As China celebrates, it’s time for us to reflect     28 Dec 2008

 This year China marks thirty years of economic reforms. It has truly come a long way. In 1978 the country was just beginning to emerge from decades of ill-informed policies and the so-called cultural revolution. Under Chairman Mao, millions were made to participate in a bizarre steel-making enterprise literally with their bare hands. Steels mills up and down the country consumed every little scrap of metal, including household pots and pans. If you fortunate enough to have food, you then found you had no utensils to prepare or serve it with.  

At one point, Mao decided that food shortages were the result of sparrows eating food stocks, so he ordered the people to embark on a nation-wide campaign to exterminate birds, or pests as they were called. This proved to be an ecological disaster. When locusts invaded a year later, there were no birds to feast on them. Millions subsequently died of starvation.  

There is a funny story about the first car to be imported into China. Apparently it was a gift for Empress Dowager Ci Xi, the former concubine who governed China for 48 years after her husband’s death. Unable to bear the outrage of a mere slave sitting in front of her in the car, she ordered him to kneel down and drive.  

That was in 1902. Fifty six years later, the first made-in-China car appeared on the streets of Shanghai. But it was decades before ordinary people could acquire and drive their own vehicles. Today, the streets of Chinese cities are choking with traffic. The traffic jams have become a way of making everyone equal in a way that would have appalled the woman widely associated with the fall of imperial China through despotic misrule.  

Thirty years ago, people wore military-style clothes in the same drab dark colours that made everyone seem lowly and humble. Everything was rationed, from cloth to food and all manner of household goods. That’s the problem with centralized planning, where bureaucrats decide what volumes of clothes will be made, how much food will be produced. Inevitably get it wrong and people are forced to carry little bits of coupons of their entitlement into shops with empty shelves.  

Today China is an economic superpower. As the economy opened up, farmers were the first beneficiaries. China saw the emergence of the wanyuanhu class, families that made at least ten thousand yuan a year. These families were lauded as a sort of exemplary emerging middle class, held out as a shining beacon and proof of what could be achieved through sheer hard work. Newspapers extolled their achievements. They received awards from the Party. 

Awards tended to go to middle aged and elderly men who had worked hard on the farms, raising ducks and pigs, growing vegetables, doing handy jobs in the community, demonstrating what could be achieved with honest labour. It was the socialist dream with Chinese characteristics, and is today a far cry from the many self-made property and internet company millionaires, many in their thirties and forties, the movers and shakers of China Inc. Agriculture and rural economics have today given way to industrial dreams and stock speculation in which the new champions resemble their Silicon Valley counterparts in age, outlook and bank balance.  

Kenya had a fifteen-year head start. In our first decade of independence, China was in the throes of mass murder and the destruction of its very soul, its history and culture, institutions and economy, all in the name of overthrowing the bourgeoisie, the economic elites and intellectual classes. Kenya was looking forward to economic take-off. Thirty years later, the mayhem and madness behind it, the Chinese economy galloped into the future like an injured rhino. 

Today the average Chinese has an annual income three times that of the average Kenyan. Somewhere along the way, we lost our way just as surely as they found theirs. While we stumbled into the dark dungeon of destructive politics and turned the economy into a tool of personal aggrandizement, the reformist Chinese leadership saw the economy as the vehicle for empowering the masses so they would never starve again.  

Communist China is often accused of being undemocratic. But with a leadership keen on serving, and placing economic growth above political careers, ordinary Chinese haven’t been too bothered about their inability to cast a vote. For what it’s worth, the goal of an annual average growth rate of 9.8% has been a more attractive proposition than elections every few years. Looking at the way lives have changed in just three decades, one can understand why they’re celebrating.  

As for Kenya, we insist on celebrating the defeat of the white man and achieving independence when we merely succeeded in imposing on ourselves first a party dictatorship and now a parliamentary dictatorship that even has the audacity to take away our hard-won freedom of expression.  

Kenya started the year on a knife-edge, a phenomenon that showed us just how fragile our nationhood has become. Thankfully, the year ends in peace, but with a nagging tension that things could be better, that the leadership could be just a little more visionary, more inclined to serve rather than worry about its own perpetuation and self-interests. Let the festive season be a time of soul-searching and quiet reflection.

