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Back to the future

Back to the future

Ho Kwon Ping
The Straits Times, 10 December 2008

AS IF the demise of American-style capitalism was not enough, more bad news about 'the new declinism' of the American global order recently made the front page. The United States National Intelligence Council's (NIC's) periodic global trends report caused The Guardian to headline: '2025: the end of US dominance'.

The fact that it was the NIC that issued this prediction was probably more shocking than its conclusion. After all, the observation that 2025 would see 'a world in which the US plays a prominent role in global events, but is seen as one among many global actors' would be surprising only to the most die-hard advocates of the American Imperium. But because modern history has always been about the inexorable rise of Western civilisation, it has been difficult for many Westerners to conceive of a world where multiple civilisations co-existed.

History teaches us that we can look back to see the future: Around 150 years ago, an event of enormous significance occurred, but it passed without notice. 1852 was the year when, for the first time in human history, one of the world's major nations had more of its people living in cities than in the countryside. That country happened to be England.

Over the next 100 years, England rapidly advanced to become the world's pre-eminent imperial power. That it was the first and most urbanised nation in the world was a major contributor towards its dominance. The massive rural-tourban migration provided human fodder for Britain's factories, army and navy, as well as consumers for Britain's industrial revolution. The notion of a working class, which was to lead to the fierce ideological conflicts of the 20th century, was entirely a result of urbanisation.

What is the point of this historical anecdote? Well, the very same trend which propelled little England to become one of the world's most powerful empires is now playing out in the world's largest country, China.

Today, 40 per cent of China's population is already living in cities. When the Chinese Communist Party assumed power in 1949, only 12 per cent cent did. Every year now, from 25 million to 30 million Chinese villagers move to the cities. Within the next 10 years, 300 million to 500 million of them - more than the entire population of Western Europe - will have made that journey. By 2015, China will reach the same tipping point as England did in 1852.

The same is happening in India, though at a slightly slower pace. In 1950, marginally more Indians lived in cities than did Chinese - roughly 17 per cent compared to China's 12 per cent. But by 2015, when more than half of China will be urban, only one-third of Indians will live in cities. Only around 2050 will India reach the rural-urban tipping point.

Whether urbanisation is the cause or the consequence of powerful socio- economic trends - or whether urbanisation brings more social ills than progress - is not relevant. What is important is that urbanisation is a leading indicator of rapid, though not necessarily equitable, economic development.

This demographic trend is so inexorable, we will see not just the economic or political resurgence of Asia but a paradigm shift in civilisational relationships.

Civilisations are not just about geopolitical or economic power. They involve value systems and belief structures. The past 200 years have witnessed the dominance of Western civilisation, through a combination of military and technological prowess, backed by vibrant political and economic systems.

The weight of demographic evidence indicates the re-emergence of two ancient Asian civilisations to global prominence. Economic and political change occurs in short-wave cycles; civilisations rise and fall in very long-wave cycles. The decline of Asia took 200 years; its rise will be equally long.

What will the world look like then? There will be a re-balancing of economic and political power, obviously. But more fundamentally, Western cultural norms will no longer be the yardstick by which non-Western societies measure themselves. We will see a world with competing value systems, rather than the sanitised, homogeneous globalisation that Davos-philes imagined.

To glimpse what the world will look like in the next century, we have to ironically go back 300 years, to the 17th century. That was the last century when the world was not dominated by any single civilisation. Let's take a look at a random year - say 1652, exactly 200 years before the seminal year of 1852.

In 1652, Oliver Cromwell crowned himself protector of England. The Tokugawa shogunate in Japan celebrated its first 50 years of power. The Manchu dynasty in China, only 10 years old then, was still virile and innovative. The Taj Mahal had just been completed in India. Isaac Newton had yet to discover gravity and the Islamic and East Asian civilisations were more advanced in science than Europe. These four cultures - Chinese, Indian, Islamic and the Western - had contacts with one another but none was dominant.

Fast forward 100 years later to 1752. That year the British East India Company seized Bengal. A decade later the steam engine was patented and not long after the cotton gin was invented, launching the Industrial Revolution. The Age of Reason, leading to a most unreasonable Age of Imperialism, was about to dawn. Another 100 years later, England became the most urbanised nation in the world, which propelled it (and the West in general) to become the world's dominant economic, military and political power. Despite two devastating world wars in the last century, this dominance lasted another century, till the anti-colonial movements of the mid 20th century.

