US Crisis gives Asia a chance to tilt the balance of power   28 September 2008

Karl Marx saw a trajectory. After replacing feudalism, capitalism would in turn be replaced by communism, because capitalism sows the seeds for its own destruction. 

It is too early to sound the death knell for capitalism. But the aftermath of the American credit crunch is the death of Wall Street financial wizardly as we know it. This model, which is taught to knowledge-hungry MBA students around the world, has lost its credibility, in the process casting aspersions on the very moral standing of any form of leadership, financial, economic or otherwise, emanating from the USA.  

The idea that markets are free and should be left to their own devices is a dangerous fiction. If that were the case, why is it that the financial markets in America and Europe are now crying out to be rescued? If it is legitimate and right to bail them out to protect the global economy and ordinary people like you and me, why was it deemed inappropriate not to regulate them systematically in the past and in the process protect us?  

The politicos of Washington were in bed with the shakers and movers of Wall Street. The times were good, the party looked like it would never end. The money-making euphoria that generated enormous tax revenues for the State legitimized the free-market force rhetoric. But the markets weren’t all that free. There was a high price to pay, but it wasn’t paid by the banks, certainly not by the investment bank financial wizards.  

For the ordinary citizen in Kenya who is wondering what this madness in the West is all about, let’s put it in context. The genesis of the problem goes back to cheap credit, easy money, loose lending standards. For years, Americans have lived on credit. Credit cards, car loans, mortgages, all came cheap and easy. Banks literally gave money away in the hope that expanded market share and sheer size would guarantee income streams forever. If you couldn’t pay, no problem, they could always sell the debt to those smart financial engineers in investment banks like Merrill Lynch and Lehman Brothers who could in turn be trusted to work their magic with all types of leveraging deals, reap astronomical bonuses and hey presto, everyone’s a winner.  

There were some  basic problems with this model. One, there’s a limit to how long and how far you can keep recycling debt through speculation and financial wizardly. At some point, someone must ask a simply accounting question, does this thing have any underlying value? As it turns out, the fancy-sounding credit derivatives to hedge against loan losses weren’t worth the paper they were printed on. When borrowers couldn’t make mortgage repayments, which in many cases was inevitable because loans were advanced with little discussion as to how they would be repaid, the banks got jittery.  

Suddenly it became clear that the whole financial industry was just a house of cards. It was no different from any old discredited pyramid scam you might get sucked into but are too embarrassed to talk about. The whole concept of investment was turned into a casino-like gamble, and because we live in a boundaryless world, the dubious investments that were sold to high street banks in cities around the world as part of that pyramid scheme have now effectively poisoned the entire global financial order.  

Meanwhile, leaders in Washington, London and Frankfurt watched in silence, mesmerized and uncomprehending, trusting the magic of deregulation and free-market forces. American president George W. Bush and the small-government-low-regulation Republican brigade in particular have a lot to answer for. The obsession with the so-called war on terror prevented them from seeing the invisible economic war that was being waged on their citizens by a banking and financial system that continued to ignore basic banking rules. Greed on the part of the financial wizards, irresponsible lending by banks and poor oversight by the State became Marx’s seeds of eventual destruction.  

The West failed to learn the lessons of the Asian financial crisis which shook the world in 1997, driven by mindless speculation and fanned by poor regulation and supervision.

The American financial system is bleeding, and will have serious ramifications for the rest of the global economy for years to come. Not even relatively small players like Kenya will be spared, even though they might imagine the exposure of their financial systems is minimal. When consumer demand for imports in America and Europe drops, farmers in Africa will suffer, the tourist industry will take a hit, aid and investment will fall.  

America cannot do it alone, even with the proposed $700 billion rescue package. Asia is sitting on truckloads of US dollars. China’s $1.8 trillion treasure-trove hangs like the sword of Damocles over the US dollar and economy. If China liquidated a substantial amount of its reserves, the green buck would collapse. Asian countries have a chance to bail America out. After all, the likes of China and India have sustained the American consumer credit binge. However, they’re too shrewd to buy anything from a credit trash can. But the bigger question is, would America swallow its pride and hand over cherished assets to a communist State? Marx would have said, it is the inevitability of history. 

