Making large things visible to the human eye

Economics, Democracy, and the New World Order

Some of us wake up every morning to find ourselves living in a society where economic opportunity is unfairly distributed, where a narrow social elite is given everything while others endure harsh deprivation. If we live in such a society, every morning our soul yearns for a system better than that we’re in.

We might live in a society where discrimination is rife, where government cronies are handed plum benefits, where extractive elites plunder national wealth.

We say we want out of that system. We ask only for a level playing field, for a system that is fair, open, and transparent, a system that practices meritocracy.

The Way the World Went

If what I’ve just described resonates with you, the good news is the world has your back. The world wants for you what you want for yourself, and indeed more and more of the world has been on that delivery run for now a quarter of a century. Twenty five years ago the Soviet Union collapsed, bringing on what some observers announced as The End of History. The wisdom that emerged was that only liberal democracy and free-market economics remained viable as ways successfully to organize society. What could be fairer, more open, and more transparent than a political system that declared all people equal in the process of selecting a leader – one person, one vote? What could be more meritocratic than a system where whether you succeed or fail is decided by a free market blind to social status, not by some prejudiced official looking over your family connections?

Liberal democracy and free-market economics are both structures that appeal to technologists and designers. In theory they have an apparent emergent intelligence that seem magical to many: You install rules in the system; you turn on the system; you stand back, and you watch it execute to the best outcome possible for the system. If a disturbance perturbs the system, the rules in place allow innovation, flexibility, and adaption, and the system self-stabilizes to a new best outcome.

The US, the UK, and other economies on both sides of the Atlantic to varying degree practice these principles. Indeed, many observers consider that TransAtlantic Axis to be where such principles are held safe, to be passed on to others. Thus, even though membership in the club of successful economies would be open to all, it was there, the TransAtlantic Axis, from which success would unfurl. And, indeed, that happened big-time.  By one reckoning, world democracies numbered only 45 in 1970, their number ballooned to 115 by 2010.

Then the World Changed Again

But then history decided it wasn’t quite finished with humanity. First, the 2008 Global Financial Crisis struck. From exactly the TransAtlantic Axis, waves of financial collapse lashed outwards until 12 months after, in the wreckage, world financial markets had fallen by US$26tn (half of annual world GDP), an estimated additional 34mn people had been thrown into unemployment, and the world financial system was on the brink of collapse. The orthodoxy of free-market economics morphed into a witch-hunt for those who dared still to suggest that market competition might produce anything other than banks too big to fail (and therefore just too big) or grotesquely unfair distributions of well-being across citizens.  All the good things that free-market economics brings – the rich variety of consumer goods, competition that lowers prices, innovation that improves the lives of people – seem to have been forgotten or unjustly dismissed.

But then, for the purposes of this narrative, something even worse happened:

China poised to pass US as world's largest economic power this year.  Financial Times, 30 April 2014

China, the world’s largest one-party autocracy, far outside the orbit of the TransAtlantic Axis, will imminently become the world’s largest economy, overtaking the US which had held that position for over 140 years. Not just that, but over the last three decades China lifted over 600mn people out of extreme poverty, while inequality in the West got so bad, the income share of the population’s top 1% recently reached heights not seen for a century.

Top 10 contributions to world growth: 2007-2012. GDP evaluated at market exchange rates

Top 10 contributions to world growth: 2007-2012. GDP evaluated at market exchange rates (Source: IMF World Economic Outlook, April 2012)

Over the course of the Global Financial Crisis many observers had remarked how in their view China grew only because the West imported and therefore when the West underwent austerity, China’s economy would be devastated. Yet between 2007 and 2012 it was China that added most to the resuscitation of the global economy, more than 3 times the contribution of the US.

German exports to the rest of the world

German exports to the rest of the world (Source: IMF Direction of Trade Statistics, 2011)

Germany, Europe’s most successful economy in this time, continued to grow — even with the collapse of its exports to its European neighbours and to the US, historically its largest export market outside of Europe — precisely by selling to China and the rest of Developing Asia.

The Great Shift East, 1980-2050

The Great Shift East, 1980-2050. Source: Quah, Danny. 2011. “The Global Economy’s Shifting Centre of Gravity.” Global Policy 2 (1) (January): 3–9

In the last 30 years the rise of the East, not just China, has pulled the world’s economic centre of gravity 5000km out of its 1980s TransAtlantic moorings, into the Persian Gulf. If growth trajectories continue in the 700 points on Earth used for this calculation then the world’s economic centre will soon come to rest on the boundary between India and China, 10 timezones east of the world’s traditional pole of economic power.

