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Karthik Nachiappan: It’s time for Canada to seize the opportunities of the Indo-Pacific

Commentary

Even with the world fixated on the transatlantic crisis over Ukraine, it is the Indo-Pacific that will dominate geopolitics in the 21st century. The region is home to the world’s largest and most dynamic economies, with geostrategic rivals fiercely competing over who establishes the rules that will govern security, trade, and technology in the future. 

Since early 2020, major powers across the G7 and Europe have drafted strategies to navigate their interests in this region. Yet Canada, an Atlantic and Pacific power, remains conspicuously absent. Despite sharing an ocean with this critical region, longstanding security relationships with partners like Japan, and burgeoning economic links with countries like India and Indonesia, Canada remains far behind in devising coherent policy for the Indo-Pacific. Indeed, Ottawa is only now finally putting pen to paper, a task that is both welcome but far overdue. 

The “Indo-Pacific” is the new “Asia”—a single interconnected region spanning the Indian and Pacific Oceans, and a departure from the erstwhile Asia-Pacific concept of the past. It represents a geography where the security and the economic priorities demand a rules-based international order that is “free, open and inclusive.” Indo-Pacific countries have acknowledged the region’s importance and adopted foreign policy strategies reflecting this priority. Canada stands apart in not yet having meaningfully made any such decision.  

How should Canada engage the Indo-Pacific? It’s fashionable for countries to devise a strategy or broad approach to engaging with the Indo-Pacific as a whole—focusing on areas like maritime security, trade, and technology—given the struggles around crafting viable coalitions and partnerships to address shared problems like maritime disputes, piracy, tariffs, and investment barriers, among others. 

Canada must not lose valuable time figuring out a strategy before it moves to engage with key countries across the Indo-Pacific, like India, Japan, Indonesia, and Singapore. A strategy, however, is valuable and necessary as a roadmap or framework that embeds ongoing and future policy efforts around a clear logic—though care must be taken to not obfuscate or overlook what’s possible and achievable. In other words, Canada must walk and chew gum when it comes to the Indo-Pacific, and engage on urgent policy issues like cybersecurity, digital trade, climate, and vaccines while embedding those efforts within a proactive strategic framework.  

Canada should focus on three specific areas: security, trade, and transnational issues (including climate, infrastructure, and global health). 

On security, it would take time and capital before Canada would be involved in matters of hard security alongside regional powers like the U.S., Australia, Japan, and India. Canada, however, has an opportunity to help Indo-Pacific countries like India manage and bolster cybersecurity (and possibly space) infrastructure. Various non-state actors backed by authoritarian states are exploiting the Internet’s weaknesses across the region, disrupting the activities of individuals, firms, organizations, and states. Cyberattacks are rising. COVID-19 has fuelled attacks and incidents across the health sector. Fraud and cybercrime are peaking as digitalization accelerates through the pandemic. 

Canada can support cybersecurity cooperation and training for regional regulators and officials from India’s Computer Emergency Response Team (CERT-IN), which are working to protect internal devices, systems, and networks and controls. Canadian cybersecurity firms can also help prepare and bolster the defences of Indian software and IT companies that contribute nearly $150 billion (USD) in exports to India’s Gross Domestic Product. Companies, both domestic and foreign, are entering India’s cybersecurity industry providing options and solutions to reduce growing cyber vulnerabilities. Following its recent signing of a memorandum on cybersecurity with Singapore, Ottawa would do well to cooperate with New Delhi on this issue; these efforts can be further extended across Southeast Asia as countries deal with an array of online risks and threats. Canada has a deep interest and stake in ensuring the Indo-Pacific cyberspace remains free and open, secure, and accessible.

On economics, Canada should prioritize digital trade. The digital economy is a major driver for future Indo-Pacific growth. Countries across East and Southeast Asia accounted for nearly 50 percent of global digital revenues in 2020. Sectors from e-commerce, health, education, travel, and transportation are digitizing rapidly across the region. Yet despite record digitization, countries have generally lagged in devising policies that protect consumers. Standards on data protection vary. Canadian firms have an opportunity to engage digitally but Ottawa must frontend their interest by coordinating rules with Indo-Pacific countries like Singapore, Indonesia, Japan, and South Korea when it comes to managing data flows, questions of competition within digital markets, and digital taxes. 

