MARCH 30, 2004
Managing an overload of choices
LEE MENG HONG
FOR THE STRAITS TIMES
GIVEN a choice, would you prefer to have just a few, or a wide array of alternatives? Instinctively, most of us would choose the latter.
Today, unlike in our grandparents' time, the choices we have in all aspects of life are unprecedented. Opportunities to enhance our enjoyment are tremendous.
However, choices have also become one of the root causes of record levels of clinical depression and suicide in the United States.
In his book The Paradox Of Choice, US psychologist Barry Schwartz explains this contradiction. He says that the constant increase in the choices we have is actually making us depressed.
He said in an interview: 'People are overwhelmed with choices about trivial things, like what cereal to buy, what pain reliever to buy, and about important things like what 401(k) to invest in, whether to get married, when to get married, whether to have children, when to have children.
'And the cumulative effect of all of these choices creates a kind of stress and anxiety that I think contributes to the three-fold increase in depression (in the US) that's occurred in the last 30 years...'
According to Dr Schwartz, there are two types of people who tackle the overload. The first group - 'maximisers' - search endlessly for the best option, usually regretting their decisions. It's called buyers' remorse. For fear of making the wrong decision, others choose to do nothing at all.
At the other end of the spectrum, there are the 'satisficers', who are happy with 'good enough'. Once they have found something that meets their standards and satisfies their needs, they stick with it. They expect less and, as a consequence, are happier.
This phenomenon also has an impact on our financial decisions.
Investors in the Singapore marketplace have a choice of more than 500 unit trusts on offer and around 200 insurance-linked products; there are more than 600 listed companies in Singapore and other investment options like property.
Then there are the overseas share markets and other investment instruments. Throw in the profusion of financial information from television, the Internet and other media and we are presented with a dizzying myriad of investment options and information.
How do investors respond to this exuberance of choices? Most do so in a destructive way. They invest haphazardly with no coordinated plan in mind. They pick funds or stocks based on past performance.
In typical maximiser fashion, they invest in the hottest fund on the market and in the following year switch to another, seeking a better outcome, but usually ending up worse off.
This is clearly demonstrated in a report by Dalbar (see table), which said that the average equity investor's annual return over the period from January 1984 to the end of 2002 was a disastrous 2.57 per cent, which was light years behind the 12.22 per cent annual return delivered by the main US market index, the S&P 500. The average investor didn't even beat the inflation rate.
Then there is another group of investors, who, having made poor investment decisions in the past, choose to do nothing and may end up actually regressing.
To be on the safe side, they keep their funds in the banks, allowing inflation to eat away the real value of their money. For many, this will have serious implications on their retirement. This is already apparent in Australia, where, according to a poll published last year, 70 per cent of retirees live on less than $16,000 per year.
A Wharton-Singapore Management University study shows that most Singaporeans will live on only 30 per cent of their last drawn salary in retirement. Ironically, while retirement may be long and healthy, most people will have only limited choices at this stage of their lives.
How then do we become satisficers? Clearly, we need to strike a balance between chasing performance and doing nothing. This is easier said than done. While we should periodically review our portfolios, we need to be realistic about our expectations and to remember why those investments suited our needs in the first place.
Once these standards have been satisfied, we should discipline ourselves to be happy with 'good enough'.
The writer is vice-president at a local financial planning firm.
This is a series of interesting articles on various issues such as politics, economics and society in general.
Tuesday, March 30, 2004
Thursday, March 25, 2004
MARCH 25, 2004
Water may well become China's biggest problem
By Anthony Paul
AN ANNOUNCEMENT last week that activities on Beijing's evaporating lakes had been suspended for the first time in history was more than a little ominous. A look ahead suggests that for the world's biggest country, its biggest problem this century may well be a commonplace commodity - water.
The Chinese waste water: In some areas, industries use almost 10 times the amount of water that Western factories allocate for similar activities.
The Chinese pollute it: The cities alone are currently discharging annually an estimated 25.7 billion cubic metres of raw sewage into rivers and lakes.
And on top of all this, the Chinese are increasingly short of water: In January, the Yangtze River's middle stretches dropped to their lowest level ever. The Beijing People's Daily reported last week that around 400 of China's 669 cities are confronting water shortages; 110 are currently forced to impose severe restrictions on water use.
According to the World Bank, the average Chinese has to make do with only 2,200 cubic metres of water each year, 25 per cent less than the world average. By 2030, says the bank, China's supply will fall to 1,300 cubic metres - which is 'dangerously low'.
So how is China handling the crisis? The answer shouldn't surprise us: In addition to huge public works projects (that have the added advantage of giving large numbers of workers something to do), it's applying market economics. And not necessarily with Chinese characteristics: Beijing is urging foreign companies to help with its water reform.
This column reported last week on the way in which Singapore's reputation as the Asian model for urban infrastructure has led to export revenues from mass-transit equipment and expertise. In the same way, Singapore is claiming its share of the action in China's burgeoning water-treatment market.
During China's socialist years, one basic problem was that water pricing verged on the ridiculous. In the angry words of a reform-minded journalist in 1997, '1,000 tonnes of Yellow River water are sold to industry for less than a bottle of mineral water'.
Moreover, farmers paid for their water according to the size of their lots, not according to how much they used. World Bank economist Richard Reidinger explained to me: 'Chinese farms are often so small, sometimes less than a hectare, and there are so many - hundreds of millions - that selling water by volume was thought impossible.'
But then reformers in Hunan and Hubei provinces experimented successfully in 1993 with grouping farmers in water-supply companies and water-user associations called 'self-financing irrigation and drainage districts'. Run by farmers elected by secret ballot, these districts (of several hundred to several thousand farmers) made it easier to establish more equitable by-volume price.
Two years later, the World Bank began using the leverage of a US$552 million (S$940 million) Yangtze River water-resource loan to encourage the system's widespread adoption. Says Mr Reidinger: 'When farmers pay by volume, they waste less: There's an immediate 20 per cent drop in water use on average.' Beijing has also embarked on major water-channelling solutions. An estimated US$23 billion is being invested in the massive South-North Water Diversion Project. The ultimate goal is to relieve the parched north with water from the Yangtze. Begun in December, the project's central section is expected to supply Beijing with water by 2010.
In that same year, work is scheduled to begin on what will be one of the world's most ambitious public works projects - a cut through high mountains near Tibet linking the Yangtze with the headwaters of the chronically dry Yellow River.
In the meantime, China has been encouraging foreign companies to help with waste-water treatment. Singapore firms have been in the forefront. Local enterprise Hyflux's sales in China of its water products helped lift last year's net profit by 59 per cent.
A pioneer in membrane technology for removing impurities from water, the company built Singapore's first Newater water-recycling plant. It is now constructing a new seawater-purifying project at Tuas and its fifth water-treatment plant in China.
Singapore's successes in keeping a clean environment, says Hyflux group chief executive Olivia Lum, 'can be tapped for business inspirations'. As Ms Lum has put it, water purification is part of Singapore's 'economic identity' - a brand that can be associated with the nation.
Perhaps as a consequence, water-treatment shares have been among the liveliest recently on the Singapore stock exchange: Six water-treatment firms are now listed here. China-based United Envirotech, which last week requested a listing, could become the seventh.
China Information News, a major business daily, has listed waste management among six Chinese industries that are 'beginning to generate high profits and are ripe for exploitation'. (The others: marine resources, recreation, care of the aged, sports and agrotechnology.)
But for Singapore, at least for the moment, water purification is the hottest China-market opportunity. In Beijing last week, Mr Wang Wulong, a member of the Chinese People's Political Consultative Conference (a body sometimes described as 'China's House of Lords'), scolded the central government for its neglect of seawater desalination. Mr Wang's demands included more private investment in the industry, and 'the import of advanced foreign technologies'. In the face of the gathering crisis, he said, 'it's now imperative for the government to sponsor some 'model seawater-freshening plants' with annual desalinising capacity of 10,000 to 100,000 tonnes'.
Water may well become China's biggest problem
By Anthony Paul
AN ANNOUNCEMENT last week that activities on Beijing's evaporating lakes had been suspended for the first time in history was more than a little ominous. A look ahead suggests that for the world's biggest country, its biggest problem this century may well be a commonplace commodity - water.
The Chinese waste water: In some areas, industries use almost 10 times the amount of water that Western factories allocate for similar activities.
The Chinese pollute it: The cities alone are currently discharging annually an estimated 25.7 billion cubic metres of raw sewage into rivers and lakes.
And on top of all this, the Chinese are increasingly short of water: In January, the Yangtze River's middle stretches dropped to their lowest level ever. The Beijing People's Daily reported last week that around 400 of China's 669 cities are confronting water shortages; 110 are currently forced to impose severe restrictions on water use.
According to the World Bank, the average Chinese has to make do with only 2,200 cubic metres of water each year, 25 per cent less than the world average. By 2030, says the bank, China's supply will fall to 1,300 cubic metres - which is 'dangerously low'.
So how is China handling the crisis? The answer shouldn't surprise us: In addition to huge public works projects (that have the added advantage of giving large numbers of workers something to do), it's applying market economics. And not necessarily with Chinese characteristics: Beijing is urging foreign companies to help with its water reform.
This column reported last week on the way in which Singapore's reputation as the Asian model for urban infrastructure has led to export revenues from mass-transit equipment and expertise. In the same way, Singapore is claiming its share of the action in China's burgeoning water-treatment market.
During China's socialist years, one basic problem was that water pricing verged on the ridiculous. In the angry words of a reform-minded journalist in 1997, '1,000 tonnes of Yellow River water are sold to industry for less than a bottle of mineral water'.
Moreover, farmers paid for their water according to the size of their lots, not according to how much they used. World Bank economist Richard Reidinger explained to me: 'Chinese farms are often so small, sometimes less than a hectare, and there are so many - hundreds of millions - that selling water by volume was thought impossible.'
But then reformers in Hunan and Hubei provinces experimented successfully in 1993 with grouping farmers in water-supply companies and water-user associations called 'self-financing irrigation and drainage districts'. Run by farmers elected by secret ballot, these districts (of several hundred to several thousand farmers) made it easier to establish more equitable by-volume price.
Two years later, the World Bank began using the leverage of a US$552 million (S$940 million) Yangtze River water-resource loan to encourage the system's widespread adoption. Says Mr Reidinger: 'When farmers pay by volume, they waste less: There's an immediate 20 per cent drop in water use on average.' Beijing has also embarked on major water-channelling solutions. An estimated US$23 billion is being invested in the massive South-North Water Diversion Project. The ultimate goal is to relieve the parched north with water from the Yangtze. Begun in December, the project's central section is expected to supply Beijing with water by 2010.
In that same year, work is scheduled to begin on what will be one of the world's most ambitious public works projects - a cut through high mountains near Tibet linking the Yangtze with the headwaters of the chronically dry Yellow River.
In the meantime, China has been encouraging foreign companies to help with waste-water treatment. Singapore firms have been in the forefront. Local enterprise Hyflux's sales in China of its water products helped lift last year's net profit by 59 per cent.
A pioneer in membrane technology for removing impurities from water, the company built Singapore's first Newater water-recycling plant. It is now constructing a new seawater-purifying project at Tuas and its fifth water-treatment plant in China.
Singapore's successes in keeping a clean environment, says Hyflux group chief executive Olivia Lum, 'can be tapped for business inspirations'. As Ms Lum has put it, water purification is part of Singapore's 'economic identity' - a brand that can be associated with the nation.
Perhaps as a consequence, water-treatment shares have been among the liveliest recently on the Singapore stock exchange: Six water-treatment firms are now listed here. China-based United Envirotech, which last week requested a listing, could become the seventh.
China Information News, a major business daily, has listed waste management among six Chinese industries that are 'beginning to generate high profits and are ripe for exploitation'. (The others: marine resources, recreation, care of the aged, sports and agrotechnology.)
But for Singapore, at least for the moment, water purification is the hottest China-market opportunity. In Beijing last week, Mr Wang Wulong, a member of the Chinese People's Political Consultative Conference (a body sometimes described as 'China's House of Lords'), scolded the central government for its neglect of seawater desalination. Mr Wang's demands included more private investment in the industry, and 'the import of advanced foreign technologies'. In the face of the gathering crisis, he said, 'it's now imperative for the government to sponsor some 'model seawater-freshening plants' with annual desalinising capacity of 10,000 to 100,000 tonnes'.
MARCH 25, 2004
Life as a parent here just got more stressful
By Carl Skadian
I KNOW it's a serious matter, but the Great Baby Debate of 2004 has left me - and other parents as well, I'm sure - mildly bemused.
Seems to me it's the parents who actually need help, judging by what's been happening in the news while Parliament, and those outside it, debated ways to help lift Singapore's precariously low birth rate.
Help to make sense of what's happening and how to prepare children for the sea changes in Singapore and the world, that is.
For starters, take the flurry of education changes, especially those involving the mother tongue, in recent weeks.
For the longest time, I've had a hard time explaining to two boys who'd rather be doing maths worksheets than boning up on Chinese that studying the language and excelling in it will stand them in good stead, because they will (a) know their roots; (b) be in good stead when they grow up in 15 years time and start looking for work because China, which is ascendant now, will be an economic superpower by then; and (c) absolutely, positively need it to qualify for a place in university here.
Now, I'll have to explain to them why the newspapers keep saying that Chinese is still important, but it will do for them to get a pass grade. At least after O levels. In the meantime, boys, it's Higher Chinese for you.
Don't get me wrong. I love the changes, and the rationale behind them has me whooping. Realism in education: You have to love it.
It was even better when the Prime Minister himself came out and stated unequivocally that, no, the bilingual policy has not and will never change, at least for the foreseeable future, but some realism is needed; and if some students just cannot make the grade, we must do something to make sure they at least learn enough to help them in the future.
It's just that, well, it's hard when parents have to reverse course, or deviate from the strict straight and narrow that governs a lot of the issues having to do with children.
It doesn't help when other adults are crying about how it's the end of the world as we know it because standards are being 'relaxed'.
STILL, I guess, maybe the children won't 'feel enormous pressure', as my son Jordan put it recently.
To children taking the train every day, it's a real thrill to know that marshals might soon be on board them as an added anti-terror measure.
Children are as anti-terrorist as they come, thanks in no small part to games like Metal Gear Solid and Counter-Strike, where they go up against the bad guys all the time and take a few blows to the chin before gathering immense caches of the good stuff and delivering the knockout blow.
In other words, they always win, and the fanatics always lose.
So I've got another problem on my hands now. How to explain that, in Madrid at least, a train explosion that killed more than 200 people led indirectly to a change in government.
Never mind that the issue of being an ally in the 'war on terror' has been painted in various shades of grey. To them, all that matters is, to quote United States President George W. Bush, 'you're either with us, or against us'.
When countries like Spain do a rethink, I'm hard pressed to explain Foreign Affairs Minister S. Jayakumar's statement recently that Singapore was right to back the US-led war on Iraq, even though I agree with it totally. Especially when others in Parliament question whether we're 'too pro-US'.
Do I tell my boys that terrorists may claim some wins elsewhere, but not here? Or lie that, eventually, the good guys will win, somehow?
SPEAKING of good and bad, the children are going on to that age now that, to quote singer Bob Dylan, 'the hour is getting late' for that talk on the birds and the bees.
Except that in this day and age, being 12 and 13 is probably already too late.
This paper has run some horrific stories of late of the shenanigans children get up to on the Internet and off it. High-risk behaviour, it is called. Some involve children as young as nine, and even on TV, there are those who are just barely in their teens talking about sex so matter-of-factly that it's as if it is the most natural thing in the world. (For the record, it is, just not at that age.)
To be sure, these are isolated incidents, but the numbers are rising and there's no mistaking the trend.
When the children are watching The Simpsons, and the first thing Homer says after having his jaw unwired is 'I'm horny', that's funny. It's not when the children get the joke and start laughing too.
Guess what Daddy and Mummy will have to do, probably this weekend?
THERE you go. It's been just a few weeks, and so much has already happened.
I can understand the reasons people here give for not wanting to have children, even though I have to confess that, in private, I don't buy any of them.
But hey, while Minister Lim Hng Kiang and his committee set about to rectify that situation, here's a little thought from those of us who won't be affected by what their report will say.
Show the children a little love too. They're supposed to be the Future Of Our Nation, but I don't see anyone bending over backwards to think of them first
Life as a parent here just got more stressful
By Carl Skadian
I KNOW it's a serious matter, but the Great Baby Debate of 2004 has left me - and other parents as well, I'm sure - mildly bemused.
Seems to me it's the parents who actually need help, judging by what's been happening in the news while Parliament, and those outside it, debated ways to help lift Singapore's precariously low birth rate.
Help to make sense of what's happening and how to prepare children for the sea changes in Singapore and the world, that is.
For starters, take the flurry of education changes, especially those involving the mother tongue, in recent weeks.
For the longest time, I've had a hard time explaining to two boys who'd rather be doing maths worksheets than boning up on Chinese that studying the language and excelling in it will stand them in good stead, because they will (a) know their roots; (b) be in good stead when they grow up in 15 years time and start looking for work because China, which is ascendant now, will be an economic superpower by then; and (c) absolutely, positively need it to qualify for a place in university here.
Now, I'll have to explain to them why the newspapers keep saying that Chinese is still important, but it will do for them to get a pass grade. At least after O levels. In the meantime, boys, it's Higher Chinese for you.
Don't get me wrong. I love the changes, and the rationale behind them has me whooping. Realism in education: You have to love it.
It was even better when the Prime Minister himself came out and stated unequivocally that, no, the bilingual policy has not and will never change, at least for the foreseeable future, but some realism is needed; and if some students just cannot make the grade, we must do something to make sure they at least learn enough to help them in the future.
It's just that, well, it's hard when parents have to reverse course, or deviate from the strict straight and narrow that governs a lot of the issues having to do with children.
It doesn't help when other adults are crying about how it's the end of the world as we know it because standards are being 'relaxed'.
STILL, I guess, maybe the children won't 'feel enormous pressure', as my son Jordan put it recently.
To children taking the train every day, it's a real thrill to know that marshals might soon be on board them as an added anti-terror measure.
Children are as anti-terrorist as they come, thanks in no small part to games like Metal Gear Solid and Counter-Strike, where they go up against the bad guys all the time and take a few blows to the chin before gathering immense caches of the good stuff and delivering the knockout blow.
In other words, they always win, and the fanatics always lose.
So I've got another problem on my hands now. How to explain that, in Madrid at least, a train explosion that killed more than 200 people led indirectly to a change in government.
Never mind that the issue of being an ally in the 'war on terror' has been painted in various shades of grey. To them, all that matters is, to quote United States President George W. Bush, 'you're either with us, or against us'.
When countries like Spain do a rethink, I'm hard pressed to explain Foreign Affairs Minister S. Jayakumar's statement recently that Singapore was right to back the US-led war on Iraq, even though I agree with it totally. Especially when others in Parliament question whether we're 'too pro-US'.
Do I tell my boys that terrorists may claim some wins elsewhere, but not here? Or lie that, eventually, the good guys will win, somehow?
SPEAKING of good and bad, the children are going on to that age now that, to quote singer Bob Dylan, 'the hour is getting late' for that talk on the birds and the bees.
Except that in this day and age, being 12 and 13 is probably already too late.
This paper has run some horrific stories of late of the shenanigans children get up to on the Internet and off it. High-risk behaviour, it is called. Some involve children as young as nine, and even on TV, there are those who are just barely in their teens talking about sex so matter-of-factly that it's as if it is the most natural thing in the world. (For the record, it is, just not at that age.)
To be sure, these are isolated incidents, but the numbers are rising and there's no mistaking the trend.
When the children are watching The Simpsons, and the first thing Homer says after having his jaw unwired is 'I'm horny', that's funny. It's not when the children get the joke and start laughing too.
Guess what Daddy and Mummy will have to do, probably this weekend?
THERE you go. It's been just a few weeks, and so much has already happened.