None of this was supposed to happen. Twenty years ago this year, soon after the collapse of the Soviet Union, the world’s most influential economist wrote:

“From the perspective of year 2010, current projections of Asian supremacy extrapolated from recent trends may well look almost as silly as 1960s-vintage forecasts of Soviet industrial supremacy did from the perspective of the Brezhnev years.”

Yes, by 2010 those economic trends were indeed found to have given inaccurate extrapolation, not from their having been too optimistic, but instead the opposite.  They have been too modest.

China and the rest of East Asia of course rely on markets, after a fashion. What they have not done was buy whole-heartedly into the notion that you get economic prosperity only through ballot-box driven electoral democracy. Hugh White, the former senior official in Australia’s Department of Defense, said what many were thinking when in September 2013 he considered varied foreign policy stances that might be taken by his then-incoming Prime Minister and concluded:

“Abbott’s conservatism also inclines him to be uneasy about modern China. Like many people in the West—and not just conservatives—he finds it uncomfortable that China could grow so quickly and become so powerful despite its authoritarian one-party political system. That challenges his deeply held ideas about the ascendency of democratic principles, which had seemed so decisively validated by the collapse of communism elsewhere in the world.”

What Happened?

Wasn’t national success only guaranteed by a mix of liberal democracy and free-market economics? Have both planks of the end of history just fallen away? How have Chinese and other Asian systems been able to innovate and to adapt when others, those arguably the more likely to succeed, have instead failed to be as robust?

Make no mistake, China’s system has been truly flexible and adaptive. As Eric X. Li reminds us, China is a country that has taken on a dramatic range of innovation: radical land collectivization, the Great Leap Forward; the Cultural Revolution; privatization of farmlands; Deng Xiaoping’s market reforms, modernisation, and urbanisation; Jiang Zemin’s opening up Chinese Communist Party membership to private businesspeople. High-level official and party leadership posts previously for life have been replaced by those with term limits and mandatory retirement by 70, a sensibility that not even university professors keep, despite the academic profession’s insistence on ideas always having to be fresh and innovative.


Obviously, any serious study on such large issues I’ve described will demand great rigour and considerable detail. Moreover, history from here on out might decide to lurch once again in an unexpected direction. Either way, however, I would shy away from concluding that one system or another is necessarily better than the other. My own hunch is there are multiple pathways to prosperity and success: the evidence, it seems to me, indicates that. Trying to say once and for all that one system is best (or even the least bad) is almost surely foolish. And while it sounds authoritative to pronounce one system or another “not sustainable”, it should be apparent to everyone that, simply as a matter of logic, such a statement can never be proven wrong. No system in history has yet been shown to be indefinitely sustainable.

Where this discussion gets somewhere more concrete is instead the following. Too often, “liberal democracy” and “free markets” become simply code and catch-phrase to stand for all the bright shiny things someone wishes to have but does not.

Democracy has, ultimately, meaning far more noble and important than simply, say, access to the ballot box. Instead, what it should stand for is this: Every government, every ruler must be daily insecure. Every government, every ruler must every day understand their power to be built on the shifting sands of the will of their people. And they must daily strive to advance the well-being of those people.

By this measure the state in China and other officially autocratic economies throughout Asia are already more democratic than many observers might think.  By this same measure many ballot-box electoral democracies fail.  Every time we read yet another account of how China’s leaders desperately need the economy to grow at more than 7% a year, so enough jobs can be generated for their hundreds of millions of new workers, that’s not a creaking oligarchy desperately hanging on to power.  Well, of course, it might be.  But it might also be simply what’s called advancing the well-being of one’s people.

This does not change how Europe will continue to be the liberal anchor of the world, even as the economic centre shifts East.  But it does say alternative internally self-consistent forms of liberalism might emerge in response to different circumstances.

In contrast, however, parts of our current global system carry hypocritical and damaging inconsistencies.  While the TransAtlantic Axis seeks to disseminate democratic ideals throughout the world, today’s system of global governance built on US benevolent hegemony is itself deeply undemocratic. For the last 50 years our world has chosen as its leader from only among the richest and most powerful of nation states. That leader has not only status and wealth beyond those of all others, it wields unrivalled political influence and military superiority beyond imagination. As leader, it operates with effectively no counterbalance on the international stage.

In brief our current world order is built on the leadership by military and economic power; that world order pays no mind to how well that the global leader serves humanity. US hegemony in the current world order is a system of leadership that is truly and deeply undemocratic.

This is why a simple graph of China’s economic overtaking the US or the world’s economic centre of gravity hurtling to ten timezones east of Washington DC is so disconcerting to the TransAtlantic political elite. If US hegemony in the current world order will soon have neither economic nor political legitimacy, does that hegemony simply become despotism?  Why should it remain?

