Monday, January 19, 2009

Best Business Book For 2008

I read a lot of business related books, and I can say this was the best I have read for a long time. Easily the best business non-fiction for 2008. Many might have come across this book already as it was published in the early part of last year. I bought it a few months back, and only just managed to get around to reading it. It is all the more important when compared to the hugely popular The World Is Flat by Thomas Friedman, a tome on the benefits of unstoppable charge of globalisation. Professor Chang, currently with Cambridge University, is also an economist and a leading expert on development economics, which focuses on issues related to economic growth in low-income countries.

Chang's Bio

Professor Chang insists that historically, high tariffs were largely responsible for the economic success of both the United States and Britain. In theory, he argues, the world's wealthiest countries and supra-national institutions like the IMF, World Bank and WTO want to see all nations developing into modern industrial societies. In practice, though, those at the top are 'kicking away the ladder' to wealth that they themselves climbed. Why? Self-interest certainly plays a part. But, more often, rich and powerful governments and institutions are actually being 'Bad Samaritans': their intentions are worthy but their simplistic free-market ideology and poor understanding of history leads them to inflict policy errors on others.

He won the Gunnar Myrdal Prize for his book “Kicking Away the Ladder: Development Strategy in Historical Perspective” (2002), and he shared the 2005 Wassily Leontief Prize for his contributions to “Rethinking Development in the 21st Century.” This book is remarkable as it almost go against all the perceived benefits of globalisation, and even the standard economics syllabus currently being taught at most universities.

The Korean Experience

The author gave one of many examples of how "total free trade" was not necessary and at times not even conpatible with economic success. South Korea back in 1961 has a per capita income of just $82 per person, less than half the $179 per capital income in Ghana at that time. fast forward, South Korea is today a manufacturing powerhouse, with a 2004 per capita income of $13,980. It did not get there by NOT having tariffs or promoting free trade.

Bashing The Unholy-Trinity / Mahathirism / Look East Policy

The powerful “ladder-kickers” working in the “unholy trinity” include the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) - this statement will make Mahathir very pleased, but as persuasive as Chang's book is, Mahathir's economic strategy is still largely mis-directed. It was obvious that some of the mega projects Mahathir implemented was taken from the copybook of Japan and South Korea, indirectly listening too much to the mostly hotbag of air in Kenichi Ohmae. (this entire section was not part of the book, but I am sure some would see the book as supporting of Mahathir economics, hence I felt it was relevant to put in some pertinent points relating to the issue)

What Mahathir missed out on :
a) both Japan and South Korea had huge population which translates into a critical domestic economy;
b) both countries spent ferociously on education (our Malaysian universities keep dropping out of relevance over the years);
c) both countries practice a more meritocratic society;
d) while corruption and abuse of power are about the same as in Malaysia, so no difference there I guess;
e) both countries are from a homogenous race, not like Malaysia having to contend since independence till today how to slice the economic pie in racial terminology;
f) Japan and South Korea are resource poor nations, they have to move into manufacturing and services, while Malaysia always have a ready tap on resources thus promoting easy-way outs - Japan and South Korea being resource poor had very little room not to succeed while Malaysia will always give entrepreneurs/selected CEOs chances after chancs to prove their ineptitude;
g) Japan and South Korea will always imitate and copy the best and then try to overtake the prototype with better and cheaper design/product, while Malaysia mainly just is piss poor in execution and corporate management strategy;
h) Japan and South Korea companies will plan for the long term, while some of us try to get as much as they can for their self-interest while they can...

In summary, it was OK to do the mega projects, I don't even mind subsidising Proton's profits for the first 5 years, but show la something, show that we are actually building a better car every year, get the better design minds and engineers on board, have a long term strategy from day one ... after so many years, is Proton even able to produce one patent or a better way to even just make one part of the car? No, we are still struggling with inferior power windows till today.

You want to look east, its not just turning your head eastwards... you must change the entire fabric of society in terms of education, meritocracy and corrupt politics/business. But, we all know that already... in fact most Malaysians know that already, this is not something new. Its a dangerous place when more and more of the general public think they can run the country better than the government, and whats even more dangerous than that is that the public are not wrong about that.

