Designware

Technology’s Galapagos: Mobile in Japan

Thu, 26 Nov 2009 00:17:12 -0500

Technology’s Galapagos: Mobile in Japan:

William Gibson is known mainly for science fiction work, but these days he is more often referenced as the man who wrote the line “The future is here, it’s just not evenly distributed”. When it comes to mobile marketing, the future clearly is here in Japan. The future is also found in Korea, but unlike Japan’s mobile market, it has two levels to its mobile business; the first is very advanced and linked to Korea alone; the second is global, with Samsung and LG being players on the world stage; the local business is much more futuristic than the global business.

In Japan, everything the “outside world” does on a PC, is done on a smart phone - and more. The list of attributes, functions and services on Japanese handsets is impressive and includes auctions, blogging, compasses, conference calls, contactless payment for soft drinks and subway fares, e-Books, e-commerce, games, GPS, manga downloads, navigation systems, iPTV, QR code readers, phones that can be used as projectors, search, social networking, solar charged phones, voice activation, waterproof telephones, etc..

Like the original Galapagos Islands, Japan’s mobile phone industry has evolved under a unique set of conditions, including:

Strong telecommunication infrastructure - 3G (a rate at which data can be transmitted) was introduced in Japan in 2001 and did not reach the West until 2003 or 2004.) Japan is now running at 3.5G speeds and moving to 3.9G in 2010. North Asia is generally seen to be 3 years ahead of the rest of the world in terms of mobile development.
Hyper-competitive handset manufacturers - Japan is home to about a dozen top electronics companies who compete vigorously in the technology arena and particularly with handsets. Each year this group produces over 100 models of cell phones. This industry has led the world with such cell-phone innovations personalized email (Decomail) vs. SMS transmissions (1999), mobile internet (1999), cameras (2000), music for phones (2002), mobile wallets (2004), digital TV (2005) etc. etc.
Technology hungry consumers – Japanese consumers purchase over 50 million cell-phones each year. While this is not huge from a global perspective, it is significant because this figures means that about 40% of Japan’s entire population of 129 million people buys a new phone each year. Moreover, they absorb new technologies more quickly than almost any other market.
Strong relationships between handset manufacturers and the major carriers – KDDI’s au, NTT’s DoCoMo and Softbank. These collaborative relationships where the carriers pay for the development of handsets, allow for a continuous stream of unique products, features and services.
Flat rate programs and relatively cheap rates – the cost of the service in Japan is low relative to other markets, and the flat fee allows for much greater usage and revenue generated from value added products and services.
Revenue sharing models that reward application and content developers with 90% or more of the commission from the carrier’s revenue stream. This compares with 70% for Apple’s iPhone, Blackberry and Nokia.

While the Japan mobile market can be seen to be a local paradise, it is really an enigma. Japan’s telecom industry has developed largely in isolation, and like a number of local technologies - including super high speed trains (France has done this as well) robots, Washlet toilets - these have not really gone global. As a result, Japan has become somewhat of a “Technology Galapago”s.

Like the Galapagos, the Japanese telecom environment is vulnerable to outside threats such as Apple’s iPhone which recently disrupted the market. The iPhone pushed cell-phones beyond the technology arena into the experiential arena and redefined the space. The Japanese industry also remains vulnerable to the Korean, Taiwanese, and Chinese marketers who can often provide comparable technology at a lower price. This threat is real because value for money is becoming more important in Japan, as it continues to wrestle with a difficult economy.

So what are the lessons from this “Galapagos syndrome” and what – if anything – can the Japanese mobile marketers do about it?

Global perspective – in the technology arena companies need to have a global business plan to avoid developing sophisticated businesses that develop and remain within a “canyon” where they cannot escape. Technology develops at a tremendous pace, and businesses that do not take a global perspective and scale outwards quickly, risk getting shut out by global and local competitors who will learn, improve and quickly take away the first-mover advantage.
Re-disrupt the market – as Apple has changed the global smart phone business, the Japanese should find a way to take it to another level. The game has now changed from a technology battlefield of features to one of experience. The trick is to disrupt the market again in their favor.
Adapt the Business Model from Japan for use abroad – there are many features of the Japanese model that could work abroad. For example by sharing a larger proportion of commission with developers e.g., 90% vs. 70% the Japanese marketers could really accelerate their business outside Japan.
Open source – given that “walled gardens” can be used to protect local players, global players should consider such models as Symbian and Android that are open sourced. This will increase flexibility and allow quicker adaptation of innovation.

The good news is that the Japanese are already working on a Post Galapagos plan. I’m looking forward to see it in action.

Jim Rogers Vs Nouriel Roubini, Can The Commodities Boom Survive?

Fri, 13 Nov 2009 00:41:51 -0500

Investing 2009 Nov 06, 2009 - 09:46 AM

By: Andrew_McKillop

Battle Of The Titans - The debate is now open. Commodities, like equities have enjoyed fantastic and fantastically volatile price growth since around March 2009, growing about 60%, like equities, to date. The global ‘real economy’ trails far behind, with perhaps 2% or 3% growth in the same period, and much less inside the OECD. Is a sharp correction in view, and if it comes, will it be commodities or equites that shrink fastest ? Roubini tends to think both will drop.

On this question, Jim Rogers and Nouriel Roubini are now officially slugging it out. Roubini has reacted fast, on November 4th, to the claim or forecast made by Rogers earlier the same day on Bloomberg TV that “gold could reach $ 2000 an ounce”. Speaking at the Inside Commodities conference in New York, Roubini laid on the scorn, saying: “If a severe depression came to pass, with investors buying canned goods and hiding out in log cabins, maybe you want some gold in that scenario,” adding that he thinks gold prices could or might reach $1,100 or so, “but $1,500 or $2,000 is nonsense”. To be sure, also on November 4th, gold was trading near $ 1,090 an ounce and WTI futures around $ 80 a barrel. This is a relatively low gold/oil ratio, but nothing extraordinary.

In a Singapore interview with the UK Daily Telegraph on 8 October, Rogers forecast a commodities boom able to last 20 years. He said: “Commodities are the best place to be, if you ask me, based on supply and demand”. “The supply of everything continues to decline,” he said, adding: “If the world economy recovers, commodities will do the best, because supply is being restricted. If the world economy does not recover, commodities will still be the best place to be, because governments are printing huge amounts of money.” As I have said in previous articles, this is twostage reasoning with a big faith-based gap between the two halves.

FAITH BASED REASONING

Rogers, and plenty of other commodity boomers like to ignore what happened through the 2004-2007 ‘Petro Keynesian growth’ interlude. Driven by oil price growth, and limited supply growth of other commodities levering non-oil commodity prices up almost across the board, commodities clawed back a lot but certainly not all of the territory they lost, versus equities, through the late 1980s and all through the 1990s. This was the Clinton boom, for equities only.

But this already ignores an essential basic component of the process. What is called the ‘financiarization’ and interconnection of all tradable assets on 24/7 electronic trading platfoms, with cheap credit helping drive the volume yet higher. Many, in fact most of the “new tradable assets” are almost imaginary, like the fuzzy jungle of structured and derived products, and deliver surprising (to some) zero sum game total loss outturns, when confidence slips.

Oil, and the other commodities, have been surely and certainly drawn into this process. Extricating real oil oil from paper oil is not going to happen overnight. The same applies to soybeans, copper or anything else. In fact, for both fundamental reasons and due to financiarization, now spurred by incredibly ambitious plans to make a switch to green energy, the energy markets will get a lot more reactive, segmented and volatile in the next 3 to 5 years. Tradable assets, in the energy sector, are set to grow mightily, and this can itself give Rogers his peak prices - and Roubini his price crashes.

Global climate mitigation effort and green energy expansion with feed-in tariffs, carbon taxes and other carbon finance trimmings, twinned with peak oil supply shrinkage impacts on world export offer will also rather surely raise energy prices. Higher energy prices is not good news for a limping, slow growing, slowly reviving OECD economy, still generating over 50% of world GDP.

On the other hand, the rapid growth in natural gas supplies, lowering gas prices, perhaps making electricity cheaper, will add more energy market confusion. Uranium prices, however look set to grow to extreme highs, unless supply can be cranked up. In several countries already, when the wind blows there is too much electricity, from windmills, leading to huge spot price swings and shedding of unsold, untransportable power. The ruined biofuels sector could or might revive, during the decade, perhaps capping oil price rises.

Thiss is not the stuff which generates a long, solid and sustained commodity price boom, à la Jim Rogers. We are set to have a confused and volatile “global energy adjustment” period able to last right through the coming decade. Both related and unrelated, global macroeconomic volatility also promises to be at vintage level.

TRADING UP AND TRADING DOWN

The result of massive financiarization of oil and commodities, in 2008, was shockingly clear. Exactly the same way that a 2% growth of the economy since March 2009 drove a 60% growth in most equity and commodity prices (over 90% for oil), the 3.5% fall in world oil demand through 2008-2009, now bottoming, drove a 75% fall in day traded oil prices.

With this kind of reactivity, where is the long commodity boom Rogers promises ? A small demand fall (which Rogers can call a pause) generates a price wipeout. Put another way, what kind of production limiting agreements would be needed to stop oil price erosion, when this kind of financiarized leverage operates ? To be sure, oil has big-bad OPEC to supposedly limit oversupply anytime demand weakens, ignoring exports from Russia, Norway, Canada, Mexico, African producers, world biofuels, and gas-related hydrocarbon liquids supply growth. While oil could or might be “supply limited” the other commodities, for example natural gas and the metals, and the soft commodities, have no effective mechanisms in place to rapidly trim supplies or stop it growing, when prices crash.

Through 2009 we have almost daily proof that governments printing huge amounts of money has only one impact on tradable financial assets, apart from golden boys getting bonuses again: asset value inflation and volatility, chronic low visibility, and little or no trickle down to the ‘real economy’. In this poor and distant cousin to 24/7 financial markets, as Roubini says the current problem is deflation, unemployment, remaining high debt levels, overpriced assets, and so on.

Finding anything more unrelated, firewalled, or ‘segmented’ than that is difficult. Rogers however thinks he can square this circle by claiming the supply of everything is shrinking. His main or only supporting argument for this seems to be Asian decoupling.

ASIAN DECOUPLING - LIMITS TO FANTASY

The Asian decoupling theory first surfaced around 2006-2007 as a handy way to explain why commodity prices were growing as fast, or faster than equity prices. To be sure, in the long-term using a 20-year timeframe, decoupled economic growth in Asia would only generate what will be a terminal boom for commodities, and equities also, if Asian 9%-a-year growth was sustained. Back of envelope checks on what happens to the car fleets of China and India after 20 years of growing at perhaps 20%-a-year on average - enabling China and India to attain about one-half the EU27 or Japanese current ownership rate of around 400 cars per 1000 persons, starts proving it wont happen.

Unless these new car fleets are massively ‘electrified’, or run on home-brew biogas, or have lawn mower sized engines, the world oil supply system will go into vast and permanent supply deficit. And if these new car fleets were ‘all electric’ by around 2040, the lithium to make their batteries, or neodymium for their motors would not be available.

As we know, about 75% of China’s electricity is coal-based, and over 50% of India’s, like that of the USA. But per capita electricity consumption in the two emerging countries, if it grew to US or European levels, would demand an expansion of 20-fold or 30-fold in total generation. If their new and massive all-electric car fleets (of the imagination) were built, the power plants needed for their recharging would add more triple zeroes to the GigaWatts of new power plants they have to build, within 20 years.

These kinds of factoids are used by Rogers and other commodity boomers to defend the beguiling idea that, at least in theory, it could be possible to have this Asian growth explosion almost uninterrupted, for a sustained 20-year boom. This rosy outlook however faces strict climate change limits to its growth, that is the OECD’s new quest to hunt down CO2, or at least its quest to start cutting oil consumption without destroying consumer confidence. Lower economic growth in the OECD is likely. Asian exports to the OECD are not likely to regain their 2004-2007 rates, perhaps never again.

Plenty of other limits to Asian decoupling exist, ranging through mineral and bioresource supply growth constraints, water and food supply constraints, to its financial implications. Indians and Chinese are being urged, by OECD leaders, to spend more at home, supposedly on almost nonexistent export goods from the OECD. When China spends its trade surplus dollars at home, on its homemade products and services, its purchase of US T-bonds can only drop.

CHANGING PARADIGMS

In the short-term future, probably before 2015 and following the next commodity and equity price slump, other ideas will take the high ground. Likely rejected out of hand by Rogers and other believers in Asian decoupling (the IMF for example), fast domestic, national and internal economic growth of China and India surely levers up commodity prices - but does little or nothing for economic growth in the OECD countries.

The US subprime crisis of 2007 and its Big Brother financial crisis of 2008-2009 are now often described as intensified, or even triggered by oil at $ 145 a barrel. In China and India, these oil prices had much less devastating impacts. Economic growth dropped from double-digit to high single digit. Asian decoupling, from negative oil price impacts was well demonstrated, underlining that ‘decoupling’ means what it says. Asian decoupling is unrelated to the OECD economy when it concerns growth inside the OECD, but is related when it concerns commodity prices paid by OECD consumers and how the OECD economy reacts. As we know, through 2007-2009, the tilt into deep recession was greased by small but continual consumer price rises for energy and food.

Ironically, therefore, the OECD ‘postindustrial’ economy is more exposed and less able to weather commodity price hikes, than the much lower income Chinese and Indian economies. When the going gets rough for the Asian decoupled economies, they decouple further. Their potential for playing locomotive to the OECD economies is low, and is likely to get lower. By 2015, for a host of reasons including climate change mitigation and the shift to the green economy, this trend could get so strong that we have a form of ‘autarkic’ national self reliant growth quest by ‘Chindia’.

ROUBINI VERSUS ROGERS

One fatal similarity of their public pronouncements is clear: they like to ignore how fast the US dollar devaluation rout could grow, setting a trap for Bernanke. Perhaps pretexting oil reaching $100 a barrel, he would hold to his ‘Bernanke oil price doctrine’ spelled out, publicly, at Jackson Hole on August 21. Beyond $ 100 a barrel, he more than hinted, interest rates should move up. This could stem the rout of creeping dollar devaluation if not trim oil prices - until the economy tilted back to deep recession, and stayed there as long as interest rates rolled to a Volker tune.

In his August 21 speech Bernanke said that $145 oil in 2008 was a main driver of the recession meltdown, conveniently ignoring the facts of US financial rout and budgetary insanity. The most recent record high year for US oil trade deficits, 2007 at about $320 billion, is dwarfed by spending on the Afghan and Iraq wars at about $860 bn in 2009. It is reduced to pale and tiny insignificance by ‘Keynesian recovery’ spending in 2008-2009, at about $ 3750 bn, excluding guarantees and TARP, and related spending engaged for 2010.

Why he focused on Demon Oil is simple: it affects the real economy. High energy prices crank up food prices, and the two reduce household disposable ‘discretionary spending’ income. Rogers makes another big mistake in imagining that huge amounts of ‘Keynesian spending, in any OECD country, has ‘trickled down’ to the real economy: if that was the case, unemployment would not be rising.

By Andrew McKillop

gsoassociates.com

Project Director, GSO Consulting Associates

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission

China's Economy: Behind All the Hype

Sun, 25 Oct 2009 08:20:34 -0400

October 22, 2009, 5:00PM EST

espite an impressive rebound, an innovation shortfall may hobble sustainable growth

By Dexter Roberts and Pete Engardio

At the parade marking the 60th anniversary of the People’s Republic of China, tanks and missiles trundled past the Forbidden City and down Beijing’s Chang’an Avenue. Battalions of soldiers goose-stepped in perfect unison. Overhead, fighter jets soared in tight formation.

But close on the heels of this military extravaganza came floats highlighting a less bellicose side of China, what the leadership calls “indigenous innovation.” On one, a 10-foot-high microscope, giant test tubes filled with blue liquid, and a white telescope signified China’s scientific and technological achievements. Another featured a replica of a bullet train and a passenger jet to represent China’s ambitions in transportation. A green-energy float was studded with windmills and oil rigs and flanked by hundreds of red-helmeted energy-industry workers, each carrying a solar panel.

From a rostrum perched above the giant portrait of Mao Zedong at the Gate of Heavenly Peace, President Hu Jintao watched over the proceedings. “The Chinese people have stood up,” Hu declared, quoting Mao, who uttered those words at that very spot 60 years ago. The country, Hu added, is “full of confidence in the bright prospects of the great rejuvenation of the nation.”

VINDICATION, FOR NOW

That sense of triumph permeates China these days. The mainland’s quick rebound from the worldwide financial meltdown seems to have vindicated its brand of state-led capitalism. As the West struggles to recover, China is on track for 8% growth this year and is about to overtake Japan as the world’s No. 2 economy and Germany as the No. 1 exporter. Now the mainland is charging ahead in new industries, unveiling homegrown airliners, electric cars, and high-speed trains.

But delve beneath the muscular statistics and hype about advances in strategic industries, and China doesn’t seem so prepared to catapult into a role of global economic leadership. Experts familiar with highly touted Chinese achievements such as commercial jets and high-speed trains say the technologies that underpin them were largely developed elsewhere. There is no Chinese Sony, Toyota, or Samsung on the horizon. While Beijing’s $586 billion stimulus package and a 150% increase in bank lending have spurred impressive growth, “the question,” says Morgan Stanley (MS) Asia Chairman Stephen S. Roach, “is the quality of that growth.”