More than 50% of humanity lives here.

If the world were a democracy this is where it would make decisions of global significance. From an idea due to Ken Myers.

From a point in the South China Sea, roughly in the same timezone as the world’s economic centre of gravity, draw a circle 4000km in radius. This is a tiny circle, comprising only 25mn sq km of land, only one-sixth of the planet’s land area. Yet, this circle contains more than half of humanity. If we want to construct a new world order with democratic legitimacy and economic strength, let’s begin here, with fresh ideas, and see where that takes us.

(This post also appears on Davos WEF and Global Policy; it is an adaptation of the talk I gave at TEDxKL on Saturday 09 August 2014.  It draws on ideas in many debates I have had with Prof M. E. Cox, including that at LSE on Monday 04 August 2014.)

It Is Not Easy Being Leader Of The World

Some days it’s just plain stressful when the world keeps looking to you to solve its problems, to be global hegemon.

(As always, by “hegemon” I mean not evil imperialistic power, but instead what historians mean from their study of the Delian League in Ancient Greece: “benevolent leader”.  A hegemon provides public goods, whether that is the defense of small Greek city states against the Persian Empire, being lender or consumer of last resort across nations, stabilising and regulating international financial markets, ensuring safety of international shipping routes, and so on.  The critical point is that hegemon implies benevolence; “benevolent hegemon” is redundant. If it were otherwise then, among other things, the evocative phrase “Hegemony or Empire” would be just a meaningless and empty contrast.)

Following the 2008 Global Financial Crisis, proponents of hegemonic stability theory (HST) – the idea that the world economy is most stable when some nation is powerful enough to assert its position as global hegemon – looked to the US to return with a roar to the world stage. Those proponents drew inspiration from Charles Kindleberger’s studies of the 1930s world recovery from the Great Depression. Then it was the US that led the way to global prosperity; so too now only when the US is restored as global hegemon will the world economy recover and global stability return.

In this view, as global hegemon the US cannot help but be benevolent.  The US provides global public goods on which the rest of the world either shirks responsibility or cannot afford. Under HST, the world looks with respect and admiration at its hegemon. The US’s soft power is complete: what the US wants is automatically what the rest of the world wants.

But HST proponents will find it difficult reconciling their view of what the US can do with what the US actually does. Matthew Klein in February 2014 described how the US Federal Reserve needed to base its actions only on what was happening in the US economy, not on any risks of potentially destabilizing other economies:

“the turmoil in certain emerging markets wouldn’t affect the policy decisions of the U.S. central bank. […] Monetary policy is hard enough without having to worry about the spillover effects to other countries that should take care of themselves.”

So, the Fed was not going to change its plans just because some emerging markets might be at risk.

Right before this Fed reassertion of its position, Raguhram Rajan, the highly-respected Governor of the Reserve Bank of India, had drawn attention to how, in contrast to the crisis days of late 2008, by early 2014 international monetary cooperation had broken down. Rajan noted how emerging markets had powered global economic recovery from the depths of early 2009 while the advanced economies remained moribund. But by January 2014 when those same emerging markets needed greater international cooperation with the advanced economies, the industrial countries were instead saying, “we’ll do what we need to, you do the adjustment”.

In Rajan’s view and experience (and those of many other observers), the global economy had become ever more inter-connected, to where one might think sensible policy-makers ought to believe:

“We would like to live in a world where countries take into account the effect of their policies on other countries and do what is right, broadly, rather than what is just right given the circumstances of that country.”

The industrial countries, led by the US, would not play by these implicit rules of the game.

Rajan’s statements together with a growing clamour from other emerging economies elicited a US response with four distinct lines of reasoning. First, there was fallback to how, within the rules of Federal Reserve System operations, the US central bank could not, by law, take into account the well-being of any party except the US economy when charting its actions. Thus, US global hegemony, i.e., US provision of global public goods, would run foul of US law.

Second, some observers in the US claimed that the world economy was not really as inter-connected as Rajan and others might think. Given the coordination that all policy-makers had embarked on to save the global economy in late 2008, this claim rings both false and self-servingly hypocritical. Third, some observers in the US suggested that if any foreign economy was adversely affected by US monetary policy, it was only because those economies ran “high current-account deficits, high fiscal deficits and relatively high inflation”. So, really, “the challenge is brought on by their own domestic policies [and] it’s unfair to say it’s all the Fed’s fault.”  And, finally, that old saw: What is good for the US is, ultimately, good for the world.