I can understand the reasons people here give for not wanting to have children, even though I have to confess that, in private, I don't buy any of them.
But hey, while Minister Lim Hng Kiang and his committee set about to rectify that situation, here's a little thought from those of us who won't be affected by what their report will say.
Show the children a little love too. They're supposed to be the Future Of Our Nation, but I don't see anyone bending over backwards to think of them first
Face value
Whither Singapore Inc?
Nov 28th 2002
From The Economist print edition
Singapore's unique brand of capitalism needs an overhaul. Will Ho Ching do the right thing?
UNDER Ho Ching's father-in-law, Lee Kuan Yew, Singapore rose, to use his own phrase, “from third world to first”. How did Mr Lee achieve this? He would say it was by consistently ignoring intellectual fads. One such, in the 1970s, held that multinational companies exploited poor countries; Mr Lee busily courted multinationals. Another (to which this newspaper subscribes) suggests that the private sector is usually better than the public sector at running businesses. Mr Lee made sure that the government owned Singapore's biggest companies. In this respect, Singapore was different from Asia's other “tigers”. Hong Kong grew rich as a bastion of laisser faire; in Taiwan and South Korea, government may have guided, but rarely owned.
Leaving aside one or two small hiccups, Singapore did well with its brand of “state capitalism”, at least until the Asian crisis of 1997. Then came a short-lived recovery and another recession. Last year, Singapore's economy shrank by 2%; last week the government lowered its estimate for growth this year to only 2%. Lee Hsien Loong, who is Singapore's deputy prime minister and finance minister as well as being Lee Kuan Yew's elder son and Ho Ching's husband, has repeatedly lamented Singapore's lack of entrepreneurialism. An awareness is sinking in among the island's ruling elite that a model that turned a swamp into a metropolis may not work as well when it comes to turning the metropolis into a citadel of the “knowledge economy”. An unprecedented gloom has descended on Singapore Inc.
Ho Ching is the woman chosen to clear the gloom. In May, she was appointed to the helm of Temasek, a government holding company that is the most concrete expression of Singapore Inc. Temasek owns (in effect) controlling stakes in 20 of Singapore's biggest companies and many smaller ones.
Ms Ho is spectacularly well connected. Quite apart from her powerful father-in-law and husband, her brother-in-law, Lee Hsien Yang, also happens to run Singapore Telecommunications (SingTel), Temasek's and Singapore's largest company. In August, Bloomberg, a news agency, ran an article ascribing her prominence to nepotism. The Lees' lawyers rang, and Bloomberg retracted the offending article and paid hefty damages.
Her qualifications are certainly not to be sneezed at. A Stanford-educated engineer, she ably ran Temasek's defence conglomerate for a decade. But the strongest argument for putting someone like Ms Ho in charge of reforming Singapore Inc is precisely those family connections. A trusted insider is more likely to break down the barriers to change in this small country than an outsider would be. That does not, of course, guarantee that she will do this. Asking Ms Ho her plans is not an option, since she declines to grant interviews to foreign newspapers. Temasek's new charter, published in July, is not helpful either. Using ambiguous jargon (“rationalise”, “consolidate”, “strategic development”), it says that the government will keep some companies, allow others to find foreign partners, perhaps divest a few, start a few others, and so on. All possibilities are covered.
Looking at what Temasek's companies have actually been doing is more confusing still. This month, for instance, battle raged over one listed Temasek-controlled company: NatSteel, a steel maker. It appeared to be settled only after another Temasek company—DBS, a bank—agreed to sell its stake in NatSteel to a tycoon backed by the government. Other Temasek companies have botched share offerings, made staff changes, and so on. But as to overall direction, nobody is any the wiser.
Assuming that she plans to do something eventually, is Ms Ho still getting ready for action? Or has she yet to decide what to do? In broad terms, she has only two options, beyond inaction. She can try to become a sort of Singaporean Jack Welch—an analogy actually used in the local press—and run the Temasek stable rather as legend says he ran GE, boosting profits and creating winners. Or she might become a Singaporean Margaret Thatcher, breaking up Temasek and liberating the corporate sector from its government shackles.
The Welch approach would require management genius. Many of Singapore's companies certainly could use a bit of that. Stern Stewart, a consultancy, recently calculated a “wealth added index” for Singapore's companies. This compares returns generated with those said to be expected by the market. The index found that a few Temasek companies, notably Singapore Airlines, have rewarded their shareholders well. Others, such as the oil company, land developer, telecoms operator, shipping line, semiconductor maker and hotel firm, have disappointed. A brilliant manager, with a more aggressive, hands-on approach than has been used of late, could turn them all around.
A time for boldness
One advantage of the Thatcherite approach, which requires less management genius, is that it is so much simpler. It would also be much bolder, breaking with Singapore's tradition. Ms Ho and her family know of the criticism that the present structure stifles entrepreneurship. A common joke in Singapore is that working for Temasek companies is like doing national service.
They must also have become aware of the pariah factor that comes with government ownership. The only way for Singapore's top firms to prosper is to expand beyond their tiny home market, regionally or even globally. But government ownership deters many potential foreign partners. Lee Hsien Yang's SingTel is a prime example. It was defeated in takeover attempts in Hong Kong and Malaysia, in large part for this reason.
Only a fool underestimates this family. Mr Lee senior was bold in his time. The second generation (not least Ms Ho) might yet be as courageous. But the true test will be whether it realises that the most productive thing that it can do is to break up the Singapore Inc that it has inherited.
Whither Singapore Inc?
Nov 28th 2002
From The Economist print edition
Singapore's unique brand of capitalism needs an overhaul. Will Ho Ching do the right thing?
UNDER Ho Ching's father-in-law, Lee Kuan Yew, Singapore rose, to use his own phrase, “from third world to first”. How did Mr Lee achieve this? He would say it was by consistently ignoring intellectual fads. One such, in the 1970s, held that multinational companies exploited poor countries; Mr Lee busily courted multinationals. Another (to which this newspaper subscribes) suggests that the private sector is usually better than the public sector at running businesses. Mr Lee made sure that the government owned Singapore's biggest companies. In this respect, Singapore was different from Asia's other “tigers”. Hong Kong grew rich as a bastion of laisser faire; in Taiwan and South Korea, government may have guided, but rarely owned.
Leaving aside one or two small hiccups, Singapore did well with its brand of “state capitalism”, at least until the Asian crisis of 1997. Then came a short-lived recovery and another recession. Last year, Singapore's economy shrank by 2%; last week the government lowered its estimate for growth this year to only 2%. Lee Hsien Loong, who is Singapore's deputy prime minister and finance minister as well as being Lee Kuan Yew's elder son and Ho Ching's husband, has repeatedly lamented Singapore's lack of entrepreneurialism. An awareness is sinking in among the island's ruling elite that a model that turned a swamp into a metropolis may not work as well when it comes to turning the metropolis into a citadel of the “knowledge economy”. An unprecedented gloom has descended on Singapore Inc.
Ho Ching is the woman chosen to clear the gloom. In May, she was appointed to the helm of Temasek, a government holding company that is the most concrete expression of Singapore Inc. Temasek owns (in effect) controlling stakes in 20 of Singapore's biggest companies and many smaller ones.
Ms Ho is spectacularly well connected. Quite apart from her powerful father-in-law and husband, her brother-in-law, Lee Hsien Yang, also happens to run Singapore Telecommunications (SingTel), Temasek's and Singapore's largest company. In August, Bloomberg, a news agency, ran an article ascribing her prominence to nepotism. The Lees' lawyers rang, and Bloomberg retracted the offending article and paid hefty damages.
Her qualifications are certainly not to be sneezed at. A Stanford-educated engineer, she ably ran Temasek's defence conglomerate for a decade. But the strongest argument for putting someone like Ms Ho in charge of reforming Singapore Inc is precisely those family connections. A trusted insider is more likely to break down the barriers to change in this small country than an outsider would be. That does not, of course, guarantee that she will do this. Asking Ms Ho her plans is not an option, since she declines to grant interviews to foreign newspapers. Temasek's new charter, published in July, is not helpful either. Using ambiguous jargon (“rationalise”, “consolidate”, “strategic development”), it says that the government will keep some companies, allow others to find foreign partners, perhaps divest a few, start a few others, and so on. All possibilities are covered.
Looking at what Temasek's companies have actually been doing is more confusing still. This month, for instance, battle raged over one listed Temasek-controlled company: NatSteel, a steel maker. It appeared to be settled only after another Temasek company—DBS, a bank—agreed to sell its stake in NatSteel to a tycoon backed by the government. Other Temasek companies have botched share offerings, made staff changes, and so on. But as to overall direction, nobody is any the wiser.
Assuming that she plans to do something eventually, is Ms Ho still getting ready for action? Or has she yet to decide what to do? In broad terms, she has only two options, beyond inaction. She can try to become a sort of Singaporean Jack Welch—an analogy actually used in the local press—and run the Temasek stable rather as legend says he ran GE, boosting profits and creating winners. Or she might become a Singaporean Margaret Thatcher, breaking up Temasek and liberating the corporate sector from its government shackles.
The Welch approach would require management genius. Many of Singapore's companies certainly could use a bit of that. Stern Stewart, a consultancy, recently calculated a “wealth added index” for Singapore's companies. This compares returns generated with those said to be expected by the market. The index found that a few Temasek companies, notably Singapore Airlines, have rewarded their shareholders well. Others, such as the oil company, land developer, telecoms operator, shipping line, semiconductor maker and hotel firm, have disappointed. A brilliant manager, with a more aggressive, hands-on approach than has been used of late, could turn them all around.
A time for boldness
One advantage of the Thatcherite approach, which requires less management genius, is that it is so much simpler. It would also be much bolder, breaking with Singapore's tradition. Ms Ho and her family know of the criticism that the present structure stifles entrepreneurship. A common joke in Singapore is that working for Temasek companies is like doing national service.
They must also have become aware of the pariah factor that comes with government ownership. The only way for Singapore's top firms to prosper is to expand beyond their tiny home market, regionally or even globally. But government ownership deters many potential foreign partners. Lee Hsien Yang's SingTel is a prime example. It was defeated in takeover attempts in Hong Kong and Malaysia, in large part for this reason.
Only a fool underestimates this family. Mr Lee senior was bold in his time. The second generation (not least Ms Ho) might yet be as courageous. But the true test will be whether it realises that the most productive thing that it can do is to break up the Singapore Inc that it has inherited.
Stronger EU will not threaten but help America
By NOELLE LENOIR
THE Madrid bombings have made Europeans feel the scourge of terrorism in their bones. March 11 is now Europe's version of Sept 11 in the United States. Yet the US and Europe often do not seem to see the world through the same glasses: Spain's response to the terrorist attacks - a threat common to all democracies - was to vote in a government promising an end to the pro-US policy on Iraq. Does this mean Europe and the US have dramatically different visions?
Part of the seeming disconnect on foreign policy emerges from a misunderstanding about what 'Europe' is about. The European project is a realist's response to globalisation and its challenges. It was initiated to create solidarites de fait, promote political stability, and consolidate democracy and Europe's social model. Having achieved these goals, Europe now wants to make a positive contribution to world developments.
This is not nostalgia for past glory. An unprecedented degree of solidarity now exists across Europe, as was apparent in the collective mourning and outpouring of sympathy towards Spain; we must build on that huge potential to create a logic of solidarity in the world.
The US, also victim of a horrendous attack, feels drawn to the world, but not to promote a similar model of cooperation. Rather, in defending their values and security, Americans strive to defend the world, especially the Western world, from dark new threats. The messianic idealism that liberated Europe from Nazism and protected Western Europe from communism is now directed at other enemies.
With all the attention devoted to strained transatlantic relations, it is easy to overlook how often our preoccupations overlap. On issues such as terrorism, weapons proliferation, Iran, Afghanistan (where we jointly train the country's future army), and Africa (where French initiatives with American support recently succeeded in stabilising Cote d'Ivoire and Congo), decades. We must forge greater European military capacities, simply to put in place a mechanism that allows us to stand effectively shoulder to shoulder when terrorism or other catastrophes strike one of our democracies, as just happened.
But we must also establish an autonomous European military planning capacity, because the EU might need to lead its own operations, perhaps because Nato is unwilling to. We French are opposed to building a 'two-speed' Europe. But we want structured cooperation - meaning that some European states may press ahead in defence capacity - because we are not prepared to let the more cautious and hesitant dictate a recurrence of the Balkan tragedy of the 1990s, when Europeans couldn't act and Americans wouldn't (for a while). The creation of such a capacity will make the EU a more effective transatlantic partner.
So it is hard for Europeans to understand why plans for closer European integration should be seen as anti-American. The only way to arrest such fears is through closer and more frequent dialogue. On defence and security matters, the EU's security doctrine provides a great opportunity to build on our common worries: terrorism and non-proliferation, but also the need to ensure sustainable development in all quarters of the world.
Europe and the US must pursue their aims in cooperation, while ensuring that such cooperation never becomes an alliance of the 'West against the Rest'. Some in the West have tried to conjure a 'Clash of Civilisations' out of our troubled times. Our task is to find a way to stand together without standing against anybody in particular.
The writer is France's Minister for Europe. She is a former member of the Constitutional Court, France's highest court, and has taught law at Yale University and the University of London.
Copyright: Project Syndicate
By NOELLE LENOIR
THE Madrid bombings have made Europeans feel the scourge of terrorism in their bones. March 11 is now Europe's version of Sept 11 in the United States. Yet the US and Europe often do not seem to see the world through the same glasses: Spain's response to the terrorist attacks - a threat common to all democracies - was to vote in a government promising an end to the pro-US policy on Iraq. Does this mean Europe and the US have dramatically different visions?
Part of the seeming disconnect on foreign policy emerges from a misunderstanding about what 'Europe' is about. The European project is a realist's response to globalisation and its challenges. It was initiated to create solidarites de fait, promote political stability, and consolidate democracy and Europe's social model. Having achieved these goals, Europe now wants to make a positive contribution to world developments.
This is not nostalgia for past glory. An unprecedented degree of solidarity now exists across Europe, as was apparent in the collective mourning and outpouring of sympathy towards Spain; we must build on that huge potential to create a logic of solidarity in the world.
The US, also victim of a horrendous attack, feels drawn to the world, but not to promote a similar model of cooperation. Rather, in defending their values and security, Americans strive to defend the world, especially the Western world, from dark new threats. The messianic idealism that liberated Europe from Nazism and protected Western Europe from communism is now directed at other enemies.
With all the attention devoted to strained transatlantic relations, it is easy to overlook how often our preoccupations overlap. On issues such as terrorism, weapons proliferation, Iran, Afghanistan (where we jointly train the country's future army), and Africa (where French initiatives with American support recently succeeded in stabilising Cote d'Ivoire and Congo), decades. We must forge greater European military capacities, simply to put in place a mechanism that allows us to stand effectively shoulder to shoulder when terrorism or other catastrophes strike one of our democracies, as just happened.
But we must also establish an autonomous European military planning capacity, because the EU might need to lead its own operations, perhaps because Nato is unwilling to. We French are opposed to building a 'two-speed' Europe. But we want structured cooperation - meaning that some European states may press ahead in defence capacity - because we are not prepared to let the more cautious and hesitant dictate a recurrence of the Balkan tragedy of the 1990s, when Europeans couldn't act and Americans wouldn't (for a while). The creation of such a capacity will make the EU a more effective transatlantic partner.
So it is hard for Europeans to understand why plans for closer European integration should be seen as anti-American. The only way to arrest such fears is through closer and more frequent dialogue. On defence and security matters, the EU's security doctrine provides a great opportunity to build on our common worries: terrorism and non-proliferation, but also the need to ensure sustainable development in all quarters of the world.
Europe and the US must pursue their aims in cooperation, while ensuring that such cooperation never becomes an alliance of the 'West against the Rest'. Some in the West have tried to conjure a 'Clash of Civilisations' out of our troubled times. Our task is to find a way to stand together without standing against anybody in particular.
The writer is France's Minister for Europe. She is a former member of the Constitutional Court, France's highest court, and has taught law at Yale University and the University of London.
Copyright: Project Syndicate
Wednesday, March 17, 2004
MARCH 17, 2004
Allies pay the price for US' mistake in Iraq
By DOUG BANDOW
FOR THE STRAITS TIMES
WHEN the United States assembled its international coalition to topple Iraq's Saddam Hussein, it relied on governments willing to override their people's wishes. America's aggressive war received popular support in no countries other than Kuwait and Israel.
Now Spanish Prime Minister Jose Maria Aznar's Popular Party has paid the ultimate political price for backing the Bush administration, losing an election that it expected to win. Other American allies might meet the same end.
Only Britain and Australia offered serious military aid in the war; Poland begged Washington not to mention its smaller contribution publicly. Most nations simply wrote letters of support.
Millions of people around the world marched against the war, but few seemed inclined to punish their governments for backing the US. After all, the official letters cost little more than the postage necessary to mail them. Allied casualties were few even for Britain.
With the war over, Washington promised bountiful goodwill and generous reconstruction contracts for its friends. It looked like a win-win game.
No longer. The failure to find any weapons of mass destruction buried the claim that Iraq threatened world peace and stability. The failure to establish an Iraqi alliance with Al-Qaeda voided the promise that overthrowing Saddam would weaken terrorism.
On the contrary, turning Iraq into an unstable protectorate garrisoned by allied states created both a new battleground with and a new grievance for terrorists.
Australia was the first target, with the Bali bombing. British sites were hit alongside synagogues in Istanbul, Turkey. The latest: the monstrous attacks in Madrid.
The Spanish voters' reaction was hardly surprising. Many complained the Aznar government had manipulated investigations, attempting to blame separatist group ETA, against which Madrid had run a sustained campaign. With evidence suggesting an Al-Qaeda connection, however, Spaniards faulted the government for turning them into targets. It is bad enough to take a nation into war based on a mistake or lie. It is horrific to do so when the result is to bring war back to the home front.
American hawks are decrying alleged allied weakness. Not only did Mr Aznar's party lose, but also, Socialist Party prime minister-elect Luis Rodriguez Zapatero announced that he plans to withdraw Spain's 1,300 troops from Iraq when their tour ends in July.
So Dallas Morning News columnist Rod Dreher worries the Spanish election 'shows that the Europeans are willing to be cowed by terror into voting for appeasers. Message to terrorists: commit terrorism on the eve of elections, say you're doing it to punish the government for standing by the US, and you can drive a wedge between Western allies'.
However, the real wedge is Washington's demand that allied states act contrary to allied interests. Spain - along with the rest of the civilised world, in fact - often has cause to work with the US.
Containing the Soviet Union, truly an 'evil empire', as then president Ronald Reagan termed it, was one reason for unity. Combating transnational terrorism such as Al-Qaeda is another. Dealing with regional crises and potential hegemonic threats is yet another.
But it was not in Spain's interest to back the war against Iraq. Or to help garrison the occupied country. Yet Spain has paid the price for Washington's misguided invasion of Iraq, which has made terrorism more rather than less likely.
As an American, I am happy when other states alleviate Washington's burden by following the US over the cliff of unnecessary war and endless occupation. But I don't expect them to do so.
Allowing a terrorist attack to influence a democratic election is awful. However, it is hard to begrudge foreign electorates the right to toss out governments that have sacrificed their nations' interests to win favour in Washington. The Popular Party took Spain into war. And the electorate punished it for doing so. Voters in Australia, Britain, Japan and elsewhere might make the same judgment.
America's friends should stand with Washington when the cause is just, the action is necessary and the consequences are positive. But foreign peoples do not feel blind loyalty to every administration that holds power in Washington. Especially when that administration sacrifices reality to ideology and presses their governments to act against their own wishes.
The writer is a senior fellow at the Cato Institute and a former special assistant to president Ronald Reagan.
Allies pay the price for US' mistake in Iraq
By DOUG BANDOW
FOR THE STRAITS TIMES
WHEN the United States assembled its international coalition to topple Iraq's Saddam Hussein, it relied on governments willing to override their people's wishes. America's aggressive war received popular support in no countries other than Kuwait and Israel.