The 1652 world, when no civilisation was dominant, is a world that non-Western societies can easily handle, and perhaps even long for. To the West, such a world might seem slightly unnerving, perhaps even frightening.

Allow me at this point to be provocative. China, and to a lesser extent India, will be a major player in this re-ordering of world civilisations. Islam will be the other. Both are coming at it from totally different directions: Asia from outside the Western framework, and Islam, ironically, from within.

If there is a clash of civilisations, it will not occur in the Middle East. The most profound encounters between Islam and the West today is not occurring in Lebanon or Gaza. It is occurring in the immigrant enclaves in Birmingham in Britain or Detroit in the US - within the very heart of Western civilisation. The fact that recent terrorist arrests in Europe have involved native-born nationals is significant.

The challenges to Western civilisation are real. Whether they result in a 'clash of civilisations', as Samuel Huntington envisages, or a peaceful transition to a new world order with multiple centres of power, each governed by its own cultural norms, will depend on the willingness of the West to accommodate the new powers.

If the transition is to be peaceful, the Western world must acknowledge three basic mindset changes.

First, the fact that Western civilisation has dominated the globe for several hundred years, does not necessarily make it the natural order of things. One would think this is a no-brainer, but the speeches of some Western leaders suggest that concepts like 'manifest destiny' are still very much alive, especially among so-called neo-conservatives in the US.

Second, it is very likely that 100 years from now the world will again resemble the world of 1652, with no dominant civilisation. Whether there will be, as globalisation advocates predict, a single world culture, or competition between different but interconnected civilisations, remains to be seen - but we should not assume it will be the former.

Third, what happens in the next 10 years is likely to shape the future, as an increasingly assertive Asia finds itself blocked by a resistant West, and a disillusioned Muslim minority within the West rejects Western civilisational values.

What should responsible Western intellectuals and companies do? For a start, they can be the midwives, rather than the abortionists, of a new world order with several competing, broadly equal and constantly interacting civilisations.

And what we all need to do is remember that the greatest lesson of history is not that demographics is a great shaper of trends - which indeed it is - but that the cause of the downfall of every single civilisation since time immemorial has been hubris.

Hubris - that quality of believing what you want to believe of yourself; that singular lack of self-doubt which eventually clouds wisdom and overrides our better judgment - that is the greatest danger civilisations, East and West, face.

The writer is chairman of the board of trustees of the Singapore Management University. Think-tank is a weekly column rotated among eight leading figures in Singapore's tertiary and research institutions.

It is very likely that 100 years from now the world will again resemble the world of 1652, with no dominant civilisation. Whether there will be, as globalisation advocates predict, a single world culture, or competition between different but interconnected civilisations, remains to be seen - but we should not assume it will be the former.

Copyright 2008 Singapore Press Holdings, Inc. All Rights Reserved. Published by OneSource Information Services, Inc., December 2008

 

Banking on Neo-Confician Capitalism

Banking on Neo-Confician Capitalism

Ho Kwon Ping

The Straits Times, 5 September 2008

It's university graduation season again and invariably, many graduates I encounter want to become investment bankers.

In less than a year, financial stocks have plummeted by over 70 per cent in value. Millions of Americans and Britons have lost their homes. Countless millions more around the world have seen their net wealth drop precipitously, possibly never to recover within their working lives. Who to blame? Investment bankers, of course, who devised all those sub-prime mortgages and other cute "products" with long, exotic names.

As someone noted, never in history have so many people lost so much money

due to the actions of so few.

Why then would young graduates want to be investment bankers? Well, to begin with, because investment bankers reward themselves pretty well, regardless of how others are doing. Bonuses paid in London's financial district totalled f6 billion 6815.7 billion) this year, though the total losses of financial services companies were 10 times greater.

And in case you think that pay should correlate with performance, don't be naive. Last year, the CEO of a large private equity fund walked away with a US8350 million (SS499 million) bonus, though his just-listed company's share price had tanked by 37 per cent.