Crafting a new role for the Kenya Diaspora     21 Dec 2008

I was recently in Nairobi for a conference that brought together Kenyans in Diaspora and various local institutions including senior government officials. The idea was to determine how best to harness the Diaspora’s resources and create a more meaningful role for them in nation-building. The event was hosted by Kenya Methodist University.

The Philippines receives $16 billion annually from its citizens who are scattered across the globe. China receives $26 billion, India $28 billion. The trouble with remittances to support families is that they’re subject to the ability of individuals to maintain a steady income, and fluctuations can have dire effects on vulnerable families and economies.  

Only some of the Filipino money goes into sustainable investment. For a long time Kenya fell into this category, but remittances now fund a real estate boom and are making their way into the capital market. These efforts are piecemeal and require a better structure.  

Taiwan tells a different story. Money to maintain needy families was never an issue. Their concern was how to attract talent back. Taiwan has always maintained a very effective strategy for actively directing both education and investment. The strategy involves support for engineering and technology as well as information technology, and offering attractive incentives to citizens abroad to return.  

Many of our youth people don’t even know how to use computers, how to surf the internet to search for information. What do they teach people in school? Kindergartens in Asia and the west have simple computers for three-year olds. I gather there’s a lot of money earmarked for women in Kenya which never gets accessed either because women don’t know about it, or don’t know how to search for information. We talk about the Diaspora getting involved, but what is anyone doing to empower women and the youth?

China has focused on attracting financial investments into industry and sustaining a solid manufacturing base. We’ve also seen a trickle of returnees responding to attractive jobs and opportunities to invest. India too has a mix of consumption and investment as well as technology transfer and outsourcing. The Indian model is one that our leaders need to study carefully as it demonstrates not only how you can harness funds and technology into the country but also how locals and the Diaspora can work together to invest overseas. It’s a two-way process, rather than just the milking of foreign money.  

For too long, the Kenyan Diaspora was disparaged as an unpatriotic lot only intent on enriching themselves, a view that totally ignores the elusiveness of wealth and the enormous challenges thousands face just to put food on the table. While India and Taiwan were tapping into the knowledge of their Diaspora, the Kenyan Diaspora remained stigmatized as many had been driven away by the dictatorship of the day.  

When the loss of professionals trained at high public expense started to be felt, the Diaspora was promoted to a ‘brain drain’, but for many, it remains a sort of ATM.

There are a number of things our government and businesses can do to turn things round. First, while recognizing the unsustainability of household consumption remittances, this huge sector still needs to be supported so that it is as cost-effective as possible. If the Philippines can negotiate extremely low transaction charges with banks, why do Kenyans have to put up with expensive operators like Western Union?  

What are Kenyan banks doing to effect cheap transfers or facilitate sustainable investments? This is one area where the powers that be consistently fail us, whether were Diaspora or local: low bank charges, low international calling rates, visa-free access to foreign nations. While other countries are negotiating visa-free access, Kenyans constantly find themselves facing all sorts of barriers. They approach immigration counters with trepidation, as they hold on to a passport that is treated with suspicion. The Diaspora has needs, and if this constituency is to play a bigger role in our economic development, including realizing vision 2030, their needs must be addressed.   

While it may not be realistic to attract Kenyans back, professionals can offer their skills while on short visits, or through ICT. One thing has to happen first: Kenyans willing to be part of a progressive partnership need to make themselves and their interests known.  

Our conference identified the need to create a knowledge base in order to facilitate a proper fit between the Kenyans in Diaspora and those institutions with whom they can partner. Many Kenyans are keen to engage in whatever way they can, but they just don’t know how. The Central Bank, ministries of planning, health and foreign affairs, and others are prepared to be a part of this initiative. But they don’t know who these people are, where they are, what they can do.  

One problem is that Kenyans do not make themselves known to the foreign missions, for a variety of reasons. The embassies and high commissions need to be more proactive, to be more approachable and to eliminate that perceived mistrust that drives Kenyans away except with the enticement of nyama choma and beer at Jamhuri Day celebrations. Working closely with the Diaspora Office and the foreign missions the Kenyan community abroad should now begin a dialogue as to how we can harness our knowledge and other resources more fruitfully.