It must be tough to be global hegemon, being constantly reminded that stability of the world economy is your responsibility. No one could fault a diverse group of domestic observers and policy-makers for statements that are appropriate and sensible in difficult local circumstances, but when viewed from an international perspective are instead jarring and inconsistent with a modern, enlightened take on global policy-making.

The problem is, world leadership demands high standards. Soft power is hard to earn but easy to lose. In world leadership, whatever the reality, it is perception that matters. Suppose that instead of the US suggesting monetary policy was hard enough without having to worry about spillovers onto other countries, it was China responding to the charge that its exchange rate policy and savings behaviour were causing global imbalance: “Bringing hundreds of millions of my people out of poverty is hard enough without my having to worry about your trade deficits too”.

Suppose that economies adversely affected by US monetary policy were thus affected because those economies ran high current-account deficits and high fiscal deficits.  Then those countries adversely affected by the savings outflow from Asian Thrift?  They were thus affected because they were countries prone to high current-account deficits and high fiscal deficits anyway.  Indeed, the US itself would be an example of that.


If the US is to draw on the approbation of its domestic lawmakers before it can conduct economic policy that might turn out to be good for others, then the US really should not be lecturing Germany on how with great economic power comes great responsibility. how in the Eurozone Debt Crisis, Germany should be helping other nations at its own expense.

Finally, it almost surely remains true – as it has been for decades – that what is good for the US economy is good for the global economy.  But then so too what is good for India, China, Brazil, and Indonesia is directly good for over a third of humanity, and indirectly good for likely yet another third of humanity in the economies that trade with them.  The argument on US centrality in the global economy was literally true when the world’s economic centre of gravity hovered just off the eastern seaboard, somewhere in the Atlantic Ocean.  But in the last three decades that centre of gravity has already moved 5,000km east, drawn by the rise of China and the rest of East Asia.  Soon perhaps even more than what is good for the US economy, it will actually be what is good for the East that is good for the global economy.

Yes, HST is almost surely right that the connected global economy needs a global hegemon. The question is, are we looking for our hero where we should or just where we’ve come to out of laziness and habit?  When will we need to agree the US can no longer be global hegemon?

Adam Smith and little fingers

Adam Smith taught modern economists that global governance is hard because, among much else, for most people, losing a little finger is worse than the deaths of hundreds of millions in places far away, like China.

China is big

China is big









Thing is, though, what happens when it’s China where the little fingers are – because China becomes the world’s economic centre – and “far away” is somewhere else, far away?

How We Choose Our Political Leaders Tells the World a Lot About Us

What if a society decided its governing leaders must be chosen only from the richest and most powerful of its families? What if those political leaders held status and wealth, not only already greater but growing faster than that for anybody else in that society? What if, even though they wielded unrivalled influence, those leaders installed armed guards on every strategic street corner? What if those leaders operated with no counterbalancing competition, no checks and balances?

Most of us would find such a political system troubling: why ever would any society consciously, willingly settle on a system so objectionable? Even if those governing families were initially wise and benevolent, why would they remain so?  Can any such system of autocratic control remain flexible to adapt to constantly-changing circumstances? For how long can we trust that ruling family? When will those leaders go from benevolent and wise to grasping, selfish, extractive, and mean?

The strange thing is many observers actually find such a situation perfectly acceptable, indeed desirable, when it comes to global governance. In the first paragraph above, replace the words “society” by “the community of nations” and “families” by “countries”; substitute the phrase “governing leaders” by “global hegemon”. The paragraph then becomes not a set of queries but a celebration of  the age of US unipolarity.  Compare its wording with for instance what John Ikenberry wrote in 2005:

“American global power — military, economic, technological, cultural, political — is one of the great realities of our age. Never before has one country been so powerful or unrivaled. The United States emerged from the Cold War as the world´s only superpower and grew faster than Europe and Japan in the decade that followed. American bases and naval forces encircle the globe. [...] For the first time in the modern age, the world´s most powerful state can operate on the global stage without the fear of counterbalancing competitors. The world has entered the age of American unipolarity.”

The 2008 Global Financial Crisis shook that age of US unipolarity.  But an important strand of economic thinking yearns for its resurgence. In their book The Leaderless Economy, Peter Temin and David Vines write:

When no country can or will act as hegemon, a world crisis erupts. [...] The weakness of the recovery from the Global Financial Crisis of 2008 and the future risks to this recovery is the result of the United States’ diminished influence and the lack of a successor on the world stage.

In this call they are joined by economists such as Brad Delong and Barry Eichengreen who echo Charles Kindleberger and pronounce the problem as the loss of “the power and willingness of the US to bear the responsibility and burden of sacrifice required of benevolent hegemony”.

