Thrift has helped keep Asian economies buoyant     26 Oct 2008 

Economic problems tend to be cyclical in nature, and as soon as the worst is behind us, we get caught up in a new wave of euphoria, quickly forget the pain and enjoy the good times before trouble starts once again. Previous economic crises forced Asia to exercise the sort of financial discipline that is largely absent in the west.  

Thrift and a long-term orientation are important elements of Confucian teachings. Some call this Confucian dynamism, in contrast with the tendency to spend and a short-term orientation favoured in the west. These are of course, generalizations. But they are important indicators of cultural values and trends which help us better understand how the current troubles started.  

Scholars suggest that people who exhibit a high Confucian work dynamism place more emphasis on thrift, are more persistent in their pursuit of goals (including education and making money), and have a greater sense of shame. The latter sounds like a good antidote to the shameless greed on Wall Street. All these, including reverence for academic achievements, respect for authority and a quest for harmony have been strong influences on the cultures of countries with Confucian roots.  

They are values which, it appears, also tend to have a stabilizing influence on regional economies. Of course they cannot always be relied upon to tame man’s natural tendency to be carried away when optimism replaces common sense. The Asian financial crisis is a case in point. Rampant speculation fuelled by unfettered optimism, greed and instant gratification posed a serious challenge to Confucian dynamism. Corruption didn’t help either, particularly when it involved the heads of major corporations that were once mandatory case-study reading material.  

In the east, money is valued not merely for what you can spend it on. It’s also about the status and social standing it earns for you. Money moves you up the social hierarchy and buys you respect and reverence. It buys social status, cleanses tainted reputations and blinds people to whatever modest or even unsavoury social background or history you might have had the misfortune of being born into.  

In Chinese culture, social climbing is also linked to the acquisition of ‘face’, a notion tied to respectability, social acceptance and self-worth. Some who have risen from humble beginnings to unbelievable wealth think it elevates them further in the eyes of lesser mortals by lavish spending and ostentatious living. It is a way to make a statement that they expect to be treated like royalty.  

Luckily for these economies, this only applies to sections of the population and doesn’t therefore cause the same kind of instability you see in America and more recently in the UK where living beyond your means is actually socially-accepted behaviour. The concepts of ‘shame’ and ‘face’ in Confucian societies are such that poor elderly people would rather suffer in silence than accept handouts like the dole, which their counterparts in the west think of as a right. It seems to me that an absence of shame in a society makes people less worried about whether their lifestyle is a drain on public funds, and makes it more acceptable to replace the inconvenience and uncertainty of hard work with easy solutions and quick fixes.  

Widespread poverty and suffering across Asia in the first half of the last century also helped to instill a sense of discipline in the way people manage their financial affairs, and the importance they attach to working hard so that you will never again have to endure penury. It’s linked to the family as well, something the east shares with Africa. We believe in working hard and making sacrifices so that our children will have a better life than we did.  

Sometimes we overdo it, when these same children are so protected from the real world that they develop no sense of responsibility and end up squandering their parents’ hard-earned cash. I don’t see a lot of Asian kids running down family businesses. But I do see incompetence leading young ambitious people to take the sort of foolish gambles their fathers would have carefully avoided. Sometimes the incompetence is due to the fact that these guys don’t really have it in them to run a business. They were made to get an MBA and fixed into the job because parents don’t trust outsiders, no matter how competent, to run their affairs.   

Experts are now saying that Asia is looking at a serious shortage of managerial and professional expertise in the coming years. In spite of the thousands of universities and commercial colleges mushrooming across the place, the pool of expertise being created isn’t enough to meet the challenges of the future. That will be good news to those who possess the right skills. For many others, it will be a bit of a struggle.  

A bigger struggle is now emerging as businesses feel the strain of the global economic meltdown. Although banks still look stable, thanks in part to the tradition of saving which means they are reasonably well capitalized, manufacturing firms are facing a bleak future. Most of those now closing down manufacture almost primarily for the west, especially the US market which is now drying up. Economies like China might well find salvation in encouraging domestic spending and de-emphasizing thrift. What an irony. 

