29 October 2008

27 October 2008

Economic Culture in Chinese Diaspora (I of II)

It is indisputable that in the minds of the Chinese Diaspora population there is not one but three strands of definite cultural intensity: Confucianism, Buddhism and Taoism. However, in most current socioeconomic theory, Buddhism and Taoism are neglected to be mentioned.

With the rise in popularity of socioeconomic theories relating to the success of the Chinese in business, particularly dealing with Confucianism, in this post I attempt to try my hand at a little theorising with respect to the other Chinese traditions. This is the first part of a 2 part series, providing a brief introduction detailing the link between Taoism and Buddhism respectively with economic success by Chinese Diaspora populations. Chinese diaspora often left China before the time of the Cultural Revolution, and in many cases the traditions of these streams are more prevelant within them than within their mainland Chinese counterparts.

An introduction
Taoism is yet another form of Chinese religion/philosophy, which surfaced around the same time as Confucianism (Chad; 2007). Its founder is believed to be the mysterious Lau Tzu (many historical accounts actually believe that he never existed), and is based on two books said to compile his sayings and teachings, the Daode Jing and the Zhuang Zi. (Chad; 2007). This article addresses two of the more obvious Taoist beliefs relating to economic success: that directly derived from scriptures associated with the government, and the concept of wu wei. In this article only wu wei shall be discussed, as the concept of government is irrelevant for Chinese diaspora unless the government they are living under displays Taoist tendencies in an economic sense (such tendencies centre around non-interference in economic matters, tending towards free market sympathies).

On wu wei (无为)
Wu wei is not an easily translatable concept. It can be explained as taking the path of least resistance as a way to solve problems (Encyclopaedia Britannica). But this too does not fully portray its depth, and is shown most easily through how water has wu wei. Water is most esteemed by the text of Taoism for its adjustability, and strength yet softness.

Water is flexible; adjustable: if one was to pour it into a container, it would take that shape. If one was to change the shape of the container, it would also change shape. Yet the water itself does not change (Park; 2005). Water is analogous to the person, and the container to the situation: the person should be able to change “shape” in order to do what is required in the situation, yet without changing themselves.

This is beneficial for the overseas Chinese populations: they are encouraged to adapt to different situations, such as those in which the logic used is unlike their own. The emphasis on adaptability and flexibility encourages them to make the most of this kind of situation and find a way to succeed. This is especially useful in for the migrant Chinese, who may or may not be working with other Chinese when they conduct business, enabling them to take opportunities which may have otherwise not been possible.

Alternative logic also provides the end result that those with this belief are more likely to think their actions through before performance, or re-evaluate during and after the act. This also adds to the likelihood of success in a potentially hostile environment (Robinson; 2008).

Strength through Softness
Water is strong: it can wear away rocks. Yet it is also soft: one can jump in without hurting oneself. Water in this case is meant to be analogous to the person’s behaviour: it should be soft enough to get out of conflicts, yet hard enough to do what needs to be done (Park; 2005). This is an important skill which can benefit the Chinese diaspora: the ability to get one’s point across while still appearing amicable to others. Useful in business negotiations, it could be that this skill allows for them to create networks outside their own networks with relative ease, thereby integrating them into the business society as a whole and exposing them to a greater number of opportunities which could result in potential success.

All in all, it cannot be said that Taoism plays no role in the psyche of the overseas Chinese. Its role due to its philosophy of wu wei and emphasis on adaptation to the situation as it presents itself. However, this is by no means the full story: Buddhism plays a similar role in supporting economic success in these peoples, and will be elaborated on in a later article. Although, I must admit, that the richness in cultural background means that it is unlikely for any article to ever fully do such a topic justice.

Berg, H. van den. Economic Growth and Development. Lincoln: McGrawHill
Irwin. (2001)
Chad, H. "Taoism". The Stanford Encyclopedia of Philosophy. Zalta E.N. (ed.)
Accessed: 14 April 2008
Dorn, J.A. China in the New Millennium: Market Reforms and Social Development. Cato
Institute (1998)
Encyclopaedia Britannica. “Wu-Wei”. Accessed: 14 April 2008
Park, S-W. “Economy of Water: A Spiritual Basis for an Alternative Economy”. The
Ecumenical Review. Geneva: World Alliance of Reformed Churches. Vol.5 No.2 (2005)
Robinson, B.A. “Taoism”. (2008)
Accessed: 13 April 2008

20 October 2008

North Korean Economy and Geopolitics

Author: Nicolas Levi.

North Korea is definitly the strangest country in the world, as far as it can be compared to other countries.

To give you some indication, it is the only country in the world where the use of the Internet is prohibited and out of a 23 million population, only 200 persons are free to travell within the country.

The country has nuclear weapons, violating the non-proliferation agreements, and is, thus, a constant headache for world's leaders.

The reclusive state tries to limit its economic relations with other countries based on the propaganda concept of Juche, i.e. the self reliance. Nevertheless, it seems that economic cooperation between China and North Korea is developing well.