Now Spanish Prime Minister Jose Maria Aznar's Popular Party has paid the ultimate political price for backing the Bush administration, losing an election that it expected to win. Other American allies might meet the same end.
Only Britain and Australia offered serious military aid in the war; Poland begged Washington not to mention its smaller contribution publicly. Most nations simply wrote letters of support.
Millions of people around the world marched against the war, but few seemed inclined to punish their governments for backing the US. After all, the official letters cost little more than the postage necessary to mail them. Allied casualties were few even for Britain.
With the war over, Washington promised bountiful goodwill and generous reconstruction contracts for its friends. It looked like a win-win game.
No longer. The failure to find any weapons of mass destruction buried the claim that Iraq threatened world peace and stability. The failure to establish an Iraqi alliance with Al-Qaeda voided the promise that overthrowing Saddam would weaken terrorism.
On the contrary, turning Iraq into an unstable protectorate garrisoned by allied states created both a new battleground with and a new grievance for terrorists.
Australia was the first target, with the Bali bombing. British sites were hit alongside synagogues in Istanbul, Turkey. The latest: the monstrous attacks in Madrid.
The Spanish voters' reaction was hardly surprising. Many complained the Aznar government had manipulated investigations, attempting to blame separatist group ETA, against which Madrid had run a sustained campaign. With evidence suggesting an Al-Qaeda connection, however, Spaniards faulted the government for turning them into targets. It is bad enough to take a nation into war based on a mistake or lie. It is horrific to do so when the result is to bring war back to the home front.
American hawks are decrying alleged allied weakness. Not only did Mr Aznar's party lose, but also, Socialist Party prime minister-elect Luis Rodriguez Zapatero announced that he plans to withdraw Spain's 1,300 troops from Iraq when their tour ends in July.
So Dallas Morning News columnist Rod Dreher worries the Spanish election 'shows that the Europeans are willing to be cowed by terror into voting for appeasers. Message to terrorists: commit terrorism on the eve of elections, say you're doing it to punish the government for standing by the US, and you can drive a wedge between Western allies'.
However, the real wedge is Washington's demand that allied states act contrary to allied interests. Spain - along with the rest of the civilised world, in fact - often has cause to work with the US.
Containing the Soviet Union, truly an 'evil empire', as then president Ronald Reagan termed it, was one reason for unity. Combating transnational terrorism such as Al-Qaeda is another. Dealing with regional crises and potential hegemonic threats is yet another.
But it was not in Spain's interest to back the war against Iraq. Or to help garrison the occupied country. Yet Spain has paid the price for Washington's misguided invasion of Iraq, which has made terrorism more rather than less likely.
As an American, I am happy when other states alleviate Washington's burden by following the US over the cliff of unnecessary war and endless occupation. But I don't expect them to do so.
Allowing a terrorist attack to influence a democratic election is awful. However, it is hard to begrudge foreign electorates the right to toss out governments that have sacrificed their nations' interests to win favour in Washington. The Popular Party took Spain into war. And the electorate punished it for doing so. Voters in Australia, Britain, Japan and elsewhere might make the same judgment.
America's friends should stand with Washington when the cause is just, the action is necessary and the consequences are positive. But foreign peoples do not feel blind loyalty to every administration that holds power in Washington. Especially when that administration sacrifices reality to ideology and presses their governments to act against their own wishes.
The writer is a senior fellow at the Cato Institute and a former special assistant to president Ronald Reagan.
Monday, March 15, 2004
MARCH 15, 2004
Back to 19th century, thanks to Argentina
By HAROLD JAMES
PRESIDENT Nestor Kirchner of Argentina is often portrayed as an anti-capitalist radical for proposing a 'haircut' of more than 90 per cent on the value of Argentina's defaulted external debt. But whatever his motives, the anxiety that led up to Argentina's last-minute deal with the International Monetary Fund (IMF) to repay US$3.1 bil- lion (S$5.2 billion) owed to the global lender may serve to help rescue what capitalism is really about: the appropriate judgment of risk.
Economic development involves financial flows and the build-up of debt. In a domestic setting, bankruptcy and default are common. Indeed, one characteristic sign of economic vitality is the frequency of bankruptcy, for business failures indicate a willingness to gamble and take risks on innovation.
But in the history of international finance over the past 60 years, bankruptcy and default are almost unheard of. One consequence is international markets are not as dynamic as they might be, and prosperity not as widespread.
In the 19th century and in the inter-war and depression years of the 20th century, international default came in buckets. Borrowing countries such as Argentina or the Ottoman empire regularly defaulted. They were then punished for a few years by not having access to international capital markets. Lenders to defaulting countries were also punished, as their instruments, mostly bonds, became worthless. The market thus punished bad risk.
In some cases, as in the Ottoman empire or Egypt, creditors restructured finances by force or the threat of it. But gunboat diplomacy was not necessarily part of the resolution of debt problems. Argentina, for example, reached a voluntarily negotiated agreement in 1893.
Such a system worked as long as events in one country did not have a negative impact on other borrowers and there was no systemic risk or contagion. When Argentina defaulted in the 1890s, European investors simply discovered a new fashion: investment in Russia. After Russia's crisis of 1901, investors turned to America and Australia.
The Great Depression of the late 1920s and early 1930s put an end to such behaviour, which was suitable for a moderately crisis-prone world. Crises were no longer moderate. The defaults of that time swept across the globe in a contagious panic, destroying financial systems in lending as well as borrowing countries. Politicians reacted by devising an international system after World War II in which default and bankruptcy were more or less impossible.
As there were no substantial capital flows for a long time, this did not matter at first. Then, in the 1970s, capital flows started up again, and again there were threats to the stability of the system.
Latin America suffered a big debt crisis in 1982; but, in fact, there were almost no defaults (with the exception of Peru and Brazil). Instead of defaulting, countries arranged rescue packages with the IMF. Money from the international financial institutions was complemented by new money that creditor banks were supposed to put up as part of the price of being 'rescued' by the IMF. The IMF was given a privileged legal position, and only devastated and wrecked 'failed states' such as Sudan would default on loans from it.
The notion of 'concerted lending' was applied in the big Mexican crisis of 1994-1995 and in the East Asian crisis of 1997-1998. The whole point of crisis management was to avoid risks to the system and thus bankruptcy.
But in the second half of the 1990s, this system began to unravel. The sums required from the international financial institutions were so large that it began to be possible for currency speculators to envisage circumstances in which there would be no help. Private-sector lending became hard to mobilise, because there were many more creditors than in the bank-dominated world of the 1980s, when negotiations could be conducted by just a few big players.
The first major shock came with Russia's default and devaluation of August 1998. After that, IMF began to encourage some nations to renegotiate debt rather than seek new money, at least if they were relatively small-scale borrowers, such as Ukraine or Pakistan, and thus could not endanger the whole system.
The second major shock was Argentina's currency collapse of 2002-2003, after which Argentina's government demanded a huge debt write-off. Argentina's other threat, not to repay the IMF, challenged the old system just as profoundly and seemed to some a justified response to years of bad policy advice from the G-7 countries and IMF.
In the 21st century, we are returning to the ways of the 19th century. Our aim should be to invent financial mechanisms for segmenting and spreading risk, so that one bad case no longer has the potential to destroy the whole system. By being less concerned with preventing default, we can make risk and reward more congruent with each other. Creditors in cases like that of Argentina need to be made to pay a penalty.
Argentina's current actions may drive us back to the 19th century more quickly than some investors would like, but that lost world was a world of unquestioned dynamism and growth.
The writer is professor of history at Princeton University and author of The End Of Globalisation: Lessons From The Great Depression. Copyright: Project Syndicate
Back to 19th century, thanks to Argentina
By HAROLD JAMES
PRESIDENT Nestor Kirchner of Argentina is often portrayed as an anti-capitalist radical for proposing a 'haircut' of more than 90 per cent on the value of Argentina's defaulted external debt. But whatever his motives, the anxiety that led up to Argentina's last-minute deal with the International Monetary Fund (IMF) to repay US$3.1 bil- lion (S$5.2 billion) owed to the global lender may serve to help rescue what capitalism is really about: the appropriate judgment of risk.
Economic development involves financial flows and the build-up of debt. In a domestic setting, bankruptcy and default are common. Indeed, one characteristic sign of economic vitality is the frequency of bankruptcy, for business failures indicate a willingness to gamble and take risks on innovation.
But in the history of international finance over the past 60 years, bankruptcy and default are almost unheard of. One consequence is international markets are not as dynamic as they might be, and prosperity not as widespread.
In the 19th century and in the inter-war and depression years of the 20th century, international default came in buckets. Borrowing countries such as Argentina or the Ottoman empire regularly defaulted. They were then punished for a few years by not having access to international capital markets. Lenders to defaulting countries were also punished, as their instruments, mostly bonds, became worthless. The market thus punished bad risk.
In some cases, as in the Ottoman empire or Egypt, creditors restructured finances by force or the threat of it. But gunboat diplomacy was not necessarily part of the resolution of debt problems. Argentina, for example, reached a voluntarily negotiated agreement in 1893.
Such a system worked as long as events in one country did not have a negative impact on other borrowers and there was no systemic risk or contagion. When Argentina defaulted in the 1890s, European investors simply discovered a new fashion: investment in Russia. After Russia's crisis of 1901, investors turned to America and Australia.
The Great Depression of the late 1920s and early 1930s put an end to such behaviour, which was suitable for a moderately crisis-prone world. Crises were no longer moderate. The defaults of that time swept across the globe in a contagious panic, destroying financial systems in lending as well as borrowing countries. Politicians reacted by devising an international system after World War II in which default and bankruptcy were more or less impossible.
As there were no substantial capital flows for a long time, this did not matter at first. Then, in the 1970s, capital flows started up again, and again there were threats to the stability of the system.
Latin America suffered a big debt crisis in 1982; but, in fact, there were almost no defaults (with the exception of Peru and Brazil). Instead of defaulting, countries arranged rescue packages with the IMF. Money from the international financial institutions was complemented by new money that creditor banks were supposed to put up as part of the price of being 'rescued' by the IMF. The IMF was given a privileged legal position, and only devastated and wrecked 'failed states' such as Sudan would default on loans from it.
The notion of 'concerted lending' was applied in the big Mexican crisis of 1994-1995 and in the East Asian crisis of 1997-1998. The whole point of crisis management was to avoid risks to the system and thus bankruptcy.
But in the second half of the 1990s, this system began to unravel. The sums required from the international financial institutions were so large that it began to be possible for currency speculators to envisage circumstances in which there would be no help. Private-sector lending became hard to mobilise, because there were many more creditors than in the bank-dominated world of the 1980s, when negotiations could be conducted by just a few big players.
The first major shock came with Russia's default and devaluation of August 1998. After that, IMF began to encourage some nations to renegotiate debt rather than seek new money, at least if they were relatively small-scale borrowers, such as Ukraine or Pakistan, and thus could not endanger the whole system.
The second major shock was Argentina's currency collapse of 2002-2003, after which Argentina's government demanded a huge debt write-off. Argentina's other threat, not to repay the IMF, challenged the old system just as profoundly and seemed to some a justified response to years of bad policy advice from the G-7 countries and IMF.
In the 21st century, we are returning to the ways of the 19th century. Our aim should be to invent financial mechanisms for segmenting and spreading risk, so that one bad case no longer has the potential to destroy the whole system. By being less concerned with preventing default, we can make risk and reward more congruent with each other. Creditors in cases like that of Argentina need to be made to pay a penalty.
Argentina's current actions may drive us back to the 19th century more quickly than some investors would like, but that lost world was a world of unquestioned dynamism and growth.
The writer is professor of history at Princeton University and author of The End Of Globalisation: Lessons From The Great Depression. Copyright: Project Syndicate
Saturday, March 13, 2004
MARCH 13, 2004
Breaking Into China Market
Branding lost (and found) in translation
By TAN LOKE-KHOON
FOR THE STRAITS TIMES
WOULD a rose by any other name smell just as sweet? Well, not necessarily in China, where an ill-sounding brand name may cause marketing nightmares for multinational companies.
Quaker Oats was lucky. The United States company, with its distinctive Quaker man logo, ventured into China without planning a Chinese brand. Local consumers found the Quaker man logo rather amusing and coined the nickname, 'lao ren pai' (literally: 'Old Man Brand').
But Polo Ralph Lauren, the fashionable clothing company whose logo is a mounted polo player, might not have been so fortunate. The Chinese christened the mark 'san jiao ma' (Three-legged Horse). There is a world of difference between the image of a deformed horse and upmarket polo!
Once an awkward nickname has been coined, the only solution is to launch costly brand-transference advertising. It therefore makes a lot of sense to plan ahead for a Chinese trademark strategy, and to register and protect these important intangible assets with the relevant bureaucracies.
Moving foreign brands to China is both an art and a science. You have to decide on the image you want to portray: Are there meanings or emotions you want to attribute to the mark? Are there Chinese dialect groups in Taiwan, Hong Kong and Singapore that you need to consider? Should the eventual Chinese mark be read left to right or right to left? Should the Chinese marks be written in the simplified Chinese characters common in China and Singapore or the more traditional, more complex characters used in Taiwan and Hong Kong?
The task is made all the more difficult because Chinese writing uses discrete symbols or characters, each with a monosyllabic pronunciation. However, most spoken Chinese words are bisyllabic because they consist of two-character compounds.
One common way for rendering a foreign mark in Chinese is 'transliteration' or the 'phonetic method' - that is, choosing characters that represent the foreign word's sound. Examples: Louis Vuitton luggage is branded 'lu yi wei deng', four characters as close as possible phonetically to the French pronunciation. Similarly, Harley-Davidson is 'ha li'; Nokia, 'nuo ji ya'.
The other obvious method is to use characters that represent the foreign word's literal meaning. This 'conceptual method' is available only when there are Chinese characters conceptually equivalent to the foreign mark. Example: Nestle uses 'que chao' (a swallow's nest), thus evoking its famous bird's nest logo. Wrigley's arrow logo produces 'jian pai' (arrow brand), and Shell's 'bei ke' (shell).
About half of the foreign marks used in Chinese-speaking jurisdictions are translated phonetically, half conceptually. In the best case, a firm would develop a Chinese mark phonetically similar to the original mark while, at the same time, has some reference to the product's function or benefits. (But overly descriptive marks are precluded from registration under Chinese trademark laws.)
The story of how the Coca Cola company chose its Chinese mark has often been told. However, it deserves retelling here as the best example of how the fusion of both transliteration and conceptual methods should work.
According to Mr H.F. Allman, Coca Cola's former China legal counsel, the company found that ahead of Coke's major marketing effort in China, many shopkeepers had made signs adopting any old group of characters that sounded remotely like 'Coca Cola' without giving a thought to the meaning. One improvised sign translated it as 'female horse fastened with wax'. Another exhorted customers to 'bite the wax tadpole'.
While wrestling with Coca Cola's phonetic equivalents, the company kept to its resolve to find characters that had good meanings both individually and collectively.
The search ended with 'ke kou ke le'. In Mandarin, this sounds very close to Coca Cola and also has the positive meaning of 'permitting the mouth to rejoice'. Following comprehensive research, the company recently introduced to its 1.3 billion Chinese consumers its refashioned new Chinese logo with artwork by Hong Kong designer Alan Chan.
This theme of positivism and 'le' (happiness) recurs in Chinese brands. Pepsi Cola translated its brand as 'bai shi ke le' (everything makes you happy).
A recent survey of the world's top brands by BusinessWeek and Interbrand, the global branding consultancy, turned up Xerox as 'shi le' (offering happiness), Kellogg as 'jia le si' (family happiness), Heineken as 'xi li' (the power of joy), and Pizza Hut as 'bi sheng ke' (the 'sure win' customer).
Selecting a brand is by no means the end of the process. China's thriving piracy industry has to be fought. According to the US-based International Anti-Counterfeiting Coalition, China's counterfeiting is a US$16 billion (S$27.5 billion) industry. Counterfeiters have cost China's treasury US$3 billion to US$4 billion in lost tax revenues in recent years.
To combat piracy, companies must have a detailed trademark registration and enforcement programme, good market-intelligence sources and the will to take pre-emptive enforcement actions.
Many companies do not realise China's pitfalls until it is way too late and they have had to pay heavily for re-branding exercises. Some companies have to obtain licences from the prior registrants of the Chinese marks, or in some desperate cases, buy over the relevant marks.
But early action does pay off. We may take heart from the thought that a 'mei gui hua' (rose) by any other Chinese name may indeed smell just as sweet. But in China's markets, only one which is carefully grafted, sown and nurtured is likely to leave a fragrance everlasting.
The writer is a partner at Baker & McKenzie Hong Kong/China.
Breaking Into China Market
Branding lost (and found) in translation
By TAN LOKE-KHOON
FOR THE STRAITS TIMES
WOULD a rose by any other name smell just as sweet? Well, not necessarily in China, where an ill-sounding brand name may cause marketing nightmares for multinational companies.
Quaker Oats was lucky. The United States company, with its distinctive Quaker man logo, ventured into China without planning a Chinese brand. Local consumers found the Quaker man logo rather amusing and coined the nickname, 'lao ren pai' (literally: 'Old Man Brand').
But Polo Ralph Lauren, the fashionable clothing company whose logo is a mounted polo player, might not have been so fortunate. The Chinese christened the mark 'san jiao ma' (Three-legged Horse). There is a world of difference between the image of a deformed horse and upmarket polo!
Once an awkward nickname has been coined, the only solution is to launch costly brand-transference advertising. It therefore makes a lot of sense to plan ahead for a Chinese trademark strategy, and to register and protect these important intangible assets with the relevant bureaucracies.
Moving foreign brands to China is both an art and a science. You have to decide on the image you want to portray: Are there meanings or emotions you want to attribute to the mark? Are there Chinese dialect groups in Taiwan, Hong Kong and Singapore that you need to consider? Should the eventual Chinese mark be read left to right or right to left? Should the Chinese marks be written in the simplified Chinese characters common in China and Singapore or the more traditional, more complex characters used in Taiwan and Hong Kong?
The task is made all the more difficult because Chinese writing uses discrete symbols or characters, each with a monosyllabic pronunciation. However, most spoken Chinese words are bisyllabic because they consist of two-character compounds.
One common way for rendering a foreign mark in Chinese is 'transliteration' or the 'phonetic method' - that is, choosing characters that represent the foreign word's sound. Examples: Louis Vuitton luggage is branded 'lu yi wei deng', four characters as close as possible phonetically to the French pronunciation. Similarly, Harley-Davidson is 'ha li'; Nokia, 'nuo ji ya'.
The other obvious method is to use characters that represent the foreign word's literal meaning. This 'conceptual method' is available only when there are Chinese characters conceptually equivalent to the foreign mark. Example: Nestle uses 'que chao' (a swallow's nest), thus evoking its famous bird's nest logo. Wrigley's arrow logo produces 'jian pai' (arrow brand), and Shell's 'bei ke' (shell).
About half of the foreign marks used in Chinese-speaking jurisdictions are translated phonetically, half conceptually. In the best case, a firm would develop a Chinese mark phonetically similar to the original mark while, at the same time, has some reference to the product's function or benefits. (But overly descriptive marks are precluded from registration under Chinese trademark laws.)
The story of how the Coca Cola company chose its Chinese mark has often been told. However, it deserves retelling here as the best example of how the fusion of both transliteration and conceptual methods should work.
According to Mr H.F. Allman, Coca Cola's former China legal counsel, the company found that ahead of Coke's major marketing effort in China, many shopkeepers had made signs adopting any old group of characters that sounded remotely like 'Coca Cola' without giving a thought to the meaning. One improvised sign translated it as 'female horse fastened with wax'. Another exhorted customers to 'bite the wax tadpole'.
While wrestling with Coca Cola's phonetic equivalents, the company kept to its resolve to find characters that had good meanings both individually and collectively.