Why do writers otherwise deeply suspicious of autocratic systems (such as China’s government, say) subscribe so readily to so-called Hegemonic Stability Theory, that principle that says the world economy performs best when a global hegemon rules?  If hegemonic power concentrated in a single entity is good for the world, why not so within individual countries?  Is the Central Politburo Standing Committee of the Communist Party of China nothing more than (benevolent) hegemon and therefore to the People’s Republic what the US is to the world? Why is global governance different from just plain governance?


300 - Sparta

Although its military prowess and actions against the Persian Empire  at the 480BCE Battle of Thermopylae were critical, Sparta chose not to join the Delian League of Greek city states that formed shortly thereafter. It was instead Athens, first among equals and the original hegemon, who took upon that benevolent leadership role and headed up the Delian League. But Athens soon turned rogue, going from hegemon to imperialistic power: The rest of the Delian League – joined then by Sparta – rose up against Athens, and over the course of the Pelopennesian War sacked and burnt Athens to the ground.


Of course, the obvious difference between international society and domestic nation is that across nations we have chaos and anarchy, while within nations we have a coherent social fabric and basic national institutions – a police force, public infrastructure, national defense. Ikenberry continued:

The United States is not just a powerful state operating in a world of anarchy. It is a producer of world order.

A national government, on the other hand, should focus on providing those public goods that it best can, while leaving law and order (a different public good) to civil servants. In a national system, it’s fine that our leaders be selected from the most capable and not just from the most powerful.  In the international system, however, we need to agree to a world leadership part of whose assignment is to provide that international policing – and for that we need the raw superpower might of overwhelming military force.

But does that mean if a country doesn’t have those domestic institutions of security, then autocracy is appropriate?  I suspect most observers would find this an uneasy dilemma.  Moreover, that we now take these institutions for granted doesn’t mean they’ve always been there or that they somehow sprang into existence spontaneously. People built those institutions. If we can build them for states, we should be able to build them for the international system too. But we don’t even try. Instead, we apply the kneejerk reaction that in the international system we just look to the number 1 country (is it now the US, is it soon China?) for leadership, to provide the entire range of global public goods. Why should one state be the best at every single thing: being wise and benevolent, as well as to engage militarily, to stabilize financial markets, to be the lender and consumer of last resort, to fight global climate change. set the global agenda and international rules of the game?  Perhaps it should indeed be the US who guarantees safe passage against Somalian pirates and North Korean aggression, but it should be Singapore who is the world leader on trade rules and financial market regulation, China who establishes standard for the global supply chain, Denmark to lead on global climate change, and so on.

Historically, societies wearied of family dynasties.  Those leaders who, in the popular mind, asked the rest of us to eat cake revealed to us they were no longer fit for purpose.  Now, though, what signals do we global citizens need to look for to know when an initially benevolent leader has gone rogue?  When does hegemony become empire?  What will future observers establish as the date when the US achieved its Marie Antoinette moment?

So, how should we choose our world leaders? Separate out the tasks we ask of them. Let a constructed group of international civil servants provide the global public goods that they can, with what collective might they need. Then, instead of always looking only at the most powerful, we should simply seek those who are benevolent and wise, accepted not just by the privileged few but by the great majority of humanity, to be the leader of the world.

The world needs new leadership not from those whose lives have been easy, but from those whose lives have been hard.

Malaysia finds itself more and more in international news headlines. No one needs to tell ordinary Malaysians how their daily lives fill to overflowing with myriad concerns and challenges. The nation’s political leadership is challenged and changed with lively ongoing debate. Malaysia’s people unite in the face of adversity and national tragedy, and in national sporting triumph. Increased international competition and a global consciousness in its people; finite oil and gas and other rapidly-depleting natural resources; a promise of ever greater national unity that many feel has failed: there is no room for political and economic complacency.

If the world were a democracy, this is where  decisions would be made on matters of global significance.    (Idea from <A HREF="http://techno-anthropology.blogspot.co.uk/2013/05/the-valeriepieris-circle.html">Kenneth Myers, The Valeriepieris Circle, May 2013</A>.)

If the world were a democracy, this is where decisions would be made on matters of global significance. (Idea from Kenneth Myers, The Valeriepieris Circle, May 2013.)

Malaysia’s stock of talented and hardworking people want their economy and their fellow citizens to succeed. But they struggle daily in circumstances they consider unfair and unjust. This is a nation that sees ethnic, religious, and urban-rural fracture. It sees heated parliamentary debate that tests the noble ideals of democracy, at the same time that it witnesses manipulation of the ugliest of populist instincts, and allegations of high-level corruption and wrong-doing.

