations. This represents the ultimate goal of integration, requiring 10-15 years of preparatory work to achieve.
12. Create ASEAN Development Fund for Regional Redistribution. More developed nations (particularly Singapore) should commit to funding development initiatives in less-developed regions to ensure that integration benefits are broadly shared. Without mechanisms to redistribute gains from integration to less-developed members, political support for integration will erode as populations in poorer nations perceive themselves as losing from regional integration. A development fund, financed by wealthier members, can support infrastructure, education, and economic development in less-developed regions.
13. Establish ASEAN Sovereign Wealth Fund. Pooling natural resource revenues and development surpluses into a jointly-managed sovereign wealth fund would create long-term financial security for the region and capital for strategic investments. This requires transparent governance and commitment to using fund resources for genuine regional development rather than political patronage.
14. Build ASEAN Strategic Industries Ecosystem. Over a 15-year period, ASEAN should develop genuine global champions in targeted high-value sectors. This requires sustained investment in research and development, protection of emerging industries during development phases, and willingness to accept some inefficiency and failure as costs of industrial development. The goal would be for ASEAN to produce globally-competitive companies in renewable energy, advanced agriculture, biotechnology, and digital technologies by 2040.
Part VI: Conclusion – ASEAN at a Crossroads
ASEAN stands at a critical juncture in its economic history. The export-led industrialization model that generated five decades of extraordinary growth is visibly failing, eroded by protectionism, technological disruption, environmental constraints, and demographic change. Continuing on the current trajectory leads inexorably toward stagnation, instability, and potential conflict.
Yet this moment of crisis also represents an opportunity. ASEAN possesses the necessary ingredients for transformation: a population of 700 million, vast natural resources, increasing human capital, existing manufacturing capabilities, and demonstrated entrepreneurial talent. What is required is the collective will to pursue a fundamentally different development path.
Such transformation requires several elements working in concert. First, ASEAN nations must develop genuine coordination mechanisms and institutional structures that make collective action binding rather than discretionary. Second, individual governments must prioritize long-term regional development over short-term national advantage, accepting that some opportunities for individual gain must be foregone for collective benefit. Third, powerful constituencies benefiting from the status quo must be addressed through combination of compensation and political pressure.
Fourth, transformation must be driven by visionary leadership willing to articulate compelling visions of ASEAN’s future and make difficult political choices to realize those visions. Fifth, the benefits of transformation must be distributed broadly throughout populations, with particular attention to ensuring that the massive youth populations throughout the region experience genuine economic opportunity rather than continued marginalization.
Singapore occupies a particularly crucial role in this process. As ASEAN’s most developed economy and most credible voice in international forums, Singapore can either facilitate regional transformation or pursue narrow self-interest at the expense of broader development. The strategic analysis suggests that Singapore’s long-term interests align more closely with facilitating ASEAN transformation than with any alternative strategy. A prosperous, integrated ASEAN region serves Singapore’s economic and security interests far better than a poor, fragmented region vulnerable to external manipulation and internal conflict.
The panellists at the Asia Future Summit identified the challenge with remarkable clarity. As Liew Chin Tong articulated: “We must ensure that in the next 20 years, our people become a lot more richer before we get old.” This simple formulation captures the urgency and stakes involved. ASEAN has perhaps two decades to transform its economic model and substantially raise living standards before demographic aging forecloses this opportunity. The window for successful transformation is open but narrowing.
The obstacles are substantial and should not be minimized. Political fragmentation, entrenched interests, coordination problems, technological disruption, and global power shifts all pose serious challenges. Yet these challenges are not insurmountable. Other developing regions have navigated comparable transformations. What ASEAN requires is recognition of the necessity for change, commitment to collective action despite obstacles, and willingness by leaders to prioritize long-term regional prosperity over short-term national or personal gain.
The next five years will likely determine whether ASEAN successfully navigates this transition or continues drifting toward stagnation. The frameworks, institutions, and political commitments established during this period will shape the region’s trajectory for decades. ASEAN’s leaders and citizens bear the responsibility—and possess the opportunity—to determine whether Southeast Asia’s remarkable development story continues forward or gradually winds down into relative decline. The moment for decisive action is now.
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