North Korea's heavy industry is in a sorry state, but Pyongyang is hoping that Chinese investment will help the collapsing economy, while China sees the North as a source of minerals. Moreover, China serves as North Korea's chief food supplier and has accounted for nearly 90 percent of the country's energy imports. In turn, North Korea's principal exports to China are metals: lead, gold, iron, steel and zinc. The Pyongyang regime imports also advanced machinery, transport equipment petroleum and chemicals.

Chinese trade and investment in North Korea now totals $2 billion per year and is increasing yearly by 7% since 2000. As a comparison Chinese trade with Poland (a 38 M European country) equals around $2 billion.

Besides, China is leading various infrastructure projects in North Korea. Since 2003, over 150 Chinese firms have started operations in North Korea.

Economic collaboration is also focused on transport industry. China has reached an agreement for a 50-year lease with the nearby North Korean port of Rajin. The Rajin Port Development of China is one of desired project of Beijing authorities: China's export boom is an economic success story of the last 25 years, but it is limited by a lack of ports. In particular, the country lacks a port on the Sea of Japan. As North Korea's dependence on China has been recently increasing, the Rajin Port Joint Development Project is attracting attention regarding how much impact it will make on the relations between China and North Korea in the future.

Nevertheless, there are some shadows on the economic cooperation. Chinese President Hu Jintao's visit to Pyongyang in October 2005 and Kim Jong-il's visit in January 2006 accelerated the path of the deepening of economic relations between the countries. Trade between North Korea and China have, however, on the same time decreased.

Before the Beijing Olympics, the Chinese government has imposed controls on pollution emissions placing North Korean material exports to China in a difficult position. According to the South Korean agency KOTRA (Korea Trade-Investment Promotion Agency), the volume of North Korea's minerals exports to China is estimated at around $250 million in 2006.

Despite these drawbacks, it seems that the economic relations between China and North Korea will blossom. China must have a buffer zone against the U.S. Besides, it recognizes North Korea's political crisis, influx of refugees as a potential and even real threat to the stability of its regime. China want also to use the low cost of labor and minerals of North Korea for its economic development.

To sum up, the relation is beneficial to both China and North Korea and, putting it in a broader geopolitical context, it makes the solution of the North Korea nuclear problem more difficult.

The author of the text is the main publisher of the website www.northkorea.pl. Nicolas is writing a Phd focused on Kim Jong Il family and is regularly publishing articles covering Korea in various media. For more information, he may be reached at Nicolas_levi(at)yahoo.fr


Bayer, Jerzy and Waldemar Jan Dziak. Korea & Chiny Przyjaźń i współpraca, rywalizacja i konflikty. Tom 1 : Strategia i polityka. Tom 2 : Gospodarka i granice (Eng: Korea and China. Friendship and cooperation, rivalry and conflicts. Vol 1 Strategy and politics. Vol 2 Economy and borders). Instytut Studiów Politycznych 2006.

Martin, Bradley K. Under the Loving Care of the Fatherly Leader: North Korea and the Kim Dynasty. Thomas Dunne Books 2004.

Cheong, Seong Chang. Idéologie et système en Corée du Nord - De Kim Il-Sông à Kim Chông-Il. (Eng. Ideology and system in North Korea. From Kim Il-Sung to Kim Jong-Il). L’Harmattan 1998.

16 October 2008

The growth of BRICs

According to some analysts, the repercussions of the current crisis could be mitigated by the fast growth in BRICs (Brazil, Russia, India and China), generating demand for exports.
The current problems have, nevertheless, already spilled over to some BRIC countries.
Firstly, a piece from Financial Times:

Banks across Russia have faced a rise in outflows as depositors have begun to lose trust in all but the biggest state banks, VTB and Sberbank, which have received most of the government’s liquidity support.Tatyana Sadovskaya, the director of a branch of Khnati Mansisk Bank in the city of Nizhnevartovsk, on Wednesday told Interfax news agency that in response to rumours of her bank’s insolvency: “People have formed long lines at cashiers and at bankomats, people are taking their deposits and closing their accounts.”Natalia Elisseva, vice-president for financial development at the Bank Nizhni Novgorod, based in the city of the same name, said the number of clients closing accounts had risen. “If there is something that can sink the banks, it is panic amongst the population . . . If there is a panic, not one bank will stand, regardless of state support.

On the other, the Economist reports that China is well-placed to cushion the global slowdown:

China’s GDP growth slowed to an annual rate of a mere 10.1% in the second quarter of this year, from 12.6% a year earlier, and most economists expect it to drop to 8-9% in 2009. But this slowdown should partly be welcomed, because the economy had been exceeding its speed limit for several years. Better still, China’s growth next year will come entirely from domestic demand, as its trade surplus shrinks. If the global downturn forces China to switch the mix of growth from exports to consumption, it would also help to make its future growth more sustainable.

The government is expected to supply a fiscal stimulus to keep growth above 8%. The package will include tax cuts and extra infrastructure spending. Economists are also urging increased spending on social welfare to encourage consumers to save less and spend more. China has ample room for a stimulus because it boasts the healthiest fiscal position of any big economy. According to Stephen Green, an economist at Standard Chartered, it has a budget surplus of 2% of GDP, if measured in the same way as in rich economies, and public-sector debt is a mere 16% of GDP. China’s readiness to use fiscal lubrication is the best reason for hoping that its economic motor will not stall.