Hong Kong investors grapple with the aftermath of the Lehman collapse  19 Oct 2008 

Apart from the rollercoaster ride on the stock exchange, Asia’s economies have not taken as big a hit as those of the US and Europe. That’s not to say they’re safe. They have experienced some nasty shocks to the extent that their banks bought into the toxic debt that brought on the rot in the west.

Take the Lehman Brothers mini-bonds sold Hong Kong. Over 33,000 investors sank as much as US$1.5 billion in these esoteric and highly technical instruments without really understanding what they were purchasing. This was part of the cycling of debt and cleverly crafted derivatives which promised extremely high returns but were not exactly transparent when it came to disclosing the associated high risks.  

Savvy investors know that if it sounds too good to be true, it’s probably too good to be true. Some will know instinctively that the old axiom ‘the higher the risks, the higher the returns’ also works in reverse. The problem arises when the buyer is blinded by greed and gets sucked into the false belief that confidence and the markets will keep rising. The other problem is the apparent deception on the part of the sellers. A lot of the people who sell investments do not really understand the technical aspects of whatever they’re selling. 

You find a lot of young people, straight out of college, armed with a marketing degree walking into your office and waxing lyrical about these new wonderful financial products their great Wall Street investment bank has recently conjured. They go on and on about the high returns, the special discounts available for a limited time only, which you’ll lose, foolish fellow, if you don’t sign on the dotted line within 24 hours.  

These aggressive young men and women anxious to boost their sales figures and secure their bonuses couldn’t care less whether you lost your life savings, as long as they get their commissions and bonuses, and a mention as salesperson of the month in the company newsletter. They also prey on the elderly who don’t understand any of the jargon and just want to hear ‘high returns’.  

The scandal of the mis-selling of Lehman mini bonds is one of the biggest talking points in Hong Kong today. The authorities have lurched from one unworkable solution to another, urging compensation, claiming they shouldn’t be accused of failing to monitor Lehman Brothers. Somewhere in the middle of all the acrimonious exchanges lies a serious question, which is, how can investors best be protected from the wolves and sharks in the financial world?  

When banks like Lehman Brothers collapse, hapless investors are left holding on to worthless paper. Meanwhile the executives have been awarding themselves gravity-defying salaries and bonuses that, seen against the losses and bankruptcies now faced by investors, are nothing short of robbery.   

I was talking to a Kenyan banker recently about the shenanigans that go on in the stock market today which I encountered on a recent visit to the country. I found it quite bizarre that the power to trade on the stock exchange is monopolized by so-called brokers. Requiring investors to channel transactions through third parties effectively disenfranchises them and places them at substantial risk when these third-parties, who seem to be poorly supervised as well, engage in illegal trading, which I understand has led to a collapse or two.  

Such a practice also props up an industry that is prone to moral hazard where vested interests take precedence and irresponsible risk-taking is rewarded. In more advanced economies, you can trade through a broker if you so wish. The trend, however, is to empower people to effect their investments decisions themselves, almost invariably through the internet. Now, it may be that investors in Kenya need to be protected from their unfamiliarity with the market.  

But it seems to me as though investor education, if there is any, should equally be concerned with protecting investors from unscrupulous middlemen, brokers and all sorts of self-seeking third parties. That certainly seems to be the issue in Hong Kong, and no doubt many other jurisdictions. Regulators who should have scrutinized the increasingly innovative financial products on offer have defended themselves by claiming they ensured that the risks associated with minibonds were fully disclosed.  

The public begs to differ, and believes that the de facto central bank seems to have slept on the job. For the average investor who succumbed to what now looks like a case of mis-selling, it is not enough for the regulator to issue warnings that products are labeled properly, ie as high-risk. And herein lies the dilemma for a responsible regulator. What further role can they play to ensure that truly dangerous products are kept out of reach?  

Regulators can refuse to authorize products if they jeopardize the financial system, or if they are fraudulent. It makes you wonder, when regulatory authorities in supposedly advanced economies can barely keep up with the financial wizardly (and, sadly, disingenuity) emanating from bankers, brokers and what have you, what hope for investors in jurisdictions in which the gatekeepers of the industry treat the whole business of investing as a game? The way IPOs in Kenya have been handled for example does not augur well for stability when the effects of the global financial crisis begin to be felt.