The search ended with 'ke kou ke le'. In Mandarin, this sounds very close to Coca Cola and also has the positive meaning of 'permitting the mouth to rejoice'. Following comprehensive research, the company recently introduced to its 1.3 billion Chinese consumers its refashioned new Chinese logo with artwork by Hong Kong designer Alan Chan.
This theme of positivism and 'le' (happiness) recurs in Chinese brands. Pepsi Cola translated its brand as 'bai shi ke le' (everything makes you happy).
A recent survey of the world's top brands by BusinessWeek and Interbrand, the global branding consultancy, turned up Xerox as 'shi le' (offering happiness), Kellogg as 'jia le si' (family happiness), Heineken as 'xi li' (the power of joy), and Pizza Hut as 'bi sheng ke' (the 'sure win' customer).
Selecting a brand is by no means the end of the process. China's thriving piracy industry has to be fought. According to the US-based International Anti-Counterfeiting Coalition, China's counterfeiting is a US$16 billion (S$27.5 billion) industry. Counterfeiters have cost China's treasury US$3 billion to US$4 billion in lost tax revenues in recent years.
To combat piracy, companies must have a detailed trademark registration and enforcement programme, good market-intelligence sources and the will to take pre-emptive enforcement actions.
Many companies do not realise China's pitfalls until it is way too late and they have had to pay heavily for re-branding exercises. Some companies have to obtain licences from the prior registrants of the Chinese marks, or in some desperate cases, buy over the relevant marks.
But early action does pay off. We may take heart from the thought that a 'mei gui hua' (rose) by any other Chinese name may indeed smell just as sweet. But in China's markets, only one which is carefully grafted, sown and nurtured is likely to leave a fragrance everlasting.
The writer is a partner at Baker & McKenzie Hong Kong/China.
Friday, March 12, 2004
ICE HOCKEY
When does sport turn into a mugging?
Canucks player beats up a rival deliberately and breaks his neck
By GEORGE VECSEY
NEW YORK - Premeditated violence is even worse than spontaneous violence.
Because the Vancouver Canucks made a lot of noise about seeking revenge on Steve Moore of the Colorado Avalanche, the National Hockey League could not treat the public mugging of Moore as a random act.
The League yesterday suspended Todd Bertuzzi for the rest of the regular season and the play-offs for breaking Moore's neck on Monday night. Lex talionis - eye for eye, tooth for tooth. Moore is out for the season. Bertuzzi is now too.
The Canucks were also fined US$250,000 (S$430,000).
But that should not be the end of it.
Bertuzzi should also be charged in the courts in British Columbia. Simply by donning skates, he and Moore did not give up their legal rights and responsibilities.
No sport is above the law, including ice hockey, a compelling spectacle, particularly during the Stanley Cup play-offs, which begin next month. Now the League must address the ice-hockey culture that produced the grudge-driven attack by Bertuzzi.
Given the warnings by Vancouver players, the League did not do enough to stop any retaliation.
It is responsible for the selling of violence as the core of its product. There is a direct link between the elaborate blaring videos shown in rinks around the League and the violence on the ice.
These videos glorify collisions on the cusp of legality and help create truly vicious cheap shots like the one perpetrated by Bertuzzi.
The League has come a long way under the stewardship of Gary Bettman, after the regime of John 'Boys Will Be Boys' Ziegler.
Violence may indeed be the core appeal to many of the most fervent customers, but the sport is falling behind in television ratings and mass appeal, while possibly facing a shutdown next season.
To Bettman's credit, in his early days as commissioner in 1993, he handed out a 21-game suspension to Dale Hunter of Washington for attacking an opponent. The League has tightened the rules on leaving the bench or jumping into a fight.
It has a long list of players - including Bertuzzi - who served 10 games or more for ugly attacks.
The players and coaches, however, retain the code, learnt in junior hockey and the minor leagues, that retaliation is manly and necessary. The League has not been able to crack that cycle.
Four years ago, a veteran Boston player, Marty McSorley, hit Donald Brashear of Vancouver with a stick, and was suspended for a year and never played again. McSorley was also convicted of assault in a Vancouver court.
'Disgusting. Terrible. That does not need to be in the game of hockey. I've never seen anything like that in my life. It's got to be taken care of. Sick.'
Who said that in the aftermath of the McSorley attack? None other than Bertuzzi, who added: 'That was the most cowardly act ever.'
He has now joined the top ranks of the cowardly. The bad feelings began in February when Moore, a useful forward with the Avalanche, hit Markus Naslund, Vancouver's top scorer, with a shoulder, putting Naslund out for three games with a concussion.
The lads from Vancouver advertised - even bragged - what they would do. Brad May of the Canucks said he placed a bounty on Moore. He later said his comments were tongue-in-cheek.
The League did not ignore the issue. When the teams met again in Denver on March 3, Bettman and his dean of discipline, Colin Campbell, were in attendance. Nothing happened, probably because the game ended in a 5-5 tie, and both teams needed the points.
That is the galling split personality about ice hockey. The players know when to hold back. During the Stanley Cup play-offs every year, goonery suddenly diminishes, because nobody wants to take the stupid penalty that could ruin a season. The players pick their spots.
Bertuzzi picked his spot on Monday night in Vancouver, after the Avalanche took an 8-2 lead midway through the third period.
Bertuzzi is not a goon, but rather a fast, powerful forward who has 17 goals and 43 assists, and 122 minutes in penalties. His hard hits have been shown in TV commercials for Gatorade, another indication that violence may indeed be the League's core appeal.
While his team were losing on Monday, Bertuzzi sought out Moore, apparently taunting him and pulling on his jersey, but the Avalanche player kept going.
The ice-hockey code says you can call an opponent a chicken but you do not slug him from behind. Bertuzzi went beyond the code, grabbing a fistful of jersey, controlling Moore and sucker-punching him with his right glove.
As he rode Moore to the ice, Bertuzzi cocked his fist to throw another punch. Considering that Moore probably had already sustained a broken neck, he could have been paralysed or killed if team-mates had not immobilised Bertuzzi.
A major suspension of Bertuzzi is merely the first step. Other sports have penalised players for taunting and committing provocative gestures. The NHL must crack down on players who threaten revenge - before they actually commit it.
-- New York Times
When does sport turn into a mugging?
Canucks player beats up a rival deliberately and breaks his neck
By GEORGE VECSEY
NEW YORK - Premeditated violence is even worse than spontaneous violence.
Because the Vancouver Canucks made a lot of noise about seeking revenge on Steve Moore of the Colorado Avalanche, the National Hockey League could not treat the public mugging of Moore as a random act.
The League yesterday suspended Todd Bertuzzi for the rest of the regular season and the play-offs for breaking Moore's neck on Monday night. Lex talionis - eye for eye, tooth for tooth. Moore is out for the season. Bertuzzi is now too.
The Canucks were also fined US$250,000 (S$430,000).
But that should not be the end of it.
Bertuzzi should also be charged in the courts in British Columbia. Simply by donning skates, he and Moore did not give up their legal rights and responsibilities.
No sport is above the law, including ice hockey, a compelling spectacle, particularly during the Stanley Cup play-offs, which begin next month. Now the League must address the ice-hockey culture that produced the grudge-driven attack by Bertuzzi.
Given the warnings by Vancouver players, the League did not do enough to stop any retaliation.
It is responsible for the selling of violence as the core of its product. There is a direct link between the elaborate blaring videos shown in rinks around the League and the violence on the ice.
These videos glorify collisions on the cusp of legality and help create truly vicious cheap shots like the one perpetrated by Bertuzzi.
The League has come a long way under the stewardship of Gary Bettman, after the regime of John 'Boys Will Be Boys' Ziegler.
Violence may indeed be the core appeal to many of the most fervent customers, but the sport is falling behind in television ratings and mass appeal, while possibly facing a shutdown next season.
To Bettman's credit, in his early days as commissioner in 1993, he handed out a 21-game suspension to Dale Hunter of Washington for attacking an opponent. The League has tightened the rules on leaving the bench or jumping into a fight.
It has a long list of players - including Bertuzzi - who served 10 games or more for ugly attacks.
The players and coaches, however, retain the code, learnt in junior hockey and the minor leagues, that retaliation is manly and necessary. The League has not been able to crack that cycle.
Four years ago, a veteran Boston player, Marty McSorley, hit Donald Brashear of Vancouver with a stick, and was suspended for a year and never played again. McSorley was also convicted of assault in a Vancouver court.
'Disgusting. Terrible. That does not need to be in the game of hockey. I've never seen anything like that in my life. It's got to be taken care of. Sick.'
Who said that in the aftermath of the McSorley attack? None other than Bertuzzi, who added: 'That was the most cowardly act ever.'
He has now joined the top ranks of the cowardly. The bad feelings began in February when Moore, a useful forward with the Avalanche, hit Markus Naslund, Vancouver's top scorer, with a shoulder, putting Naslund out for three games with a concussion.
The lads from Vancouver advertised - even bragged - what they would do. Brad May of the Canucks said he placed a bounty on Moore. He later said his comments were tongue-in-cheek.
The League did not ignore the issue. When the teams met again in Denver on March 3, Bettman and his dean of discipline, Colin Campbell, were in attendance. Nothing happened, probably because the game ended in a 5-5 tie, and both teams needed the points.
That is the galling split personality about ice hockey. The players know when to hold back. During the Stanley Cup play-offs every year, goonery suddenly diminishes, because nobody wants to take the stupid penalty that could ruin a season. The players pick their spots.
Bertuzzi picked his spot on Monday night in Vancouver, after the Avalanche took an 8-2 lead midway through the third period.
Bertuzzi is not a goon, but rather a fast, powerful forward who has 17 goals and 43 assists, and 122 minutes in penalties. His hard hits have been shown in TV commercials for Gatorade, another indication that violence may indeed be the League's core appeal.
While his team were losing on Monday, Bertuzzi sought out Moore, apparently taunting him and pulling on his jersey, but the Avalanche player kept going.
The ice-hockey code says you can call an opponent a chicken but you do not slug him from behind. Bertuzzi went beyond the code, grabbing a fistful of jersey, controlling Moore and sucker-punching him with his right glove.
As he rode Moore to the ice, Bertuzzi cocked his fist to throw another punch. Considering that Moore probably had already sustained a broken neck, he could have been paralysed or killed if team-mates had not immobilised Bertuzzi.
A major suspension of Bertuzzi is merely the first step. Other sports have penalised players for taunting and committing provocative gestures. The NHL must crack down on players who threaten revenge - before they actually commit it.
-- New York Times
MARCH 12, 2004
Australia's trump card: 400,000 Chinese-speakers
THE recent outburst in the English media over the learning of the Chinese language merely re-visits an old issue that refuses to go away.
While the English elite feel they have finally had the ears of the Government, the Chinese literati are worried that the recent policy changes regarding the teaching of the language and the admission criteria to the universities would deal the Chinese language a death blow. This fear is misplaced.
The fact remains that the vast majority of Chinese in Singapore have no difficulty learning Chinese, nor do they have any intention of relegat-ing it to a Cinderella subject. At the same time, we have to recognise that not all Chinese Singaporeans can learn Chinese. However, Singapo-reans who treasure their children's future will continue to put the smart money on learning Mandarin.
A resurgent China is beginning to assert its influence in the region and the world. It is quietly re-writing the rules of diplomacy, trade, finance and manufacturing. And the world is sitting up and listening.
In the competition to win markets and funds, the ability to speak another Asian language, particularly Mandarin, could be our decisive advantage and ensure our economic survival. An example is instructive.
The Australian govern-ment recently put out an advertisement to attract more funds to its shores even though it already manages US$434 billion (S$745 billion), making it the fourth-biggest fund-manage-ment centre in the world.
The advertisement enume-rated all the pre-requisites of a world-class financial centre: a 'highly skilled workforce, low-cost infrastructure, IT-savvy environment and strategic time zone'. But it went further.
The 'Invest Australia' ad also spoke directly to the hearts and minds of rich Asians. It said: 'Almost 4 million Australians speak a language other than English, with Chinese the most widely spoken.' An accompanying pie-chart gave the breakdown of all the Asian languages spoken, with the most number of speakers fluent in Mandarin. A bullet point in a box reminded potential investors that over 400,000 Australians can speak Chinese - a point clearly pitched at the rich Chinese out looking for the most investment-friendly country which can understand Chinese, and willing to untwist its English tongue.
Last year Australia was the largest recipient of private equity in the Asia-Pacific, accounting for well over 24 per cent of the total invested in the region. In 10 years, Australia's ambition is to manage US$1.32 trillion.
Australia is speaking Mandarin? Excuse me, can we speak Mandarin too?
KOO TSAI KEE
Australia's trump card: 400,000 Chinese-speakers
THE recent outburst in the English media over the learning of the Chinese language merely re-visits an old issue that refuses to go away.
While the English elite feel they have finally had the ears of the Government, the Chinese literati are worried that the recent policy changes regarding the teaching of the language and the admission criteria to the universities would deal the Chinese language a death blow. This fear is misplaced.
The fact remains that the vast majority of Chinese in Singapore have no difficulty learning Chinese, nor do they have any intention of relegat-ing it to a Cinderella subject. At the same time, we have to recognise that not all Chinese Singaporeans can learn Chinese. However, Singapo-reans who treasure their children's future will continue to put the smart money on learning Mandarin.
A resurgent China is beginning to assert its influence in the region and the world. It is quietly re-writing the rules of diplomacy, trade, finance and manufacturing. And the world is sitting up and listening.
In the competition to win markets and funds, the ability to speak another Asian language, particularly Mandarin, could be our decisive advantage and ensure our economic survival. An example is instructive.
The Australian govern-ment recently put out an advertisement to attract more funds to its shores even though it already manages US$434 billion (S$745 billion), making it the fourth-biggest fund-manage-ment centre in the world.
The advertisement enume-rated all the pre-requisites of a world-class financial centre: a 'highly skilled workforce, low-cost infrastructure, IT-savvy environment and strategic time zone'. But it went further.
The 'Invest Australia' ad also spoke directly to the hearts and minds of rich Asians. It said: 'Almost 4 million Australians speak a language other than English, with Chinese the most widely spoken.' An accompanying pie-chart gave the breakdown of all the Asian languages spoken, with the most number of speakers fluent in Mandarin. A bullet point in a box reminded potential investors that over 400,000 Australians can speak Chinese - a point clearly pitched at the rich Chinese out looking for the most investment-friendly country which can understand Chinese, and willing to untwist its English tongue.
Last year Australia was the largest recipient of private equity in the Asia-Pacific, accounting for well over 24 per cent of the total invested in the region. In 10 years, Australia's ambition is to manage US$1.32 trillion.
Australia is speaking Mandarin? Excuse me, can we speak Mandarin too?
KOO TSAI KEE
Thursday, March 11, 2004
MARCH 11, 2004
India's new expats: Highly qualified and worldly-wise
By ALVIN PANG
FOR THE STRAITS TIMES
BANGALORE-BORN Aditya Afzulpurkar has this to say to Singaporeans: Get real.
The 26-year-old senior consultant is full of praise for our clean, well-oiled system and 'blend of both Asian and Western working styles' - our knack for delivering professionalism, quality and efficiency with a personal touch.
And finding that independent thinking and risk-taking are appreciated far more here than back in India, he moved here to work full-time recently. He feels more readily at home here, compared to his stint in Canada.
But he is also surprised to find many Singaporeans 'detached' from the harsh realities of the world. He cites with some incredulity a taxi driver's complaints about a 'catastrophic' 4 per cent unemployment rate - a paltry concern in light of the dire conditions in much of the Indian sub-continent, where many still live in poverty without the social security, infrastructure and opportunities we take for granted.
For years, the stereotype of the Indian information technology worker in Singapore was of an unassuming, slightly awkward but courteous young man with a barely intelligible accent: somewhat out of sync with the relentless corporate pace in Singapore and often in need of supervision. But he was also noted for his unstinting diligence, technical proficiency and a knack for getting the job done with little fuss, in contrast to his local colleagues, who could get cocky over their skills.
IT manager Luke Goh credits his former Chennai-born colleague Raghu for 'persisting when the typical Singaporean would have walked away', despite cultural, social and technical difficulties, in order to secure projects that have allowed the company to establish itself abroad.
A veteran of the early days of India's IT industry, Mr Goh still remembers the 'unbelievable' conditions his team had to overcome when setting up a factory in Bangalore a decade ago.
These days, Indian IT professionals wear their origins and credentials with much pride. Many of the early pioneers have left Singapore, returning to promising careers in an India in the midst of a breathless economic renaissance, even as our own economy lurches slowly towards recovery.
Mr Afzulpurkar is typical of a savvy new wave of Indian expatriates coming to our shores; a far cry from the humble programmers and low-level software developers ubiquitous here during the dot.com boom days. Articulate, confident and offering a far more sophisticated range of high-end services than their predecessors, the new generation of young Indian professionals arrive armed with postgraduate degrees from some of India's best engineering schools, whose reputations now rival those of elite colleges in the United States.
Many have also worked internationally before coming to Singapore. Their purpose here? To learn our best tricks.
Mr Ramkumar Balagopal, 28, a business development executive at IT services giant Cognizant, is a prime example. A native of Chennai in southern India, he holds an MBA from the Indian Institute of Management, and has worked in India and the US.
How does he think Singapore stacks up globally as a place to work? Plus points go to our advanced infrastructure, central location in Asia, collaborative work culture and a genuinely global workforce. 'Singaporeans are very open to people from other countries coming in and working here,' he observes.
In his view, the large number here of 'expats and locals with real cross-cultural work experience' is an invaluable pool of knowledge and experience.
His decidedly cosmopolitan outlook is characteristic of the new Indian expatriate - in stark contrast to the wave of protectionist sentiment sweeping the US as white-collar jobs flow out towards emerging centres like India. Indeed, there is much to admire in this fresh crop of young Indian pioneers: a healthy appetite for cultural difference, variety, learning and change; a tolerance for risk and imperfect conditions; and retaining a certain down-to-earth pragmatism and quiet gumption - traits our local professionals have come to appreciate in their Indian counterparts over the years.
India's explosive growth is an ever-present lure for these ambitious young expatriates. But their time abroad in more mature economies such as Singapore is seen as well spent - a chance to broaden their experience before heading home to make bigger things happen.
Their advice to anyone venturing into India: be patient with the infrastructure, which is still catching up. But prospects are excellent, particularly with the free-trade agreement between India and Singapore expected to come through by the end of this year.
The Singaporean model is still one that commands respect in India, and will stand our ventures in good stead. While we still have that edge, perhaps it is high time our own young men strike out abroad and get down and dirty with the real world.
The writer works in the communication, design and IT sectors.
India's new expats: Highly qualified and worldly-wise
By ALVIN PANG
FOR THE STRAITS TIMES
BANGALORE-BORN Aditya Afzulpurkar has this to say to Singaporeans: Get real.
The 26-year-old senior consultant is full of praise for our clean, well-oiled system and 'blend of both Asian and Western working styles' - our knack for delivering professionalism, quality and efficiency with a personal touch.
And finding that independent thinking and risk-taking are appreciated far more here than back in India, he moved here to work full-time recently. He feels more readily at home here, compared to his stint in Canada.
But he is also surprised to find many Singaporeans 'detached' from the harsh realities of the world. He cites with some incredulity a taxi driver's complaints about a 'catastrophic' 4 per cent unemployment rate - a paltry concern in light of the dire conditions in much of the Indian sub-continent, where many still live in poverty without the social security, infrastructure and opportunities we take for granted.
For years, the stereotype of the Indian information technology worker in Singapore was of an unassuming, slightly awkward but courteous young man with a barely intelligible accent: somewhat out of sync with the relentless corporate pace in Singapore and often in need of supervision. But he was also noted for his unstinting diligence, technical proficiency and a knack for getting the job done with little fuss, in contrast to his local colleagues, who could get cocky over their skills.