The tainted milk scam damages China     21 September 2008

The Olympic Games last month and the just-ended Paralympics have confirmed China as a great sporting nation. There can be no doubt about China’s sporting prowess and the country’s ability to host a major sporting event.  

But as the games went on, there was this other incident that was fighting a losing battle for media-interest, the tainted milk scandal. I believe it was Mahatma Gandhi who said something to the effect that a nation’s greatness is measured by how it treats its weakest members. It’s not about winning a bucket-full of gold medals, or breath-taking economic growth rates, national pride, or even military might. It’s about how society cares for the most vulnerable. In which case there are few countries that can truly claim to be great. 

For China, the tainted milk scam couldn’t have come at a less propitious time. Media reports suggest that the authorities were aware of complaints about children falling ill months before the games, but chose to do nothing because it would have attracted the wrong sort of publicity.  

Customers have been lodging complaints since March this year. Some were offered compensation, and didn’t take matters farther. Meanwhile the companies that were marketing contaminated products did nothing. The provincial authorities were aware of the problem back in early August, just before the Olympics kicked off. Politically, not a great time to own up to something this embarrassing. Meanwhile, young people kept falling ill.  

The Shijiazhuang government only took action after Fonterra, the New Zealand group that part-owns Sanlu Group raised the matter with the New Zealand government, who then put pressure on China. 

The case of tainted milk is the latest in a spate of international recalls and scandals in recent years. Melamime, the offending substance that has been showing up in the products of Sanlu Group, which happens to be the country’s biggest baby milk product maker, is banned from foods. You’re more likely to find it in cleaning products, plastics and fertilizers. But this is the stuff that someone decided to mix with milk products that would be fed to babies and small children. The sheer lunacy of it is quite incomprehensible.

Melamine, which is rich in nitrogen, helps obscure the fact that the milk isn’t as rich in protein as the manufacturers might claim. There have been a few cases in the past when such adulterated milk which was completely lacking in nutrients, was sold to babies, resulting in death. Nutrients of course cost money, so someone figured he could cut a few corners, pocket some money, and didn’t really care too much what became of the babies. That’s what you get when standards are unenforced, controls are loose, and protection for unscrupulous businesspeople is up for sale. This time, there have been a few deaths and over six thousand reported ill, some quite seriously.  

There are two issues here. First, China’s apparent reluctance to place life and health before politics and national glory, which raises the question: is China able to protect its people from unscrupulous business people? But let’s be clear, the tainted milk scam isn’t just a problem for China. Some of these products were exported to a number of neighbouring Asian countries and to far away African countries. So far, only Gabon and Burundi have been mentioned.  

The potential international fall-out should be a matter of concern for Chinese authorities who often appear to be unable to control these cowboy operators who not only jeopardize lives but also tarnish the country’s industrial reputation. What they generally do in these cases is arrest some minor operatives, fire some junior managers and hope the problem will go away. That is simply not good enough. Unless there is a complete overhaul of standards in the whole food processing system, these scandals will not go away.   

The second point is about corporate social responsibility. Business owes the society it operates in a duty of care. This isn’t merely about complying with formally constituted legal laws on employment, health, safety and so forth. It’s about embracing ethical guidelines and adopting a responsible attitude in the way it conducts itself and the effects its actions have on society. In China, and indeed in much of Asia, this ethos is largely absent. The wanton destruction of the environment, avoidable accidents in mines and on construction sites, contaminated food and so forth, are all examples of a cavalier attitude to profit-making whereby customers and the society at large at treated with contempt.

Chinese companies as well as their foreign partners have a poor record for demonstrating due care to the society. Corporate capitalism in China is a relatively new concept, and it is guided by an it’s-all-up-for-grabs mentality. The pressures from foreign partners for ever-diminishing costs don’t engender a socially responsible attitude either. It’s all very well for Fonterra or anyone else to take the moral high ground and claim they tried to ‘put pressure’ on China. This ‘pressure’ seems as though it was designed to appease the Chinese authorities at a sensitive (Olympic games) time, in sharp contrast with America’s more vocal approach last year when dangerous China-made products ended up in American malls.  

There is no place for complacency, silence and behind-the-scenes ‘diplomacy’ when lives are at risk, especially the lives of the most vulnerable.