By Beijing’s own admission, the economic model that has powered China for three decades can no longer be counted on to move it forward. The mainland has prospered largely through construction and by exporting all manner of consumer goods churned out in low-wage factories; workers parked their savings in state-run banks, which then loaned the money to companies to make more stuff. But technology and managerial knowhow came mostly from multinationals, and the costs—pollution, decaying social services, and a yawning gap between the urban rich and rural poor—were largely ignored. Though that model has fueled phenomenal growth, Hu and others now call it “unbalanced” and “unsustainable.”

So in recent years, Beijing has been heralding a new economic vision. The key elements: Grimy factories will give way to renewable-energy industries and a growing service sector; Chinese consumers, rather than stretched Americans and Europeans, will underpin demand; and instead of churning out me-too goods for little profit, Chinese companies are supposed to create innovative products based on home-grown technologies.

As President Barack Obama prepares for his first state visit to the mainland on Nov. 15 though, some economists are taking a skeptical look at China’s evolution. While Beijing has honored many of the market-opening commitments it made to join the World Trade Organization in 2001, promised reforms such as allowing greater foreign investment in telecommunications and financial services have stalled. Over the past three years a steady stream of directives flowing from a raft of ministries and the National Development & Reform Commission—successor to the old central planning agency—have tightened the state’s grip on the economy. In June, for example, the commission ordered that wherever possible only goods made by Chinese-owned companies be used in any project funded by the government.

The state’s comeback is easy to spot. The vast majority of new loans are now going to government-controlled enterprises, for instance, while less than 20% end up at small and midsize firms, which tend to be private, Standard Chartered Bank estimates. And in strategic industries from wind turbines to nuclear power generators, Beijing is favoring its national champions and trying to whittle down the role of foreign companies. “They are rolling up the red carpet,” says Joerg Wuttke, president of the European Chamber in China, which recently released a 584-page white paper arguing that China has hit the brakes on opening its economy. Says a U.S. trade official: “China’s focus seems to have shifted from accelerating market reforms toward a more state-controlled model. It is very worrying.”

Besides aggravating trade frictions, the Communist Party’s renewed penchant for control could undermine China’s competitiveness overseas. Clamping down on the ability of foreigners to do business in China would make life easier for Chinese companies at home; the downside is that it would let them avoid honing the skills needed to succeed outside the mainland. And funneling funds to state companies and connected insiders leaves creative entrepreneurs starved for capital. “The government wants to stimulate innovation and job creation but is doing the opposite,” says economist Xu Xiaonian at the China Europe International Business School in Shanghai.

There are already signs that Beijing’s policies are undermining the transition to a more balanced economy that might propel growth around the world. Over the past decade, consumer spending—what should be the mainstay of a new Chinese economy—has slumped from 45% of gross domestic product to 35% and now stands at about half the U.S. level. A full 88% of this year’s GDP growth, Morgan Stanley’s Roach estimates, will come from the usual source: fixed-asset investment in infrastructure, real estate, and yet more production lines. In the past two years, Chinese steel capacity has swelled by a third, and the mainland’s idle capacity this year will nearly equal the combined steel output of the U.S. and Japan. “If anything, we are seeing a retreat to the old formula of support for large-scale manufacturing and exports,” says David Hoffman, China managing director for the Conference Board, a business group.

For a glimpse of what may lie ahead if China fails to transform its economy, head to the southern city of Dongguan. The thousands of factories in the Pearl River Delta industrial hub churn out televisions, furniture, toys, and a seemingly infinite number of other products for consumers worldwide. But with China’s exports down 15% in September—the 11th consecutive month of decline—Dongguan is reeling. In the Changping district, once dubbed “little Hong Kong,” shuttered factories are overgrown with weeds. The karaoke bars and restaurants, which once catered to the thousands of Hong Kong and Taiwanese managers who have fled, are quiet. Sure, the economy of Guangdong Province is on track for 9% growth this year, but that’s due mainly to massive government spending on public works, such as an airport expansion and a nuclear power station. “What Guangdong is facing, all of China is facing,” says Wang Yiyang, vice-director of Guangdong’s development research center, an arm of the provincial government. “We have to find new sources of competitiveness.”

In response, Guangdong is launching a crash restructuring that the provincial Party boss calls “emptying the cage and changing the birds.” Dongguan and eight other Delta cities are moving low-wage factories into new industrial zones 50 miles or more to the north in poorer parts of the province. Greener industries, such as biopharmaceuticals, renewable energy, and information technology, are to replace them. But hopes for a surge in foreign investment have been dashed by the global recession. So Guangdong is courting state-owned companies from elsewhere in China and pressing local enterprises to become more innovative.

In pockets across the country, officials have made far more progress toward the new economic vision. China is aggressively promoting wind power, greener solid-state lighting, and high-speed trains. Shanghai, Beijing, and dozens of other cities are building vast subway networks to complement the highways already in place. To persuade citizens to spend more and save less, Beijing is expanding public health care and subsidizing small cars and electric appliances. Millions of small private companies have sprouted, and hulking state industries that provided cradle-to-grave benefits have been downsized. Cities and provinces are boosting research spending, retraining workers, and courting investment in new industries such as biotechnology, which is attracting top Chinese scientists from the U.S. “China’s growth seems unstoppable,” says Rao Yi, a former Northwestern University neuroscientist and now dean of Beijing University’s life-sciences school.

NO INCUBATOR OF INNOVATION

China has a long way to go, though, in innovation. The mainland has dramatically boosted research spending and boasts the world’s biggest pool of science and engineering graduates. But aside from Internet games, the country creates few breakthrough products, due in no small measure to the perennial problem of rampant counterfeiting. China last year exported $416 billion worth of high-tech goods. But subtract the mainland operations of Taiwanese contract manufacturers and the likes of Nokia (NOK), Samsung, and Hewlett-Packard (HPQ), and China is an electronics lightweight. Beyond Tsingtao beer and low-end Haier refrigerators, “China has zilch brand presence in the U.S.,” says Kenneth J. DeWoskin, director of the China Research & Insight Center at Deloitte & Touche. Instead, most mainland companies mine existing technologies and compete on high volume and low cost in commodity goods.

Take cars. For decades, Beijing has sought to shore up the industry. But Volkswagen (VLKAY), Toyota, Buick, and other foreign brands dominate in midsize sedans and SUVs. Domestic carmakers such as BYD Auto, Geely, and Chery have thrived by developing subcompacts that sell for as little as $4,400. They’re now China’s great hope in electrics and hybrids. Beijing, meanwhile, is ramping up support. To meet a goal of producing 500,000 such vehicles by 2011, the Science & Technology Ministry plans to put 60,000 electric buses and taxis on the streets and offer subsidies to buyers in 13 cities.

BYD Auto has generated the most buzz. The Shenzhen company this year expects to sell 400,000 cars, and its parent is one of the world’s largest producers of lithium-ion batteries for mobile phones, PCs, and other gadgets. Next year it plans a U.S. launch for the e6, a five-seat electric plug-in with a claimed range of 249 miles. BYD’s stock has rocketed so high that fabled investor Warren E. Buffett’s 10% stake already has earned him a paper profit of more than $1 billion. BYD vows to be China’s largest carmaker by 2015 and overtake Toyota as the world’s leading brand by 2025, producing 10 million vehicles a year—half of them for export.

BYD has a long way to go. This year it will be lucky to match its 2008 export record of 8,000 cars, all sold in Russia and developing nations from Africa to Latin America. It says it has delivered only about 100 of its $22,000 F3DM plug-in hybrids in China this year—far from its sales target of 4,000. BYD’s biggest advantage? It’s not design, cutting-edge technology, or state-of-the-art manufacturing. Instead, it’s a fairly conventional battery that BYD manages to produce cheaply. “Making affordable products is key for the development of the electric vehicle industry,” says Henry Z. Li, BYD’s general manager for international sales. BYD declined a request to tour its factories, but visitors to the company’s plants say its batteries and electric motors are hand-assembled by long lines of blue-uniformed workers rather than the robots that have become standard in most of the industry. Whether BYD or other Chinese carmakers are anywhere near meeting European and U.S. safety regulations is another question. “In mature markets the barriers are very clear and standards very high,” says Yale Zhang, China director for auto consultancy CSM Worldwide.

WESTERN TECHNOLOGY INSIDE

Disassemble other widely hailed successes of indigenous innovation, and there is little Chinese about them. Beijing has long craved its own commercial aircraft industry, and its first offering—a 90-seat commuter jet dubbed the ARJ21—is to hit the market next year. Next up is the C919, a midrange plane with up to 190 seats that state-owned Commercial Aircraft Corp. of China (Comac) unveiled on Sept. 9. The airliner, scheduled for delivery in 2016, is intended as a direct challenge to Boeing (BA) and Airbus.

Western experts familiar with Comac’s planes say they’re based on older jets designed by McDonnell Douglas two decades ago, before the U.S. company was acquired by Boeing. The avionics, engine, and other key systems on the ARJ21, meanwhile, come from Western suppliers such as Honeywell (HON), General Electric (GE), and Rockwell Collins (COL). “China wants to be self-sufficient, producing everything itself,” says Nathan K. Smith, aerospace analyst at market research firm Frost & Sullivan. “But it simply doesn’t have the capabilities to develop these aircraft without Western technology.” The prospect of Comac competing with Boeing and Airbus outside China even two decades from now, says Smith, “is a long shot.” Comac declined interview requests.

Some Chinese industrial policies have flopped. Beijing has long viewed semiconductor manufacturing as a key industry, for example, and eight new silicon wafer plants—some heavily subsidized—have been built just since 2005. The aim was to start out competing as low-cost contract manufacturers for foreign chip design firms. But China’s wafer factories rely on technologies that are at least two generations behind those of Taiwan, the U.S., Japan, and South Korea, and few have ever been profitable. At the nadir of the recession last winter, 60% of China’s capacity sat idle. But with next-generation wafer plants costing $3 billion and up, a major shakeout looms, says Len Jelinek, semiconductor analyst for market research firm iSuppli. “Most Chinese companies don’t have the technology and the money to invest in research and development to stay in the game,” he says.

Of course, China has plenty of smart entrepreneurs who are steering their companies in new directions. They’re tapping the mainland’s engineering talent, stressing design, and reorienting old-line manufacturing operations to unearth new opportunities. Guangzhou’s Devotion group typifies the shift. The 17-year-old company’s primary business—making huge diesel-fired boilers for factories and big buildings—has been hit by the slowdown, rising fuel costs, and growing government efforts to reduce air pollution. Sales plunged 45% in the first half, and its Singapore-listed shares trade below their 2003 offering price.

So Devotion has shifted its focus to biofuels and the boilers that burn them. Outside its headquarters are piles of broken wooden pallets, containers filled with corn and rice husks, a patch of elephant grass (a fuel source that can grow 10 feet high in a few weeks), and a hulking refinery that turns such materials into biogas, oil, and flammable pellets. Devotion offers to install boilers for free and says it makes its money on long-term contracts to sell the biofuels. The company says it now has 30 biofuel customers and aims to triple sales, to $600 million, within five years, with most of the increase coming from new-energy products and services. But with diesel boilers accounting for 90% of sales, it will have to ride out tough times. The biofuel business “is still small,” concedes Devotion’s burly president, Ma Ge.

Given China’s many signs of progress, it’s easy to forget that it remains an underdeveloped economy facing huge challenges. Yes, it has an immense, youthful population, gifted entrepreneurs and scientists, ambitious officials—and lots of money. So it’s likely Beijing will someday get the formula right. But China’s economic reforms are now three decades in the making. That’s several years longer than Mao Zedong and his loyalists spent imposing their extreme brand of socialism. “Japan and South Korea took 30 years to make a similar transformation” to an economy driven by innovation, consumer spending, and services, says Guangdong Academy of Social Sciences economist Ding Li. “Our expectations can’t be too high.” But expectations of China’s arrival as a superpower already are high both at home and abroad. The longer Beijing waits to update its tired growth formula, the longer it will take for China to fulfill that destiny.

Business Exchange: Read, save, and add content on BW’s new Web 2.0 topic network

Increasing Protectionism

In separate papers published this autumn, the U.S.-China Business Council and the European Chamber of Commerce in China both identified rising protectionism and economic nationalism as pressing concerns for foreign companies doing business in the mainland. Some markets are effectively closed to international investors, while in others, laws and regulations are selectively enforced to favor domestic companies at the expense of foreign-owned rivals. And while China’s immense stimulus package has created opportunities for a few foreigners, especially those involved in infrastructure, most of the funding has gone to mainland companies.

To view the papers, go to http://bx.businessweek.com/china-business/reference/

With Huang Zhe in Beijing

Roberts is BusinessWeek’s Asia News Editor and China bureau chief. Engardio is an international senior writer for BusinessWeek

Two daunting challenges for Asia's economy

Sat, 24 Oct 2009 00:36:00 -0400

Thu, 10/08/2009 - 12:50pm

By Clyde Prestowitz

In his new book, The Next Asia, Stephen Roach demonstrates yet again why he is the best economic analyst out there, not only on Asia but on the structure and underlying dynamics of the globalization that is revolutionizing our world and dramatically shifting the balance of international power.

The Next Asia, a collection of Roach’s columns and analyses over the past several years, could just as well be read from back to front as in the traditional front to back mode. Going backwards gives one the feeling of traveling with Sherlock Holmes as he unravels the threads of a great mystery to find the ultimate secret cause of the crime or accident. But either way you read it, the book is a constant reminder of how on target and correct Roach has been in his analyses of the causes and effects of economic trends over the past decade. In particular, he saw the recent crisis coming before almost anyone else, and also correctly foresaw that the much ballyhooed notion of Asian decoupling from the U.S. economy was a dangerous fallacy.

More important than what Roach saw in the past, however, is what he sees coming in Asia in the future. His fundamental view is bullish but realistic. The achievements of Asia, and particularly of China, in the past twenty years are presented not only as obviously impressive but also based on extraordinarily wise policies and leadership. At the same time, Roach focuses on the “four uns” of Chinese Premier Wen Jiabao whose statement at the conclusion of the March 2007 National People’s Congress acknowledged the economy’s strong performance but then went on to emphasize that despite its apparent strength, the economy was “unbalanced, unstable, uncoordinated, and unsustainable.”

Coming more than a year before the fall of Lehman Brothers and the eruption of the recent crisis now being called the Great Recession, that statement was prescient not only for China but also for the whole global economy. In The Next Asia, Roach makes a double point. Whether China and India and the rest of developing Asia will continue to prosper and to lift hundreds of millions out of poverty while shifting the center of the world economy to the east will depend on removing the “un” prefix from in front of each of Wen’s adjectives. This will entail two particularly daunting challenges. The Asian developing economies are unbalanced and unstable by dint of their reliance on exports to generate growth. To become balanced and stable, they must shift to domestic consumption led growth. That sounds easy but in fact will be quite difficult because the physical, institutional, political, and social structures are all organized around exports. Changing that will not be just a matter of a stroke of the Premier’s pen. Similarly, the second challenge of developing in a way that does not result in unacceptable global warming and environmental degradation will also not be met only by making policy statements. Roach shows that spectacular as the Asian performance has been thus far, it will have to be even more spectacular going forward.

His second point is that the outcome is just as important to the United States and the rest of the world as it is to Asia, and that a positive outcome is not possible unless America also acts much more wisely in the future than it has in the past.

Clyde Prestowitz is founder and President of the Economic Strategy Institute.

The Next Asia

Wed, 21 Oct 2009 00:51:00 -0400

Review by David Pilling

Published: October 11 2009 18:38 | Last updated: October 11 2009 18:38

The Next Asia: Opportunities and Challenges for a New Globalisation
By Stephen Roach
Wiley $39.95 (£26.99)

Stephen Roach, Morgan Stanley’s perennial bear, had long predicted a terrible reckoning for a supercharged US economy, hopped up on private consumption and propped up by savings-surplus countries willing to fund US debt. When, finally, in 2007, Morgan Stanley sent him to live in his beloved Asia, about which he had always been bullish, his thoughts on that region quickly turned gloomier, too.

In The Next Asia, a collection of essays on the region’s place in the world, Roach could not fairly be described as bearish. “Don’t get me wrong,” he says at one point in a typically down-to-earth interjection. “I am a long-standing optimist on Asia.”

But he does challenge, and in forthright terms, any notion that the world can go back to business as usual. If Asia, particularly China, thinks that it can simply wait for the west to recover before merrily recommencing its export-dependent growth strategy, it is kidding itself, he argues. Only if it can rebalance its economy towards greater domestic consumption will it fulfil its enormous promise. “It may be premature to crack open the champagne. The Asian century is hardly as preordained as most seem to believe.”

So far, Roach has been disappointed by the Asian, particularly the Chinese, response. In the section on Chinese rebalancing, he concludes: “There are worrisome signs that China just doesn’t get it, that it is clinging to antiquated policy and economic growth strategies that presuppose a classic snapback in global demand.” He cites as evidence the make-up of the $585bn two-year stimulus package that, he says, is biased towards old-fashioned infrastructure projects and too light on pro-consumption measures such as bolstering national health insurance, the absence of which encourages people to make precautionary savings.