IT manager Luke Goh credits his former Chennai-born colleague Raghu for 'persisting when the typical Singaporean would have walked away', despite cultural, social and technical difficulties, in order to secure projects that have allowed the company to establish itself abroad.
A veteran of the early days of India's IT industry, Mr Goh still remembers the 'unbelievable' conditions his team had to overcome when setting up a factory in Bangalore a decade ago.
These days, Indian IT professionals wear their origins and credentials with much pride. Many of the early pioneers have left Singapore, returning to promising careers in an India in the midst of a breathless economic renaissance, even as our own economy lurches slowly towards recovery.
Mr Afzulpurkar is typical of a savvy new wave of Indian expatriates coming to our shores; a far cry from the humble programmers and low-level software developers ubiquitous here during the dot.com boom days. Articulate, confident and offering a far more sophisticated range of high-end services than their predecessors, the new generation of young Indian professionals arrive armed with postgraduate degrees from some of India's best engineering schools, whose reputations now rival those of elite colleges in the United States.
Many have also worked internationally before coming to Singapore. Their purpose here? To learn our best tricks.
Mr Ramkumar Balagopal, 28, a business development executive at IT services giant Cognizant, is a prime example. A native of Chennai in southern India, he holds an MBA from the Indian Institute of Management, and has worked in India and the US.
How does he think Singapore stacks up globally as a place to work? Plus points go to our advanced infrastructure, central location in Asia, collaborative work culture and a genuinely global workforce. 'Singaporeans are very open to people from other countries coming in and working here,' he observes.
In his view, the large number here of 'expats and locals with real cross-cultural work experience' is an invaluable pool of knowledge and experience.
His decidedly cosmopolitan outlook is characteristic of the new Indian expatriate - in stark contrast to the wave of protectionist sentiment sweeping the US as white-collar jobs flow out towards emerging centres like India. Indeed, there is much to admire in this fresh crop of young Indian pioneers: a healthy appetite for cultural difference, variety, learning and change; a tolerance for risk and imperfect conditions; and retaining a certain down-to-earth pragmatism and quiet gumption - traits our local professionals have come to appreciate in their Indian counterparts over the years.
India's explosive growth is an ever-present lure for these ambitious young expatriates. But their time abroad in more mature economies such as Singapore is seen as well spent - a chance to broaden their experience before heading home to make bigger things happen.
Their advice to anyone venturing into India: be patient with the infrastructure, which is still catching up. But prospects are excellent, particularly with the free-trade agreement between India and Singapore expected to come through by the end of this year.
The Singaporean model is still one that commands respect in India, and will stand our ventures in good stead. While we still have that edge, perhaps it is high time our own young men strike out abroad and get down and dirty with the real world.
The writer works in the communication, design and IT sectors.
Tuesday, March 09, 2004
Give the aborigines their dignity
By SUNANDA K. DATTA-RAY
FOR THE STRAITS TIMES
THE black ghetto of Sydney's Redfern district has quietened down after the riots that followed the death last month of an aboriginal teenager, but Australians would be unwise to ignore the warning of future racial strife unless the problems of the country's original inhabitants, now a desperate and degraded minority, receive sympathetic attention.
The aborigine who was quoted saying, 'They're lucky they haven't got a guerilla war happening', was obviously exaggerating. Australian aborigines constitute only 2 per cent of the population. But talk of bulldozing Redfern, as a New South Wales politician suggested, will further polarise the races.
Faced with that grim prospect, Prime Minister John Howard's government might benefit from the experience of countries like India that also faced the challenge of aboriginal minorities whom anthropologists regard as the indigenous Australian's cousins. Both were natives of what was once Gondwanaland, a name that Central India's Gond tribe still preserves.
Bumping over scrubland in his Land Cruiser in Northern Territory, a grizzled mine manager once grumbled to me that no sooner was uranium discovered than the aborigines claimed the site as a sacred relic of the mystic process of creation they call the Dreamtime. The charge was not logical for these people have no use for the precious metal. But the manager's prejudice has subjected them to more than two centuries of dispossession, persecution and massacre, wiping out 90 per cent of the community.
Cruelties that transformed the Dreaming into nightmare might have been forgotten if the future had encouraged optimism. Instead, it nourishes rage. Two recent prime ministers, Mr Gough Whitlam and Mr Malcolm Fraser, did inspire hope with talk of a makarata (treaty) on the lines of agreements to guarantee American Indian rights, and countrywide extension of the land rights that Northern Territory recognised in 1976.
But Mr Howard dismisses a treaty and the demand for an apology for past wrongs as 'the black armband' view. Many Australians accuse him of emasculating the peak body, the Aboriginal and Torres Strait Islander Commission, with its elected councils.
Thanks to welfare funding and compensation for land, there is money enough, but spending is counter-productive. Most aborigines live in the remote outback, with only small groups eking out a squalid existence in urban slums. Life expectancy is 20 years lower than that of white Australians. Unemployment, welfare dependence, domestic violence, and drug and alcohol abuse are much higher.
A survey showed that 25 per cent of children under five suffered from malnutrition with the danger of brain damage, and 20 per cent spent more than two months in hospital before their first birthday.
My most depressing memory is of a Darwin pub patronised by aborigines. Its bare boards and harsh lights were worlds removed from elegant restaurants in Sydney's Double Bay. Raucous laughter filled the room. Drinkers padded about without shoes; many sported an assortment of ragged coats, trousers and frocks. My escort told me that welfare allowances were poured down this dismal watering hole.
I had seen it before. The aboriginal tribes of India's industrial belt toiled in the mines and squandered their wages on fiery country spirits in derelict shacks. They, too, had once inspired comparison with Rousseau's Noble Savage. But, disoriented like their Australian kin, they found it hard to cope with modern urban life. Though spared physical abuse, they were economically and politically exploited.
Perhaps colour enabled them to gradually come to terms with the mainstream. But the government helped with several pages of the Constitution, defining their habitat and rights and privileges.
Reserved seats in the central and state legislatures account for political consequence. An early tribal leader, a mission-educated Oxford Blue, dreamt of a separate tribal state called Jharkand which has recently come to pass. Many upper-caste Indians complain that the system pampers aborigines and other minority groups.
Some tribespeople are still exploited. But legal rights and competitive politics have given them a self-esteem that money alone cannot.
That is what the Australian aborigine lacks and hankers for. The law regarded him as part of the flora and fauna until 1967. Having achieved legal human status, he wants the dignity of a man. His black and gold flag, tent embassy in Canberra, and demand for a treaty and apology are pleas for recognition of his humanity. India's experience holds a valuable lesson for Mr Howard.
The writer is a senior research fellow at the Institute of South-east Asian Studies. The views expressed here are his own.
By SUNANDA K. DATTA-RAY
FOR THE STRAITS TIMES
THE black ghetto of Sydney's Redfern district has quietened down after the riots that followed the death last month of an aboriginal teenager, but Australians would be unwise to ignore the warning of future racial strife unless the problems of the country's original inhabitants, now a desperate and degraded minority, receive sympathetic attention.
The aborigine who was quoted saying, 'They're lucky they haven't got a guerilla war happening', was obviously exaggerating. Australian aborigines constitute only 2 per cent of the population. But talk of bulldozing Redfern, as a New South Wales politician suggested, will further polarise the races.
Faced with that grim prospect, Prime Minister John Howard's government might benefit from the experience of countries like India that also faced the challenge of aboriginal minorities whom anthropologists regard as the indigenous Australian's cousins. Both were natives of what was once Gondwanaland, a name that Central India's Gond tribe still preserves.
Bumping over scrubland in his Land Cruiser in Northern Territory, a grizzled mine manager once grumbled to me that no sooner was uranium discovered than the aborigines claimed the site as a sacred relic of the mystic process of creation they call the Dreamtime. The charge was not logical for these people have no use for the precious metal. But the manager's prejudice has subjected them to more than two centuries of dispossession, persecution and massacre, wiping out 90 per cent of the community.
Cruelties that transformed the Dreaming into nightmare might have been forgotten if the future had encouraged optimism. Instead, it nourishes rage. Two recent prime ministers, Mr Gough Whitlam and Mr Malcolm Fraser, did inspire hope with talk of a makarata (treaty) on the lines of agreements to guarantee American Indian rights, and countrywide extension of the land rights that Northern Territory recognised in 1976.
But Mr Howard dismisses a treaty and the demand for an apology for past wrongs as 'the black armband' view. Many Australians accuse him of emasculating the peak body, the Aboriginal and Torres Strait Islander Commission, with its elected councils.
Thanks to welfare funding and compensation for land, there is money enough, but spending is counter-productive. Most aborigines live in the remote outback, with only small groups eking out a squalid existence in urban slums. Life expectancy is 20 years lower than that of white Australians. Unemployment, welfare dependence, domestic violence, and drug and alcohol abuse are much higher.
A survey showed that 25 per cent of children under five suffered from malnutrition with the danger of brain damage, and 20 per cent spent more than two months in hospital before their first birthday.
My most depressing memory is of a Darwin pub patronised by aborigines. Its bare boards and harsh lights were worlds removed from elegant restaurants in Sydney's Double Bay. Raucous laughter filled the room. Drinkers padded about without shoes; many sported an assortment of ragged coats, trousers and frocks. My escort told me that welfare allowances were poured down this dismal watering hole.
I had seen it before. The aboriginal tribes of India's industrial belt toiled in the mines and squandered their wages on fiery country spirits in derelict shacks. They, too, had once inspired comparison with Rousseau's Noble Savage. But, disoriented like their Australian kin, they found it hard to cope with modern urban life. Though spared physical abuse, they were economically and politically exploited.
Perhaps colour enabled them to gradually come to terms with the mainstream. But the government helped with several pages of the Constitution, defining their habitat and rights and privileges.
Reserved seats in the central and state legislatures account for political consequence. An early tribal leader, a mission-educated Oxford Blue, dreamt of a separate tribal state called Jharkand which has recently come to pass. Many upper-caste Indians complain that the system pampers aborigines and other minority groups.
Some tribespeople are still exploited. But legal rights and competitive politics have given them a self-esteem that money alone cannot.
That is what the Australian aborigine lacks and hankers for. The law regarded him as part of the flora and fauna until 1967. Having achieved legal human status, he wants the dignity of a man. His black and gold flag, tent embassy in Canberra, and demand for a treaty and apology are pleas for recognition of his humanity. India's experience holds a valuable lesson for Mr Howard.
The writer is a senior research fellow at the Institute of South-east Asian Studies. The views expressed here are his own.
Outsourcing is no threat to US' unrivalled 'I' engine
By THOMAS L. FRIEDMAN
THE NEW YORK TIMES
BANGALORE (India) - Ms Yamini Narayanan is an Indian-born 35-year-old with a PhD in economics from the University of Oklahoma. After graduation, she worked for an American computer company in Virginia and recently moved back to Bangalore with her husband to be closer to family. When I asked her how she felt about the outsourcing of jobs from her adopted country, the United States, to her native country, India, she responded with a revealing story:
'I just read about a guy in America who lost his job to India and he made a T-shirt that said, 'I lost my job to India and all I got was this (lousy) T-shirt.' And he made all kinds of money.' Only in America, she said, shaking her head, would someone figure out how to profit from his own unemployment.
And that, she insisted, was the reason America need not fear outsourcing to India: America is so much more innovative a place than any other country.
There is a reason the 'next big thing' almost always comes out of America, said Ms Narayanan. When she and her husband came back to live in Bangalore and enrolled their son in a good private school, he found himself totally stifled because of the emphasis on rote learning - rather than the independent thinking he was exposed to in his US school. They had to take him out and look for another, more avant-garde private school.
'America allows you to explore your mind,' she said. The whole concept of outsourcing was actually invented in America, added her husband, Sean, because no one else figured it out.
The Narayanans are worth listening to at this time of rising insecurity over white-collar job losses to India. America is the greatest engine of innovation that has ever existed, and it can't be duplicated any time soon, because it is the product of a multitude of factors: extreme freedom of thought, an emphasis on independent thinking, a steady immigration of new minds, a risk-taking culture with no stigma attached to trying and failing, a non-corrupt bureaucracy, and financial markets and a venture capital system that are unrivalled at taking new ideas and turning them into global products.
'You have this whole ecosystem that constitutes a unique crucible for innovation,' said Mr Nandan Nilekani, CEO of Infosys, India's IBM. 'I was in Europe the other day and they were commiserating about the 400,000 (European) knowledge workers who have gone to live in the US because of the innovative environment there.
'The whole process where people get an idea and put together a team, raise the capital, create a product and mainstream it - that can only be done in the US. It can't be done sitting in India.
'The Indian part of the equation is to help these innovative US companies bring their products to the market quicker, cheaper and better, which increases the innovative cycle there. It is a complementarity we need to enhance.'
That is so right. As Mr Robert Hof, a tech writer for Business Week, noted, US tech workers 'must keep creating leading-edge technologies that make their companies more productive - especially innovations that spark entirely new markets'. The same tech innovations that produced outsourcing, he noted, also produced eBay, Amazon.com, Google and thousands of new jobs along with them.
This is America's real edge.
Sure, Bangalore has a lot of engineering schools, but the local government is rife with corruption; half the city has no sidewalks; there are constant electricity blackouts; the rivers are choked with pollution; the public school system is dysfunctional; beggars dart in and out of the traffic, which is in constant gridlock; and the whole infrastructure is falling apart.
The big high-tech firms here reside on beautiful, walled campuses, because they maintain their own water, electricity and communications systems. They thrive by defying their political-economic environment, not by emerging from it.
What would Indian techies give for just one day of America's rule of law; its dependable, regulated financial markets; its efficient, non-corrupt bureaucracy; and its best public schools and universities? They'd give a lot. These institutions, which nurture innovation, are our real crown jewels that must be protected - not the 1 per cent of jobs that might be outsourced.
But it is precisely these crown jewels that can be squandered if we become lazy, or engage in mindless protectionism, or persist in radical tax cutting that can only erode the strength and quality of our government and educational institutions.
Our competitors know the secret of our sauce. But do we?
By THOMAS L. FRIEDMAN
THE NEW YORK TIMES
BANGALORE (India) - Ms Yamini Narayanan is an Indian-born 35-year-old with a PhD in economics from the University of Oklahoma. After graduation, she worked for an American computer company in Virginia and recently moved back to Bangalore with her husband to be closer to family. When I asked her how she felt about the outsourcing of jobs from her adopted country, the United States, to her native country, India, she responded with a revealing story:
'I just read about a guy in America who lost his job to India and he made a T-shirt that said, 'I lost my job to India and all I got was this (lousy) T-shirt.' And he made all kinds of money.' Only in America, she said, shaking her head, would someone figure out how to profit from his own unemployment.
And that, she insisted, was the reason America need not fear outsourcing to India: America is so much more innovative a place than any other country.
There is a reason the 'next big thing' almost always comes out of America, said Ms Narayanan. When she and her husband came back to live in Bangalore and enrolled their son in a good private school, he found himself totally stifled because of the emphasis on rote learning - rather than the independent thinking he was exposed to in his US school. They had to take him out and look for another, more avant-garde private school.
'America allows you to explore your mind,' she said. The whole concept of outsourcing was actually invented in America, added her husband, Sean, because no one else figured it out.
The Narayanans are worth listening to at this time of rising insecurity over white-collar job losses to India. America is the greatest engine of innovation that has ever existed, and it can't be duplicated any time soon, because it is the product of a multitude of factors: extreme freedom of thought, an emphasis on independent thinking, a steady immigration of new minds, a risk-taking culture with no stigma attached to trying and failing, a non-corrupt bureaucracy, and financial markets and a venture capital system that are unrivalled at taking new ideas and turning them into global products.
'You have this whole ecosystem that constitutes a unique crucible for innovation,' said Mr Nandan Nilekani, CEO of Infosys, India's IBM. 'I was in Europe the other day and they were commiserating about the 400,000 (European) knowledge workers who have gone to live in the US because of the innovative environment there.
'The whole process where people get an idea and put together a team, raise the capital, create a product and mainstream it - that can only be done in the US. It can't be done sitting in India.
'The Indian part of the equation is to help these innovative US companies bring their products to the market quicker, cheaper and better, which increases the innovative cycle there. It is a complementarity we need to enhance.'
That is so right. As Mr Robert Hof, a tech writer for Business Week, noted, US tech workers 'must keep creating leading-edge technologies that make their companies more productive - especially innovations that spark entirely new markets'. The same tech innovations that produced outsourcing, he noted, also produced eBay, Amazon.com, Google and thousands of new jobs along with them.
This is America's real edge.
Sure, Bangalore has a lot of engineering schools, but the local government is rife with corruption; half the city has no sidewalks; there are constant electricity blackouts; the rivers are choked with pollution; the public school system is dysfunctional; beggars dart in and out of the traffic, which is in constant gridlock; and the whole infrastructure is falling apart.
The big high-tech firms here reside on beautiful, walled campuses, because they maintain their own water, electricity and communications systems. They thrive by defying their political-economic environment, not by emerging from it.
What would Indian techies give for just one day of America's rule of law; its dependable, regulated financial markets; its efficient, non-corrupt bureaucracy; and its best public schools and universities? They'd give a lot. These institutions, which nurture innovation, are our real crown jewels that must be protected - not the 1 per cent of jobs that might be outsourced.
But it is precisely these crown jewels that can be squandered if we become lazy, or engage in mindless protectionism, or persist in radical tax cutting that can only erode the strength and quality of our government and educational institutions.
Our competitors know the secret of our sauce. But do we?
FINANCE & ECONOMICS
Financial reporting
AIG's accounting lesson
Mar 4th 2004 | NEW YORK
From The Economist print edition
The world's largest insurance company shows how to polish a profits statement
A GREAT delusion fostered by recent corporate scandals is that companies will now release results in a way that is comprehensible to more than the few people capable of reading between the lines. Had anyone believed this, AIG, America's biggest insurance company, has produced a tutorial on how a fall in profits can be presented as a small gain, and a small gain as a whopping improvement.
Because of its stature as one of the biggest financial companies, AIG's results have particular resonance in the markets. On February 11th, it trumpeted a 68% increase of net income last year, a figure that was widely reported. The company's stock, which had been steadily rising for three months, leapt up. Struck by the huge gains in profits, David Schiff, who runs an eponymous industry newsletter, Schiff's Insurance Observer, took a closer look at the announcement and calculated that if AIG had used the same methodology as it had used in the past, earnings would have been up a respectable, but far less impressive, 15%.
This, in turn, prompted Mr Schiff to take a deeper look at AIG's record. In the fourth quarter of 2002, AIG began its announcement with net income, but then helpfully provided an adjusted number that excluded realised losses on its securities portfolio and a large charge-off for miscalculating previous losses. The upshot was that a 3% increase in net income could, according to AIG, be plausibly viewed as a 12% increase. Mr Schiff says a more plausible case could be made that the various adjustments were superfluous and that, in reality, earnings declined by 4%.
Going back over four years, Mr Schiff concluded that AIG has been able to improve the appearance of its profits growth in 19 out of the past 20 announcements, by shifting the emphasis in its presentation of results between four different measures of profits. It stated net income, of course. But sometimes it offered an adjusted figure highlighting realised investment returns. But not every time. Sometimes it highlighted various losses, at other times, it did not. None of definitions of profits were poor ones. The effect of the switches, however, was to create a far more positive impression of the company's growth.
Providing AIG with the latitude for this numerical dexterity are the “pro forma” calculations that commonly appear at the beginning of company reports, and which do not have to conform to generally accepted accounting principles (GAAP). Done fairly, pro forma numbers provide a clearer path through America's increasingly complex accounting rules. But they can also be used to paint a company's performance in an overly flattering light. This problem is broadly recognised, but present legal constraints have real teeth only in the case of fraud, a high legal hurdle.
Last year, as part of the new Sarbanes-Oxley legislation, the SEC passed rules to crack down on pro-forma abuses. AIG makes reference to the new requirements, noting that its pro forma statements were not in accordance with GAAP, and a reconciliation could be made using subsequent tables. Although this takes work, securities laws do not say that understanding a company must be easy.