And Malaysia’s place in the world?  Malaysia today invests more in Africa than does China.  In London commercial real estate, Malaysia is a bigger presence than is China.  Even as China intends US$1tn in trade with ASEAN by 2020, it is Malaysia that remains China’s largest ASEAN trading partner, with bilateral trade continuing to rise 16% a year.

What about incidents such as the MH370 tragedy and their impact on Malaysia’s state relations generally, but with China in particular?  Angela Merkel might have been irritated with the US for its bugging her cellphone, but Germany did not declare Transatlantic war as a result.  The US became global hegemon through building inclusive collaborative state relations with those around it.  So too if China is to become the benevolent leader of nations that is a global hegemon, that will be through China’s continuing to build relations of trust and cooperation with countries like Malaysia.

Malaysia is a full-service, one-stop shop, middle-income level developmental experience.

It is appropriate then that the eyes of the global community are transfixed on what happens here. Malaysia sets an example—good or bad—on how the rest of humanity will need to deal with the great challenges of the coming century.

The rest of the world sees hope in Malaysia, not because life and progress here have been easy, but the opposite, in how Malaysia has met its challenges. Today hundreds of countries around the world face the middle-income trap, a slowdown in economic progress before the country reaches maximum potential: What has made Malaysia believe it is successfully escaping the Middle-Income Trap?

Today nations the world over confront the racial and social tensions from sharp income inequality. What in Malaysia’s political complexion allowed it four decades ago to roll out its national dream, a New Economic Policy that would eradicate poverty regardless of race and that would eliminate the identification of economic function with ethnicity? If Malaysia has lost its way in that struggle, how have its leaders and its people together fought back, to keep alive that national dream?

How has Malaysia continued to succeed following the 2008 Global Financial Crisis, with global financial systems in disarray? In this time Malaysia has kept secure its credit systems, ranked in 2014 first in the world in the World Bank’s Ease of Doing Business survey. Malaysia has simultaneously maintained a no. 6 ranking for well-developed and secure financial markets and a no.8 ranking for low burden of government regulation, both in the 2014 World Economic Forum Global Competitiveness Index. How did Malaysia do this?

In 2013 Transparency International ranked Malaysia worst in 30 countries surveyed for bribery. The same year the Asia-Pacific Fraud Survey Report Series ranked Malaysia worst in the region for corruption and bribery (alongside China, Indonesia, and Vietnam): how will Malaysia’s leadership deal with this challenge?

So, to repeat, why is Malaysia the focus of so much international attention? Because Malaysia has had to confront problems that are in extreme those everyone else needs to deal with as well. The example Malaysia sets is key, not only for its internal political dynamics but also for its external relations.

Emerging economies in general and the East in particular realise they can no longer run unthinkingly on Western models of propriety, policy, and governance. Even the West today does not run on Western models of propriety, policy, and governance.

The world has grown economically and financially unstable because its historical global hegemon has gone missing in action. The US is no longer the fount of legitimacy; it is no longer benevolent builder of inclusive international systems. The US has failed on the world stage, partly from the rise of the East, partly from its domestic political paralysis. But this vacuum in world leadership has not met useful replacement. Instead, in this uncoordinated and leaderless world, political leaders pay mind ever more only to short-term national interests, ignoring how their actions inadvertently destabilize the global economy.

With Malaysia as an important hub, the ASEAN region today faces these same challenges of cooperation and leadership. ASEAN seeks ever greater consolidation towards an ASEAN Economic Community by 2015. ASEAN’s concerns might be regional rather than global, but the problems are identical to those faced by a world economy that is uncoordinated and leaderless. The danger is how the benefits to regional economic integration and cooperation might be sacrificed on the altar of national expediency, as member states attempt to engage with domestic populations showing ever greater political clout, ever more visible political dissatisfaction, and ever greater sensitivity to the need for the benefits to economic growth being distributed equitably.

How has Malaysia dealt with these tensions internally, and how has it remained hopeful for successful development towards a first-world country? How is Malaysia navigating regional relations across groups unified neither by political vision nor ethnic affinity?

Today Malaysia sits on a cauldron of profound, history-changing domestic dynamics. It sits on a hub of critical regionalisation in a period when the world economy is dramatically shifting.

The world needs new political and economic models of success and leadership, not from those whose lives have been easy but from those whose lives have been hard. Malaysia needs to step up to that challenge. Its success will be good for its people and for the world.