He welcomes China’s willingness to engage more actively in debate about the global financial system. But for Roach, Beijing’s emphasis on the US deficit and on seeking alternatives, such as special drawing rights, to the dollar as a reserve currency betrays a complacency towards its own problems. China’s massive holdings of US Treasuries, he contends, are the flip side of America’s: they reveal a dependence on exports and the need to recycle foreign currency reserves abroad for fear of putting upward pressure on the renminbi.

Roach’s writing is always clear, opinionated and fun. In other sections, he lays much of the blame for the financial crisis at the feet of Alan Greenspan, whom he criticises for encouraging a series of asset bubbles by concentrating on overly narrow definitions of inflation. On globalisation, he swipes at what he calls the “win-win mantra” of rigidly applying Ricardo’s theory of comparative advantage. Globalisation is asymmetrical, he says, arguing for example that the addition of 1.5bn workers from China, India and the former Soviet Union has put downward pressure on wages in the US and other rich countries, forcing the labour share of national income to a record low of 54 per cent. Yet he is equally forthright in rejecting what he says would be a ruinous attempt either to impose protectionist barriers or to force China to revalue.

Put simply, both the US and China must look in the mirror: the US must save more and better educate its workers to compete in a flatter, IT-enabled world. China must save less, spend more and shift to a form of growth that is less energy and commodity intense. Above all, the huge transfer of savings from the poor world to the rich one, what he calls a “reverse Marshall Plan”, is no longer sustainable.

If the book has a fault, it is that it is not really a book at all, rather a collection of essays cobbled into themes. Written over a four-year period, the format does bring immediacy and progression of thought as Mr Roach reacts to events – the reprinted FT blogs from Davos are a good example of this intellectual excitement. But the book lacks a fully satisfying narrative and suffers from repetition. Even some of Mr Roach’s best lines – “You either believe in decoupling or globalisation: but not both” – begin to wear thin the fourth time around.

Still, the collection is bristling with ideas and bold calls. What it lacks in narrative thread it makes up for in intellectual coherence. The strongest theme is the link between the US consumer and Asian growth. From 2001-07 the export share of China’s output rose from 20 per cent to 36 per cent, a surge that coincided with a rise in the global export share of world output from 24 to 31 per cent. China rode globalisation to perfection. But that is over. Asia, says Roach, must come up with something else.

The writer is the FT’s Asia editor

Copyright The Financial Times Limited 2009. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.

Why Asia Wins

Wed, 02 Sep 2009 22:31:04 -0400

Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, says Minxin Pei underestimates the significance of Asia’s growth in “Think Again: Asia’s Rise.” Economic Strategy Institute President Clyde Prestowitz suggests authoritarian leadership helped drive the region’s success.

AUGUST 24, 2009

While I have great respect for Minxin Pei and his work, I disagree with most of his article (“Think Again: Asia’s Rise,” July/August 2009). It seems to suggest that the rise of Asia will not fundamentally change anything. Nothing could be further from the truth. Asia will demonstrate that the Western domination of world history over the last 200 years has been an aberration. With China and India moving once again to center stage, we will return to the historical norm in which these countries are the world’s two largest economies, as they were for 1,800 years. It took extreme underperformance by the Chinese and Indian populations for them to fall behind, but that era is now over.

Pei suggests that Asia’s rise could lead to divisions among Asian powers. This is quite possible and wouldn’t be very surprising. But so far, the rise of Asia has been accompanied by diminishing rather than rising tensions between Asian powers. There is a remarkable degree of geopolitical calm in East Asia today. Pei’s article makes no effort to explain this remarkable development. One cause is that the caliber of Asia’s geopolitical thinkers is today superior to that of their Western counterparts.

The most dangerous aspect of Pei’s article is that it will encourage complacency among U.S. thinkers. It seems to suggest that the United States can continue on autopilot and will always remain on top. This would be a disastrous course of action. The good news, as I explain in my book, The New Asian Hemisphere: The Irresistible Shift of Global Power to the East, is that the new Asian societies want to replicate, not dominate, the West. But they also expect the West, especially the United States, to share power and not hog it. Every society must adjust as the world changes. So too must America.

In short, Pei is correct that we should “think again” about Asia’s rise, but the only reasonable conclusion is that it will change everything.

Kishore Mahbubani
Dean
Lee Kuan Yew School of Public Policy
National University of Singapore
Singapore

Minxin Pei correctly notes that China, despite its growing importance, will not be dominant anytime soon if ever, either in the world or in Asia, and that a number of negative factors could slow or even halt the rise of Asia’s developing countries.

But surely, anyone can see that the United States’ relative power and influence in Asia has declined and will continue to decline. The loss of relative U.S. power is partly due to East Asia’s pragmatic economic model, which flexibly mixes government and private resources and incentives. With its false, debt-driven growth subtracted, U.S. performance over the last 20 or 30 years is revealed as inferior to that of all Asian countries including Japan, with its much-mourned “lost decade.”

It also seems indisputable that all of the fast growth in Asia outside India has taken place under authoritarian or, in the case of Japan, bureaucrat-dominated political systems. Indeed, South Korea, Japan, and Taiwan all began to falter as their political systems became less authoritarian. It must be stated that in many democratic developing countries there is democracy fatigue, and the soft authoritarian approach of Singapore or even the more muscular Chinese model has appeal. It’s no surprise that in Latin America, where the so-called “Washington Consensus” has produced very little growth, the only thing anyone wants to know is how China and India are doing it.

It may be comforting to believe that the U.S. political system will self-correct, but there is just as much reason to think that the United States will not recover because of the increasing intractability of its politics, dominated as they are by powerful, well-financed interest groups.

So, yes, a little contrarianism might be in order regarding the inevitable rise and dominance of Asia, but please: not too much.

Clyde Prestowitz
President
Economic Strategy Institute
Washington, D.C.

Minxin Pei replies:

I deeply appreciate the comments of Kishore Mahbubani and Clyde Prestowitz, both of whom have written bestsellers on Asia. But Mahbubani mischaracterizes my argument when he says that I imply nothing fundamental has been changed by Asia’s rise. Although I reject the notion that Asia will be a dominant power, I emphasize that Asia’s rise is real and will lead to a multipolar world.

As for the geopolitical calm observed by Mahbubani, appearances are deceiving. If Asian countries are indeed “calm,” why is the region experiencing the world’s fastest growth in military spending? Why do the Indians view the Chinese with distrust and fear? Why does Sino-Japanese animosity remain as entrenched as ever? The current calm might very well be the sort one sees before the storm.

Prestowitz is right that some East Asian countries experienced their fastest growth under authoritarian rule. But he neglects the fact that other Asian autocracies — such as Burma and North Korea — have scored miserably on growth. It’s tempting to prescribe a little authoritarianism to spur development, but there is no guarantee that it won’t quickly become too much. It often does.

Asia’s Place in 21st Century Global Governance (Part II)

Thu, 06 Aug 2009 22:48:33 -0400

By Jean-Pierre Lehmann | Monday, August 03, 2009

With so many economic and political differences, is it possible that the interests of Asia’s major players can ever coincide? In the second of a two-part series, Jean-Pierre Lehmann describes possible scenarios for the future of the international system.

South Korea, India, Indonesia and China — as is the case for the rest of the continent — should share a common interest in trade.

All four are strongly dependent on foreign trade and would suffer considerably in protectionist global market economy. And all four are members of the WTO.

India was actually a signatory member of the GATT, Korea acceded in 1967 and Indonesia joined in 1986 when the country undertook a deep program of economic reform.

China applied for membership of the GATT in 1986 and after 15 years of painstaking negotiations (which were interrupted for a while following the Tiananmen massacre in 1989) it finally acceded to the GATT’s succeeding institution, the WTO, in Doha, Qatar, in 2001.

China, India and Indonesia have, at least on the surface, been allies in the arena of the Global South in its campaign versus the North.

In the WTO trade ministerial meeting in Cancún, Mexico, in September 2003 (which was meant to be a half-way mark to concluding the Doha Round) China and India along with Brazil and South Africa, formed what was initially known as the G-22, of which Indonesia was a member. This was supposed to be the group that would confront the North’s bullying and unfair tactics and policies.

Korea was not part of the Northern alliance, known as the Quad, comprising Canada, the EU, Japan and the United States. Instead, it joined a smaller grouping, known as the G10, which includes smaller but generally advanced economies, such as Switzerland and Taiwan. They have a common aim in resisting agricultural trade liberalization.

In both the Cancún and the subsequent Hong Kong WTO ministerial meetings in 2005, Korean rice farmers engaged in militant demonstrations. One committed suicide in Cancún and one drowned in Hong Kong Harbour.

However, in spite of their interests and in spite of their undoubted clout, whether for demographic or economic reasons, neither China, nor Indonesia, nor Korea have been especially influential or pro-active in the course of the Doha Round negotiations.

In contrast, India has been hyper-active and highly influential, though generally — or at least such is the perception in Geneva — as an obstructionist. Indeed the consensus view is that it is the United States in the North and India in the South are the main obstacles to a conclusion of the Doha Round.

Though there has been a possible warming of relations between the two countries on trade following their respective elections, this has as yet had no impact on Doha, nor is it generally expected to.

Western dominance since WWII has resulted in the mission of spreading democracy, respecting human rights, promoting the rule of law domestically and internationally and fostering an open global market economy. The West did not always practice what it preached, but there was nevertheless a reasonably clear “mission statement.”

At the moment, it is not clear what the Asian KIICs might share as a common mission, or indeed as common values.

Assuming that the G20 remains the de facto centre of global governance, as the successor to the G7, Korea, India, Indonesia and China will be the key players of the new Asian hemisphere.

As the second decade of the 21st century approaches, however, the scene is reminiscent of a Pirandello play. We know who the actors are, but we (and they!) have no idea what is the script.

There are many scenarios for the future of the planet as globalization and global governance shift to Asia.

One is the “clash of civilizations” concept made famous by the late Samuel Huntington and embraced by a number of opinion leaders in both East and West. That thesis is not, however, the most persuasive.

As has been explained, while the centre of economic gravity may well have shifted to Asia and will continue to do so, there is no perceptible Asian “bloc” emerging — nor an “Eastern” counter version to the “Western” system of global governance.

There is no strong bond uniting the four KIICs. Things look even more tenuous when including the other two Asian players, Japan and Saudi Arabia.

A number of tensions and fault-lines between the Asian states hinder the prospect of an Eastern alliance comparable to the Western alliance of the last 60 years.

Another scenario could be a state of lawless anarchy as the Western system disintegrates without any re-integrating principles or force to replace it.

Yet another scenario, would be that the Asian powers gradually absorb and becomes the main custodians of the “Western” system. The Western system of post-World War II global governance has rested on the principles enunciated in the Atlantic Charter co-signed by Franklin Roosevelt and Winston Churchill in 1941.

By 1991, as the Soviet system disintegrated and countries pretty much throughout the world, notably in Asia, underwent major reforms, the Atlantic Charter can be said to have become practically universal.

A central thesis in Kishore Mahbubani’s book, cited above, is that the West is no longer living up to its own principles, hence, as power shifts to the East, this is in good part due to its implementation of “Western principles.” When Greece declined as a state, Hellenism lived on for centuries and spread to many neighboring emerging civilizations, including Rome, Persia and the Arabs.

In a recent article in the Financial Times, Mahbubani and former Massachusetts Governor William Weld further re-enforce the point by asserting that Asia is most likely to be the custodian of the open global market economy and its Atlantic Charter-based governance architecture. After all, as the authors point out: “Asian economies only began to perform well when they accepted and implemented Adam Smith’s theories of free-market economics”.

This is the most optimistic scenario and possibly the most likely to evolve after a period of turbulence and uncertainty. It will not arise from deep philosophical musings, but from a recognition on the part of Asian leaders that doing so is in their best enlightened self-interests.

But very much depends on other events. While economic power is shifting to Asia and the Asian middle class is rising, there are formidable dark clouds hovering above the silver lining.

Nuclear proliferation in Asia is clearly a big and very real menace. As recent terrorist events in Mumbai and Jakarta, among others, remind us, there is an explosive political element at work. In spite of the rising middle class, there is also a huge amount of poverty. And there is the monumental issue of climate change that hinges on the actions that Asian economies are willing to take.

It is by no means all gloom and doom. There is reason to believe that Asia may emerge not only as the center of economic gravity, but also as a center of genuine global governance.

However it is important to remember that scenarios do not evolve into reality because of some deus ex machine. It is not “things that happen”, but people who make things happen.

For the most desirable scenario to become reality, both Atlantic and Pacific thought leaders will need to work very hard to make it happen.

Asia’s Place in 21st Century Global Governance (Part I)

Thu, 06 Aug 2009 22:47:17 -0400

With ever greater economic power, how will Asian countries influence international politics? In the first of a two-part series, Jean-Pierre Lehmann describes the importance of the diverging cultural and political scenarios in major Asian players such as India, China, South Korea and Indonesia.

he global center of economic gravity has been moving steadily towards Asia for the last three decades, a trend intensified by the current crisis.

In the words of Kishore Mahbubani, we are witnessing the rise of “the new Asian hemisphere,” which implies “an irresistible shift of global power to the East.”

Asia’s rise has brought into question the current global institutional framework and highlighted the imperative of reform. There is little sense, however, of what more Asia-oriented global governance would look like. Insights might be gleaned from the recently established G20, especially as it is likely to replace the G7/G8.

Current full membership of the G20 includes: five Europeans (France, Germany, Italy, the UK and the European Commission; two Eurasian nations (Russia and Turkey); five from the Americas (Canada, US, Mexico, Brazil and Argentina); one African (South Africa); one Oceanic (Australia); and six Asians (Japan, Korea, India, Indonesia, China and Saudi Arabia).

For the purposes of this article, Japan can be put to one side. Despite recent doldrums, it remains a formidable economic entity — but it is also an established 20th century power and not an emerging 21st century power. Though geographically in the “far East,” it has been a close ally of the West for over a century.

All of Japan’s alliances have been with Western nations — Britain from 1902 to 1922, Germany and Italy during World War II, and the United States since World War II.

At the other Asian extreme, its “far West,” Saudi Arabia, can also be put aside. Saudi identity is mainly as an Arab nation. Though in recent years there has been a growing Asian-Arab investment arc, Saudi Arabia is otherwise not actively engaged in Asian affairs.

This leaves us with Korea, India, Indonesia and China (the KIICs) as arguably the forerunners of what a future, more Asian system of global governance could look like.

What can one say about the KIICs?

Three (China, India and Indonesia) are geographically and demographically huge, together comprising over 40% of humanity. By force of sheer size, they would seem to deserve a place at the global table. Korea, on the other hand, is a medium-sized nation with a population of 48 million.

All four are successful economies. Korea, Indonesia and China are among the 13 economies identified by the United Nations Commission on Growth as having maintained an average annual GDP growth rate of 7% for 25 years or more since 1950.

Though India has been a comparative laggard — with high growth having only been generated since its reforms in the early 1990s — on the present course it should be joining this august group in the next few years.

The four economies differ considerably. Korea is an advanced/high income economy as classified by the IMF and World Bank, and is a member of the rich nations’ club, the OECD. China, India and Indonesia are low income countries with huge (and generally poor) rural sectors.

China is emerging as both the world’s largest trading and manufacturing nation, totally dwarfing India and Indonesia. India is a global leader in information technology. Korea is one of the world’s leading trading nations, and is an important source of inward investment in all three countries.

In cultural/religious terms, Korea is predominantly Buddhist, albeit with one of Asia’s largest Christian minorities (30%). India is predominantly Hindu, with a strong Muslim minority (over 10% of the population) and other religious communities.

Indonesia is the world’s largest Muslim nation, but with roughly 15% of the population comprised of religious minorities, including Christians, Buddhists and Hindus. Lastly, China is “Confucianist-Communist,” but with important religious minorities that experience diverse degrees of suppression.

Ethnically, Korea is a quite homogenous nation, and China is predominantly Han-Chinese at 92% of the population. However, both India and Indonesia are among the most heterogeneous countries on the planet.

Managing diversity has been a huge challenge for both nations and both have met it reasonably successfully, albeit with some dangerous flash-points.

Politically, India has been a democracy since independence in 1947. Both Korea and Indonesia have democratized peacefully from military dictatorships: Korea since the late 1980s, and Indonesia since the late 1990s.

Along with Saudi Arabia, Indonesia is the only predominantly Muslim country on the G20. It is also one of the infinitesimally few predominantly Muslim countries that is democratic.

China is what is termed a “Market-Leninist” state, combining an open market economy with a closed Leninist form of political dictatorship. There are hardly any vestiges of Marxism, let alone Maoism, in China — under the previous president, Jiang Zemin, even bourgeois entrepreneurs were brought into the Communist Party.

In all four countries (as well as in the other two Asian G20 members, Japan and Saudi Arabia) the death penalty is permitted. According to Amnesty International, in 2008 China, Saudi Arabia and the United States accounted for the highest number of global executions.