AIG also comes under the authority of the New York Stock Exchange, on which it is listed and where, until recently, its chief executive, Hank Greenberg, was a director. As Mr Schiff points out, the NYSE's manual for listed companies states that “changes in accounting methods to mask” unfavorable news “endangers management's reputation for integrity”. The exchange rarely takes action, however, perhaps because the penalties—suspension or delisting—are so draconian. In any case, reporting issues, says the exchange, fall mainly under the SEC's sway. For its part, AIG says that it “always gives a complete accounting of its results that readily enables all interested investors and reporters to compare results with the prior year.”
Financial reporting
AIG's accounting lesson
Mar 4th 2004 | NEW YORK
From The Economist print edition
The world's largest insurance company shows how to polish a profits statement
A GREAT delusion fostered by recent corporate scandals is that companies will now release results in a way that is comprehensible to more than the few people capable of reading between the lines. Had anyone believed this, AIG, America's biggest insurance company, has produced a tutorial on how a fall in profits can be presented as a small gain, and a small gain as a whopping improvement.
Because of its stature as one of the biggest financial companies, AIG's results have particular resonance in the markets. On February 11th, it trumpeted a 68% increase of net income last year, a figure that was widely reported. The company's stock, which had been steadily rising for three months, leapt up. Struck by the huge gains in profits, David Schiff, who runs an eponymous industry newsletter, Schiff's Insurance Observer, took a closer look at the announcement and calculated that if AIG had used the same methodology as it had used in the past, earnings would have been up a respectable, but far less impressive, 15%.
This, in turn, prompted Mr Schiff to take a deeper look at AIG's record. In the fourth quarter of 2002, AIG began its announcement with net income, but then helpfully provided an adjusted number that excluded realised losses on its securities portfolio and a large charge-off for miscalculating previous losses. The upshot was that a 3% increase in net income could, according to AIG, be plausibly viewed as a 12% increase. Mr Schiff says a more plausible case could be made that the various adjustments were superfluous and that, in reality, earnings declined by 4%.
Going back over four years, Mr Schiff concluded that AIG has been able to improve the appearance of its profits growth in 19 out of the past 20 announcements, by shifting the emphasis in its presentation of results between four different measures of profits. It stated net income, of course. But sometimes it offered an adjusted figure highlighting realised investment returns. But not every time. Sometimes it highlighted various losses, at other times, it did not. None of definitions of profits were poor ones. The effect of the switches, however, was to create a far more positive impression of the company's growth.
Providing AIG with the latitude for this numerical dexterity are the “pro forma” calculations that commonly appear at the beginning of company reports, and which do not have to conform to generally accepted accounting principles (GAAP). Done fairly, pro forma numbers provide a clearer path through America's increasingly complex accounting rules. But they can also be used to paint a company's performance in an overly flattering light. This problem is broadly recognised, but present legal constraints have real teeth only in the case of fraud, a high legal hurdle.
Last year, as part of the new Sarbanes-Oxley legislation, the SEC passed rules to crack down on pro-forma abuses. AIG makes reference to the new requirements, noting that its pro forma statements were not in accordance with GAAP, and a reconciliation could be made using subsequent tables. Although this takes work, securities laws do not say that understanding a company must be easy.
AIG also comes under the authority of the New York Stock Exchange, on which it is listed and where, until recently, its chief executive, Hank Greenberg, was a director. As Mr Schiff points out, the NYSE's manual for listed companies states that “changes in accounting methods to mask” unfavorable news “endangers management's reputation for integrity”. The exchange rarely takes action, however, perhaps because the penalties—suspension or delisting—are so draconian. In any case, reporting issues, says the exchange, fall mainly under the SEC's sway. For its part, AIG says that it “always gives a complete accounting of its results that readily enables all interested investors and reporters to compare results with the prior year.”
BUSINESS
Data storage
File that
Mar 4th 2004 | SAN FRANCISCO
From The Economist print edition
The Sarbanes-Oxley act is causing a quantum leap in the storage industry
THE people in charge of computers at American firms are scrambling to comply with the dreaded Section 404 of the Sarbanes-Oxley act, hastily passed by Congress in 2002 to force companies into better corporate governance. It requires meticulous documentation of accounting and other processes, amounting to terabytes of electronic data, or what would have been mountains of paperwork in another era. Yet only one in five large companies surveyed by Gartner, a consultancy, is ready. Last week, regulators had to extend the compliance deadline from June 15th to November 15th.
The data-storage industry, of course, is having a ball. Listen, for instance, to David Goulden, a senior executive at EMC, the industry leader. Under normal circumstances—ie, without Sarbanes-Oxley and its growing number of equivalents abroad—the data-storage needs of a typical company would increase by 30% or so a year. That may seem a lot, but not if you consider that the price of storage is falling by far more than 30% a year. Enter the politicians, bearing new regulations. Their net effect, says Mr Goulden, is to double the number of copies that are kept of every document, and to double the length of time for which they are kept. Suddenly, an average firm's storage needs will more than double annually.
EMC reckons that the surge in demand is so huge that the situation calls for one of the industry's periodic technological revolutions. During the industry's stone age, back in the 1980s, firms stored their data much as consumers with desktop computers still do today—on the same machines that also processed it. The next paradigm shift, sometime around 1990, was to split the two functions, using a model called direct-attached storage (DAS), in which each computer is attached to a separate storage “array”—in essence, a cabinet full of hard disks. If one or the other breaks, you can repair it without taking down the entire data-storage edifice.
DAS still accounts for about 70% of all data stored today. But it is already becoming passé. That is because, in the late 1990s, EMC came up with a bright idea. Companies could use their storage capacity more efficiently by creating internal networks that connect a bunch of computers on one side with a cluster of storage arrays on the other. Stephen Chin, an analyst at UBS, an investment bank, reckons that such storage-area networks (SANs) can boost the utilisation rate of hardware to as much as 80%, from about 20% in the one-array-per-computer world of DAS.
The logic of this new idea was so compelling that all of the main competitors to EMC—Hitachi, Veritas, IBM, Hewlett-Packard, and so on—have also piled into SAN. Along with its close cousin, network-attached storage (NAS), a technology pioneered by a company called Network Appliance that uses internet standards to connect computers to storage arrays, storage networks are now growing at a furious rate. They already account for almost two-thirds of the $15 billion global storage market, according to estimates by IDC, another consultancy.
EMC's boffins have now come up with a new idea: storage networks are great, but they still fall short in this brave new world of red tape by treating all information as the same, when blatantly it is not. There are this quarter's profit numbers, and then there are the payroll figures for that receptionist who was laid off ten years ago. The former is clearly more valuable, and deserves costlier technology, than the latter. Technology buyers, with today's tight budgets, want systems that do not overcharge for storing all the junk.
EMC's answer is “Information Lifecycle Management”, or ILM. This is a souped-up and smarter version of a SAN. Now, servers are attached not only to one cluster of arrays, but to several different classes of storage devices, some top-notch and fancy, others cheaper and more dated. Special software moves data between these devices. New profit data end up in the fancy machine, for instance, while last year's profit numbers get moved down a tier. As for that receptionist's old wage slips, they go to an archive tape. And so on.
ILM explains why EMC has bought Legato, Documentum, VMware, and several other firms over the past year. All of these firms have technologies that EMC needs to deliver this new way of storing data. If things go well and EMC has a winner, the main thanks, of course, go to the politicians in Washington, who are proving so helpful to the industry even without any lobbying. Whether all of these extra data will ever be of much use to anybody remains to be seen.
Data storage
File that
Mar 4th 2004 | SAN FRANCISCO
From The Economist print edition
The Sarbanes-Oxley act is causing a quantum leap in the storage industry
THE people in charge of computers at American firms are scrambling to comply with the dreaded Section 404 of the Sarbanes-Oxley act, hastily passed by Congress in 2002 to force companies into better corporate governance. It requires meticulous documentation of accounting and other processes, amounting to terabytes of electronic data, or what would have been mountains of paperwork in another era. Yet only one in five large companies surveyed by Gartner, a consultancy, is ready. Last week, regulators had to extend the compliance deadline from June 15th to November 15th.
The data-storage industry, of course, is having a ball. Listen, for instance, to David Goulden, a senior executive at EMC, the industry leader. Under normal circumstances—ie, without Sarbanes-Oxley and its growing number of equivalents abroad—the data-storage needs of a typical company would increase by 30% or so a year. That may seem a lot, but not if you consider that the price of storage is falling by far more than 30% a year. Enter the politicians, bearing new regulations. Their net effect, says Mr Goulden, is to double the number of copies that are kept of every document, and to double the length of time for which they are kept. Suddenly, an average firm's storage needs will more than double annually.
EMC reckons that the surge in demand is so huge that the situation calls for one of the industry's periodic technological revolutions. During the industry's stone age, back in the 1980s, firms stored their data much as consumers with desktop computers still do today—on the same machines that also processed it. The next paradigm shift, sometime around 1990, was to split the two functions, using a model called direct-attached storage (DAS), in which each computer is attached to a separate storage “array”—in essence, a cabinet full of hard disks. If one or the other breaks, you can repair it without taking down the entire data-storage edifice.
DAS still accounts for about 70% of all data stored today. But it is already becoming passé. That is because, in the late 1990s, EMC came up with a bright idea. Companies could use their storage capacity more efficiently by creating internal networks that connect a bunch of computers on one side with a cluster of storage arrays on the other. Stephen Chin, an analyst at UBS, an investment bank, reckons that such storage-area networks (SANs) can boost the utilisation rate of hardware to as much as 80%, from about 20% in the one-array-per-computer world of DAS.
The logic of this new idea was so compelling that all of the main competitors to EMC—Hitachi, Veritas, IBM, Hewlett-Packard, and so on—have also piled into SAN. Along with its close cousin, network-attached storage (NAS), a technology pioneered by a company called Network Appliance that uses internet standards to connect computers to storage arrays, storage networks are now growing at a furious rate. They already account for almost two-thirds of the $15 billion global storage market, according to estimates by IDC, another consultancy.
EMC's boffins have now come up with a new idea: storage networks are great, but they still fall short in this brave new world of red tape by treating all information as the same, when blatantly it is not. There are this quarter's profit numbers, and then there are the payroll figures for that receptionist who was laid off ten years ago. The former is clearly more valuable, and deserves costlier technology, than the latter. Technology buyers, with today's tight budgets, want systems that do not overcharge for storing all the junk.
EMC's answer is “Information Lifecycle Management”, or ILM. This is a souped-up and smarter version of a SAN. Now, servers are attached not only to one cluster of arrays, but to several different classes of storage devices, some top-notch and fancy, others cheaper and more dated. Special software moves data between these devices. New profit data end up in the fancy machine, for instance, while last year's profit numbers get moved down a tier. As for that receptionist's old wage slips, they go to an archive tape. And so on.
ILM explains why EMC has bought Legato, Documentum, VMware, and several other firms over the past year. All of these firms have technologies that EMC needs to deliver this new way of storing data. If things go well and EMC has a winner, the main thanks, of course, go to the politicians in Washington, who are proving so helpful to the industry even without any lobbying. Whether all of these extra data will ever be of much use to anybody remains to be seen.
MARCH 9, 2004
CJ explains why he cut sentence in oral sex case
There was 'striking disparity' between ex-cop's two-year term and those given to other men for sex with underage girls
By Selina Lum
THE sentence for 'unnatural' oral sex with a young person should not be too different from that of someone who has 'ordinary' sex with a girl below the age of 16, the Chief Justice has ruled.
He did so in his written reasons for halving the two-year jail term in the much-publicised case of Annis Abdullah, 27, a former police sergeant who had oral sex with a 15-year-old girl.
In a 31-page judgment released yesterday, CJ Yong Pung How said Annis' two-year punishment was manifestly excessive.
He also noted a 'striking disparity' between Annis' sentence and those generally given to men who have had sex with underage girls.
But he acknowledged that the two offences are different. Sex with a girl under the age of 16 years is an offence under the Women's Charter; oral sex falls within Section 377 of the Penal Code.
However, both are deemed criminal offences, he said, to protect young victims from being exploited through sexual activities, whether natural or otherwise.
'In this light... there should not be an overly large disparity between sentences under the two provisions.'
Under the Women's Charter, a man who has sex with a girl under the age of 16 faces up to five years' jail and a maximum $10,000 fine.
In 2001, the CJ set the benchmark for such offences at one year in prison when he sentenced a 45-year-old married man who had sex with a girl 30 years his junior.
Oral sex offenders can be sentenced to life imprisonment.
However, the age difference between the victim and accused, as well as the victim's age, are significant when it comes to sentencing such offenders, said the CJ.
It was the clear policy of Parliament, he said, to criminalise sexual activity involving girls under 16 years old. This principle should be extended to oral sex.
Consent is irrelevant when it comes to young victims, as young girls may not be mature enough to make decisions about their own sexuality. So the law must step in.
At Annis' appeal three weeks ago, the prosecution had argued there was 'little difference in the moral culpability' of a person who has sex, rather than unnatural sex, with a young girl.
In his written reasons, CJ Yong described Annis' original two-year jail term as 'problematic', as in 2000, a man who broke into a woman's home and forced her at knifepoint to perform oral sex on him was jailed a year for the offence.
The district judge who sentenced Annis had erred in concluding that the 'starting point' for oral sex with a young victim was 'in the region of five years' jail.
The judge had relied on cases in which those who were accused exploited their young victims. But Annis was not in the same league.
'Each case will turn on its own unique facts, and the court must always be mindful of this.'
He said the judge had also erred in imposing a deterrent sentence because Annis was a police officer.
The offence was unrelated to his status, said the CJ, and there was no evidence Annis had used his position to coerce the girl.
A deterrent sentence may not be warranted if an officer offends outside the scope of his duties and does not abuse his position to commit the offence, he added.
He also dismissed Annis' argument that the girl had been intimate with him of her own volition.
It was Annis who had asked the girl for oral sex in his car after she declined to have sex with him, he pointed out.
Said CJ Yong: 'Even if the victim was sexually experienced or promiscuous... it is established law that this is wholly irrelevant in sentencing.' -- Additional reporting by Maria Almenoar
-------------------------------------------------------------------------------
Terms of law
SEX with a girl under the age of 16 years is an offence under the Women's Charter, and carries a jail term of up to five years and a fine of up to $10,000.
Oral sex falls within Section 377 of the Penal Code. An offender can be sentenced to life imprisonment.
CJ explains why he cut sentence in oral sex case
There was 'striking disparity' between ex-cop's two-year term and those given to other men for sex with underage girls
By Selina Lum
THE sentence for 'unnatural' oral sex with a young person should not be too different from that of someone who has 'ordinary' sex with a girl below the age of 16, the Chief Justice has ruled.
He did so in his written reasons for halving the two-year jail term in the much-publicised case of Annis Abdullah, 27, a former police sergeant who had oral sex with a 15-year-old girl.
In a 31-page judgment released yesterday, CJ Yong Pung How said Annis' two-year punishment was manifestly excessive.
He also noted a 'striking disparity' between Annis' sentence and those generally given to men who have had sex with underage girls.
But he acknowledged that the two offences are different. Sex with a girl under the age of 16 years is an offence under the Women's Charter; oral sex falls within Section 377 of the Penal Code.
However, both are deemed criminal offences, he said, to protect young victims from being exploited through sexual activities, whether natural or otherwise.
'In this light... there should not be an overly large disparity between sentences under the two provisions.'
Under the Women's Charter, a man who has sex with a girl under the age of 16 faces up to five years' jail and a maximum $10,000 fine.
In 2001, the CJ set the benchmark for such offences at one year in prison when he sentenced a 45-year-old married man who had sex with a girl 30 years his junior.
Oral sex offenders can be sentenced to life imprisonment.
However, the age difference between the victim and accused, as well as the victim's age, are significant when it comes to sentencing such offenders, said the CJ.
It was the clear policy of Parliament, he said, to criminalise sexual activity involving girls under 16 years old. This principle should be extended to oral sex.
Consent is irrelevant when it comes to young victims, as young girls may not be mature enough to make decisions about their own sexuality. So the law must step in.
At Annis' appeal three weeks ago, the prosecution had argued there was 'little difference in the moral culpability' of a person who has sex, rather than unnatural sex, with a young girl.
In his written reasons, CJ Yong described Annis' original two-year jail term as 'problematic', as in 2000, a man who broke into a woman's home and forced her at knifepoint to perform oral sex on him was jailed a year for the offence.
The district judge who sentenced Annis had erred in concluding that the 'starting point' for oral sex with a young victim was 'in the region of five years' jail.
The judge had relied on cases in which those who were accused exploited their young victims. But Annis was not in the same league.
'Each case will turn on its own unique facts, and the court must always be mindful of this.'
He said the judge had also erred in imposing a deterrent sentence because Annis was a police officer.
The offence was unrelated to his status, said the CJ, and there was no evidence Annis had used his position to coerce the girl.
A deterrent sentence may not be warranted if an officer offends outside the scope of his duties and does not abuse his position to commit the offence, he added.
He also dismissed Annis' argument that the girl had been intimate with him of her own volition.
It was Annis who had asked the girl for oral sex in his car after she declined to have sex with him, he pointed out.
Said CJ Yong: 'Even if the victim was sexually experienced or promiscuous... it is established law that this is wholly irrelevant in sentencing.' -- Additional reporting by Maria Almenoar
-------------------------------------------------------------------------------
Terms of law
SEX with a girl under the age of 16 years is an offence under the Women's Charter, and carries a jail term of up to five years and a fine of up to $10,000.
Oral sex falls within Section 377 of the Penal Code. An offender can be sentenced to life imprisonment.
Monday, March 08, 2004
Democracy not all it's cracked up to be
By TOM PLATE
FOR THE STRAITS TIMES
LOS ANGELES - Nobody ever claimed that constitutional democracy was perfect. It was Winston Churchill, after all, who pointed out in 1947 that it was the 'worst form of government, except for all those others that have been tried'. Even so, the United States, Britain and others still testify to democracy's unconditional desirability. But profound new doubts about the salience of democracy in this new millennium are surfacing. They deserve attention.
From Norway, of all places, comes an authoritative self-reflection. 'A remarkable study of democracy has reached its conclusion: rule by popular consent is disintegrating before our eyes,' writes Oxford sociology and social policy professor Stein Ringen in The Times Literary Supplement.
Prof Ringen reports on the Norwegian Study Of Power And Democracy, a rigorous five-year intellectual effort initiated by the Norwegian Parliament that came to the astonishing conclusion that Norway's constitutional democracy is in crisis. It has developed a serious disconnect between the people and those representing them.
That disconnect, concluded the commission, is due to a number of factors. They include the evisceration of local government, excessive agenda-setting by the media, the business community's veto power over economic policy, supranational law that ties the hands of the national legislature and unrivalled judicial review.
These dysfunctional disconnects in the democratic chain of command are leading to democracy's erosion. 'Bluntly,' concludes Prof Ringen, 'rational and informed citizens are right to be less interested in democracy.'
Similarly, South Korean democracy is officially painted as in crisis. That is the view of its elected president. Since taking office 13 months ago, Mr Roh Moo Hyun has sought to launch what his government describes as a 'sea change' in the power relationships among the Blue House, the constitutional institutions of government and South Korea's citizens. His basic thrust is to push political power out of the central executive and back into the national legislature and diverse Korean communities.
Mr Roh's Korean experiment is fascinating for two reasons. It seeks to counter South Korea's deeply embedded authoritarian traditions, and aims to nurture a technological grassroots power-to-the-people movement that will enfranchise rather than alienate.
Mr Roh is a self-proclaimed student of Abraham Lincoln, whose views on and practice of democracy proved to be globally seminal.
The house of Lincoln, of course, was far more divided than Mr Roh's, and a disquieting new study suggests the house of President George W. Bush is similarly fraught. Professor Samuel Huntington, chairman of the Harvard Academy for International and Area Studies, believes the US is on the road to becoming two separate societies.