Monstrous towers that are testimony to man’s enormous ego  12 Oct 2008 

The ancient Babylonians started the madness we now know as skyscrapers that reach to the skies as a monument to man’s ego and technological advancement. At a rumoured height of only three hundred feet, the Tower of Babel didn’t quite reach God. It earned them the curse of the confusion of a multiplicity of languages.  

The Babylonians would be shocked to discover that their tower would today be like a mere anthill compared to the humongous structures we construct today, structures that reach the dizzying heights of four hundred metres and above. 

For years, the west dominated the race to poke the skies. At school it was constantly drilled into our heads that the Empire State Building, the ill-fated World Trade Centre, and Sears Tower were the tallest buildings in the world. They were all in the US. They spoke of the might of America, its capacity to dominate the world in every sense, even by the sheer physicality of the buildings that graced its cities. 

Recently, the madness of reaching for the skies has shifted eastwards.  Malaysia’s Petronas Towers enjoyed a brief spell in the 1990s as the world’s tallest buildings before giving way to Taiwan’s Taipei 101. Other Asian giants include Shanghai’s Jin Mao Tower and the Shanghai World Financial Centre, Hong Kong’s Two IFC. Both the latter and Taipei 101 have, as the figure suggests, 101 floors.  

The engineering arrogance that drives man to build these structures seems to parallel the general state of the economy and national self-worth. For years, the US had the momentum until the economic rot started to set in a decade ago. With the slide of the dollar, the escalation of credit and general indebtedness, the Americans seemed to give up the Babel contest.  

In the aftermath of the 1997 financial crisis, Asians have reigned as the latter day Babylonians. The region seems to have found a new confidence, a belief in itself, in its ability to achieve anything it sets its mind on. China is seething with so much confidence that they plan to fly to the moon and plant the red flag on its barren landscape, like Neil Armstrong did in 1969. With a successful spacewalk just a couple of weeks ago, it can’t be long before the quest for the skies becomes a lunar achievement. Meanwhile, the Babel momentum has now shifted away from Asia and to the Gulf, the land of the original Babylonians. The madness has come full circle.  

The literal and allegorical references to Babylon in the Bible as the land of excesses are now being lived out in Dubai which boasts a seven hundred metre tower which upon completion will reach a mind-boggling 160 floors. This will quickly be followed by a monstrous tower a kilometre high. Jeddah plans a mile-high tower.  

At this rate, some builder somewhere will surely reach God. Africa hasn’t featured much in these conquests, and is content to watch from the sidelines. Africa’s tallest buildings jostle in at a modest 50 floors. 

Terrorist attacks of the 911 type and the biblical curse of confusion are perhaps the better-known risks of this business of reaching for the skies. The issue that hasn’t been well publicized is how pressure on the land squares with the effects of global warming as sea levels rise. In Bangkok they don’t have too many of these sky-hugging structures, but they are now quite familiar with the notion of a sinking city, even as demonstrators pursue the more urgent business of engaging the police and the government in running battles around the streets.  

Shanghai has both the third and the sixth tallest buildings in the world. The city is built on marshy ground, at the mouth of the Yangze, Asia’s longest river. It’s probably not the best location for skyscrapers with Babylonian ambitions. More than sixty years ago, the authorities realized that the city was sinking, due to excessive pumping of ground water. A bizarre decision was taken to pump treated water back into the ground. It helped stabilize the ground for decades.  

But now, the city has started to sink again, under the weight of numerous gargantuan towers. This is a common cyclical phenomenon in a country anxious to play in the biggest leagues in whatever endeavour you care to think about. If it isn’t health, it’s the environment. All easy fodder for the grand goal of notching up yet another proud achievement, the biggest this, the fastest that, and on and on it goes. The prospect of land subsidence as sea levels rise is going to be a major challenge for this particular city. Babel becomes the man who built his house on sand. 

There can’t be more bizarre ways to treat a smoking addiction than beating the hell out of the smoker and hopefully expel the demons of the addiction. This is what some people did in Malaysia recently. A chain smoker and his wife who suffered from asthma and liver disease received the thrashing treatment from relatives who smashed their heads on a table, and beat them senseless in an effort to cure them. They both died. Two lives lost to rampant superstition amongst rural communities miles away from the glittering Petronas Towers that define the Kuala Lumpur skyline. 