Indonesia, India and China feature among the most corrupt nations, according to Transparency International. Korea is in a different league, though among OECD countries it ranks as one of the most corrupt (but less so than Italy!).

China, India and Indonesia are heavy emitters of greenhouse gases and are recalcitrant on climate change issues. They are more likely to delay than accelerate the agenda. Korea, on the other hand, appears proactively engaged in meeting the next great challenge of its development.

Not only is it investing heavily in multiple new engines of “qualitative” (welfare enhancing) and sustainable (low carbon) growth, but it also has a very ambitious and commendable green agenda, known as the “Green New Deal”. Climate change mitigation and sustainability are the top priorities of its current five-year plan. The government is investing $40 billion over a four year period with a view to creating 960,000 “green jobs.”

This is a region of the world with numerous geopolitical fault-lines. Both India and China are nuclear powers, with the former having not yet signed the Nuclear Non-Proliferation Treaty (NPT). South Korea lives under the constant menace of North Korea and has a strong American military presence.

All four have border issues with one or several of their neighbors that could deteriorate into acute tension or indeed outright conflict, depending on the circumstances.

For instance, India has been at war with two of its neighbors, Pakistan and China. For China, there is the Taiwan question. And then there is one of the most dangerous situations: The simmering dispute between China and Japan over what the former calls the Diaoyutai Islands and the latter the Senkaku. This territory is claimed by both and prized by both for its energy resources.

In terms of relations between the four: Korea was historically a “vassal state” of China, and they share a number of cultural affinities, notably Confucianism.

South Korea has significant and close economic ties with China, infinitely more so than the North. But in the geopolitical game, North Korea remains an ally of China. Korea has traditionally had no ties with India or Indonesia, nor does it have any particular cultural affinities with either.

India and China have had relations over the millennia, though in recent decades there has been a good deal of rivalry and mutual suspicion between the two. Cross-border trade and investments, however, are booming, and there are attempts at building a sturdier bilateral political relationship.

Ties between Jakarta and Beijing have been quite distant. In fact, for several decades, not only were there no diplomatic relations between Jakarta and Beijing, but Chinese imports were forbidden — as was anything that carried Chinese written text. However, there is a small (3.5% of the population) but economically powerful Chinese minority in Indonesia.

India was a big influence historically on Indonesia, though it waned long ago. In the 1950s their respective heads of government, Jawaharlal Nehru and Sukarno, were active in the creation of the non-aligned movement. Today both nations are closely, even if informally, allied to the United States.

When China Rules the World

Thu, 06 Aug 2009 22:45:00 -0400

The Rise of the Middle Kingdom and the End of the Western World
by Martin Jacques
London, Allen Lane, 2009.

“When you’re alone and life is making you lonely, you can always go: downtown.” So warbled the British singer, Petula Clark in the 1960s. However, today if solitude is your constant companion, I would suggest that you purchase a copy of this riveting book and read it on the bus and in airports – as I have been doing in recent days, with the dramatic words on the bright red cover of this weighty tome blaring insistently – and no doubt you will find, as I have, that your reading reverie will be constantly interrupted by a stream of anxious interlopers curious to know what the future may hold.

For like Petula Clark, the author too hails from London, though the startling message he brings decidedly differs from her melancholy intervention. For it is the author’s conclusion that sooner rather than later, China – a nation ruled by a Communist Party – will have the most sizeable and powerful economy in the world and that this will have manifold economic, cultural, psychological (and racial) consequences. Strangely enough, Jacques – one of the better respected intellectuals in the North Atlantic community – does not dwell upon how this monumental turn of events occurred. To be sure, he pays obeisance to the leadership of Comrade Deng Xiaoping, who in 1978, opened China’s economy to massive inward foreign direct investment, which set the stage for the 21st Century emergence of the planet’s most populous nation. Yet, for whatever reason, Jacques – who once was a leading figure in the British Communist Party – does not deign to detail to the gentle reader how Beijing brokered an alliance with US imperialism, that helped to destabilize their mutual foe in Moscow, which prepared the path for the gargantuan capital infusion that has transformed China and bids fair to do the same for the world as a whole.

Still, it is noteworthy that this book’s back-cover carries blurbs from the conservative economic historian, Niall Ferguson of Harvard (Henry Kissinger’s authorized biographer); the leading historian, Eric Hobsbawm; the well-known Singaporean intellectual and leader, Kishore Mahbubani (who has written a book that mirrors Jacques’ earthshaking conclusions); and a raft of Chinese thinkers who do not seem displeased nor surprised by his findings.

Within a few decades, according to the author, the size of China’s economy will surpass that of the US (intriguingly, he envisions that Mexico’s will be in fifth place behind India and Brazil – a result that may have more impact on imperialism’s declining fortunes than the rise of Beijing). Thus, the author is unsparing in his critique of US imperialism; having experience with the decline of Great Britain from its once stratospheric heights, he speaks with authority when he avers that “imperial powers in decline are almost invariably in denial of the fact.” However, the changing of the guard today will be much more sweeping that that which led to Washington supplanting London. For not only will the new hegemonic force be a Communist Party, he argues – despite imperialism expending trillions of dollars to precisely forestall the flourishing of Moscow Communists – but, likewise, this will not be just a switch from European to Euro-American elites. “For reasons of both mindset and interest,” he asserts, “the United States and the West more generally, finds it difficult to visualize, or accept, a world that involves a major and continuing diminution in its influence.” Repeatedly, he argues, “we have come to take Western hegemony for granted. It is so deeply rooted, so ubiquitous, that we think of it as somehow natural”; instead, he says, “Western hegemony is neither a product of nature nor is it eternal. On the contrary, at some point it will come to an end” – and that time has arrived, he avers. Choosing his words carefully, the author says China’s rise “threatens Western societies with an existential crisis of the first order, the political consequences of which we cannot predict but will certainly be profound. The assumptions that have underpinned the attitudes of many generations of Westerners towards the rest of the world will become increasingly unsustainable and beleaguered.” For, says Jacques, “the emergence of Chinese modernity immediately de-centers and relativizes [sic] the position of the West. That is why the rise of China has such far-reaching implications.”

There are signs of this decline: it cannot be avoided that “the United States has ceased to be a major manufacturer or a large-scale exporter of manufactured goods, having steadily ceded that position to East Asia.” Yet, as the author sees it, the rise of China is simply a reassertion of historic trends with the era of British, then US ascendancy, seen as the anomaly. For, he declares, as late as 1800, China was the planet’s leading economic force but it was then that the accumulated wealth and power brought by the African Slave Trade and colonial dispossession began to assert itself more forcefully, leading to what has been referred to colloquially, as “the rise of the West and the decline of the rest.” Echoing historians like Walter Rodney, the author cogently writes, “without the slave trade and colonization, Europe could never have made the kind of breakthrough it did.”

As he sees it, the heretofore ubiquitous “Washington Consensus” of “free markets”, privatization and deregulation will be replaced by a “Beijing Consensus” wherein “the state is hyperactive and omnipresent…..the Chinese model of the state is destined to exercise a powerful global influence, especially in the developing world, and thereby transform the terms of future economic debate. The collapse of the Anglo-American model in the wake of the credit crunch will make the Chinese model even more pertinent to many countries.”

He discounts the perception that China’s apparent failure to comport with democratic norms as perceived from Washington, compromises its model of development. In Britain, he says, it was only in 1918 “over 130 years after the beginning of the Industrial Revolution, that women (over 30) won” the right to vote and in the U.S., it was not until 1965 that voting rights for African-Americans were solidified in law. Moreover, those in Washington who obsess about “democracy,” rarely – if ever – examine the dearth of democracy “at the global level” – e.g. the Security Council of the United Nations (where Africans do not have a permanent seat and Asians are under-represented) or the World Bank (where US nationals rule) or the International Monetary Fund (the bailiwick of Western Europeans). The “global order,” concludes the author accurately, “has been anti-democratic and highly authoritarian” with little objection from Washington – and China’s rise will complicate this scenario tremendously, he suggests.

However, Jacques does seem to be concerned about how China approaches the matter of “race.” He acknowledges the obvious, which – tragically – is not the norm in the North Atlantic community: “white racism has had a far greater and more profound – and deleterious – effect on the modern world than any other.” Jacques, no dummy, is sufficiently perspicacious to acknowledge that “Jesus was whitened in the Western Christian tradition” as a function of the rise of white supremacy. As the author view things, “American supremacy has been associated with the global dominance of the white race and, by implication, the subordination and subjugation of other races in an informal global hierarchy of race.” This is bound to change, he says, for “the rise of China to surpass the West will, over time, inevitably result in a gradual reordering of the global hierarchy of race.” Jacques asserts that “with the rise of China, white domination will come under serious challenge for the first time in many, if not most, areas of global activity.”

On the other hand, I think he could have done a better job in limning this profound area for nowadays hysteria is mounting in Washington about China’s inroads in Africa, the site of a storehouse of precious metals and petroleum necessary to propel a dynamic economy. And news media in the US particularly seem to believe that a “new colonialism” and “new racism” is arising in Africa – with China as the chief culprit. Troubling is the assertion by the author that Chinese-Americans “did not join with black Americans in the major civil rights campaigns” in the US – which happens to be untrue. He harps on the allegation that in China negativity is associated with darker skin. This declaration underpins his notion that changes on the racial front brought by China’s ascent will be of most significant moment for those of African descent, which is rather surprising given the overall tenor of this text. It is disconcerting that Jacques, who has been deeply influenced by the Marxist tradition, fails to ground his racial analysis in the potent realm of property relations and note that white supremacy was turbo-charged in the US because of the direct association of Africans with chattel and the uncompensated expropriation of this form of wealth.

Unfortunately, like many North Atlantic intellectuals, Jacques disparages Japan – which remains the world’s second largest economy and surely, has severe adjustments to make because of US imperialism’s decline and China’s rise. However, the single biggest flaw of this book may be the failure of imagination that causes the author to fail to foresee that just as Washington helped to build up Beijing as a counterweight to Moscow, it is now building up India as a counterweight to China – and this factor will no doubt buoy Japan, whose exceedingly close relationship with India stretches back 2500 years to the founding of Buddhism. Tokyo will probably be a major beneficiary of Washington cozying up to New Delhi, just as Beijing benefited from the crusade against Moscow.

Nonetheless, the author should be congratulated if only for being sufficiently courageous to seek to extrapolate current trends and ascertain what the future may hold: this is not a simple nor easy task. Furthermore, unlike many in the North Atlantic, the author does not hesitate to scrutinize US imperialism critically, referring to the “material and existential crisis that will be faced by the United States” as a direct rule of China’s ascent. The US, he says, has “remained largely blind to what the future may hold, still basking in the glory of its past and present and preferring to believe that it would continue in the future.”

Yet, methinks that this blindness is slowly but surely disappearing as the interlopers who have interrupted – with evident anxiety – my reading this book on buses and in airports well suggests. The author has tackled what may be the most important issue of the new millennium and that alone merits congratulations.

Risk-taking, R&D and the recession

Fri, 17 Jul 2009 23:12:31 -0400

James Woudhuysen - Monday 15 June 2009

In his contribution to the spiked/Clarke Mulder Purdie debate on the future of risk-taking and innovation after the recession, James Woudhuysen argues that the woeful level of Western investment in R&D reveals much about the capitalists’ state of mind. What do you think? Click on the link at the end of this article to join in the debate today.

One of the poignant things about thought today is how it is dominated by vulgar economic explanations of the crisis. This applies to the world of innovation as much as to that of MPs’ behaviour. The latest, fairly sophisticated but overly economic analysis of innovation comes from the Paris-based research body, the Organisation for Economic Co-operation and Development (OECD).

In a new 37-page report, the OECD is adamant that the crisis has led to a decline in innovation:

‘Corporate reports for the fourth quarter of 2008 in many cases already show a decline or slower growth in research and development (R&D) spending. Forecasts for 2009 confirm the trend…

‘R&D is declining because it is mainly financed from cash flow (retained earnings), which contracts in downturns. At the same time, as banks, markets and investors have become more risk averse, firms face difficulties in tapping into external sources of funding to support their investments in R&D. Business R&D is also being re-oriented towards short-term, low-risk innovations, while longer-term, high-risk innovation projects are being cut first.’ (1)

So far, so predictable. But it seems to escape the OECD that the decline of innovation is a cause, not just a result of the crisis. The report recognises that public R&D in energy has long been in decline, but fails to use figures which the OECD itself produces – figures that show, in the US and Europe and as a percentage of GDP, the stagnation of business R&D, and the rapid decline of all aspects of public R&D (2).

Yes, as the OECD says, venture capital investments are in steep decline (including in China, though it looks like Initial Public Offerings there will revive within a year). Yes, barriers to entry for small, innovative firms are higher, and the decline in world trade makes global value chains in innovation tougher to operate. But the dangers of a purely economic account of barriers to innovation today come out in the OECD’s remarks on energy. It argues that lower oil prices have already reduced incentives to switch to alternative energy sources – and that the declining prices of raw materials reduce pressures to use these resources more efficiently. Yet already oil prices have risen to $70 a barrel; and falling prices for steel and cement, for example, count in favour of wind turbines and hydroelectric dams. Perhaps that is one of the reasons why China hopes to generate 20 per cent of its energy from renewable sources by 2020 (3).

Rightly, the OECD touches on ‘focusing public support on promising research and innovation affected by the crisis, for example long-term and risky research’, and on using public procurement to support R&D. But it is much more interested in local or regional clusters of innovation – a weak doctrine first pioneered by Harvard’s Michael Porter nearly 20 years ago (see his book The Competitive Advantage of Nations, 1990).

The OECD’s refusal to think big is continually reflected in its talking up of SMEs (small and medium enterprises) – mentioned no fewer than 52 times. In the same, unambitious and economics-obsessed mode, it believes that carbon capture and storage ‘will not be aggressively deployed in the coming decades without a clear carbon price’. Well, yes – if you think that there’s anything clear about carbon prices today and the EU’s byzantine Emissions Trading System, and if you believe that prices and markets are the alpha and omega of innovation.

In contributions to this debate on spiked, Rob Killick has rightly made the point that the roots of the West’s problems with innovation lie not in economics, but in its cultural antipathy toward moving ahead (4). In this sense, ethical investor Edward Mason is wrong to argue in his contribution to the spiked/CMP debate that ‘Developed societies want wealth creation, but it’s ever-more important to them how it is created and who shares in it’ (5). Cultural elites in the West are not interested in wealth creation the way they once were: why else have they bothered with financial services so much these past years?

On the contrary, wealth creation itself is stigmatised as damaging the planet, as useless in terms of creating happiness, and so on. In this sense, then, David Kern of the British Chambers of Commerce is right to say in his contribution to this debate that the undesirable features of the banking crisis have prompted ‘a general intellectual attack on the whole wealth-creating aspects of capitalism’ (6) – even if the antecedents of today’s attack go way back.

The OECD, however, doesn’t even take its own economic determinism seriously. In the second, empirical half of its report, it usefully tabulates the anti-crisis measures of some of the world’s leading economies. What comes out of its research is that, with few exceptions, Western governments are spending bugger all (forgive the term, but it really applies) on helping societies innovate their way out of the recession. And, characteristically, the OECD refuses to criticise the lethargy that its findings reveal.

To their credit:

Finland has announced that it will maintain its target of extending R&D spending to up to four per cent of GDP;
Korea has set aside no less than 5.14 per cent of GDP on energy conservation, recycling and clean energy supply (even if supply is much more important than conservation);
President Obama has allocated a reasonable – though by no means forthright – $11billion to fund a smart electricity grid, $7.2billion on broadband to unserved areas of the US, and $17.4billion on fuel-efficient cars (France: €6billion on such cars).

But what are today’s typical government initiatives on innovation? Expenditures, of course, don’t tell the whole story; but their shockingly small scale does tend to give the game away. France is to spend a piddling total of €70million on both nanotechnology and ICT for higher education. Britain is to devote a derisory £50million to support innovation in manufacturing, and aims to get universal broadband out by 2012… at two megabits per second (Australia: 100 megabits per second). The EU will spend a princely €1billion on universal broadband, with no targets for bit speeds. Mighty Germany is to spend just €1.5billion on both clean cars, and incentives to buy new cars.

A lot of these sums wouldn’t even reach The Sunday Times list of UK squillionnaires.

Table 4 of the OECD report also shows what’s going on. Apart from that on bailing out the malignant financial services sector, the emphasis among Western governments is on infrastructure, education and greenness more than it is on science, R&D and innovation. But across all four categories, the sums involved are a joke:

Financial weights of selected, long-term policies in OECD country stimulus packages, May 2009
(percentages based on GDP in 2008) (7)

Even with these figures, there is a fair amount of double-counting across the four categories.

Across the OECD, the average size of fiscal packages to beat the recession amounts to more than three per cent of GDP – and in the US, to more than five per cent. So one does not need to be an old-fashioned state interventionist to see that, in terms of priorities, Western governments are not serious about using innovation to exit today’s crisis. Nor, however, should one be a Marxisant economic determinist in trying to understand these shocking figures. Economics alone, as Marx would be the first to say, do not explain the sheer scale of risk-aversion today. Thus the OECD writes blithely of the need to adapt policy instruments to ‘the central importance of non-technological innovation’ (sic).