Canada should also explore the possibility of negotiating Digital Economy Partnerships (DEPAs) with some of the countries mentioned above to ensure Canadian interests and standards are upheld. What distinguishes DEPAs from other options is that they allow for standards to be progressively aligned, facilitating interoperability between digital systems so firms can seamlessly share data and transact across borders. Potentially, DEPAs could lead to data-free zones between Canada and other economies where data can flow, protected as they are by sound guardrails. Going ahead, DEPAs could serve as a vital lever and vehicle through which Canada regulates its trading partnership with Indo-Pacific partners alongside agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Canada-United States-Mexico Agreement, and Regional Comprehensive Economic Partnership. 

The final pillar that Canada should prioritize involves functional, transnational issues like global health, climate change, and critical technologies. These issues are increasingly being discussed between Indo-Pacific partners, most notably through the Quadrilateral Security Dialogue (or Quad), initiative. Canada has a natural strength in contributing to and addressing such transnational challenges and needs to bring this leadership and experiences to bear in the Indo-Pacific as a “Quad-like” partner. The Quad’s recent focus on issues like vaccines, climate, and critical technologies provides Canada an opportunity to deepen links with countries struggling to contain COVID-19. Countries across Southeast Asia still lack equitable access to vaccines despite attempts to procure them through 2021. 

Canada can contribute to this effort by providing existing vaccine doses and offering technical and logistical expertise to support countries delivering them. Thus far, Ottawa has overwhelmingly prioritized vaccine diplomacy through COVAX, the multilateral vaccine sharing alliance, with a marginal amount given bilaterally but only for countries in Latin America and the Caribbean, not Asia. Canada needs a rethink its vaccine strategy to redouble exports to economically vibrant regions like the Indo-Pacific. That will help ease current and future trade and supply chain constraints, which will be to the benefit of all Canadians. Preventing the virus from mutating and spreading is in Canada’s fundamental interest. 

The dynamics of global power are shifting rapidly and are increasingly centred on the Indo-Pacific. If Canada does not switch gears and grow to engage this reality, it will get left behind. Opportunities abound but they will not land in your lap without any effort; they have to be seized. It’s well past time for Canada to finally get serious about seizing these opportunities and pursuing a substantive role in the Indo-Pacific. 

Patrick Luciani: Adapting to a warmer world isn’t all bad news

Commentary

Adapting to Climate Change: Markets and the Management of an Uncertain Future

By Professor Matthew Kahn

Published by Yale University Press, 2021

There are two kinds of people that aren’t fazed by global warming — climate deniers and economists. The former because they think global warming is a hoax, the latter because they believe the market system can mitigate and help reverse the damage of rising carbon emissions. Economists might have a point.

A story often told teaches much about how markets adapt to change. In 1968, the famous biologist Paul Ehrlich wrote his bestselling book The Population Boom, which predicted that population growth would outstrip the world’s supply of food, fresh water, and minerals. He used the ecological concept of carrying capacity to argue that the world could only sustain limited population growth. He predicted that by 1985 we would enter a world of mass starvation and drastic price increases in all mineral resources driven by ignorance, greed, and callousness.

Julian Simon, an economist at the University of Maryland, disagreed with Ehrlich’s reasoning. He challenged the biologist to pick five resources whose price would increase by 1990. Ehrlich chose nickel, copper, tin, chrome, and tungsten. Simon predicted all would fall in price even though the world’s population increased by 800 million when they made a bet in 1980. In 1990, Simon won the bet and received his winnings in a letter from Ehrlich; there was no note.

What happened?

As Simon predicted, humans adapt to changing circumstances as long as the price system and markets adjust with minimum government interference. In other words, when demand drives scarcity, incentives unleash human ingenuity. Our ability to cope increases over time as innovation takes place. When the price of one material increases, markets find substitutes at lower costs.