The Free Trade & Globalisation Movement

All universities and textbook economics preaches globalisation and free trade, what that means is promoting the following ideals:

a) privatizing state-owned enterprises
b) maintaining low inflation
c) shrinking the size of the state bureaucracy
d) balancing the national budget
e) liberalizing trade
f) deregulating foreign investment
g) making the currency freely convertible
h) reducing corruption
i) privatizing pensions
These are allegedly the only route to economic success. Especially if you ask WTO, IMF and World Bank. That is also why the only thing i salute Mahathir for is not to take the IMF funds and go about solving the Asian financial crisis via his own way. Taking aid/loans from any of the unholy-trinity would always come with conditions cited from (a) to (i).

Not Just One Route To Economic Success

The wonderful truth about Chang's book is that free trade and globalisation movement are not the only route to economic success. In fact, there are strong arguments that countries can also achieve economic success if they had some tariffs and protection to nurture some industries till they are strong enough to compete. Forcing absolute free trade and deregulation in actual fact may keep many poor countries locked into a sub-serviant economic position for an even longer period... yes, they may get more trade and more jobs but they will still be making and export products at the primary level, and not be able to move appreciably up the ladder of economic development. Thus Chang's often used phrase that the bad samaritans keep "kicking away the ladder" after they have climbed it themselves.

Highly readable, highly accessible and enhances our understanding and clarity of the routes to economic success. While it bashes some of the utopian beliefs on free trade and globalisation, we must be reminded that there are a lot of "good" in promoting free trade and encouraging the globalisation movement, but we should also think deeper on bringing up countries up along the economic curve. It also manages to debunk the biggest myth of all, that free trade and deregulation are god-given economic tablets.

p/s photos; Zhou Wei Tong


easystar said...

Hi Savatore,

I think you are spot on when you say it is OK to subsidise Proton for first 5 years, but they got to show something. Such protection is no different from anti competitive legislation that are enacted worldwide - to give the creative and progressive a chance.

But often, such protection has a cost to overall GDP and unless the protected industry generates above norm (say, average world GDP growth rate) return (or unless it is strategic, such as food production), the entire society will actually be poorer than if the protection was not undertaken. (e.g. transport company would have be far more efficient if their vehicle capex was lower etc).

easystar said...

Hi Savatoire,

There are also another alternative to tariff, which is venture capital money which can afford to allow Proton to sell its car cheap for the first five years before critial mass is reached which having to compete openly with other makers.

see said...

yeah, free trade has always been used to prise open markets but then again which country won't act for its own interest

Pat said...

Just to re-affirm the sad state of economic affairs in our country. Here's an article by or former finance minister Tengku Razalegh Hamzah

Read the article and forget the political undertones.

One wonders whether we can still turn it around.

I recently attended a seminar conducted by the infamous Dr Mark Mobius in KL. On question raised was what leverage does Malaysia have in terms of economic conpetitiveness. His answer..agriculture and tourism.
Another words forget about manufacturing..we missed that bus as SD and Tengku Razaleigh have pointed out.

What do you think fo this article SD?

Thanks and Kong Xi Fatt Choy !!!

andrewtai said...

the currency crisis is an unnecessary crisis and need not have happened if the objective of the international financial system is really to facilitate trade and other economic interactions between nations, including FDIs. But the big capitalist powers want more than that. They want to promote their political agenda as well, and it is because of it political agenda that international financial system not only permitted but at times even encourage currency trading, a totally unnecessary activity, which destroys more wealth than it creates
do link me bro

Jeremiah said...

Hi Salvatore,

Firstly, Msia's auto policy cannot be compared with Japan's because Japan at first encouraged domestic competition so that the Hondas and Toyotas could compete and become more efficient among themselves vebfore venturing abroad. No such policy was done here in Msia as Proton was a complacent monopoly.

Second, the Plaza Accord of 1985 caused the Yen to rise and shifted Japan/US FDI from NIEs like Japan/Taiwan into ASEAN. This was the windfall that pushed Msia's GDP growth up to 7-8% for a decade.

I wonder if the book shed some light on these issues.

morpheuzneo said...

now i'm starting to feel like reading the blog of next pm in line :)

great article.. !surely will find this book..!


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