For the most part, members of the Western elite have given up on thinking big, given up on R&D, given up on the future. They are mice, not men.

This is a contribution to the spiked/Clarke Mulder Purdie debate on the future of risk-taking and innovation after the recession. What do you think? Click here to read the rest of the contributions and join the debate today.

James Woudhuysen is co-author, with Joe Kaplinsky, of Energise! A future for energy innovation, published by Beautiful Books, 2009. ((Buy this book from Amazon(UK).)

(1) Policy Responses to the Economic Crisis : Investing in Innovation for Long Term Growth, OECD, 10 June 2009, p6

(2) An R&D recession, by James Woudhuysen, 27 May 2009

(3) China plans increase in renewables targets, BusinessGreen, 10 June 2009

(4) This is really a political crisis, by Rob Killick

(5) A new era of regulation? by Edward Mason

(6) The demonisation of entrepreneurship, by David Kern

(7) OECD, op cit, p25

To see the future of the internet, look East

Fri, 17 Jul 2009 23:08:50 -0400

Norman Lewis (Monday 19 May 2008)

If Westerners could shake off their prejudices about ‘copycat’ Asians with ‘small hands’, they might just see the wonders of Asian web innovation.

Have you ever heard of QQ, Tudou, Mixi or CyWorld? No? But I bet you’ve heard of MySpace, Facebook and YouTube. It’s not surprising. The former social networking websites are all based in Asia – China, Japan and South Korea – while the latter three are in the Western media ad nauseam.

What you don’t know is that QQ in China, with over 300million active user accounts, is the largest instant messaging social network in the world – bigger than the population of the United States of America! Tudou, also based in China, is a video-sharing site, which streamed over 15billion minutes of video last year – almost five times more than YouTube (1). Mixi and CyWorld – social networking sites based in Japan and South Korea with 14million and 20million users respectively – have been at the global forefront of the social networking phenomenon. Indeed, CyWorld was the first - and thus remains the oldest - social networking site in the world having been established in 1999. Around 90 per cent of all Koreans aged between 20-29 spend most of their time online today at CyWorld.

It is not well known nor accepted that the social networking phenomenon we all gush about in the West was actually invented in Asia. This sounds counter-intuitive and unsettlingly unfamiliar. Innovation is assumed to be a prized Western asset, something the culturally compliant and uniform Asians cannot emulate.

Since the Second World War, Asia has been characterised by Western stereotypes. The Japanese, for example, were held to be good at copying not innovating – remember the transistor radio? And when such prejudices were proven to be wrong – witness the growth of Sony and the phenomenal development of the Japanese mobile industry – these have been dismissed with equally arrogant stereotyped cultural explanations that ascribe Japan’s love of mobiles and texting to the fact that Asians have small fingers. Innovations like personalised ring-back tones, a huge business across Asia and pioneered in South Korea in 2002, are dismissed with ‘deep insights’, which ascribe such behaviour to Asians’ love of karaoke.

Missing the plot

It is remarkable that so little has been written about the social networking phenomenon in Asia in the Western media. South Korea and Japan, with China and India rapidly closing the gap, are the most advanced internet markets in the world. User behaviours in these markets represent the greatest test bed in history for what we can expect as the rest of the world comes online and develops high-speed broadband infrastructures. However, Western contempt for Asia reveals a more worrying trend: namely, how closed the Western imagination has become to the question of innovation itself. Antipathy towards Asia reflects a disturbing impulse for self-flattery and myopia in the West.

One example illustrates this clearly. Earlier this year, The Economist published an article on social networking and boldly concluded that while these sites will become a ubiquitous feature of online life, ‘this did not mean it is a business’ (2). It concluded this after examining Facebook, MySpace and Bebo (all based in the West), whose business models all revolve around advertising. No mention was made of any of the leading social networking sites in Asia, despite the fact that the most cursory glance at these (particularly CyWorld and QQ) would reveal the very opposite: namely, that they are massively profitable and little of their revenues are generated from advertising.

In 2007, QQ reported annual revenues of $523million. This was close to four times the revenues of Facebook. Their operating profits, however, were $240million while Facebook recorded a $50million loss in the same year (3). While Facebook’s results might justify The Economist’s pessimism, QQ’s certainly do not. While QQ has over 300million active accounts (which is 50 per cent more than the total number of people online in China which means people have multiple accounts) the remarkable thing is that only 13 per cent of these revenues are generated through advertising. It is users buying and exchanging digital goods with each other that generate the vast majority of QQ’s revenue (4). These digital goods range from background music for their profiles, avatars, fashion items to dress their avatars and personalised spaces to weapons in virtual games. In a similar vein, CyWorld reports that it generates almost $300,000 a day similarly selling digital goods through its site.

The buying and exchanging of digital goods versus advertising can easily be interpreted through a cultural prism. Gift buying and exchanging is certainly a cultural trait in Asia while advertising online remains very underdeveloped. But to explain this online behaviour in these terms is far too simplistic and superficial. After all, the buying and exchanging of gifts is certainly not confined to Asians - there is a whole industry devoted to greetings cards and gifts in the West. This phenomenon needs deeper analysis because it highlights commonalities rather than differences in the behaviours and usage patterns in Asia and the West. It thus also holds important insights for the possible future evolution of these services in the West.

The generational impulse – the same the world over

The internet in Asia is overwhelmingly a young person’s domain. Access into this world, either through PCs and laptops (both personal and in public internet cafés) or mobile devices is very much driven by young people’s desire for communication and entertainment. In China, for example, 51 per cent of internet users are under 25 years old; 80 per cent are below the age of 35. Social networking sites like CyWorld and Mixi in Japan are overwhelmingly populated by young people. It is interesting to note how instant messaging and mobile usage appear to be the overwhelming killer applications across Asia. More interestingly, the situation is similar in the West.

Like their counterparts in the West, young people in Asia are adopting these technologies into their lives because of their lived experience of childhood. While cultural differences do mark some different behaviours (Mixi in Japan for example, is a social network based only upon friends that users actually know), there are common impulses that are driving adoption. In both parts of the world, children’s lives are increasingly controlled and under the gaze of adults. While risk consciousness in the West has resulted in what some have characterised as the rise of bedroom culture and its accompanying decline of street culture, in Asia young people’s lives are equally structured and controlled. The attraction of digital media in both parts of the world is frequently shaped by children’s desire to create their own space and enjoy a measure of independence from adult control.

What children in Asia and the West have in common is their desire to minimise the effects of their isolation and to create outlets for self-expression free from adult supervision. Communications technologies like mobile phones and instant messaging are attractive precisely because they help children to accomplish these goals. This results in the emergence of a distinct peer culture that seeks through technology to gain a measure of independence from adult supervision. There is a steady demand for tools and applications that help children manage their lives to this end. Children seek digital applications that are distinct from those used by adults, that are potentially under their control and that help them to pass time, provide entertainment, connect with peers and evade the adult gaze.

The desire to create autonomous spaces for themselves within which to explore and experiment with identities is the impulse behind the massive growth of social networking across the globe. These technologies (the internet, mobile phones and video games) enable children to develop spaces for themselves, beyond the purview of adults and yet still within the domestic sphere. The popularity of instant messaging among teens is a result of their need to socialise while confined to their homes.

In China, for example, the phenomenal growth of QQ is partly explained by the government’s one child policy, which drives Chinese children to use such services to create peer groups, share their experience and thus overcome their isolation at home. The sudden, albeit unpublicised, embrace of blogging by young people is testimony to the existence of a powerful demand for applications that provide a medium for the self-expression. Again in China, the growth of blogging is equally phenomenal: according to the China Internet Network Information Center (CNNIC), the state network information centre, there are nearly 73million blogs in China and 47million blog writers (5). Applications that allow self-expression and communication to coexist are meeting the demands forged through youth culture across the globe – regardless of being in Asia or the West.

This insight cannot be over-emphasised. The motive of self-expression is not separate or distinct from the aspiration to communicate. Self-expression has become one of the main drivers of young people’s engagement with digital technology. Affirmation, recognition, acknowledgement and acceptance may be its objectives, but young people value and celebrate self-expression as a critically important mode of being in its own right. Self-expression, which is bound up with the imperative of identity construction, works towards the cultivation of a distinct, individualised and personalised online culture. The cultivation of such a personalised account of one’s digital role provides the outlines of an individual’s narrative communication. Personalised applications and tools are in demand across the globe because they are indispensable for the construction of individual stories. Customisation, demarcation and self-expression are the requirements of a generation that regards self-expression as itself a form of communication.

In Asia, in countries like China, Korea and Japan, this takes the form of social networking and the buying and selling of digital goods. The only thing that is distinctly ‘Asian’ about this is the fact that service providers in Asia have developed business models and technologies that can monetise these impulses directly rather than indirectly through advertising. CyWorld and QQ for example, have invested in technologies that cater for micro-transactions that make it easy for young people to pay for and exchange digital goods that fulfil their desire to express themselves or gain status with their peers. As the barriers between the online and offline experiences continue to erode across the globe, the market for virtual goods is set to explode. Far from it being the case that young people ‘will not pay for anything online’ as we are led to believe by the marketing departments of every telecommunications company or mobile operator, young people in Asia are driving new business models, which could be applied in the West as well. Asian business models and investment in systems to enable these are the key differentiator, not Asian culture.

Problem solving and innovation

It is important to acknowledge that Asian entrepreneurs were driven to recognise these opportunities through necessity rather than conscious planning. Asian operators have a lot in common with their Western counterparts. Just as mobile operators never envisaged texting becoming a revenue-generating service in the West, but learned to find ways to make the most of it, Asian operators have been forced to come up with solutions that required some innovation.

The key was developing platforms for micro-payments. Necessity was the mother of invention. The deep-seated behavioural impulses behind young people’s engagement with digital media in Asia were captured and monetised in ways few imagined would work. The fact that a Chinese instant messaging company can show operating profits of $245million a year in a country where 75 per cent of internet users earn less than 2,000 RMB/month (less than $300/month) shows how powerful this desire for self-expression, acknowledgement, status and communication actually is in Asia. If there is a lesson to be learnt here it is that if the user’s needs are placed at the centre of services, and this remains the focus of innovation, viable businesses can be built for the future.

Asian service providers had little choice but to put the experiences of their users at the forefront of their thinking and business models. It has been different in the West. The dominant internet business models have revolved around advertising. There is nothing intrinsically wrong with this. The problem, however, is that advertising relies upon page views to generate revenues - that is, on the number of times an advert will be seen or clicked upon on a website or web page. The goal in this environment is to generate page views. It is not the end user’s experience or needs that dominate how this service will operate. Instead, the advertiser is the real customer. Far from seeking innovative ways to engage with the users of social networks in the West, these services have been driven by corporate short-termism and a culture of risk-aversion. In reality, the expediency of advertising has prevented innovation from taking place in social networking sites in the West. This is the one of the clearest lessons to learn from the Asian experience. This is why The Economist has a legitimate case when examining MySpace, Facebook and Bebo to argue that there is no business future for them as they are currently organised.

But even though Asian service providers stumbled upon their business models and innovations by accident, their experiences are important for the future evolution of such services around the world. The failed attempts to export CyWorld to Europe, for example, shows that SK Telecom suffers similar short-termist approaches to service provision. CyWorld in Europe was a pale imitation of the service in Korea, and more importantly, contained no investment in platforms to enable the buying and exchanging of digital goods. Instead of transporting their innovation into the West, SK Telecom adapted to local prejudices and failed. The lesson is that no part of the world has a monopoly on innovation on the internet. Western prejudices against Asia, however, represent a barrier to globalising innovation which is all the more worrying as Asia, with its advanced internet infrastructure, becomes the hotbed of future user behaviours.

William Gibson, the ‘noir prophet’ of the cyberpunk subgenre of science fiction, was right when he suggested that ‘the future is already here. It’s just not very evenly distributed.’ (6) What he didn’t anticipate - and nor did his Western counterparts - was that this uneven distribution favours Asia, not the West. Look East, young man.

Norman Lewis is chief strategy officer and VP at Wireless Grids Corporation, USA.

Previously on spiked

Norman Lewis discussed innovation in an era of caution. Nathalie Rothschild reported on the launch of a spiked/Pfizer debate on the greatest innovation. Martyn Perks argued that setting legal standards for accessibility would disable innovation. Rob Killick revealed the importance of a private arena. Or read more at spiked issue Innovation.

(1) ‘The Asia Media Revolution’ published by The Tomorrow Company

(2) Online social networks: Everywhere and nowhere, The Economist, 19 March 2008

(3) See Plus Eight Star

(4) ‘The Asia Media Revolution’ published by The Tomorrow Company

(5) ‘The Asia Media Revolution’ published by The Tomorrow Company

(6) See William Gibson, Wikipedia

The sustainability con

Fri, 17 Jul 2009 23:04:54 -0400

Tuesday 7 July 2009

Ethan Epstein

Multinationals in China flag up their green credentials in order to dodge a far more serious matter: labour rights.

‘Sustainability may be the word that is said more than any other these days’, the British executive mused to me in his corner office: ‘We are very concerned with being green and sustainable.’

While this may sound like standard corporate boilerplate, the location of this VP’s office was indicative of the broad shift currently underway: we were sitting in downtown Shanghai, the boisterous heart of capitalist China. ‘Green’ – except perhaps in the fiduciary sense – is not a word that we’ve come to associate with the Middle Kingdom.

It is a word, however, that we have come to associate with elite opinion-makers from Tokyo to London to San Francisco. Indeed, from the new lines of environmentally friendly clothing, to the massive marches, to the intercontinental concerts, ‘green’ has become the cause célèbre of the well-meaning people – and corporations – of the First World. And now, quite suddenly, it’s all the rage in Beijing and Shanghai, as well: the myriad companies operating here are increasingly trumpeting their supposed fealty to the demands of ‘sustainability’.

Browse through the website or media kit of any multinational operating in China, or speak with executives operating here, and you will find that the references to ‘green’ abound. The ‘CSR’ (corporate social responsibility) section of any corporate website is rife with self-congratulatory statements about environmentalism. A brief survey finds that a broad cross-section of companies across multiple sectors are getting in on the act: technical manufacturers like Eaton, construction and development firms like CB Richard Ellis, and even retail giants like the dread Wal-Mart are now proudly proclaiming just how very green their operations here are.

The Chinese government is aggressively pursuing the green mantle as well. Beijing loudly advertised last year’s Olympic Games as being ‘green’. (It also advertised it as a ‘smoke-free’ Olympics, which anyone who has ever been to China will find difficult to believe.) Recently, the government has set aggressive new targets to reduce the country’s dependence on coal-fired power plants. Beijing is even considering blocking GM’s sale of Hummer to a Chinese company on the grounds that it does not comport with the new, green image that the country is trying to project.

While staying at a Shanghai hotel last month, I was surprised to find a note excoriating me to use my towels multiple times in order to save water and therefore be environmentally friendly; a suggestion I had previously come across only in hotels in Japan, North America and Western Europe. Representatives from the Arsenal of Democracy have lauded the Chinese dictatorship’s newly green shade: US secretary of state Hillary Clinton famously stated on a visit to Beijing in February that human rights controversies cannot interfere with pressing ahead with action on the ‘global economic crisis [and] the global climate change crisis’.

But while they boast loudly about their green operations, multinationals operating here remain deafeningly silent on other issues of corporate social responsibility – those of the more anthropocentric kind. By all accounts, labour rights in China remain almost non-existent, and pay pitifully low. (Despite the fact that corporate-ese has stopped referring to China as a ‘low cost’ market, and a ‘high value’ market instead, we all know that companies set up shop here because the pay is so low.) Work hours are onerous, and conditions all too often dangerous.

Even those who celebrate the economic development and subsequent empowerment brought to Chinese people over the past few decades (and I am certainly one of those) concede this point. Take the recent review of Factory Girls, which appeared in this magazine: while making a convincing argument about the benefits of economic development, the article also noted that Chinese factory workers often work 12-hour shifts in terrible conditions (see China’s factory girls: nobody’s victims, by Neil Davenport). Additionally, access to healthcare for workers is limited and often too expensive, particularly in the under-served areas outside of the major coastal cities.

These labour rights issues are not dealt with as issues of ‘social responsibility’ by multinationals operating here: in fact, judging by the definition that they themselves provide, it appears that corporations here see being ‘green’ as the only form of responsibility they have. Green has become a cover to dodge other, more human-centred, responsibilities. One can see this phenomenon taking place at a complementary level with the Chinese government: the human rights situation in China remains deplorable, yet the government is feted by liberal democracies because of its rhetoric about ‘climate change’.

This is not to say that China is not polluted – it is, and, in some places, terribly so. Many of its rivers are filled with toxic waste and sewage, the majority of its power plants continue to spew coal, and the air in many of its cities is choked with smog. Indeed, I had been living in Beijing for some months in 2002 before I realised that the capital is surrounded by mountains; it was only after a violent rain storm that enough smog was washed away to make the peaks visible. But companies here now are treating vague notions of ‘green’ as their only responsibility, to the detriment of more pressing matters of basic worker rights and safety.