Has Japan learned from its past dithering?   14 Dec 2008

Signs of poor leadership are showing in Japan again. So nothing’s new there. Taro Aso has only been in office a few months, but he’s made more than his fair share of gaffes, and in the process seen his approval ratings drop to just over 20%. He’s even less popular than those dour personalities who preceded him, in particular Yasuo Fukuda and Shinzo Abe. 

Taro Aso has resorted to insults. He told doctors they lack common sense. He said he had no wish to pay taxes just to support pensioners ‘who only want to eat and drink and make no effort’.  

Pensioners were already peeved with him for having introduced new mandatory health insurance and for the loss of confidential records. This category of senior citizens has over the years become fairly influential while at the same time creating some headaches for successive finance ministers.  

They make up a fifth of Japan’s population, giving the country one of the most severe aging population problems in the world. This has come about, ironically, because of the very good lifestyle policies that have in turn fostered excellent health and diet, and everyday comforts made possible by high incomes.  

With extremely high life expectancies, a graying population brings along its own economic costs. With every passing year, the responsibility for sustaining this population falls on a proportionately smaller working population because Japan also has the dubious honour of enjoying one of lowest birth rates. 

In the event of failing to raise the birth rate, a sensible option is to welcome foreign labour, something that is politically sensitive in a country that prides itself in its assumed relative homogeneity which only breeds mono-culturalism and fails to benefit from the potential diversity that a more open approach to immigration would foster. So, Japan continues to box itself into a corner, its politicians consistently refuse to make tough choices and at the moment are dithering in the face of the worst global recession for generations.  

But Japan also offers the world some interesting lessons on how not to deal with an economic crisis. Much of the western world is in exactly the same position Japan found itself in almost two decades ago. A severe financial and property market crisis crippled the economy, threatened the Japanese economic miracle that had throughout the eighties provided a model in everything from how to generate fancy gadgets to fads like just-in-time management.  

For years, the government was in denial, unwilling to believe something was wrong, unable to accept that the mighty Japanese economy had been humbled by its own hubris. Financial institutions and other corporates fell like dominoes. Eventually, it took Japan a decade for its half-hearted series of capital injections and bail-outs to have any meaningful impact. This came about after widespread resistance from the general public, from lawmakers and an unwillingness by the authorities to confront some of the structural impediments that were responsible for the mess, including cosy relations between politicians and business, powerful monopolies, poor oversight and dodgy accounting practices.  

Not wanting to repeat these mistakes, America and Europe have taken only months if not weeks to put in place mechanisms to resuscitate their economies. The mind-boggling capital injections into banks and car manufacturers are quite unprecedented. But the sheer scale and speed at which they’ve been negotiated and implemented suggests that these countries are unlikely to endure the lengthy years of recession and unimpressive growth the world’s second largest economy brought upon itself.  

Japanese companies might be amongst the most innovative on earth, but as a nation, Japan is a slow learner when it comes to political and macro-economic issues. This has a lot to do with the quality of people calling the shots, and the powerful vested interests that tie their hands and condemn them into political impotence long before they’re sworn in. 

If the world learned from Japan’s mistake and decade-long dithering, has Japan learned from its old mistakes or even from the America, European and Chinese responses to the current crisis? A cursory glance at the policy pronouncements suggests this has not happened yet.  

Japan is fortunate in the sense that its banks have being relatively insulated from the sub-prime crisis. The crisis of confidence, and the credit crunch were therefore not expected to have much of an impact here. But in recent months, with figures showing a contraction in GDP, it is becoming evident that Japan has not escaped the threat of a recession.  

Companies like Sony are shutting down factories and shedding jobs. In the meantime all Prime Minister Aso does is make promises about the need to take serious action, rhetoric generating little or no visible action. Some observers claim the administration is waiting to see what Obama will do when he’s inaugurated. This wait-and-see attitude has in the past proven mighty costly to Japan.  

Why they would insist on sitting on their hands again is symptomatic of the Japanese approach to the economy. To be fair, there aren’t many options available. With interest rates close to zero per cent, the dramatic monetary policy actions others have taken are somewhat limited. However, with their experience in mishandling a crisis in the nineties, you would have thought they’d learned a trick or two.