In a Foreign Policy magazine article, Hispanic Immigrants Threaten The American Way Of Life, Prof Huntington paints a bleak portrait. 'The transformation of the US into a (culturally bifurcated) country... would not necessarily be the end of the world; it would, however, be the end of the America we have known for more than three centuries.'
Prof Huntington's view will inevitably be denounced as vile and racist. Latino scholars and political leaders will feel especially betrayed. But Prof Huntington deserves to be respected for raising an issue that, in this age of political correctness, few would have the courage to join.
Put another way, the issue is: Does the US wish to proceed in a political direction that would make it more like bilingual Canada? Warns Prof Huntington: 'The cultural division between Hispanics and Anglos could replace the racial division between blacks and whites as the most serious cleavage in US society.'
This fundamental supposition about our national democratic direction needs to be addressed, not simply condemned. After all, the US is no hotbed of self-doubt, and the least conflicted proponent of democracy's universality, applicability and basic pure goodness is probably President Bush himself. 'The world has a clear interest in the spread of democratic values. They encourage the peaceful pursuit of a better life,' he has said.
That comforting thought is one with which most Americans would concur. The only question is whether it is necessarily true.
The writer is a University of California at Los Angeles professor. E-mail: tplate@ucla.edu
By TOM PLATE
FOR THE STRAITS TIMES
LOS ANGELES - Nobody ever claimed that constitutional democracy was perfect. It was Winston Churchill, after all, who pointed out in 1947 that it was the 'worst form of government, except for all those others that have been tried'. Even so, the United States, Britain and others still testify to democracy's unconditional desirability. But profound new doubts about the salience of democracy in this new millennium are surfacing. They deserve attention.
From Norway, of all places, comes an authoritative self-reflection. 'A remarkable study of democracy has reached its conclusion: rule by popular consent is disintegrating before our eyes,' writes Oxford sociology and social policy professor Stein Ringen in The Times Literary Supplement.
Prof Ringen reports on the Norwegian Study Of Power And Democracy, a rigorous five-year intellectual effort initiated by the Norwegian Parliament that came to the astonishing conclusion that Norway's constitutional democracy is in crisis. It has developed a serious disconnect between the people and those representing them.
That disconnect, concluded the commission, is due to a number of factors. They include the evisceration of local government, excessive agenda-setting by the media, the business community's veto power over economic policy, supranational law that ties the hands of the national legislature and unrivalled judicial review.
These dysfunctional disconnects in the democratic chain of command are leading to democracy's erosion. 'Bluntly,' concludes Prof Ringen, 'rational and informed citizens are right to be less interested in democracy.'
Similarly, South Korean democracy is officially painted as in crisis. That is the view of its elected president. Since taking office 13 months ago, Mr Roh Moo Hyun has sought to launch what his government describes as a 'sea change' in the power relationships among the Blue House, the constitutional institutions of government and South Korea's citizens. His basic thrust is to push political power out of the central executive and back into the national legislature and diverse Korean communities.
Mr Roh's Korean experiment is fascinating for two reasons. It seeks to counter South Korea's deeply embedded authoritarian traditions, and aims to nurture a technological grassroots power-to-the-people movement that will enfranchise rather than alienate.
Mr Roh is a self-proclaimed student of Abraham Lincoln, whose views on and practice of democracy proved to be globally seminal.
The house of Lincoln, of course, was far more divided than Mr Roh's, and a disquieting new study suggests the house of President George W. Bush is similarly fraught. Professor Samuel Huntington, chairman of the Harvard Academy for International and Area Studies, believes the US is on the road to becoming two separate societies.
In a Foreign Policy magazine article, Hispanic Immigrants Threaten The American Way Of Life, Prof Huntington paints a bleak portrait. 'The transformation of the US into a (culturally bifurcated) country... would not necessarily be the end of the world; it would, however, be the end of the America we have known for more than three centuries.'
Prof Huntington's view will inevitably be denounced as vile and racist. Latino scholars and political leaders will feel especially betrayed. But Prof Huntington deserves to be respected for raising an issue that, in this age of political correctness, few would have the courage to join.
Put another way, the issue is: Does the US wish to proceed in a political direction that would make it more like bilingual Canada? Warns Prof Huntington: 'The cultural division between Hispanics and Anglos could replace the racial division between blacks and whites as the most serious cleavage in US society.'
This fundamental supposition about our national democratic direction needs to be addressed, not simply condemned. After all, the US is no hotbed of self-doubt, and the least conflicted proponent of democracy's universality, applicability and basic pure goodness is probably President Bush himself. 'The world has a clear interest in the spread of democratic values. They encourage the peaceful pursuit of a better life,' he has said.
That comforting thought is one with which most Americans would concur. The only question is whether it is necessarily true.
The writer is a University of California at Los Angeles professor. E-mail: tplate@ucla.edu
Friday, March 05, 2004
Who needs the social sciences?
By STEVE FULLER
WHY are the social sciences so much more at risk of having their budgets cut than the other two great bodies of academic knowledge, the humanities and the natural sciences?
Former British prime minister Margaret Thatcher notoriously proposed that the field simply does not exist: There is no such thing as society, she claimed.
Others point to the restructuring of university social science departments. But the expansion of business schools arguably testifies to the continued vitality of the social sciences. Nor is it true that the social sciences belabour the obvious, as is sometimes said. On the contrary, today's commonplaces were yesterday's innovations.
Still, where are the social sciences in the vast conversation over 'human nature' that has been prompted by recent advances in cognitive neuroscience, behavioural genetics and evolutionary psychology?
Check out the website (www.edge.org) devoted to the 'third culture' that bridges the humanities and the natural sciences. Social scientists are conspicuous by their absence. But what difference would their presence make?
It is often assumed that everyone recoils at the prospect that there are genetic limits to our capacity for change. Actually, only those imbued with the optimistic spirit of social science recoil. Everyone else is relieved.
In the 'third culture' bestseller, The Blank Slate: The Modern Denial Of Human Nature, Steven Pinker says we may need to admit a natural scientific basis for what humanists have for centuries called 'fate'. In other words, the configuration of our brains and genes may ultimately be out of our control, however deeply we come to understand them.
His message will appeal to those eager to avoid political reforms that would compel a greater sense of collective responsibility. After all, the social sciences historically offered empirical support and spiritual hope for just such reforms, which are increasingly dismissed as 'utopian'.
By contrast, the humanities and the natural sciences share a sense of reality that transcends time and place; hence their common interest in a fixed 'human nature'. This is tied to a way of thinking and a sense of knowing that is largely contemplative and sometimes even disempowering, as reality comes to seem to be whatever resists our concerted efforts at change. These two great academic cultures also prefer to study humanity without having to mingle with flesh-and-blood human beings.
Thus, evolutionary psychologists infer what makes us who we are from the remains of our Stone Age ancestors (including their DNA), whereas humanists focus on artefacts of a more recent and literate age.
In contrast, the social sciences adhere to the maxim that the best way to study humans is to interact with them, typically by getting them to do and say things that they might otherwise not. This profoundly simple idea, common to experiments and ethnographies, inspired the triumphs and disasters that punctuate modern politics.
It requires an increasingly controversial assumption: All human beings - whatever their competences, status or health - are equally significant members of society, whose strength lies in what they can do together.
The social sciences' egalitarianism runs counter to both the humanist fixation on elite 'classic' texts and the natural scientific tendency to generalise across species. Thus, social scientists made the everyday lives of ordinary people respectable, while refusing to privilege certain animals over certain - typically disabled or unwanted - humans. 'Welfare' occupies a pride of place in the social sciences that humanists and natural scientists replace with 'survival' and maybe even 'fortune'.
To be sure, the chequered history of welfare in the 20th century put the future of the social sciences in doubt. But a way forward can be found in T.H. Huxley, Charles Darwin's public defender. A late convert to evolution, he was a lifelong sceptic about the theory's political implications.
For Huxley, civilised society rose above nature by its systematic resistance to natural selection. In his words, the human condition is not about 'survival of the fittest' but 'the fitting of as many as can survive'.
Huxley identified humanity's achievements with legal conventions and medical technologies, artifices that extend human dominion by enabling people to be and do more than they could individually.
The future of the social sciences may lie in rekindling this coalition of law and medicine and upgrading the artificial in a world that may have come to overvalue nature.
The writer is professor of sociology at the University of Warwick and the author of Re-Imagining Sociology.
Copyright: Project Syndicate
By STEVE FULLER
WHY are the social sciences so much more at risk of having their budgets cut than the other two great bodies of academic knowledge, the humanities and the natural sciences?
Former British prime minister Margaret Thatcher notoriously proposed that the field simply does not exist: There is no such thing as society, she claimed.
Others point to the restructuring of university social science departments. But the expansion of business schools arguably testifies to the continued vitality of the social sciences. Nor is it true that the social sciences belabour the obvious, as is sometimes said. On the contrary, today's commonplaces were yesterday's innovations.
Still, where are the social sciences in the vast conversation over 'human nature' that has been prompted by recent advances in cognitive neuroscience, behavioural genetics and evolutionary psychology?
Check out the website (www.edge.org) devoted to the 'third culture' that bridges the humanities and the natural sciences. Social scientists are conspicuous by their absence. But what difference would their presence make?
It is often assumed that everyone recoils at the prospect that there are genetic limits to our capacity for change. Actually, only those imbued with the optimistic spirit of social science recoil. Everyone else is relieved.
In the 'third culture' bestseller, The Blank Slate: The Modern Denial Of Human Nature, Steven Pinker says we may need to admit a natural scientific basis for what humanists have for centuries called 'fate'. In other words, the configuration of our brains and genes may ultimately be out of our control, however deeply we come to understand them.
His message will appeal to those eager to avoid political reforms that would compel a greater sense of collective responsibility. After all, the social sciences historically offered empirical support and spiritual hope for just such reforms, which are increasingly dismissed as 'utopian'.
By contrast, the humanities and the natural sciences share a sense of reality that transcends time and place; hence their common interest in a fixed 'human nature'. This is tied to a way of thinking and a sense of knowing that is largely contemplative and sometimes even disempowering, as reality comes to seem to be whatever resists our concerted efforts at change. These two great academic cultures also prefer to study humanity without having to mingle with flesh-and-blood human beings.
Thus, evolutionary psychologists infer what makes us who we are from the remains of our Stone Age ancestors (including their DNA), whereas humanists focus on artefacts of a more recent and literate age.
In contrast, the social sciences adhere to the maxim that the best way to study humans is to interact with them, typically by getting them to do and say things that they might otherwise not. This profoundly simple idea, common to experiments and ethnographies, inspired the triumphs and disasters that punctuate modern politics.
It requires an increasingly controversial assumption: All human beings - whatever their competences, status or health - are equally significant members of society, whose strength lies in what they can do together.
The social sciences' egalitarianism runs counter to both the humanist fixation on elite 'classic' texts and the natural scientific tendency to generalise across species. Thus, social scientists made the everyday lives of ordinary people respectable, while refusing to privilege certain animals over certain - typically disabled or unwanted - humans. 'Welfare' occupies a pride of place in the social sciences that humanists and natural scientists replace with 'survival' and maybe even 'fortune'.
To be sure, the chequered history of welfare in the 20th century put the future of the social sciences in doubt. But a way forward can be found in T.H. Huxley, Charles Darwin's public defender. A late convert to evolution, he was a lifelong sceptic about the theory's political implications.
For Huxley, civilised society rose above nature by its systematic resistance to natural selection. In his words, the human condition is not about 'survival of the fittest' but 'the fitting of as many as can survive'.
Huxley identified humanity's achievements with legal conventions and medical technologies, artifices that extend human dominion by enabling people to be and do more than they could individually.
The future of the social sciences may lie in rekindling this coalition of law and medicine and upgrading the artificial in a world that may have come to overvalue nature.
The writer is professor of sociology at the University of Warwick and the author of Re-Imagining Sociology.
Copyright: Project Syndicate
The rise of Shi'ite 'Petrolistan'
By MAI YAMANI
THE hideous bombings of the Shi'ite shrines in Karbala will neither change nor obscure a powerful new fact of life in the Middle East. Now that the dust of the Iraq war has settled, it is clear the Shi'ites have emerged, blinking in the sunlight, as the unexpected winners.
Governments that have oppressed the Shi'ites for decades may still be in denial about this, but the terrorists who planted those bombs are not. They recognise, as the Shi'ites now do, that across the Gulf, Shi'ite Muslims are gaining massively in political power, and have awakened to their ability both to organise themselves and to the gift that lies under their feet: oil.
After years of repression at the hands of Saddam Hussein, Iraq's Shi'ites are tasting freedom - and spurring their religious counterparts throughout the Gulf to become more assertive.
They've also woken up to the accident of geography that has placed the world's major oil supplies in areas where they form the majority: Iran, the Eastern Province of Saudi Arabia, Bahrain and southern Iraq. Welcome to the new commonwealth of 'Petrolistan'.
The newfound power of Shi'ite Muslims in this volatile region represents a major challenge both to the old Sunni ruling establishments - outside Iran - and to the United States. The years of Shi'ite subservience are over.
So what are the Shi'ites planning? What is their inspiration? Will bearded men in turbans and veiled women rule them, or will we see suits and high heels? If they want democracy, will anyone recognise it as such?
It wasn't until 1979 that the Shi'ites first appeared on Western radar screens, emerging in Iran at the head of a violent revolution that murdered thousands and dispatched the Shah into history. In Western eyes, the Shi'ites became the hostile and militant face of Islam, intent on exporting violence. Their Sunni counterparts, even the most fundamentalist Wahhabis of Saudi Arabia, appeared tame in comparison. But the terrorist attacks on America of Sept 11, 2001, rewrote that idea for good.
The hijackers were all Sunni. Their hosts and backers, the Taleban, were also Sunni, as are all the prisoners at the US military base-turned-prison at Guantanamo Bay in Cuba.
Sunni Muslims dominated Saddam's Baathist regime - and the so-called Sunni Triangle in central Iraq is the site of the fiercest hostility to the US-led occupation and its local supporters. In the space of but a few months, Sunni Muslims have replaced the Shi'ites as the biggest threat to the West and to international security.
For their part, Shi'ite minorities claim to welcome democracy. But then minorities - especially with a history of subjugation - always do (at least for a time), because it allows them to claim religious freedom and express their cultural identity.
In Saudi Arabia, the Shi'ites are at the forefront of those welcoming democratic change and participation. Although they constitute only 20 per cent of the total Saudi population, they form 75 per cent of the population in the oil-rich eastern region.
Saudi Arabia's Shi'ites have suffered discrimination in the professions: in the military, in high government positions, the diplomatic corps, and most significantly, in the oil industry, where they have been excluded since the 1980s. This systematic exclusion of the Shi'ites is supported by the Wahhabi religious establishment and legitimised by numerous fatwa denouncing them as heretics.
In Bahrain, the Shi'ites form 75 per cent of the population and have been keen on the reforms initiated by King Hamad. They have opted for political rule by the Sunni minority rather than associating with Iran's form of government. But the new generation of Bahraini Shi'ites are more militant, and their views are increasingly echoed by their counterparts in Saudi Arabia.
It was the threat of Shi'ite militancy, exported from Iran, which led the region's rulers to set up the Gulf Cooperation Council in 1981 and attempt to pool their strengths. That move was too little too late. There was a coup attempt in Bahrain that same year, which came hard on the heels of a Shi'ite uprising in Saudi Arabia the year before.
Today, Iran no longer exports revolution. Its experiment with an Islamic form of democracy is now primarily an internal affair. In any case, none of the Iraqi ayatollahs who were once exiled in Iran seems to have any inclination to adopt the Iranian model.
So far the Shi'ites in Iraq have been relatively quiet, watching the de-Baathification process and biding their time. But since the capture of Saddam, they have become increasingly assertive. It is at the insistence of the Shi'ites that the US has had to continually rewrite its blueprint for Iraq.
After being the region's losers for decades, the Shi'ites now have the chance to redress the balance, settle old scores - and control the wealth of 'Petrolistan'. But they won't succeed without a struggle - as the odious bombings in Karbala demonstrate.
The writer is an author and research fellow at the Royal Institute of International Affairs.
Copyright: Project Syndicate
By MAI YAMANI
THE hideous bombings of the Shi'ite shrines in Karbala will neither change nor obscure a powerful new fact of life in the Middle East. Now that the dust of the Iraq war has settled, it is clear the Shi'ites have emerged, blinking in the sunlight, as the unexpected winners.
Governments that have oppressed the Shi'ites for decades may still be in denial about this, but the terrorists who planted those bombs are not. They recognise, as the Shi'ites now do, that across the Gulf, Shi'ite Muslims are gaining massively in political power, and have awakened to their ability both to organise themselves and to the gift that lies under their feet: oil.
After years of repression at the hands of Saddam Hussein, Iraq's Shi'ites are tasting freedom - and spurring their religious counterparts throughout the Gulf to become more assertive.
They've also woken up to the accident of geography that has placed the world's major oil supplies in areas where they form the majority: Iran, the Eastern Province of Saudi Arabia, Bahrain and southern Iraq. Welcome to the new commonwealth of 'Petrolistan'.
The newfound power of Shi'ite Muslims in this volatile region represents a major challenge both to the old Sunni ruling establishments - outside Iran - and to the United States. The years of Shi'ite subservience are over.
So what are the Shi'ites planning? What is their inspiration? Will bearded men in turbans and veiled women rule them, or will we see suits and high heels? If they want democracy, will anyone recognise it as such?
It wasn't until 1979 that the Shi'ites first appeared on Western radar screens, emerging in Iran at the head of a violent revolution that murdered thousands and dispatched the Shah into history. In Western eyes, the Shi'ites became the hostile and militant face of Islam, intent on exporting violence. Their Sunni counterparts, even the most fundamentalist Wahhabis of Saudi Arabia, appeared tame in comparison. But the terrorist attacks on America of Sept 11, 2001, rewrote that idea for good.
The hijackers were all Sunni. Their hosts and backers, the Taleban, were also Sunni, as are all the prisoners at the US military base-turned-prison at Guantanamo Bay in Cuba.
Sunni Muslims dominated Saddam's Baathist regime - and the so-called Sunni Triangle in central Iraq is the site of the fiercest hostility to the US-led occupation and its local supporters. In the space of but a few months, Sunni Muslims have replaced the Shi'ites as the biggest threat to the West and to international security.
For their part, Shi'ite minorities claim to welcome democracy. But then minorities - especially with a history of subjugation - always do (at least for a time), because it allows them to claim religious freedom and express their cultural identity.
In Saudi Arabia, the Shi'ites are at the forefront of those welcoming democratic change and participation. Although they constitute only 20 per cent of the total Saudi population, they form 75 per cent of the population in the oil-rich eastern region.
Saudi Arabia's Shi'ites have suffered discrimination in the professions: in the military, in high government positions, the diplomatic corps, and most significantly, in the oil industry, where they have been excluded since the 1980s. This systematic exclusion of the Shi'ites is supported by the Wahhabi religious establishment and legitimised by numerous fatwa denouncing them as heretics.
In Bahrain, the Shi'ites form 75 per cent of the population and have been keen on the reforms initiated by King Hamad. They have opted for political rule by the Sunni minority rather than associating with Iran's form of government. But the new generation of Bahraini Shi'ites are more militant, and their views are increasingly echoed by their counterparts in Saudi Arabia.
It was the threat of Shi'ite militancy, exported from Iran, which led the region's rulers to set up the Gulf Cooperation Council in 1981 and attempt to pool their strengths. That move was too little too late. There was a coup attempt in Bahrain that same year, which came hard on the heels of a Shi'ite uprising in Saudi Arabia the year before.
Today, Iran no longer exports revolution. Its experiment with an Islamic form of democracy is now primarily an internal affair. In any case, none of the Iraqi ayatollahs who were once exiled in Iran seems to have any inclination to adopt the Iranian model.