The trendy environmentalist left of the First World is complicit in this bait and switch. By elevating ‘green’ issues over the apparently less sexy subject of labour rights, today’s liberals are markedly silent in the face of the exploitation of working men and women in developing economies. With the exception of the recent furore over the Iranian election (coincidentally, a ‘green’ issue in itself), the contemporary North American and European left is rarely bestirred by issues of labour and rights.

The newfound and politically expedient claims of sustainability are not models of real corporate responsibility. We would be green ourselves to believe so.

Ethan Epstein is a business writer based in Shanghai.

Taiwan creates a Napa Valley of teas

Sat, 11 Jul 2009 23:37:02 -0400

@media print { body:before {content: url(http://cleanprint.net/pt/t?&d=2143&p=0&s=NF,NF); } }

By John Boudreau

Posted: 07/10/2009 12:00:00 PM PDT

TAIPEI, Taiwan — Taiwan, which has earned an international reputation as a tech design center, is quietly reinventing an ancient industry — tea.

The island of just 23 million supplies the world with semiconductors to power cell phones and computers, and oversees the production of iPhones, laptops and GPS systems. But tea-loving Taiwanese have also applied their industrious minds to the refinement of the centuries-old drink, blending tradition with newly developed methods of cultivation.

In doing so, Taiwan has created its own equivalent of Napa Valley for specific varieties of tea. While its overall share of the world’s tea production is small — in 2004, it produced just 21 tons of tea, compared to 835,000 tons grown in mainland China — its quality has few rivals.

“They take their tea-making seriously,” said Joe Simrany, president of the Tea Association of the U.S.A. “Their oolongs are rated among the best in the world. It’s one of the finest-tasting teas out there.”

One reason Taiwan’s tea expertise has not drawn more international attention is because producers here have more than enough business from local tea connoisseurs eager to pay hundreds of dollars for small batches of the local produce. Local yearly consumption has soared — from just under a pound in 1980 to three-and-a-half pounds in 2007.

“Every day you get up and drink tea,” said Mark Lee, chairman of Taiwan’s largest tea company, TenRen, founded 56 years ago. “At lunch, you drink tea. When friends visit, you drink the best-label tea. And before you sleep, you drink tea.”

Lee, who splits time between Taiwan and the United States, has spent decades promoting the tea culture in the United States. Family-owned TenRen is one of the few Taiwan tea companies selling high-end brew in the United States. It has dozens of stores in North America, including Cupertino, Fremont, San Francisco and New York City.

TenRen’s growth in the United States reflects the fact that Americans are drinking more tea from Asia. Some believe it has health benefits, others simply like the flavors and more soothing caffeine experience compared to coffee’s jolt. In the past two decades, tea has grown from a $2 billion industry in the United States to about $7 billion today, according to Simrany. Sales of specialty teas, including those from Asia, have jumped from about $250 million a year to more than $1 billion.

That growth is due in part to the nearly missionary zeal of merchants like Lee. During the early 1980s, he would travel to different Bay Area supermarkets, set up a table with two chairs and brew tea for shoppers. He would patiently explain to Westerners unaccustomed to Asian tea that their brew, full of complex flavors, does not need milk and sugar.

“We emphasize the aroma, the taste,” said Chen Hsuan, deputy director of Taiwan’s Tea Research and Extension Station in Yangmei, while sipping high-mountain oolong, the signature Taiwan tea.

The government facility, which employs some 60 researchers, contains tasting rooms, labs and small patches of land lined with neat rows of knee-high tea plants. In addition to providing the latest research on tea cultivation, government scientists are continually developing new strains of the crop.

More than 16,000 Taiwan family farms grow tea, and the average plot size is no more than two-and-a-half acres. Tea farms in other countries typically are at least 10 times larger, Chen said.

Taiwanese were not always so high-minded about commercial tea production, which dates back hundreds of years to the early Qing Dynasty’s rule over the island. During the 1970s and ’80s, Taiwan transformed itself from an agricultural society to an industrial one.

Despite the shift to a high-tech economy, the government began promoting competitions to boost interest in the local produce and spur farmers to create quality tea. The tea industry, which struggled to compete with cheap teas from countries like Vietnam and Indonesia, invested in costly cultivation processes to grow crops that catered to the newly affluent citizens. Today, the more expensive oolong and paochong teas are picked and processed by hand.

“There was a tea renaissance,” said Steven Jones, a Californian who relocated to Taipei years ago and is now a tea arts instructor at the LuYu Tea Culture Institute, which offers a certificate in master tea brewing that is honored around the globe.

Taiwanese drink tea much like Californians sip wine. They sniff for aroma, slurp for taste and carefully eye the color.

“Tea is the spirit of Taiwan,” said Gina Chen, a 30-something professional who was buying $200-worth of tea gifts for friends one recent week-day at a chi-chi East Taipei tea store.

Cha Cha The, which Taiwanese fashion designer Shiatzy Chen recently opened, resembles a lounge bar. Customers show up for pricey afternoon tea meals and buy designer tea ware and other expensively packaged gifts. “We see this as a huge market,” said store manager Jack Wang, who plans to open similar shops in Beverly Hills, New York City and London.

In China, meanwhile, the Cultural Revolution quashed high-end tea development and interest. “China has very good tea, but it doesn’t yet have the technique and experience,” Wang said. “The Cultural Revolution slowed down everything, including knowledge in how to make tea.”

Just as Taiwanese have invested in China’s technology industry, they are now looking too improve its tea production. TenRen, which now operates in China, has set up a tea institute in Fujian Province.

The invasion of coffee shops on the island in recent years — led by Starbucks — has stirred worries that Taiwan’s rich tea heritage could be diluted by the gulp-and-go coffee culture. The new cafes offer WiFi, pop music and cakes — the perfect place for students and young professionals to park their laptops.

“It’s foreign. It’s trendy,” said Jones, who has a tea blog, teaarts.blogspot.com. “In Taiwan, they like to follow the West.”

It appears unlikely, though, that residents of the densely packed island will fall out of love with tea. Taiwanese teens line up at colorful tea bars on virtually every corner. Workers use cocktail shakers to make zhen zhu nai-cha — known as pearl milk tea in California — a tea concoction with dollops of tapioca. The ever-expanding menu for adventurous tea fans includes green jelly tea, tea-infused pudding and ice cream drinks. There’s even wheat germ milk tea. They all sell for about $1 each.

The ubiquitous 7-11s and other convenience stores offer an array of chilled tea drinks, from oolong in a bottle to cartons of sugared green and black teas. Young Taiwanese drink them on trains heading to and from school every day. Restaurants serve fried tea leave snacks, beef noodle tea dishes and cakes made with tea. There are tea arts shows on television.

On any Sunday, when Taiwanese hit the streets with friends and families, tea stores are full of young people sitting on stools and sampling teas — with no pressure to buy. “When people come here, they are not like customers. They are friends,” said Sheng-Ru Wang, whose family operates the venerable Wang’s Tea, which processes its own tea in its shop.

Jack Wang at Taipei’s Cha Cha The says those new to tea should not be confused by the array of choices — that good tea is easy to identify.

“It’s what you feel is good,” he said. “You have to decide what is the best tea for you. It’s like life.”

Contact John Boudreau at jboudreau@mercurynews.com or 408 278-3496.

Does the 21st century belong to Asia?

Mon, 06 Jul 2009 22:53:56 -0400

Iftekhar Ahmed Chowdhury

JULY 6

There is an ongoing debate in the global analytical community as to whom the 21st century belong. There is said to be a consensus that the United States is in “elegant decline”, as Robert Kaplan would have us believe, and that, in this post-American period, the great story is “the rise of the rest”, as Fareed Zakaria has powerfully argued. Some would hold that this “dichotomy” of the world between the US and the rest is too lopsided. Also, “the rest” requires a sharper definition. Professor Kishore Mahbubani inserts himself eloquently into the discussions by suggesting that for “the rest”, read “Asia”, through his extremely lucid tome “The New Asian Hemisphere: The Irresistible Shift Of Global Power To The East”. So is Asia to be the new Rome to America’s Greece? Many Asians hope so. It imparts them a sense of pride that they have long longed for. They believe it will make up for their having missed out on the fillip to civilisation provided to the West by the Renaissance, the Reformation and the Industrial Revolution, partly on account of their lethargy and partly — and this is a view much prevalent among Asian intellectuals — due to the fact that for much of the period through those phenomena they were under colonial domination. However, this does not explain why Asia was conquered so easily by the Europeans in the first place. How could a few hundred English soldiers under Lord Clive defeat Nawab Sirajuddowla of Bengal, Bihar and Orissa at Plassey in 1757 or how did the mighty Moghuls of Delhi eventually succumb to the British onslaught a century thereafter? So there was something terribly wrong with Asia. Asians had lost the leadership in thought and ideas, and perhaps after having translated Aristotle and Plato, and having their works fall into European hands after the sack of Constantinople in 1453, Asian minds ceased to stimulate the world, be it in science, politics or later economics. And ideas rule the world, as Italian statesman Guiseppe Mazzini had said in the 19th century. Professor Amartya Sen speaks of a misconception nourished by some that India, or South Asia, is the land of uncritical faiths and unquestioned practices. He speaks of some cultural theorists, “allegedly highly sympathetic” who are happy to demonstrate the strength and the superiority of the faith-based and unreasoning culture of India and the East, in contrast to the “shallow rationalism” and scientific priorities of the West. Sen asserts that even if this line of argument were inspired by sympathy, it ends up suppressing large parts of the subcontinent’s intellectual heritage. In his “The Argumentative Indian: Writings On Indian History, Culture And Identity”, he shows the role pluralism and the dialogic tradition of the land play in supporting democracy, secularism and the pursuit of mathematics and science. The current global recession and the accompanying dizzying economic successes of India and China have spurred Asian confidence, as did the earlier economic miracles of Japan and East Asia, like South Korea, Taiwan, Hong Kong and Singapore had done. Asian spirits are currently buoyant. Politicians, academics and analysts are abuzz with talk that the Asian century is already here. The truth is: It is not yet. In a recent article in Foreign Policy magazine, Minxin Pei urged calm upon this over-enthusiasm. Making his point that per capita Asian gross domestic product (GDP) is US$5,800 (RM20,300) compared to US$48,000 in the United States, he argued that it will take the average Asian 77 years to equal the income of the average American. The Chinese and the Indian would need 47 and 123 years, respectively. The fact remains, however, that the world is indeed on the cusp of great changes and much of it is emanating from Asia. It is not a question of cut-throat competition but cooperation with the US. The flip-side of America’s success story is that there is no salvation for those who cannot make the grade. The Asian tale must be one of growth with equity. This would be in consonance with the Asian value of the responsibility of those who govern. This is why the report in the Financial Times of June 25 that found India having 50 billionaires (in US dollars) controlling wealth equivalent to 20 per cent of GDP and 80 per cent of the stock market capitalisation was so disturbing. There is a prevalent Asian value, irrespective of ideologies, that those who rule should take care of those they rule. If there are gaps in their capability to do so, then other private or civil agencies must be facilitated to undertake those tasks. That is the origin of Professor Mohammed Yunus’ “Grameen” movement involving micro-credit in Bangladesh or the “Edhi Foundation” of Abdus Sattar Edhi in Pakistan, or Mother Teresa’s Home in India. In many of these countries, the state seeks to “walk on two legs”. It tries to follow market principles on the one hand, and spread the social safety net on the other. Corruption in many countries remains an impediment, though, and must be addressed. This could be Asia’s great contribution to human civilisation, the simultaneous and comprehensive advancement of society and the individual, helping to create harmony rather than friction. In an essay entitled “America’s Edge: Power In A Networked Century” in Foreign Affairs of January-February 2009, Anne-Marie Slaughter turned all the above arguments on their heads and affirmed that this century will be an American one because of its unparalleled “connectedness”. But then, how long must this argument continue? We may conclude that the century and futurity must belong to the totality of humankind, drawing upon the United States’ skills, Europe’s reason and Asia’s spirituality, even though no region of the world can claim complete ownership to any one of these attributes singly, also ensuring that no one, not even deep in the heartland of Africa, is left behind. — Straits Times

INVEST IN HUMAN CAPITAL DURING THE CRISIS

Mon, 06 Jul 2009 04:55:51 -0400

The keys to coaching, developing, retaining and sustaining talent

By Professor Preston C. Bottger - July 2009

Bookmark and Share Executives around the globe have responded to the economic crisis by reviewing their systems for managing human capital. The smartest of them are not simply asking questions about their current investment and how it could or should change, but reassessing matters in strategic terms. They recognize that effective people management systems – those which put the right people into the right jobs at the right time and for the right costs – have a central role in supporting the firm’s business model. Investment in human capital must focus on the critical factors in the firm’s business system: its products, customers, competitors and internal structures. Leaders are concentrating the efforts of their high-talent people on maintaining cash flow by making and selling products and serving customers. Importantly, they are also finding the best ways to develop their people despite the economic turmoil. As the crisis evolves we are seeing executives take some very pragmatic decisions in how they use their human capital to handle immediate business needs while also supporting longer-term individual development. Careful analysis of the company’s cash flow and its customers’ needs, followed by strategic redeployment of human capital will allow businesses to find and implement the best possible solutions. And, in a crisis, coaching talented performers as they are working on critical tasks is the best possible investment in human capital development. Coach and develop However, the nature of these key investment challenges vary according to the type of person involved: executive stars, functional experts and unsung heroes. Executive stars are candidates for very senior leadership positions in the future. They are often rotated quickly through several different divisions and functions to gain experience. The main challenge in managing their development is to give them an appropriate assignment – one that stretches their competencies while at the same time allowing the unit to benefit from and draw on the star’s previous experience and current contribution of energy. In the crisis, trade-offs need to be made between the need for immediate action and the person’s development needs. Functional experts are people who make a great individual contribution with their professional knowledge, intellect and creative capabilities. The challenge when developing them is to keep them fresh and energized. In non-crisis times this means varying their assignments and giving them time “off-line” to expand their learning, perhaps by visiting other firms and in professional conferences. Again, in hard times trade-offs need to be made. Last but not least, unsung heroes are the middle managers and professionals who are not destined for senior management but whose work keeps the show on the road. Their development presents two types of challenges. First, leaders must help unsung heroes to digest the news that they cannot expect to be promoted. Secondly, where members of this group have already privately accepted their mid-level career, leaders must ensure that they remain engaged in the critical work of dealing with the crisis. One method is to maintain and even increase their involvement in the resolution of significant and complex issues and in special work that is beyond their specified job scope. Retain and sustain Alongside the demands of developing human capital lies another significant challenge: retaining it. During this crisis we are seeing some high-talented people leave their current companies for rivals that seem more agile and better equipped to deal with the emergency. So how can executives prevent the departure of talented people? To begin with, smart executives show talented people that they are valued and spell out the reasons why they should stay where they are rather than move on. And, while bonuses are limited by the economic environment, effective leaders are finding other ways to motivate their people. In this emergency, smart human capital leaders are quickly discovering what matters most to those whom they cannot afford to lose – and providing it. It is also important to recognize that even the most talented, energetic individuals can burn out. Obviously, sustained hard work is required from everybody during this crisis, so managing people to prevent negative overload is key. How to do this again depends on the talent category. For stars, it might mean a bit less variety and a change of pace that will allow them to replenish their energy and reflect on where they are going. Specialists, on the other hand, may benefit from more variety, including developmental assignments that extend their expertise into adjacent areas. Finally, unsung heroes will find it helpful to be rotated out of potentially exhausting systems. Smart human capital leaders are quickly discovering what matters most to those whom they can ill afford to lose and then providing it. Professor Bottger teaches on the Program for Executive Development as well as the Leading the Global Enterprise and the Orchestrating Winning Performance programs. This article draws on material from chapters 4 and 12 of Leading in the Top Team: The CXO Challenge, edited by Professor Bottger and published by Cambridge University Press, 2008

AFRICA IN THE 21ST CENTURY'S GLOBAL ECONOMIC PARADIGM

Mon, 06 Jul 2009 04:52:19 -0400

By Professor Jean-Pierre Lehmann - July 2009

In the course of the years of decolonization (early/mid 60s) through to the early 70s, Africa was seen by foreign multinationals and investors as the most promising continent of the “Third World” and was consequently the focus of much business attention. Business ties were encouraged and “promoted” by European governments, notably the Belgians, British and French, by means fair and foul more often than not the latter.

In stark contrast, East Asia was a region most investors would not touch with a barge pole. It was ravaged by wars, revolutions, and mired in seemingly irredeemable poverty. In 1968, Gunnar Myrdal, the 1974 Nobel Laureate in Economics, published a three volume opus entitled Asian Drama: An Inquiry into the Poverty of Nations, which depicted the Asian continent as the global economic basket-case. The GDP per capita of South Korea, Hong Kong, Taiwan and Singapore in the early 1960s was lower than that of countries such as Ghana, Kenya, Nigeria and Zambia.

What a reversal of fortune! By the mid-1970s, as the African dream was shattered, the East Asia economic miracle took off! Since 1950, out of the roughly 200 economies of the world, only 13 have achieved an average annual growth rate of 7% for a period of 25 years or more according to UN Growth Report: Strategies for Sustained Growth and Inclusive Development. Out of the 13, no less than nine are East Asian (*1).