Kim Jong-il’s health now a real worry for hermit State  14 September 2008

The symbolic dismantling of a nuclear facility in North Korea in June was supposed to mark the beginning of a new denuclearised era. In return they expected to see themselves treated with some respect, including being taken off the US list of those who sponsor terrorism.  

It seems the US has being courting others like Libya, and has forgotten to award Kim Jong-il his hard-earned brownie points. So, North Korea is on the war-path again, if there’s any merit in the speculation that they’ve resumed their nuclear aspirations. They feel they made a huge investment in succumbing to overtures and coercion by the so-called international community (read the US), and haven’t quite seen the dividend yet. 

Their extravagant military parade to mark the 60^th anniversary and all the pomp and show is a not-so-subtle signal that they’re not to be trifled with, that they’re at liberty to engage in whatever militaristic adventures they deem fit to defend themselves, even if that involves reassembling the nuclear plant.  

All this comes at a time when Kim Jong-il’s health has become a matter of heightened speculation. He tends to fade from public view amid rumours of ill-health only to spring back with a renewed determination to strengthen the military and destroy imagined invaders. As with every paranoid dictator, his personal well-being is closely tied to the country’s political health.  

Threats to Kim Jong-il’s health are interpreted as threats to North Korea’s national sovereignty. It is a ruse to make the oppressed citizens think there can be no North Korea without him, the so-called ‘dear leader’, father and mother of the nation, who symbolizes the every essence of a poverty-stricken country which is yet again facing mass starvation. The man could be dead and cremated, but the country would still go on believing, or being made to believe that everything is fine, because to believe otherwise when the State machinery has not prepared the nation psychologically for such an eventuality, would be to accept that the invaders have indeed landed. His failure to appear at the parade this time suggests he’s seriously ill. Perhaps it’s time to borrow a leaf from Fidel Castro.   

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The disgruntled Thais it seems, are determined to oust their beleagured prime minister by hook or by crook. Where the street protests have so far failed to dislodge the man from the seat of power, the courts have come to their rescue after a group of parliamentarians decided he broke the law by working for a private company. The company in question happens to be a TV programme in which he hosted one of those cooking shows that teach you how to cook and leave your mouth watering.  

In his defense, Samak says he wasn’t employed by the TV company, but he did receive payment. In their infinite wisdom, the courts have ruled that he did in fact break the law, and must vacate an office which has become a poisoned chalice. It seems churlish to dismiss him on such flimsy grounds, and it is a measure of the desperation of those who want him out. His declaration last month that he wouldn’t quit following an audience with the King can be interpreted to mean the King did not advise him to step down.

The court case is just a minor battle, and a minor if symbolic victory for the prime minister’s detractors. It doesn’t stop his henchmen from voting him right back into power. Incidentally, the name of the offending cooking show is Tasting, Grumbling. Samak has tasted power for seven month. During that time there has been nothing but grumbling in the kingdom. Next time he dons an apron and starts chopping up red hot peppers, he’ll be well advised to choose a more auspicious name for his show. 

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Life in India can be a huge challenge for the very poor. It gets even worse for those ‘cursed’ with daughters. The problem for them is that girls bring nothing but misery. They are a drain on resources and end up buying into another family, at their father’s expense. Unlike those of us who have to cough up in cash, goats and cows to bring a bride home, the Indian bride pays the groom and brings the bride wealth to justify herself. Woe betide her if she doesn’t bring enough money. In addition to having to contend with an oppressive mother-in-law, she could end up doused in kerosene and ablaze in the kitchen.  

If they can’t abort or kill them, some opt to sell the girls, and sometimes the boys as well, when times get really hard. Children sold to adoption homes have been showing up in Australian homes, prompting authorities to launch an investigation. The kids are either sold by desperate families or kidnapped by traffickers and sold to adoption homes. They are presented as orphans to prospective parents who come calling from overseas and unwittingly get caught up in the scam. There are serious questions at stake here, some moral, some criminal, most extremely troubling for innocent children who have been traumatized once by being taken away, ending up in strange countries where they find themselves starting a new life, and just when they’re beginning to feel settled, sometimes facing the prospect of being taken away again, and returned to biological parents who rejected them.