14 October 2008

Amidst the financial crisis, Forbes publishes a very interesting appeal to Silicon Valley Entrepreneurs. After enumerating various achievements of Silicon Valley, Sramana Mitra starts here main point:
In all this, leaders of Silicon Valley, you have identified problems, found technology-leveraged solutions and built industries, not just companies.

I ask you, then, to rise up to the challenge again. Education, health care, social security: These domains need your voices, your intellect, your credibility, your time and your money. In each of these domains, there are some early successes. Edward Fields is breaking through the morass of education problems with his start-up, HotChalk (see "A Technological Fix For Education"). Kirk Loevner is cracking health care with Epocrates. Their experiences offer some insight into alternative business models, marketing models and approaches to problem solving--most notably using advertising dollars to fund resources for teachers, students, doctors and patients. In education and health care, a tremendous amount of inefficiencies can be tackled with technology.

For me, the appeal is interesting - it does not call only for a government action, but also for a grassroot approach to problems. The question is, however, whether technology and new business models can solve very intricate reality of American healthcare. They may solve the problem of costs, but coverage may pose greater political challenges. Whoever heard what happened to Hillary Clinton's efforts know what I am talking about.

05 October 2008

A physicist's view on the current crisis

As an addition to my last week's piece, I would like to quote a very interesting opinion of a theoretical physicist, Mark Buchanan, writing for New York Times:

Well, part of the reason is that economists still try to understand markets by using ideas from traditional economics, especially so-called equilibrium theory. This theory views markets as reflecting a balance of forces, and says that market values change only in response to new information — the sudden revelation of problems about a company, for example, or a real change in the housing supply. Markets are otherwise supposed to have no real internal dynamics of their own. [...]

Nearly two decades ago, a classic economic study found that of the 50 largest single-day price movements since World War II, most happened on days when there was no significant news, and that news in general seemed to account for only about a third of the overall variance in stock returns. A recent study by some physicists found much the same thing — financial news lacked any clear link with the larger movements of stock values.

And later:
Certainly, markets have internal dynamics. They’re self-propelling systems driven in large part by what investors believe other investors believe; participants trade on rumors and gossip, on fears and expectations, and traders speak for good reason of the market’s optimism or pessimism. It’s these internal dynamics that make it possible for billions to evaporate from portfolios in a few short months just because people suddenly begin remembering that housing values do not always go up.

Buchanan does not only criticises the view, but provides support for his arguments by writing information about computer models of financial markets, based on the behaviour of individual actors. The models go deeper than classic equilibrium theory and allow to determine at what point a financial meltdown could take place, i.e. when market stability disappears and panic sell-offs start.
Sadly, at least according to Buchanan, economists look not very favourably on the models.
Is it a problem of the dominance of an old scientific paradigm (in the way Kuhn saw it), or maybe mainstream economists have valid claims? We shall return to the problem soon...

03 October 2008

Casting some doubts

I shall most likely respond to Andre's piece next week. I am currently undecided when it comes to the bailout, but I would like to raise some doubts. The bailout bill passed, so the question is not if it should be implemented, but whether it is a correct policy.

Firstly, although Wall Street firms are in turmoil, this is not the case for Main Street commercial banks. As Alan Reyonold from Cato Institute writes in Forbes:

Contrary to many comments, consumer and industrial loans actually increased in the latest week. Troubled giant banks have cut back on lending, but smaller banks have picked up the slack. Consumer and real estate loans dipped insignificantly through Sept. 17, remaining much higher than they were a year earlier.

Reynolds proceeds with presenting FED data. The question, however, is for how long that is possible. What will happen when commercial banks are hit by current deleveraging in financial markets? Some of commercial banks may have some ties to financial markets and if they lose due to deleveraging, they may seek more cash and limit their credit supply. As the Economist writes:

What hurts finance affects the rest of the economy in spades. Tim Bond, of Barclays Capital, reckons that, thanks to the gearing effect, a shortfall of bank capital of around $170 billion may reduce the potential supply of credit by $1.7 trillion.

Secondly, Professor Eichengreen points out that dollar going down together with fast-growing BRICs will put the American economy on the right track soon. This is self-explaining - decreasing dollar makes exports more profitable. As Eichengreen writes:

And what the contraction of the financial services industry taketh, the expansion of exports can give back, what with the continuing growth of the BRICs, no analog for which existed in the 1930s. The ongoing decline of the dollar will be the mechanism bringing about this reallocation of resources. But the U.S. economy, notwithstanding the admirable flexibility of its labor markets, is not going to be able to move unemployed investment bankers onto industrial assembly lines overnight. I suspect that I am now less likely to be regarded as a lunatic when I ask whether unemployment could reach 10 per cent.

Here understanding Professor Eichengreen is a bit difficult: we can't say if the crisis will touch the economy at large or just the financial sector. My intuition tells me that a 5% increase in unemployment cannot be caused just by layoffs in financial sector, so the latter is most likely true. Nevertheless, the question remains how fast the effect of dollar going down will be, relatively to problems in financial markets affecting other industries.