The African tragedy has occurred mainly due to catastrophic governance. Africa was undoubtedly plundered by the slave trade and European colonialism. In many cases after decolonization, not only did the plunder continue, it became worse.

In contrast to East Asian dictators and autocrats such as Lee Kuan Yew in Singapore, Mahathir in Malaysia, Suharto in Indonesia, Park Chung-hee in South Korea, Deng Xiaoping and his successors in China, etc - who displayed a very high degree of economic pragmatism, African leaders, even in the rare instances where they were not plunderers, tended to be ideologically driven and economically illiterate. In his excellent book False Economy: A Surprising Economic History of the World, Alan Beattie in a chapter on corruption, poses the question: “Why did Indonesia prosper under a crooked ruler and Tanzania stay poor under an honest one?”, referring respectively to the 32 years of Suharto’s rule in Indonesia and the 24 years of Julius Nyerere’s rule in Tanzania. Nyerere was certainly a good man, but a catastrophe for the Tanzanian economy.

While 9 out of the 13 high sustained growth economies are East Asian, there is also an African country: Botswana. Whereas in many/most African countries, GDP per capita has actually declined over the last few decades, in some cases precipitately so, in Botswana it has increased quite remarkably from $210 to $3800. The Botswana case definitely proves that there is nothing in the African DNA that makes it impossible for African economies to grow at the same rate as the East Asian tigers. Nor should Botswana’s growth be ascribed to diamonds. Beattie, in the book cited above, asks �Why are oil and diamonds more trouble than they are worth?- Indeed in most cases richness in resources has been a curse rather than a blessing. For Botswana, the curse was turned into a blessing thanks to a system of good governance that was put in place at an early stage of the country’s post-independence development.

In the first half of the 21st century, Africa’s population is due to soar by over a billion. By 2040 the African continent will be more populated than both India and China. Computing current population growth rates with economic growth rates, prospects are very bleak. Africa will be demographically an extremely young continent, with all that youth has to offer, but unless these youth can be educated and find jobs, there is a high risk that the continent will experience an even higher degree of socio-political instability and that more states will implode. The urgency of the situation is made all the more acute in that parts of Sub-Saharan Africa will be especially prone to the effects of climate change. Water will be a major problem.

So what is to be done? One positive indicator is that Africa in the course of the last few years has been the subject of far more debate among scholars and other opinion leaders. A number of prominent authorities have recently come out with book titles weighing the pros and cons of international aid going to the continent, notably Dambisa Moyo’s highly challenging Dead Aid: Why Aid is not Working and How there is a Better Way for Africa

There have also been some recent important shifts in the global economic paradigm. In the past, Africa was pretty much the European, and to a more limited extent American, backyard. In the course of this decade, there has been a wave of new investors, primarily the Chinese, but also Indians and Arabs. This is good and has raised hopes in many African quarters that new investors will provide both a spurt to growth and a competitive challenge to “traditional” Western investors. It is somewhat early however to determine whether these new sources of investment will provide the goods many hope for or whether, as others fear, they may further relegate Africa to global economic servitude.

The causes of the “African problem” are complex and hence one must be wary of simple solutions. Aid per se may not be the answer, but it is at the same time illusory to believe that business alone will raise what Paul Collier calls the bottom billion (*2) out of poverty, especially since business is unlikely to have much interest. It is increasingly believed that more aid per se is not the answer, but rather a mix of policy options, which includes aid disbursed far more effectively, and also greater reliance on public-private partnerships.

There is much more the West should do for Africa, especially in generating more trade. Combining the two, Aid For Trade, seems to be reaping rewards. There is also a lot that the West should not do, especially in areas of corruption and complicity with plundering regimes. At the end of the day, however, the role of the “international community” must not be over-blown. Only better governance will improve the prospects of Africa. African governments and elites must be held as the responsible parties and upon whom ultimately the fate of their rapidly approaching 2 billion population depends. Unless the current condition of governance in most African countries changes dramatically, prospects could be catastrophic. At that point, the West may need to consider alternative methods not only to save Africans, but to protect the rest of the world as well from the consequences of an African implosion.

Throughout most of the first two-and-a-half post-war decades, East Asia was rapidly descending into a spiral of conflict and poverty. A Thai politician proposed in the 70s that the region should be transformed from a battlefield to a market-place. The transformation was truly remarkable. There is absolutely no reason why Africa should not be able to achieve a similar transformation, especially as for many Africans it will be literally a question of life or death.

The Evian Group and the German Marshall Fund of the United States will jointly convene a meeting to address these issues on July 6-8 at the IMD campus. Africa in the Global Crisis and Trade Disorder: Opportunities for Business Leadership will enable business, government and opinion leaders from Africa, Europe and the US to deliberate on how the global trade and investment climate should be more conducive to African growth, development and opportunities especially in this time of crisis and collapsing trade. It will also address how the regional business environment must be made far more open to local entrepreneurs.

Jean-Pierre Lehmann is Professor of International Political Economy at IMD and the Founding Director of The Evian Group. He teaches on the Orchestrating Winning Performance (OWP), Leading the Global Enterprise (LGE) and the Building on Talent (BOT) programs.

(*1) They are: China, Hong Kong, Indonesia, Japan, Korea (South!), Malaysia, Singapore, Taiwan and Thailand. (The other four are: Botswana, Brazil, Malta and Oman!)

(*2) Paul Collier, Bottom Billion: Why the Poorest Countries Are Failing and What Can De Done About It

Sorry, the offer's closed

Sat, 04 Jul 2009 00:07:08 -0400

Taiwan’s president and China

Jun 25th 2009 | TAIPEI
From The Economist print edition

A truce in the chequebook war

SINCE he took office in May last year, Ma Ying-jeou, Taiwan’s president, has presented himself as a peacemaker, seeking to ease tensions with China. This conciliatory approach has led to the first regular cross-strait flights, the opening of Taiwan to Chinese tourists and investors, and the attendance by a delegation from Taiwan as observers at the United Nations’ World Health Assembly in May, for the first time since China took Taiwan’s UN seat in 1971. Now, Mr Ma told The Economist this week, he believes China has even adopted the surprising policy of refusing requests from countries that recognise Taiwan to switch their diplomatic ties to China instead.

This would mark a big change. For decades China and Taiwan have tussled to win over countries, largely through financial inducements. It has long been a losing battle for Taiwan, which is now recognised by only 23 countries, mostly small, poor ones. China has 171 diplomatic partners, and does not allow them to have official relations with Taiwan, which has suffered a net loss of six supporters this decade.

Last year, Mr Ma declared a “diplomatic truce”, meaning an end to the chequebook contest for recognition. In his inaugural speech he then stressed that better relations with China depended on its easing Taiwan’s international isolation. China has not responded publicly and officially it still opposes any country recognising the Republic of China, as Taiwan calls itself. But China’s stance has been put to the test in El Salvador. The newly elected president, Mauricio Funes, reportedly expressed interest before taking office on June 1st in switching recognition to China. Taiwan’s press has also reported that Panama’s president-elect, Ricardo Martinelli, has similar inclinations.

“We do see a measure of goodwill” from China, said Mr Ma. Presidential candidates had said they wanted to establish formal ties with China but “the mainland obviously declined their request for the sake of Taiwan.” Mr Ma said that when he attended Mr Funes’s inauguration in El Salvador, “everybody said that once he was inaugurated he would establish ties with the mainland”. But he says the first thing Mr Funes told him was that he wanted to maintain relations with Taiwan. A senior Taiwanese official responsible for mainland affairs, James Chu, says he believes that overtures by two of Taiwan’s allies to China have been resisted by Chinese officials for the sake of relations with Taiwan.

Mr Ma said “a real test” will be how China deals with the Vatican, Taiwan’s only European diplomatic partner, and one whose global influence far exceeds the others’. China has long been keen to win it over, as long as the Vatican cedes some control over the appointment of Chinese bishops. But negotiations between the Vatican and China show little sign of an imminent breakthrough.

Mr Ma is due to embark on another diplomatic tour on June 29th to attend the inauguration of Mr Martinelli in Panama and visit two other allies, Honduras and Nicaragua. America, delighted at the calming of cross-strait tensions under Mr Ma, has allowed him to engage in activities outside his hotel during a stopover in Hawaii on the way back, reportedly including a meeting with the state’s governor, Linda Lingle. China, however, has reverted to type. “We strongly oppose any countries having official contacts with Taiwan”, said a foreign-ministry spokesman. The goodwill Mr Ma detects has its limits

Taiwan Opens 100 Industries to Chinese Investment

Wed, 01 Jul 2009 20:51:12 -0400

By Chinmei Sung and Janet Ong

June 30 (Bloomberg) — Taiwan will allow investment from mainland China in 100 industries and projects, helping the island’s economy to benefit from the warmest cross-strait relations in 60 years.

Taiwan will open up 64 sectors in manufacturing, 25 in services and 11 public infrastructure projects from today, the Ministry of Economics Affairs told a briefing in Taipei. Foundries and the liquid-crystal-display and telecommunications industries will remain closed, the ministry said.

Tensions between Taiwan and China eased after Taiwanese President Ma Ying-jeou abandoned his predecessor’s pro- independence stance. The island’s benchmark stock index rose 23.4 percent this quarter on speculation that closer ties will aid the economy which contracted by a record in the first three months of the year.

“This is another major step toward an improving relationship between Taiwan and China,” said Kevin Lin, who helps manage NT$1.5 billion ($46 million) at Taishin Securities Investment Trust Co. in Taipei. “The normalization between the two sides will help boost the local economy and corporate earnings in the long run, and thus increase the valuation of local stocks.”

The benchmark Taiex index climbed by the most since 2001 in the three months to June 30, and Taiwan’s dollar rose 3.4 percent against the U.S. currency in the same period.

Telecom Ban

China and Taiwan, ruled separately after a civil war 60 years ago, have already agreed to double weekly flights and lift restrictions on investment in banks.

A plan by China Mobile Ltd., the mainland’s biggest phone company, to buy a 12 percent stake in Taiwan’s Far EasTone Telecommunications Co. won’t be allowed under the rules announced today, Fan Liang-tung, executive secretary of the economics ministry’s investment committee told the briefing.

“I am not saying it will never happen and I don’t know when it will go through,” Fan said. “When we consider whether to open the telecom industry to Chinese investors, we will consider it on an industrywide basis, we won’t consider it from the perspective of one company.”

China Mobile’s views on the deal, which was announced on April 29, haven’t changed and the company still hopes to complete the planned acquisition, the carrier said in a statement sent via mobile phone text message. Alison Kao, spokeswoman for Taipei- based Far EasTone, declined to comment.

Real Estate

“We hope the opening up will help our economy prosper and add jobs,” Deputy Economic Affairs Minister John Deng told reporters at today’s briefing. “Taiwanese companies have invested in China since 1991 and helped grow the economy there, it’s time we opened to them.”

Taiwanese companies have invested over $77.1 billion in on the mainland since the government allowed local companies to invest in the mainland, the ministry said. The Mainland Affairs Council estimates the scale of investment at between $150 billion and $200 billion.

Under the rules announced today, Chinese companies will be allowed to buy real estate in Taiwan, including commercial property and residential homes, Fan said. Chinese individuals have been able to buy real estate on the island since 2002, according to the ministry.

Employment Boost

“The easing policy will help boost confidence of both foreign and domestic investors although the opening up will be gradual,” Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore, said. “China investors like high-technology, brand names and getting management know-how. Allowing Chinese investment will help boost demand and employment in Taiwan and help to boost the real economy in the medium to long term.”

Taiwan’s economy contracted by an unprecedented 10.24 percent in the first quarter. The island’s jobless rate climbed to a record 5.84 percent in May, the government said last week.

Investors from the mainland will gain access to industries including automobiles, plastics, textiles, personal computers and handset manufacturing, the ministry said in a statement issued after the markets closed today.

Chinese investment will also be allowed in airports and harbor facilities, limited to below 50 percent of any venture, according to the ministry. Mainland companies can also set up branches and offices on the island.

In the energy industry, Chinese companies will be allowed to invest in oil and natural gas exploration services, petroleum products wholesaling, and fuel retailing, the ministry said.

Mainland Services

Taiwanese financial institutions can now offer Taiwan-dollar services to mainland individuals and companies, the Financial Supervisory Commission said in a statement its Web site today. Lenders can also extend foreign-currency loans to branches and subsidiaries of mainland Chinese companies in Taiwan upon regulatory approval.

Chinese businessmen and individuals who own real estate in Taiwan will be allowed to visit the island independently and stay for as long as 4 months each year, Taiwan’s immigration agency said in a separate statement on its Web site today. Previously, they were obliged to travel in a group with a maximum stay of 14 days per visit.

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net Janet Ong in Taipei at jong3@bloomberg.net

Last Updated: June 30, 2009 09:14 EDT

Japan's 21st Century Challenge, From autism to globalism

Wed, 24 Jun 2009 03:20:57 -0400

By Professor Jean-Pierre Lehmann - May 2009

Though there is some dispute among economists whether China has now surpassed Japan as the world’s second biggest economy, by whatever criterion Japan remains one of the leading global economic heavyweights. Its trajectory is remarkable. In the mid-19th century, as the West achieved global ascendancy and domination, the only country outside the West to have met the Western challenge and succeeded in becoming within a few short decades a formidable industrial and imperial power, was Japan. The nation played and won the Western game.

Following its ill-advised but perhaps ineluctable war with the US, Japan was crushed in 1945 in every respect: politically, economically and psychologically. I first set foot on Japanese soil in 1950, and though very young (5), I still keep strong recollections of the devastation and poverty that mired the Tokyo and Yokohama landscapes. The American military occupation was in place and still had two years to run.

Then, in the course of the 1950s and 1960s, like a phoenix risen from the ashes, the Japanese economy soared and was dubbed a “miracle”. Three-and-a-half decades after Japan’s “total” defeat, the eminent Harvard Professor Ezra Vogel wrote a book entitled: Japan as Number One: Lessons for America. When the emperor Hirohito died in 1989 after a very long and eventful reign (begun in 1925), Japan was the seemingly unbeatable global economic colossus. Pundits estimated that by the first decade of the 21st century, Japan’s economy would overtake the American.

How distant and quaint that appears twenty years later. In my MBA class, composed of students from all over the world with an average age of 32, Japan hardly features. They were children when the Japanese economy tanked and has been rarely heard of since. In a “globalization literacy test” given to the students, which includes questions on key countries/regions in the world – China, India, US, Latin America, Russia, Africa, EU, Greater Middle East, Southeast Asia and Japan – Japan gets the worst score. In the first decade of the 21st century, the Japanese colossus is terra incognita.

What happened and what can explain this extraordinary metamorphosis?
Shortly after Hirohito’s burial, in 1991, Japan had a financial crisis, referred to as the bursting of the bubble, with a dramatic collapse in both stock and property prices. (Other countries at the time, e.g. Sweden and Finland experienced somewhat comparable crises.) Pundits (including your author) expected Japan would bounce back – it always had, notably in its remarkable resurgence following the first oil (1973) crisis.

In fact, Japan did not bounce back: it entered its first “lost decade”, which was followed, in spite of a couple of ultimately ephemeral signs of recovery, by a second lost decade, and now looks as though it may be entering its third lost decade. From colossus, Japan became (and remains, even in this global crisis period) the “sick man” of the global economy. Though some of Japan’s companies remain global leaders, the macro economy has been stuck in the doldrums.

Two causes seem most pronounced
First, the late and much respected Japanese economist, Tsuru Shigeto, had to a considerable extent anticipated the fate of the Japanese economy: his main thesis was that though his compatriots admired Schumpeter, they do not understand Schumpeter. The whole structure of the Japanese economy and the culture of Japanese policy makers exist to prevent destruction in whatever form, “creative” or otherwise. The failure of Japan’s reforms – mainly attempted during the ultimately fruitless years of the Koizumi administration (2001-2006) – can be attributed to many factors, all of which would fall under the “new wine in old bottles” rubric. The absence of creative destruction has curtailed creative thinking.

The second arises from a German term social scientists like to borrow, namely Japan’s Weltanschauung (view of the world). In a nutshell: Japan had a long tradition of a hermetically closed country (a policy adopted and implemented from 1639 to 1854), which Japanese political leaders shattered in the course of the mid/late 19th century revolution known as the Meiji Era. Japan’s great success arose predominantly from its remarkably intelligent transfer of Western knowledge and technology by a process of systematic learning, borrowing and adapting to the Japanese environment. This was no slavish imitation; this was highly enlightened and deeply pragmatic nation-building.

Following another xenophobic spurt in the course of the 1930s and early 40s, Japan again opened up to learn and absorb from its erstwhile enemy. It is fun in the early 21st century to recollect that the Japanese learned quality at the feet of the Americans in the late 40s and early 50s! The opening of Japan was total, whether in production engineering, in cinematography or in literature. As a Frenchman, I remember in the early 60s intense conversations with Japanese of virtually all walks of life about Anatole France, André Gide, Albert Camus, Jean-Paul Sartre and so many others. The eminent scholar Auguste Anglès was director of the Institut Franco-Japonais between 1958 and 1963 during which time he opined that more Japanese read Proust than the French! Japan was the land of global curiosity.