The continuing saga of Japanese prime ministerial musical chairs  7 September 2008

The games of musical chairs and the revolving doors of Japanese politics have entered a ridiculous phase where prime ministers serve for less than a year before bowing out in shame. Eleven prime ministers in fifteen years must be some sort of record, a record that betrays an inherent instability and has, unfortunately, underpinned the sluggish economy during that period. 

Shinzo Abe resigned after just one year in power, having succeeded the flamboyant Junichiro Koizumi, the maverick economic reformer who also understood political stability. Yasuo Fukuda barely lasted a year. I remember when he came into the frame to succeed Shinzo Abe, he was largely perceived as a level-headed moderate, just the kind of person Japan needed in order to balance the economic reforms that Koizumi started, and regional stability, meaning Sino-Japanese relations.  

Taro Aso, the man he edged out in that contest last year, was perceived as too hawkish in his foreign policies and likely to roll back the gains achieved under Koizumi. Aso’s preference for government spending didn’t go down too well either. Taro Aso is the man who has emerged as the front runner, and has made it clear he intends to be Japan’s next prime minister.  

This will be his fourth attempt to lead. It’s by no means a foregone conclusion. There are others whose names have been mentioned, including the lesser known Yuriko Koike who rose to prominence for a short spell as the first female defense minister. She served for precisely 54 days before resigning, supposedly due to an information leakage scandal. To be fair, she has served previously in other ministerial capacities.  

When she served as Environment Minister under Koizumi, she spearheaded the Cool Biz programme to encourage people to dress sensibly and keep offices at an appropriate temperature to cut down on electricity consumption. It was a fine idea, though it created some confusion amongst government ‘salarymen’ who stuffed ties in their pockets just in case they needed them, even though the prime minister himself was leading by example in appearing without tie or jacket. 

If she puts herself forward and succeeds, she will be Japan’s first female prime minister. The entirely male record so far has raised a lot of questions about its capacity for leadership. Perhaps a woman will bring a new brand of politics in a country that excels in technological innovation but has failed to produce sustained exemplary political leadership.  

It won’t be an easy ride for whoever assumes the mantle, as Fukuda’s and many others’ experiences have shown. In addition to an uninspiring leadership, and other problems that dogged Fukuda’s administration, including the loss of pension records, Fukuda found it impossible to tame the all-powerful upper house which is controlled by the opposition.  

He became a lame duck premier, and decided that rather than waste his time banging his head against a wall, the best option was to quit. For this, sections of the Japanese media have branded him a coward. He’s not the first Japanese prime minister to quit in the face of political impotence. And he won’t be the last. Having failed to make headway on the domestic political front, Yasuo Fukuda’s lasting legacy will be his efforts to improve relations with China. The Chinese are the only people who are saying nice things about him, and how they hold him in high esteem.  

If Taro Aso becomes prime minister, the Chinese will be justified in feeling somewhat uneasy about him, given his hawkish ideas and tendency for jingoistic utterances. There’ll be others in Asia who’ll have apprehensions about him, given his family business’s use of slave labour during the years of Japan’s military imperialism. He might insist it had nothing to do with him; but Japan’s war-time atrocities have neither been forgotten nor forgiven. 

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Further south, in Thailand, the political impasse is becoming an embarrassing scar on a country that has paid such a high price on the path to democracy since the end of the absolute monarchy 76 years ago. Modern Thailand has endured no less than 18 military coups during that time, and if the anti-government protestors have their way, their efforts could induce a nineteenth coup. To their credit, the military have refused to be drawn into the conflict and have exercised enormous restraint. But this has not bolstered the prime minister’s position.  

If the impasse continues, and gets out of control, Prime Minister Samak may come under pressure to take draconian action. Right now he’s counting on the protestors tiring of their actions and getting on with their lives. Whatever the merits of their case, their protest raises the interesting issue of fair and equitable representation, which has resonances in other jurisdictions bedeviled by money politics.  

They are critical of the electoral system which sees the poor provinces enjoying a supposedly unfair advantage because rural folks are, in their view, more prone to being bribed. They are demanding a complete overhaul of the electoral system, which amounts to a rejection of the current democratic system which they say generates the same corrupt parliamentarians. Their solution? 70% appointed and only 30% elected. With such an extreme position, these protests won’t peter away just yet.