Nobel laureate Joseph Stiglitz recently noted that the Wall Street financial system "paid bankers to gamble. When things turned out well, they walked away with huge bonuses. When things go badly, as now, they do not share in the losses. Even if they lose their jobs, they walk away with huge sums".

To be fair to the maligned financial engineers, others also got rich during the good years. In 1994, the average American CEO was paid about 90 times more than the average blue-collar worker. Today, it is 180 times.

But it is still mainly bankers who buy the thousand-dollar wines and Bentley convertibles. In America's Fortune 1,000 industrial companies, CEOs make around

two to five times more than their immediate subordinates. In Wall Street, the top

dog earns around 20 to 40 times more than his immediate subordinates.

It's not surprising then that income inequality in the United States is at an all-time high. The share of the national wealth owned by the top 1 per cent of Americans has more than doubled – from 20 per cent in 1976 to more than 50 per cent today. Through changes to the tax system, an American private equity partner can today pay less taxes than the cleaning lady in his office, according to economist Paul Krugrnan.

How did all this happen with no one complaining? The simple answer is that in a period of continually rising asset prices – in this case, of houses – living standards became detached from income and tied to asset value. People simply borrowed more to finance their lifestyles, and this was possible because of the housing bubble.

When was the last time the US had nearly the same income inequality as today? Answer: 1929, the eve of the Great Depression. The 1920s was a decade of enormous wealth and booming prosperity for the very rich and, as one historian noted, it was fuelled by "the magic of leverage". Sound familiar?

Back then, it was through investment trusts sponsoring one after another in one huge financial house of cards. Today, it is home owners leveraging off ever-rising home values to borrow more than at any time in American history. It is private equity funds borrowing over 30 times their equity, to buy inflated assets and yet return stellar profits to investors.

The globalisation of capitalism in the past half-century has resulted in two major socio-cultural variants. The dominant variant – Anglo-American capitalism – was built on very high income inequality as the incentive for risk-taking and wealth creation and had all its flaws recently exposed.

The genteel conspiracy between Wall Street and its compliant multilateral- agency partners (read: International Monetary Fund) is now breaking down. The legitimacy of this collusion, once never questioned, has been frayed by blatant hypocrisies. As one observer noted, the sub-prime mortgage crisis and its aftermath have done to US leadership in financial markets what Guantanamo Bay has done to the US moral high ground in human rights.

The German President has even derided private equity fund managers as "locusts" and sub-prime peddlers as "monsters", and called for a return to what he called "a continental European banking culture".

However, the European model, influenced – "infected", Americans would say – by democratic socialist tendencies after World War 11, produced welfare capitalism with its stifling effect on individual initiative and entrepreneurship. It's not a particularly inspiring alternative to Wall Street.

Successive financial crises have proven one consistent point: Regulation by itself cannot prevent excessive speculation or collusive behaviour. Greed fuels speculative booms and aggravates busts, but it can only be reined in, not by regulation alone, but by a moral framework – the value system of the entire society, within which business is practised.

As East Asia emerges as a major economic region, it should not simply adopt the Anglo-American or European models, but create its own alternative. The common, recurring socio-ethical tradition of East Asia is its communitarian, family-focused webs of mutual obligations. This communitarianism can, if thoughtfully enhanced, nurtured and developed, replace the highly individualistic, Darwinian ethos of Anglo-American capitalism, or the state welfarism of Euro-capitalism.

Of course, critics will argue that this neo-Confucian capitalism is compatible with crony capitalism, as the 1997 Asian financial crisis highlighted. They have a point. But the flaws of East Asian culture do not negate the need to develop a socio-cultural alternative to the Wall Street ethos. Indeed, they only make more urgent that East Asian thought leaders refine and redefine neo-Confucian values.

After all, the only long-term solution is to change a society's entire reward system, and this can be done only if society changes the ways it views itself.

US presidential hopeful Barack Obama got it right when he said the country has lost "its sense of shared prosperity". It is the shared sense of prosperity which is at the very heart of neo-Confucian capitalism, and which East Asia needs to rediscover as the root of its success and the inspiration for its future.

The writer is chairman of the board of trustees of the Singapore Management University.

Source:
www.straitstimes.asia1.com.sg/Review/Others/STIStory_272233.html

Rights:
Copyright © 2008 Singapore Press Holdings Ltd. Co.