A few decades later, however, in the course of the 1980s, as Japan’s global economic might soared, its interest in and respect for the outside world plummeted. One of the best analyses of this metamorphosis is by Masao Miyoshi in a book entitled Off-Center: Power and Culture in Relations between Japan and the United States (1991). When the financial crisis hit, the Japanese establishment was so convinced of the inherent superiority of its economic model that in the initial stages it remained in ossified denial.

Thus, Japan’s failure to open up along with its failure to reform, with the two very inter-related, together account for Japan’s doldrums and consequent lost decades. This is not to say that there were no reforms or no opening up; on the latter, probably the most extraordinary was the acquisition by Renault of Nissan and the appointment as President of a Brazilian of Lebanese origin, Carlos Ghosn. Also can be cited the Welsh CEO of Sony, Howard Stringer. “A couple of swallows, however, do not make a spring.” By any criterion – share of imports to GDP, inward investments, foreign acquisitions, top management positions, foreign languages (especially English) capability, university professors, etc. – Japan is the most closed among the OECD countries.

The outlook, as implied by the beginning of its third lost decade, is pretty dismal. Yet Japan matters enormously. Not only is it a huge market with a sizeable share of the global GDP, it is also in the world’s most critical region in the 21st century. With China having been for two centuries the sick man of Asia, its resurgence could cause a good deal of turbulence in the region – and hence in the world. Japan needs to manage these seismic regional and global transitions. At the moment, this is emphatically not the case as the country appears autistic vis-à-vis the outside world.

With my two co-authors, John Haffner and Tomas Casas-i-Klett, we have produced a book* that analyses the causes and implications of Japan’s self-imposed ostracism from the world and the impacts and benefits on both Japan and the world should the country, as we argue, opt for a future of openness and global engagement. Ultimately to try to ensure a peaceful and prosperous 21st century, the world needs Japan as an active and engaged citizen and Japan needs the world.

Jean-Pierre Lehmann is Professor of International Economy at IMD and Founding Director of The Evian Group. He teaches on the Building on Talent and the Orchestrating Winning Performance programs.

* Japan’s Open Future: An Agenda for Global Citizenship, Anthem Press, 2009.

Think Again: Asia's Rise

Tue, 23 Jun 2009 18:09:00 -0400

Don’t believe the hype about the decline of America and the dawn of a new Asian age. It will be many decades before China, India, and the rest of the region take over the world, if they ever do.

BY MINXIN PEI | JUNE 22, 2009

“Power Is Shifting from West to East.”

Not really. Dine on a steady diet of books like The New Asian Hemisphere: The Irresistible Shift of Global Power to the East or When China Rules the World, and it’s easy to think that the future belongs to Asia. As one prominent herald of the region’s rise put it, “We are entering a new era of world history: the end of Western domination and the arrival of the Asian century.”

Sustained, rapid economic growth since World War ii has undeniably boosted the region’s economic output and military capabilities. But it’s a gross exaggeration to say that Asia will emerge as the world’s predominant power player. At most, Asia’s rise will lead to the arrival of a multi-polar world, not another unipolar one.

Asia is nowhere near closing its economic and military gap with the West. The region produces roughly 30 percent of global economic output, but because of its huge population, its per capita gdp is only $5,800, compared with $48,000 in the United States. Asian countries are furiously upgrading their militaries, but their combined military spending in 2008 was still only a third that of the United States. Even at current torrid rates of growth, it will take the average Asian 77 years to reach the income of the average American. The Chinese need 47 years. For Indians, the figure is 123 years. And Asia’s combined military budget won’t equal that of the United States for 72 years.

In any case, it is meaningless to talk about Asia as a single entity of power, now or in the future. Far more likely is that the fast ascent of one regional player will be greeted with alarm by its closest neighbors. Asian history is replete with examples of competition for power and even military conflict among its big players. China and Japan have fought repeatedly over Korea; the Soviet Union teamed up with India and Vietnam to check China, while China supported Pakistan to counterbalance India. Already, China’s recent rise has pushed Japan and India closer together. If Asia is becoming the world’s center of geopolitical gravity, it’s a murky middle indeed.

Those who think Asia’s gains in hard power will inevitably lead to its geopolitical dominance might also want to look at another crucial ingredient of clout: ideas. Pax Americana was made possible not only by the overwhelming economic and military might of the United States but also by a set of visionary ideas: free trade, Wilsonian liberalism, and multilateral institutions. Although Asia today may have the world’s most dynamic economies, it does not seem to play an equally inspiring role as a thought leader. The big idea animating Asians now is empowerment; Asians rightly feel proud that they are making a new industrial revolution. But self-confidence is not an ideology, and the much-touted Asian model of development does not seem to be an exportable product.

“Asia’s Rise Is Unstoppable.”

Don’t bet on it. Asia’s recent track record might seem to guarantee its economic superpower status. Goldman Sachs, for instance, expects that China will surpass the United States in economic output in 2027 and India will catch up by 2050.

Given Asia’s relatively low per capita income, its growth rate will indeed outpace the West’s for the foreseeable future. But the region faces enormous demographic hurdles in the decades ahead. More than 20 percent of Asians will be elderly by 2050. Aging is a principal cause of Japan’s stagnation. China’s elderly population will soar in the middle of the next decade. Its savings rate will fall while healthcare and pension costs explode. India is a lone exception to these trends-any one of which could help stall the region’s growth.

Environmental and natural resource constraints could also prove crippling. Pollution is worsening Asia’s shortage of fresh water while air pollution exacts a terrible toll on health (it kills almost 400,000 people each year in China alone). Without revolutionary advances in alternative energy, Asia could face a severe energy crunch. Climate change could devastate the region’s agriculture.

The current economic crisis, moreover, will lead to huge overcapacity as Western demand evaporates. Asian companies, facing anemic consumer demand at home, will not be able to sell their products in the region. The Asian export-dependent model of development will either disappear or cease to be a viable engine of growth.

Political instability could also throw Asia’s economic locomotive off course. State collapse in Pakistan or a military conflict on the Korean Peninsula could wreak havoc. Rising inequality and endemic corruption in China could fuel social unrest and cause its economic growth to sputter. And if a democratic breakthrough somehow forces the Communist Party from power, China is most likely to enter a lengthy period of unstable transition, with a weak central government and mediocre economic performance.

“Asian Capitalism Is More Dynamic.”

Hardly. With the United States brought low by Wall Street and the European economy enfeebled by its welfare state and inflexible labor market, most Asian economies appear in great shape. It is tempting to say that Asia’s unique brand of capitalism, by seamlessly weaving together strategic state intervention, corporate long-term thinking, and insuppressible popular desire for material betterment, will outcompete either the greed-devastated U.S. model or the hidebound European variant.

But though Asian economies-with the notable exception of Japan-are among the fastest-growing in the world today, there’s little real evidence to suggest that their apparent dynamism comes from a mysteriously successful form of Asian capitalism. The truth is more mundane: The region’s dynamism owes a great deal to its strong fundamentals (high savings, urbanization, and demographics) and the benefits of free trade, market reforms, and economic integration. Asia’s relative backwardness is a blessing in one sense: Asian countries have to grow faster because they’re starting from a much lower base.

Asian capitalism does have three unique features, but they do not necessarily confer competitive advantages. First, Asian states intervene more in the economy through industrial policy, infrastructural investment, and export promotion. But whether that has made Asian capitalism more dynamic remains an unresolved puzzle. The World Bank’s classic 1993 study of the region, “The East Asian Miracle,” could not find evidence that strategic intervention by the state is responsible for East Asia’s success. Second, two types of companies-family-controlled conglomerates and giant, state-owned enterprises-dominate Asia’s business landscape. Although such corporate ownership structures enable Asia’s largest companies to avoid the short-termism of most American firms, they also shield them from shareholders and market pressures, making Asian firms less accountable, less transparent, and less innovative.

Finally, Asia’s high savings rates, by providing a huge pool of indigenous capital, undeniably fuel the region’s economic growth. But pity Asia’s savers. Most of them save because their governments provide inadequate social safety nets. Government policies in Asia penalize savers through financial repression (by keeping deposit rates low and paying household savers measly returns on their savings) and reward producers by subsidizing capital (typically through low bank lending rates). Even export promotion, ostensibly an Asian virtue, seems overrated. Asian central banks have invested most of their massive export surpluses in low-yielding, dollar-dominated assets that will lose much of their value due to the long-term inflationary pressures generated by U.S. fiscal and monetary policies.

“Asia Will Lead the World in Innovation.”

Not in our lifetime. If you look only at the growing number of U.S. patents awarded to Asian inventors, the United States appears to have a dramatically receding edge in innovation. South Korean inventors, for example, received 8,731 U.S. patents in 2008-compared with 13 in 1978. In 2008, close to 37,000 U.S. patents went to Japanese inventors. The trend seems sufficiently alarming that one study ranked the United States eighth in terms of innovation, behind Singapore, South Korea, and Switzerland.

Reports of the death of America’s technological leadership are, to paraphrase Mark Twain, greatly exaggerated. Although Asia’s advanced economies, such as Japan and South Korea, are closing the gap, the United States’ lead remains huge. In 2008, American inventors were awarded 92,000 U.S. patents, twice the combined total given to South Korean and Japanese inventors. Asia’s two giants, China and India, still lag far behind

Asia is pouring money into higher education. But Asian universities will not become the world’s leading centers of learning and research anytime soon. None of the world’s top 10 universities is located in Asia, and only the University of Tokyo ranks among the world’s top 20. In the last 30 years, only eight Asians, seven of them Japanese, have won a Nobel Prize in the sciences. The region’s hierarchical culture, centralized bureaucracy, weak private universities, and emphasis on rote learning and test-taking will continue to hobble its efforts to clone the United States’ finest research institutions.

Even Asia’s much-touted numerical advantage is less than it seems. China supposedly graduates 600,000 engineering majors each year, India another 350,000. The United States trails with only 70,000 engineering graduates annually. Although these numbers suggest an Asian edge in generating brainpower, they are thoroughly misleading. Half of China’s engineering graduates and two thirds of India’s have associate degrees. Once quality is factored in, Asia’s lead disappears altogether. A much-cited 2005 McKinsey Global Institute study reports that human resource managers in multinational companies consider only 10 percent of Chinese engineers and 25 percent of Indian engineers as even “employable,” compared with 81 percent of American engineers.

“Dictatorship Has Given Asia an Advantage.”

No. Autocracies, mainly in East Asia, may seem to have made their countries prosperous. The so-called dragon economies of South Korea, Taiwan, Singapore, Indonesia under Suharto, and now China experienced their fastest growth under nondemocratic regimes. Frequent comparisons between China and India appear to support the view that a one-party state unencumbered by messy competitive politics can deliver economic goods better than a multiparty system tied down by too much democracy.

But Asia also has had many autocracies that have impoverished their countries-consider the tragic list of Burma, Pakistan, North Korea, Laos, Cambodia under the murderous Khmer Rouge, and the Philippines under Ferdinand Marcos. Even China is a mixed example. Before the Middle Kingdom emerged from self-imposed isolation and totalitarian rule in 1976, its economic growth was subpar. China under Mao also had the dubious distinction of producing the world’s worst famine.

Even when you look at autocracies credited with economic success, you find two interesting facts. First, their economic performance improved when they became less brutal and allowed greater personal and economic freedoms. Second, the keys to their successes were sensible economic policies, such as conservative macroeconomic management, infrastructural investment, promotion of savings, and pushing exports. Dictatorship really has no magic formula for economic development.

Comparing a one-party state like China with a democracy such as India is not an easy intellectual exercise. Obviously, India has many weaknesses: widespread poverty, poor infrastructure, and minimal social services. China appears to have done much better in these areas. But appearances can be deceiving. Dictatorships are good at concealing the problems they create while democracy is good at advertising its defects.

So the autocratic advantage in Asia is, at best, an optical illusion.

“China Will Dominate Asia.”

Not likely. China is on course to overtake Japan as the world’s second-largest economy this year. As the regional economic hub, China is now driving Asia’s economic integration. Beijing’s diplomatic influence is expanding as well, supposedly thanks to its newfound soft power. Even China’s once antiquated military has acquired a full plethora of new weapons systems and significantly improved its ability to project force.

Although it is true that China will become Asia’s strongest country by any measure, its rise has inherent limits. China is unlikely to dominate Asia in the sense that it replaces the United States as the region’s peacekeeper and decisively influences other countries’ foreign policies. Its economic growth is also by no means guaranteed. Restive secession-minded minorities (Tibetans and Uighurs) inhabit strategically important areas that constitute almost 30 percent of Chinese territory. Taiwan, which is unlikely to return to China’s fold anytime soon, ties down substantial Chinese military resources. The ruling Chinese Communist Party, which views perpetuating its one-party state as more important than overseas expansionism, is not likely to be seduced by delusions of imperial grandeur.

China has formidable neighbors in Russia, India, and Japan that will fiercely resist any Chinese attempts to become the regional hegemon. Even Southeast Asia, where China appears to have reaped the most geopolitical gains in recent years, has been reluctant to fall into China’s orbit completely. Nor would the United States simply capitulate in the face of a Chinese juggernaut.

For complex reasons, China’s rise has inspired fear and unease, not enthusiasm, among Asians. Only 10 percent of Japanese, 21 percent of South Koreans, and 27 percent of Indonesians surveyed by the Chicago Council on Global Affairs said they would be comfortable with China being the future leader of Asia.

So much for China’s charm offensive.

“America Is Losing Influence in Asia.”

Definitely not. Bogged down in Iraq and Afghanistan and mired in a deep recession, the United States certainly looks like a superpower in decline. Its influence in Asia has apparently receded as well, with the formerly mighty dollar in less demand than the Chinese yuan and the North Korean regime openly flaunting Washington’s will. But it is premature to declare the end of U.S. geopolitical preeminence in Asia. In all likelihood, the self-correcting mechanisms in its political and economic systems will enable the United States to recover from its current setbacks.

America’s leadership in Asia derives from many sources, not just its military or economic heft. Like beauty, a country’s geopolitical influence is often in the eye of the beholder. Although some view the United States’ declining influence in Asia as a fact, many Asians think otherwise. Sixty-nine percent of Chinese, 75 percent of Indonesians, 76 percent of South Koreans, and 79 percent of Japanese in the Chicago Council’s surveys said that U.S. influence in Asia had risen over the past decade.

Another, perhaps more important, reason for the enduring American preeminence in Asia is that most countries in the region welcome Washington as the guarantor of Asia’s peace. Asian elites from New Delhi to Tokyo continue to count on Uncle Sam to keep a watchful eye on Beijing.

Whether it’s over blown or not, Asia is poised to increase its geopolitical and economic influence rapidly in the decades to come. It has already become one of the pillars of the international order. But in thinking about Asia’s future, let’s not get ahead of ourselves. Its economic ascent is not written in the stars. And given the cultural differences and history of intense rivalry among the region’s countries, Asia is unlikely to achieve any degree of regional political unity and evolve into an EU-like entity in our lifetime. Henry Kissinger once famously asked, “Who do I call if I want to call Europe?” We can ask the same question about Asia.

All told, Asia’s rise should present more opportunities than threats. The region’s growth not only has lifted hundreds of millions out of poverty, but also will increase demand for Western products. Its internal fissures will allow the United States to check the geopolitical influence of potential rivals such as China and Russia with manageable costs and risks. And hopefully, Asia’s rise will provide the competitive pressures urgently needed for Westerners to get their own houses in order—without succumbing to hype or hysteria.

Want to Know More?

In “The Dark Side of China’s Rise” (FOREIGN POLICY, March/April 2006), Minxin Pei examines the corruption and waste threatening China’s dizzying economic growth.
Well before the “Asian century” fervor exploded, Nicholas Kristof and Sheryl WuDunn predicted in Thunder from the East: Portrait of a Rising Asia (New York: Knopf, 2000) that the “center of the world” would eventually “settle in Asia.” Kishore Mahbubani’s The New Asian Hemisphere: The Irresistible Shift of Global Power to the East (New York: PublicAffairs, 2008) has become the foundational text of the Asian-century school of thought.
The China vs. India debate shows no signs of abating. In “The Next Asian Miracle” (FOREIGN POLICY, July/August 2008), Yasheng Huang makes the case that India’s democratic institutions will give it a long-term growth advantage over China. Razeen Sally dismisses that suggestion in “Don’t Believe the India Hype” (Far Eastern Economic Review, May 1, 2009) on the grounds that India continues to neglect its labor-intensive sectors and avoids reforming its institutions. University of California, Berkeley, economics professor Pranab Bardhan has been one of the few respected analysts to reject both the China hype and the India hype, for reasons he lays out in “China, India Superpower? Not So Fast!” (YaleGlobal Online, Oct. 25, 2005).
Not everyone thinks that Asia’s rise implies an inexorable decline in American influence. Anne-Marie Slaughter argues in “America’s Edge: Power in the Networked Century” (Foreign Affairs, January/February 2009) that the 21st century will, in fact, be an American one because the United States enjoys unrivaled “connectedness.”