So far the Shi'ites in Iraq have been relatively quiet, watching the de-Baathification process and biding their time. But since the capture of Saddam, they have become increasingly assertive. It is at the insistence of the Shi'ites that the US has had to continually rewrite its blueprint for Iraq.
After being the region's losers for decades, the Shi'ites now have the chance to redress the balance, settle old scores - and control the wealth of 'Petrolistan'. But they won't succeed without a struggle - as the odious bombings in Karbala demonstrate.
The writer is an author and research fellow at the Royal Institute of International Affairs.
Copyright: Project Syndicate
Thursday, March 04, 2004
FOCUS ON JAPAN'S ECONOMY
Is the sun really rising?
It would be foolish to take Japan's recent promising economic growth indicators at face value, but some things really do seem different this time round, despite what cynics say
DAVID PILLING
FINANCIAL TIMES
ANYONE would think Japan had become the world's latest tiger economy. According to official figures, gross domestic product rose 7 per cent in real, deflation-adjusted terms in the fourth quarter - a rate of growth not seen since the intoxicating 1980s. The January trade surplus, swollen by shipments to China, rose almost fivefold from last year as exporters brushed aside the effects of a strengthening yen.
Moreover, the benefits of an export-led recovery are beginning to filter into the job market. Unemployment has fallen from a post-war peak of 5.5 per cent in January last year to 4.9 per cent in December. Corporate profits have surged, while wages have stabilised after years of decline. Figures published recently showed that overtime pay rose 4.5 per cent in January, the 18th consecutive month of improvement.
The Nikkei stock average, which has clawed its way back to 11,300, is 50 per cent above last April's post-bubble lows - easing the pressure on institutions such as life assurers and banks, which hold large amounts of equity.
Last year's talk of spiralling deflation, or an imminent collapse of the financial system under the weight of non-performing loans, now seems like absurd scaremongering.
Mr Horst Kohler, managing director of the International Monetary Fund, was waxing lyrical when he visited Tokyo last week. Normally a sharp critic of Japan's half-hearted policy response to a decade of slowdown, Mr Kohler admitted that the latest growth figures had taken him and his organisation by surprise.
'Japan's economic prospects have clearly brightened,' he said. The IMF now expected real GDP this year to grow by 3 per cent or more, higher than its original forecast of 2.2 per cent. 'I am confident that continued efforts to carry out structural reforms will lead to sustained growth over the coming years.'
WEAKNESSES STILL THERE
CYNICS, in contrast, say much of the current strong cyclical upsurge has been possible because potentially debilitating economic restructuring has been left on the back burner.
Witness last year's US$17 billion (S$29 billion) bailout of the bank Resona - a blow to the purists who would have liked to see it collapse - or the government's relative lack of progress on much-trumpeted reforms such as privatisation of the road corporations and post office.
Further evidence of a reluctance to allow a private-sector resolution of Japan's post-bubble debt overhang came last month when the Industrial Revitalisation Corp of Japan, a government-funded restructuring agency, swooped in to rescue the struggling Kanebo conglomerate. That thwarted the plans of Kao, a home products company, to buy its rival's cosmetics business.
If serious government reform has been postponed and Japan is merely riding on the back of the juggernaut that is China, is this recovery doomed to evaporate like other post-bubble mirages?
Mr Paul Sheard, chief economist at Lehman Brothers in Tokyo, thinks there is a danger of that.
'There's a lot of deja vu here. This is the third recovery since the bubble,' he said. 'When the last recovery petered out, a policy consensus emerged that just trying to row out of problems on the tide of a cyclical recovery doesn't work.'
Mr Sheard argues that Japan may be doomed to slip back into economic coma unless it solves its structural problems. He favours starting by fixing the banking sector's weaknesses, which he considers the biggest single impediment to credit creation, effective monetary policy and growth.
Other economists support stimulating domestic demand through deregulation, or painful corporate restructuring by elimination of the so-called 'zombie' companies that are blamed for sapping Japan's economic lifeblood.
Whatever the precise mix of structural reform, says Mr Sheard, 'whether this (cyclical upswing) translates into a sustainable recovery depends on policy follow-through necessary to address Japan's macro and microeconomic problems'.
SOME DIFFERENCES THIS TIME
INDEED, with many reasons for caution, it would be foolish to take recent headline growth figures at face value. But some things really do seem different this time round.
For a start, unlike the recoveries of the 1990s, this one has not been started by lavish government spending. Although the annual budget deficit is still running at a worrying 8 per cent of GDP, the government has been paring discretionary spending and raising taxes to pay for non-discretionary items such as social security.
In the absence of government-led stimulation, companies have been taking matters into their own hands. Mr Masamoto Yashiro, chairman of Shinsei, a rescued bank whose successful initial public offering in Tokyo last month has become symbolic of corporate revitalisation, says many Japanese companies have spent several years quietly getting back into shape.
According to Mr Yashiro, years after the bubble burst, most businesses were still postponing tough decisions, convinced asset prices would recover and their problems would float away.
Since the late 1990s, he says, prodded by the need to compete with China and by the realisation that Japan's years of easy growth were over, they had been disposing of non-core businesses, shifting production abroad and paying down borrowings. Merrill Lynch estimates that, at this rate, corporate debt will be back to pre-bubble levels within two years.
Ms Naoko Tanaka, an adviser to Prime Minister Junichiro Koizumi, says firms have funded recent increases in capital spending without recourse to the banks - either through cash flow or by tapping the capital markets. In short, Japanese companies are financially fitter and far better positioned to take advantage of external demand.
Banks, too, have been gradually repairing their balance sheets, albeit at the cost of a sharp contraction of their loan books. 'The banks can no longer afford to keep bailing out weak companies,' says Mr Yashiro. 'If they do, they know they will be nationalised and the managers will lose their jobs,' he adds, referring to the fate of Ashikaga, a recently nationalised regional bank, and Resona.
The final cause for optimism is a more promising macro-policy stance. Previous nascent recoveries have been snuffed out by government blunders, such as the confidence-sapping increase in sales tax in 1997 and the premature tightening of monetary policy in 2001. This time round, politicians and bureaucrats are more sensitive to the dangers. Fiscal policy is mildly - but only very mildly - contractionary. Meanwhile, the central bank has pledged to keep zero-interest rates in place until inflation is well entrenched, the nearest thing Japan has had to an inflation target since the rot of deflation set in nearly a decade ago.
REASONS FOR CAUTION
NONE of this means Japan's problems are solved yet. For one thing, the headline GDP numbers that are causing so much excitement are highly misleading. Economists have become used to thinking of growth in real terms because this takes into account the distorting effects of inflation. But in a deflationary economy, it makes more sense to think in nominal terms.
Thus, even though Japan has grown sporadically in deflation-adjusted terms, the nominal size of the economy has been shrinking almost constantly since 1997. In these conditions, working out 'real' growth has become almost entirely a function of accurately calculating a measure of deflation, something Japan has had great difficulty in doing. The latest figures showing 'real' growth of 7 per cent were flattered by supposed (almost certainly exaggerated) price falls of 4.4 per cent, putting nominal growth at a more humble 2.6 per cent.
Even the nominal number is not all it seems because of Japan's practice of taking the quarter-on-quarter GDP number and annualising it. Comparing one quarter's growth with that of the previous year, Japan is in fact growing in nominal terms at 0.9 per cent, says Mr Peter Tasker, who runs Arcus Investment, a hedge fund in Tokyo.
The second reason for caution is that Japan's recovery, like those before it, leans heavily on exports. It is true about two-thirds of recent growth has been accounted for by private investment. But most economists say this is almost overwhelmingly due to capital investment by export-oriented companies.
ING calculates that as much as 80 per cent of the export improvement is thanks to China, which has surpassed the United States as Japan's biggest trading partner. Some of those shipments may be supplying Japanese factories in China and therefore ultimately destined for the US. In any case, Japan remains extremely vulnerable to an external shock, whether it be a slowdown in the US or in China itself.
Japan's need to keep exports booming has been reflected in unprecedented levels of foreign currency intervention aimed at preventing the yen from appreciating too rapidly against a sliding US dollar. Last year, Japan spent an astonishing US$180 billion on propping up the dollar, three times the previous record. This year, it has already pitched in an estimated US$90 billion.
Yet, signs of the export performance feeding through to the domestic economy are patchy. In spite of falling unemployment, consumer spending, which accounts for more than 55 per cent of GDP, has remained almost flat.
Throughout recent downturns, Japanese households have tried to maintain their living standards by dipping into their savings. That has led to concern that even during a sustained upturn, households will not increase spending but, rather, take the opportunity to replenish their savings.
Mr Takuya Goto, president of Kao, says there is still little sign of recovery in consumer sentiment. 'It's not that there's no money around,' he says. 'But people are anxious about the future, about pensions and so on.'
Mr Motoya Okada, president of Aeon, Japan's second biggest retailer, is equally cautious. 'It is the export-led industries that are pulling Japan up,' he says. The best-performing of Aeon's 300 stores are in areas where big exporters, particularly car-makers such as Toyota and Honda, are located.
'Japan must evolve from this dependence on exports,' says Mr Okada, who argues that more must be done to release domestic demand. 'But right now, we need this (export-led) push. It is a necessary evil.'
GOOD CHANCE FOR RECOVERY
THESE structural weaknesses aside, if external conditions remain favourable for long enough, Japan has a unique opportunity to turn the corner. That is because deflation - notwithstanding the freak -4.4 number in recent GDP data - is easing substantially by most measures. Last October, the consumer price index nudged into positive territory for the first time in five years, although it has since slipped fractionally below the surface again.
If Japan could finally move into inflation, says Mr Sheard, it might be able to manage, say, 3 per cent real growth and 5 per cent nominal growth a year. For most observers, this benign scenario would be the best way for Japan to float gently free of its bubble-related debt overhang.
'The recovery is still fragile. But at last we are beginning to restore economic confidence,' says Mr Okada. 'If this goes on long enough, everything should gradually come right. It has taken us 10 years to get here.'
Pessimists say that letting time take care of the bubble aftermath will do little to solve Japan's most intractable problems - such as that Japan still saves more than it can usefully invest; that its public debt has ballooned to an eye-popping 140 per cent of GDP; and that its population is among the fastest-ageing in the developed world.
But if Japan can get over the hill to the inflationary high ground, at least it will be able to put its bubble-related difficulties behind it - and start tackling the problems of its present and future.
Is the sun really rising?
It would be foolish to take Japan's recent promising economic growth indicators at face value, but some things really do seem different this time round, despite what cynics say
DAVID PILLING
FINANCIAL TIMES
ANYONE would think Japan had become the world's latest tiger economy. According to official figures, gross domestic product rose 7 per cent in real, deflation-adjusted terms in the fourth quarter - a rate of growth not seen since the intoxicating 1980s. The January trade surplus, swollen by shipments to China, rose almost fivefold from last year as exporters brushed aside the effects of a strengthening yen.
Moreover, the benefits of an export-led recovery are beginning to filter into the job market. Unemployment has fallen from a post-war peak of 5.5 per cent in January last year to 4.9 per cent in December. Corporate profits have surged, while wages have stabilised after years of decline. Figures published recently showed that overtime pay rose 4.5 per cent in January, the 18th consecutive month of improvement.
The Nikkei stock average, which has clawed its way back to 11,300, is 50 per cent above last April's post-bubble lows - easing the pressure on institutions such as life assurers and banks, which hold large amounts of equity.
Last year's talk of spiralling deflation, or an imminent collapse of the financial system under the weight of non-performing loans, now seems like absurd scaremongering.
Mr Horst Kohler, managing director of the International Monetary Fund, was waxing lyrical when he visited Tokyo last week. Normally a sharp critic of Japan's half-hearted policy response to a decade of slowdown, Mr Kohler admitted that the latest growth figures had taken him and his organisation by surprise.
'Japan's economic prospects have clearly brightened,' he said. The IMF now expected real GDP this year to grow by 3 per cent or more, higher than its original forecast of 2.2 per cent. 'I am confident that continued efforts to carry out structural reforms will lead to sustained growth over the coming years.'
WEAKNESSES STILL THERE
CYNICS, in contrast, say much of the current strong cyclical upsurge has been possible because potentially debilitating economic restructuring has been left on the back burner.
Witness last year's US$17 billion (S$29 billion) bailout of the bank Resona - a blow to the purists who would have liked to see it collapse - or the government's relative lack of progress on much-trumpeted reforms such as privatisation of the road corporations and post office.
Further evidence of a reluctance to allow a private-sector resolution of Japan's post-bubble debt overhang came last month when the Industrial Revitalisation Corp of Japan, a government-funded restructuring agency, swooped in to rescue the struggling Kanebo conglomerate. That thwarted the plans of Kao, a home products company, to buy its rival's cosmetics business.
If serious government reform has been postponed and Japan is merely riding on the back of the juggernaut that is China, is this recovery doomed to evaporate like other post-bubble mirages?
Mr Paul Sheard, chief economist at Lehman Brothers in Tokyo, thinks there is a danger of that.
'There's a lot of deja vu here. This is the third recovery since the bubble,' he said. 'When the last recovery petered out, a policy consensus emerged that just trying to row out of problems on the tide of a cyclical recovery doesn't work.'
Mr Sheard argues that Japan may be doomed to slip back into economic coma unless it solves its structural problems. He favours starting by fixing the banking sector's weaknesses, which he considers the biggest single impediment to credit creation, effective monetary policy and growth.
Other economists support stimulating domestic demand through deregulation, or painful corporate restructuring by elimination of the so-called 'zombie' companies that are blamed for sapping Japan's economic lifeblood.
Whatever the precise mix of structural reform, says Mr Sheard, 'whether this (cyclical upswing) translates into a sustainable recovery depends on policy follow-through necessary to address Japan's macro and microeconomic problems'.
SOME DIFFERENCES THIS TIME
INDEED, with many reasons for caution, it would be foolish to take recent headline growth figures at face value. But some things really do seem different this time round.
For a start, unlike the recoveries of the 1990s, this one has not been started by lavish government spending. Although the annual budget deficit is still running at a worrying 8 per cent of GDP, the government has been paring discretionary spending and raising taxes to pay for non-discretionary items such as social security.
In the absence of government-led stimulation, companies have been taking matters into their own hands. Mr Masamoto Yashiro, chairman of Shinsei, a rescued bank whose successful initial public offering in Tokyo last month has become symbolic of corporate revitalisation, says many Japanese companies have spent several years quietly getting back into shape.
According to Mr Yashiro, years after the bubble burst, most businesses were still postponing tough decisions, convinced asset prices would recover and their problems would float away.
Since the late 1990s, he says, prodded by the need to compete with China and by the realisation that Japan's years of easy growth were over, they had been disposing of non-core businesses, shifting production abroad and paying down borrowings. Merrill Lynch estimates that, at this rate, corporate debt will be back to pre-bubble levels within two years.
Ms Naoko Tanaka, an adviser to Prime Minister Junichiro Koizumi, says firms have funded recent increases in capital spending without recourse to the banks - either through cash flow or by tapping the capital markets. In short, Japanese companies are financially fitter and far better positioned to take advantage of external demand.
Banks, too, have been gradually repairing their balance sheets, albeit at the cost of a sharp contraction of their loan books. 'The banks can no longer afford to keep bailing out weak companies,' says Mr Yashiro. 'If they do, they know they will be nationalised and the managers will lose their jobs,' he adds, referring to the fate of Ashikaga, a recently nationalised regional bank, and Resona.
The final cause for optimism is a more promising macro-policy stance. Previous nascent recoveries have been snuffed out by government blunders, such as the confidence-sapping increase in sales tax in 1997 and the premature tightening of monetary policy in 2001. This time round, politicians and bureaucrats are more sensitive to the dangers. Fiscal policy is mildly - but only very mildly - contractionary. Meanwhile, the central bank has pledged to keep zero-interest rates in place until inflation is well entrenched, the nearest thing Japan has had to an inflation target since the rot of deflation set in nearly a decade ago.
REASONS FOR CAUTION
NONE of this means Japan's problems are solved yet. For one thing, the headline GDP numbers that are causing so much excitement are highly misleading. Economists have become used to thinking of growth in real terms because this takes into account the distorting effects of inflation. But in a deflationary economy, it makes more sense to think in nominal terms.
Thus, even though Japan has grown sporadically in deflation-adjusted terms, the nominal size of the economy has been shrinking almost constantly since 1997. In these conditions, working out 'real' growth has become almost entirely a function of accurately calculating a measure of deflation, something Japan has had great difficulty in doing. The latest figures showing 'real' growth of 7 per cent were flattered by supposed (almost certainly exaggerated) price falls of 4.4 per cent, putting nominal growth at a more humble 2.6 per cent.
Even the nominal number is not all it seems because of Japan's practice of taking the quarter-on-quarter GDP number and annualising it. Comparing one quarter's growth with that of the previous year, Japan is in fact growing in nominal terms at 0.9 per cent, says Mr Peter Tasker, who runs Arcus Investment, a hedge fund in Tokyo.
The second reason for caution is that Japan's recovery, like those before it, leans heavily on exports. It is true about two-thirds of recent growth has been accounted for by private investment. But most economists say this is almost overwhelmingly due to capital investment by export-oriented companies.
ING calculates that as much as 80 per cent of the export improvement is thanks to China, which has surpassed the United States as Japan's biggest trading partner. Some of those shipments may be supplying Japanese factories in China and therefore ultimately destined for the US. In any case, Japan remains extremely vulnerable to an external shock, whether it be a slowdown in the US or in China itself.
Japan's need to keep exports booming has been reflected in unprecedented levels of foreign currency intervention aimed at preventing the yen from appreciating too rapidly against a sliding US dollar. Last year, Japan spent an astonishing US$180 billion on propping up the dollar, three times the previous record. This year, it has already pitched in an estimated US$90 billion.
Yet, signs of the export performance feeding through to the domestic economy are patchy. In spite of falling unemployment, consumer spending, which accounts for more than 55 per cent of GDP, has remained almost flat.
Throughout recent downturns, Japanese households have tried to maintain their living standards by dipping into their savings. That has led to concern that even during a sustained upturn, households will not increase spending but, rather, take the opportunity to replenish their savings.
Mr Takuya Goto, president of Kao, says there is still little sign of recovery in consumer sentiment. 'It's not that there's no money around,' he says. 'But people are anxious about the future, about pensions and so on.'
Mr Motoya Okada, president of Aeon, Japan's second biggest retailer, is equally cautious. 'It is the export-led industries that are pulling Japan up,' he says. The best-performing of Aeon's 300 stores are in areas where big exporters, particularly car-makers such as Toyota and Honda, are located.
'Japan must evolve from this dependence on exports,' says Mr Okada, who argues that more must be done to release domestic demand. 'But right now, we need this (export-led) push. It is a necessary evil.'
GOOD CHANCE FOR RECOVERY
THESE structural weaknesses aside, if external conditions remain favourable for long enough, Japan has a unique opportunity to turn the corner. That is because deflation - notwithstanding the freak -4.4 number in recent GDP data - is easing substantially by most measures. Last October, the consumer price index nudged into positive territory for the first time in five years, although it has since slipped fractionally below the surface again.
If Japan could finally move into inflation, says Mr Sheard, it might be able to manage, say, 3 per cent real growth and 5 per cent nominal growth a year. For most observers, this benign scenario would be the best way for Japan to float gently free of its bubble-related debt overhang.
'The recovery is still fragile. But at last we are beginning to restore economic confidence,' says Mr Okada. 'If this goes on long enough, everything should gradually come right. It has taken us 10 years to get here.'
Pessimists say that letting time take care of the bubble aftermath will do little to solve Japan's most intractable problems - such as that Japan still saves more than it can usefully invest; that its public debt has ballooned to an eye-popping 140 per cent of GDP; and that its population is among the fastest-ageing in the developed world.
But if Japan can get over the hill to the inflationary high ground, at least it will be able to put its bubble-related difficulties behind it - and start tackling the problems of its present and future.
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