Making sense of the attacks on Mumbai   7 December 2008

The recent terrorist attacks on Mumbai targets have been dubbed India’s 911. Of course in terms of sheer scale alone, nothing compares to the attacks on the USA. But the two share some remarkable similarities. First they were aimed at significant iconic buildings that represent the triumph of capitalism in both countries.  

Their destruction appears to have been designed not merely to kill as many people as possible, but also to make a symbolic statement. The Taj Mahal is one of the world’s most glamorous hotels. Secondly, intelligence failures, errors of judgment and miscommunication between intelligence units have much to answer for.   

Legend goes that Jamsetji Tata, a wealthy Indian businessman, was denied entry into a hotel by the British who ran the country at the time. The angry Tata decided that the best way to deal with the embarrassment was to built the finest and grandest hotel in the whole of India, and open its doors to Indians.  

The Taj Mahal is in a class of its own. Even ordinary citizens who can’t afford a meal there take pride in the hotel for what it signifies. People save for months just so they can afford to buy a cup of tea there and show off the receipts to their friends. So, to see it humbled and wrecked and turned into the scene of a battle for several days was a painful experience that many took personally. 

They’re now demanding answers, which are slow to come, become the government is embarrassed by the serious lapses in security which, it seems, could have been averted. Unambiguous intelligence reports becoming available to the public now suggest the authorities had been warned of an impeding attack from terrorists coming in from the sea.  

I co-authored a paper some years ago on what we called organizational surprises which tried to understand why it is we get surprised by events, even those which had prefigured themselves in a variety of warning signals. A lot of the time, surprises aren’t merely unexpected events but failures of knowledge, failures of interpretation, and in the case of terrorism, failures of intelligence and political will.  

As philosophers point out, our knowledge of the world is always incomplete. For Frederick Hayek, the incompleteness of knowledge is manifest in the dispersed bits of fragmented and often contradictory bits of knowledge, distributed amongst us. Knowledge, or that matter, security intelligence is never total, and there is never any guarantee that those who possess fragments of it will make sense of it through communication and interaction, and timely action.  

It seems the terrorists understand this better than the law-enforcement agencies. Perhaps they read Hayek in between bursts of rapid fire as they train in remote deserts and desolate hills of countries like Afghanistan and Pakistan. 

We can easily fall between the cracks of ignorance with disastrous consequences. Still, we expect a lot from governments and those who manage or mismanage our taxes, even though, in the case of Kenya, they insist on not paying tax themselves.  

Minor and seemingly insignificant events have the potential to generate huge consequences. Tiny signals appear everywhere, if one cares to look and actually make sense of them. India has been targeted several times in recent years. Those who wish to make highly symbolic statements have iconic targets in their sights.  

The Taj Mahal wasn’t the only target, but it was the most prominent, and fronting the sea as it does, it’s also, in the eyes of terrorists intent on harming a nation’s or at least a city’s psyche, a prime target. Authorities will be asking themselves why they hadn’t foreseen such an eventuallity, especially given the warnings that are now coming to light.  

It makes you wonder, what other targets have terrorists identified in the capitals of the world, and what is anyone doing to secure them, and protect the lives of hundreds, and possibly thousands of innocent bystanders who might just get caught in the crossfire in a war that has nothing to do with them?  

Fictional detective characters like Miss Marple and Inspector Poirot understand the importance of seemingly insignificant bits of information, signs, events better than our much-vaunted real-life sleuths. What might surprise readers and viewers can often be quite elementary to them.     

Sometimes the event can be explained as a loss of meaning. As we argue in our paper, in the case of 911, substantial bits of fragmented intelligence were available. It was known that the Twin Towers had previously been targeted. It was known that bin Laden had declared war on the US. The attacks had been foreshadowed by those in Nairobi and Dar. It was known that young Arab males were learning how to fly but not how to land.  

Yet the critical connection hadn’t been made, ie, that the meaning of suicide bombing and vehicular attack could be realized from the air. A complete loss of meaning similarly characterizes the Indian response to the Mumbai attacks. How could such a large group of men armed to the teeth have slipped so easily, totally unnoticed into a civilian environ and caused so much carnage? The special forces fought a brave battle, but they were always going to be a few steps behind, because of a failure of intelligence, and loss of meaning.