(Adapted from the author’s “Malaysia – Why the World Wants In“, The Edge, 17 March 2014)


This growth model is just not sustainable in the long run

Memo to: Thomas Alva Edison, Menlo Park
Cc: China, Asia 2013; East Asia, Asia 2013; Singapore, Asia 1995
From: Totally Far-sighted Experts Who Will Turn Out To Be Correct
Date: 29 March 1879

Dear Mr Edison:

Your laboratory is unbalanced and unsustainable. You rely overly on old men in white laboratory coats, doing painstaking experiments on physical materials.  This model of innovation is not sustainable in the long run.Abraham_Archibald_Anderson_-_Thomas_Alva_Edison_-_Google_Art_Project

Your “light bulb”, “phonograph”, and “motion picture camera” projects: Cotton and linen thread. Wooden splints. Tinfoil. Seriously?

You face an imminent middle-level physical-usage trap.

All your projects are materials-based. You think of innovation based on discipline and on working in teams. You think of invention happening in an industrial research laboratory. You think hard work is what makes innovation.  You could not be more wrong.

The future instead is weightless and digital, not physical. Innovation requires freedom from control, from oversight, and from humdrum discipline. Your research trajectory is headed entirely in the wrong direction. The future lies not in New Jersey but on the other coast, Silicon Valley. There, nimble 20-year-olds working alone or in small groups, wearing only white T shirts and cut-off blue jeans, cut software code on gleaming but skinny notebook computers, doing things like “algorithms” and “search” and “big data”. You think you get innovation and invention by driving your large-scale teams hard to produce results. Instead, you should be providing your employees with free pizza and soda, and organising frisbee afternoons—all the while providing lots of unicycles and juggling toys in the workspace. Innovation needs to be free-wheeling, loose, and unstructured. And, please, call that workplace not a laboratory but a “campus”.


(Editorial note – good gosh, these have all turned out to be correct!  Edison really should have listened and stopped trying to make better light bulbs with that old-fashioned unsustainable model of innovation.)

We urge you to stop tinkering with your innovation methods before your physical materials-based experiments lead to a total collapse of your unbalanced and outmoded research laboratory.

Your innovation model is just not sustainable in the long run.

What did Credit Suisse know? And when did they know it?

Credit Suisse was there when AirAsia was still just a dream for Tony Fernandes

Credit Suisse was there….

Now and then people ask me how the Great Shift East can possibly be real when all the household names they have ever heard of in business are Western.

At those times I like to think about how this 12-foot high poster at London City Airport gently separates those in the know from those not.

Credit Suisse talks itself up by talking up AirAsia and Tony Fernandes.  #Win

PS  It’s true.  I took this image using my Samsung handset, and later wrote the caption as I watched SNSD on my Samsung TV, while sitting next to a Samsung notebook computer displaying shots from Aion 4.0.

A globalised renminbi can transform both China and London

[Reprinted with permission from the Financial Times 18 Oct 2013 (EnglishChinese)]

The Chinese will see how the lifting of controls is linked to economic success.

This week George Osborne announced steps to make London a global trading hub for China’s currency. If the internationalisation of the renminbi proceeds and the chancellor of the exchequer’s plan succeeds, London will – so it is hoped – again flourish as a leading financial centre. The nature of that flourishing could well differ from what we saw before 2008, but the prosperity will feel the same. Can it happen? Yes. Will it happen? That depends on a number of considerations. Will it be a good thing? Almost surely.

via http://upload.wikimedia.org/wikipedia/commons/2/25/City_of_London_at_night.jpg

City of London at night (via Wikimedia.org Commons)

Too often, when observers say renminbi internationalisation will never happen, what they mean is they cannot imagine the renminbi – with less than 3 per cent share of world official currency reserves – undermining the exorbitant privilege enjoyed by the US dollar as the world’s reserve currency.

But neither internationalisation of China’s currency nor London’s benefiting from it require that to happen. These are both relatively modest undertakings. They hinge on just one thing: the currency simply has to become a force in global currency markets.

True, this will require renminbi use in the financial markets to exceed single-digit shares. By how much? Well, to paraphrase singer Miley Cyrus, no one’s got that memo yet. But already the renminbi’s share is rising on pretty much all measures of world currency use. That is what matters.
To understand whether this will continue, we need to think about the risks and opportunities that arise from world markets accepting the renminbi more widely.

Even without full official convertibility, the currency is already significant. Full convertibility could occur overnight by fiat if the Chinese authorities thought the moment propitious.

Confidence and trust in China’s management of the renminbi are higher than in US management of the dollar or European Central Bank management of the euro. The supposed absence in China of market transparency, government flexibility and the rule of law have little bearing on acceptance of its currency. Only perceptions of risk and return matter – and government dysfunction in the US is doing everything possible to convince the world that dollar risk is significant.