That was an essential insight by Nobel Prize economist Paul Romer who saw how quickly good ideas become “public goods,” boosting productivity. Those same principles can be used to mitigate the problems of a warming planet.

That’s the message of a new book Adapting to Climate Change: Markets and the Management of an Uncertain Future, by Matthew Kahn, professor of economics at Johns Hopkins University. Professor Kahn reminds us never to underestimate the power of human intelligence to help solve problems such as global warming because our capacity to adapt to climate change continues to accelerate.

Resources may well be limited in theory, but as Simon reminds us, the more we discover, the more we learn. It’s rare to have a policy book that supports an intelligent use of market economics endorsed by economist Tyler Cowen and urbanist Richard Florida — from different political perspectives — that encourages governments to use bottom-up incentives for corporations and individuals to make better decisions.

The problem today is that we are shaming countries to reduce overall levels of carbon emissions to 1990 levels, a goal all but impossible to meet.

Since the Paris Climate Conference in December 2015, carbon levels have continued to increase since there are no ways to enforce countries to keep their promises. Only a few countries are meeting their targets, such as Gambia and Morocco — hardly significant carbon emitters. On the other hand, Germany ranks high among carbon users and is determined to meet its carbon targets.

But under former Chancellor Angela Merkel, Germany is phasing out all nuclear and coal plants to reduce its net-zero greenhouse gas emissions by 2045. To those who know, this is extraordinarily ambitious. The problem is that it’s offloading its problem to China, a country that plans to open 43 new coal-fired power plants. Germany is now at the mercy of Russia — one of the world’s top polluters — where it gets over 50 percent of its current energy from gas and oil.

Professor Kahn doesn’t deny that temperatures are rising or that humans aren’t the cause. He accepts his colleagues’ findings in the environmental fields that carbon dioxide is a major anthropomorphic factor in global warming. His concern is that as long as nations resist policy options such as a worldwide tax on fossil fuels, policies that adapt to higher temperature levels are the only viable option. As long as the incomes of hundreds of millions rise around the world, per capita emissions will continue to outpace any progress made by switching to renewable resources.

If China alone reaches U.S. car ownership by 2070, electric or not, that means another billion vehicles on China’s roads.

Rather than lament our predicament, we can use our intelligence to lower the costs of global warming. We know rising temperatures affect productivity, test scores, crime, and health outcomes. Still, these can be mitigated to some extent with better air quality incentives such as air conditioning and less traffic congestion by working remotely. With the advantages of new insights from behavioural economics and Big Data, we’re better at letting people know how to avoid intense storms, flooding, and forest fires. Consider how quickly corporations, institutions, and people changed their behaviour without any central planning to the COVID-19 crisis or how rapidly markets reacted to finding a vaccine in record time. As Kahn makes clear, “we are not passive victims in the face of the punches Mother Nature throws at us.”

The chapter on cities is particularly enlightening. Government policy that encourages homeownership should be reversed to stimulate more rentals. High levels of homeownership tend to discourage people from moving to avoid the dangers of a changing environment, such as living close to areas of rising water levels or potential forest fires. Rather than subsidizing people to live in high-risk areas, policy should do the opposite.

Professor Kahn emphasizes that cities that make their environments resilient to climate change will be rewarded with more growth compared to those that stick to policies that ignore the dangers of rising temperatures. In agriculture, governments can avoid moral hazard costs by eliminating subsidies that stop farmers from switching from one crop to another.

The book is critical of academics who look at the past and extrapolate the effects of climate change over time without considering how humans adapt to different circumstances. This only exaggerates the impact of climate change by ignoring human behaviour.

Rising incomes worldwide aren’t bad news in and of itself, even though that means higher levels of energy use as we become more affluent.

We know that rich countries suffer lower costs and death from climate change than developing countries because the West has options denied to poor and developing nations. As incomes rise, wealthier countries demand to live in a world with cleaner air and safer environments. We shouldn’t fear adaptation; we should embrace the creative powers of humans to live better lives even as the world gets warmer. Professor Kahn’s book shows how we can do it.