Gurkas now have a reason to smile 5 Oct 2008 

Some time ago, I wrote in these columns about the Nepalese government’s decision to allow its citizens to keep applying for jobs in the British military if they so wished, even though they thought the idea of sacrificing your life for another country ‘shameful’.  

The Gurkas would have been pleased, because the pay is rather attractive relative to what they would make in their poverty-stricken country. Meanwhile, a battle was being waged on another front – the British courts - for right of abode. In line with their policy of keeping immigrants out at all costs, the British decided they were happy to take on foreigners who were prepared to die for queen and country, but woe betide them if they attempted to settle on British soil.  

The poor fellows found to their dismay that putting your life on the line wasn’t sufficient to gain the same privileges as those you fought for. For two hundred years, Britain has hired these men who are renowned for their bravery and deployed them to every major war. Once they retire, they find they have to fight more battles, for pension rights and right to live in the country they fought for. Earlier this summer, those who retired before a cut-off date of 1997 lost a pension case in which they claimed they were valued at between 24% and 36% of British rates.  

Neither the judge nor the Ministry of Defense saw any discrimination there. The judge said the ministry’s valuation was ‘justified and proportionate’. Not surprisingly, the men were horrified to see racial discrimination explained away so easily in a country that likes to boast of its sense of fairness. Many handed in their medals. The medals were worthless if they masked discrimination, they said, as they hobbled back to their lowly existence. Many live in near-poverty, subsisting on a meager pension and unable to work while their cases are heard. 

Since that unfavorable decision, they have been waiting eagerly for better news on the right of abode. In this week’s ruling they have now won the right to remain in the UK. This time, the judge saw the merit in their case, and said that the men’s bravery and loyalty to the Crown pointed to a ‘moral debt of honour and gratitude’ felt by the British people. The ruling will be welcomed amongst the Gurkas in the UK and by their families back in Nepal. But it comes a bit late for those who died waiting for justice. They survived the last world war, others the Falklands, and the more recent engagements in Afghanistan and Iraq. But they did not survive the battle with their employer.  

Impunity in so-called honour killings is alive and well in Pakistan, despite the fact that the practice was banned four years ago. This is hardly surprising. Four years is not long enough to impress upon a male-dominated society that the murder of women in the name of ‘cultural values’ is barbaric and unacceptable in this day and age. Four years is a short time when there is no political will to enforce a law and when the perpetrators are often well-connected individuals.  

In the most recent case in which five women were buried alive, reports suggest that one of the perpetrators is a minister’s brother. For that reason alone, you might as well just forget about justice. Israr Ullah Zelli, a lawmaker defended the murders, vowing to defend the centuries-old customs and reminding a stunned parliament that only those engage in ‘immoral acts’ should be afraid. The immoral act in this case was the women’s decision to choose their own husbands. According to unconfirmed reports, three other women who protested against the murders were also buried alive by the same gang.  

Burying a sister, cousin or daughter alive because she doesn’t want an arranged marriage sounds like something straight out of a horror movie, but it is the plight of hundreds of women in countries like Pakistan every year. In fact, according to the UN, up to 5000 women and girls are murdered every year by vengeful relatives who believe the family has been irrevocably dishonoured by the decision to opt for love.  

In India, Pakistan and a number of Gulf States where honour killings are common, justice for these victims is virtually non-existent. The men can buy protection easily. Neither the judges nor the politicians show any sympathy. Immigrants have exported the problem to Western countries. In European countries with large immigrant populations from south Asia, media reports of honour killings are common.  

However, even though the cases might end up in court, the conviction rate is low because families refuse to cooperate with the police. Sometimes the culprits simply vanish, to start a new life in another part of the country or elsewhere in the world, protected by a family code of silence. It is a taboo topic. So, very little is known about how extensive it is, and the figures bandied about are probably just the tip of the ice berg. 

And finally, India’s labour minister caused consternation when he said that the murder of a factory boss by sacked employees should serve as a warning to management. Oscar Fernandes sounds just like Israr Ullah Zelli, that defender of Pakistani ‘cultural values’.