China has a population about four times that of the US and an economy only half its size. It trades as much with the rest of the world as the US does. And the potential for continued economic growth remains strong. There are problems but also solutions. China invests more than many observers think reasonable but its western regions remain poorer than significant parts of Africa, and its capital stock and infrastructure per worker remain low. It no longer has a particularly young workforce – but its 340m elderly people quietly doing tai chi in the park will make for a more stable society than a similar number of young men with poor job prospects. Yes, there is a “middle-income trap” in the developing world, but all the countries that have found sensible ways to escape it had characteristics exactly like China has today.

Since 1980, the nation has steadily pulled the world’s economic centre from west of London to east of the Mediterranean. Through all this, the city’s position as a place worthy of confidence and trust, as an intellectual and cultural centre and a hub for learning and higher education, has remained constant. But, given the shift in global economic performance, it is an anomaly that the renminbi is not yet a significant force in world currency markets: the pressure for it to become one is strong.

Beijing knows it. It has warmed to the idea of making London a renminbi global trading hub. It has also established the Shanghai free-trade zone, where international finance is carried out under liberal global rules, which has the notable support of Premier Li Keqiang.

The Shanghai free-trade zone promises to do for China and global finance what the Shenzhen special economic zone did for China and the global manufacturing supply chain. The rest of the country will see how closely entwined are modern economic success and the lifting of controls on information flows, as well as currency flows – in Shanghai, in London. That will be significant, not just for London’s prosperity but also for pointing to how China itself will change.

[This was first published 18 October 2013 in the Financial Times (English, Chinese)].

The end of US exceptionalism

The phrase “American unipolarity” shows up in many places, but I learnt it most vividly from John Ikenberry’s beautifully-written 2005 article on “Power and liberal order”. There, Ikenberry wrote:

“American global power — military, economic, technological, cultural, political — is one of the great realities of our age. Never before has one country been so powerful or unrivaled. The United States emerged from the Cold War as the world´s only superpower and grew faster than Europe and Japan in the decade that followed. American bases and naval forces encircle the globe. Russia and China remain only regional powers and have ceased to offer ideological challenges to the West. For the first time in the modern age, the world´s most powerful state can operate on the global stage without the fear of counterbalancing competitors. The world has entered the age of American unipolarity.”

“The United States is not just a powerful state operating in a world of anarchy. It is a producer of world order.”

 The morning of 12 October 2013, however, the BBC ran this:


Seriously? Now? Didn’t the world just enter the age of American unipolarity?  Did the BBC not get the memo?

The answer to the question, by the way, is “Yes, political wrangling over US public finances has damaged the country’s global economic standing.”

To be clear, what matters is not whether the US will remain, in fact, the world’s largest economy. Arguing about whether China’s growth trend will remain high is almost surely irrelevant here. Despite intense media attention, the exact date when China overtakes the US — and so the US will no longer be no. 1 — will be a massive anti-climax. What will unfold there is not going to be anything like an Olympics race, where the by-a-nose winner gets not just bragging rights but multi-million dollar commercial endorsements. Instead, what will happen is that one day very soon the Chinese economy’s total size will be exactly 50 cents smaller than that of the US; the next milli-second it’ll be $15,897.23 larger. And absolutely nothing will have changed from just before to right after.

Similarly, it will not matter whether right this moment long-term US interest rates are low, nor whether US currency remains strong. It will not matter which national budget item gets put on what line. And, it will not matter why this US government disagreement has emerged now.

Instead what matters will be very basic:  “Your leader can’t put in order his own country. How will you lead the world?”

Particularly damaging is the image that the US is now giving the world on how government works. So many things that so many people hold dear are so beautifully present in the US:

  1. A government cannot ride roughshod over its people’s will; it needs to be responsive to what people want.
  2. A vibrant opposition in democracy is healthy. You can disagree with your government and still be fiercely loyal to the nation.
  3. Lively debate, free speech, and a strong civil society are unalloyed goods.

Now, to the rest of the world, all these seem to have conspired to bring government to a standstill. How will the world now be convinced that these magnificent tenets are immune to subversion by extremism and demagoguery if even the most advanced, developed, and admired of societies has failed so spectacularly with them?


Nearly half the world’s countries no longer see US as world’s leading economic power

The American public is divided on whether the US remains world’s leading economic power; but more Southeast Asians continue to think it is than not.

Nearly half the world's countries no longer see US as world's leading economic power

Nearly half the world’s countries no longer see US as world’s leading economic power

Describing matters in terms of No. 1 (No. 2, No. 3, …) is unfortunate and unhelpful. It makes everything a zero-sum game, so one side wins only when another loses. Economic prosperity isn’t like that – everybody gains.

(Expanding earlier post.)


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