Lesson From Isaac Newton

"If I have seen farther than others, it is because I was standing on the shoulders of giants." - Isaac Newton

Isaac Newton was talking about fellow thinkers before him. But while Isaac Newton was sitting below his apple tree, a few hundred million people in the British colony was also working their ass off for Great Britain! Would be hard to belief someone so farsighted as him could not see that too. So, if he have been somewhat more honest he would have said that he and those giants were also standing on the shoulders of millions other Asians and Africans who were working their ass off to feed him and those giants while they pondered in comfort.

The same went for 'giants' like Charles Darwin who never had to work a single day in his life. He spent his life travelling throughout the colonies (by hitching rides in merchant and navy ships) exploring & looking at the diverse life forms around the globe.

Is it a coincidence that western 'scientific supremacy' followed after the start of massive colonialisation in the 15th century?

Why LKY's English Gentlemen are No More

Some months back, Lee Kuan Yew (ex-prime minister) of Singapore said that when he was studying in London in the 1950s he was very impressed by the 'gentlemanly' conduct of the Englishmen. He commented about how things can change very fast. And in just one generation the English are now better known for their soccer hooligans - citing soccer fans that get into fights wherever they go.

Those comments got me thinking. And it was very interesting to note that LKY seemed to not recognize how that has to do very much with the history of the country. When that is understood, it would be very easy to see why the Englishmen LKY met just a generation ago were or could afford to be 'more gentlemanly individuals' than their descendents. And more importantly it will also be apparent how the conduct of the country as a whole (if one is to look beyond their individuals' behavior in London) was anything but gentlemanly. And if LKY felt that he was treated in a gentlemanly fashion, it was because he was much more fortunate than millions others and the English found it convenient to do so (but that is a real long story to be told somewhere else).

For a few hundred years up till the middle of this century, the British (or the English gentlemen that LKY was reminising about) had a huge colonial empire. The reason why it was that way was because they found that there were huge profits to be made from it. But the vast lands, people and business exploits involved had to be 'maintained' and there just weren't enough Englishmen to go round - not if you have to fight against the other colonialists, subjugate local opposition, administer the system and operate the 'trading companies'.

The last category includes individuals and groups like the East India Company, Jardine, Matheson etc. that were not performing any official fighting or administrative roles. In fact, trade companies like the East India Company actually extensions of the English government. The East India Company had their own army (undoubtedly comprising many undesirable elements that LKY would have found ungentlemanly) which was used to defeat Indian opposition to British interests and install 'more friendly' (puppet) local governments.

Once the empire is 'secured', the cheap labor of their colonial subjects and raw materials of their colonies were used to produce profits and wealth for them - the real reason why the empire was so great! They did not wage wars to form an empire just so that to the English can do some great good to humankind! In Malaysia, Indian laborers worked on rubber plantations, and Chinese migrant miners dug for tin. The raw materials produced were then sold to the English traders or middlemen. Where they could not colonise and occupy outright, they arm-twisted - like forcing the rights to sell opium to the Chinese. I am sure there were many other examples of how wealth was made for the Englishmen in other parts of the world less familiar to me (diamond and other mining in Africa?).

This is of course equally true for all the other colonial powers of the last few centuries. In fact I contend that all the major wars and revolutions of this century have their origin in the fierce competition for this right to create wealth through colonisation or enslavement.

As a result, every Englishmen before the second half of this century could see the wealth, unceasing demand for human resources and limitless rewards of this global operation. The nice thing about it was everyone could join in! There was enough to go round (if you do not include their 'colonial subjects'). Even the thieves, trigger happy murderers and rascals among them find ample opportunities to put their 'talents' to good use in the trading companies and the British army. But those activities were then more nobly known as 'service to King/Queen and their great empire'. But all the 'dirty' work took place outside of England. That was also where the ones best suited to such work went.

It was therefore not difficult to see that the typical Englishman that LKY met in England in the 50s were relatively more gentlemanly or could 'afford' to be a gentleman. For one, everyone was more than adequately fed and clothed by the system they propagated. Even a returning murderer from the British army (like General Dyer notorious for his merciless slaughter of Indians in Amritsar) could act and be treated like a gentleman in London. People like him not only got away with murder but were amply rewarded for their service to their country.

But now that the great empire is no more and the typical Englishmen has to compete among themselves and with their ex-colonies for their 3 meals a day, the picture of the Englishman is a very different one. On top of that, the ruffians among them now cannot find release without getting into trouble with their local laws and there is no alternative outlet in the 'noble service' their forefathers went for. As soccer is their favorite sport, it is then not difficult see why they choose to find release in the soccer stadiums where they can start a fight and hope to sneak away among the big crowd.

Note : In a report in Straits Times on July 18 2000, British Home Secretary Jack Straw was quoted as blaming football hooliganism on racism and colonialism. Headline was "British Minister says……
HOOLIGANISM : Blame it on racism
RACISM : Blame it on colonialism"

Bird Brain

Bird Intelligence (extracted from PBS website)

On a university campus in Japan. Carrion crows and humans line up patiently, waiting for the traffic to halt. When the lights change, the birds hop in front of the cars and place walnuts, which they picked from the adjoining trees, on the road. After the lights turn green again, the birds fly away and vehicles drive over the nuts, cracking them open. Finally, when it’s time to cross again, the crows join the pedestrians and pick up their meal. If the cars miss the nuts, the birds sometimes hop back and put them somewhere else on the road. Or they sit on electricity wires and drop them in front of vehicles.

Biologists already knew the corvid family–it includes crows, ravens, rooks, magpies and jackdaws–to be among the smartest of all birds. But this remarkable piece of behavior–it features in the final program of “Life of Birds”–would seem to be a particularly acute demonstration of bird intelligence.

The crows in Japan have only been cracking nuts this way since about 1990. They have since been seen doing it in California. Researchers believe they probably noticed cars driving over nuts fallen from a walnut tree overhanging a road. height on the seashore to break them open, but found this did not work for walnuts because of their soft green outer shell. Other birds do this, although not with quite the same precision. In the Dardia Mountains of Greece, eagles can be seen carrying tortoises up to a great height and dropping them on to rocks below. The hapless Aeschylus (525-456 BC), a father of Greek tragic drama, is said to have met his end by this means.

A seer predicted he would die when a house fell on him, so the wary scribe departed for the hillsides, well away from any dwellings, where he believed he was safe. He wasn’t. An eagle is said to have mistaken Aeschylus’ bald pate for a stone, and dropped the creature in its “house” onto it.

Scientists have argued for decades over whether wild creatures, including birds, show genuine intelligence. Some still consider the human mind to be unique, with animals capable of only the simplest mental processes. But a new generation of scientists believe that creatures, including birds, can solve problems by insight and even learn by example, as human children do. Birds can even talk in a meaningful way.

Some birds show quite astonishing powers of recall. The Clarke’s nutcracker, a type of North American crow, may have the animal world's keenest memory. It collects up to 30,000 pine seeds over three weeks in November, then carefully buries them for safe keeping across over an area of 200 square miles. Over the next eight months, it succeeds in retrieving over 90 percent of them, even when they are covered in feet of snow.

On the Pacific island of New Caledonia, the crows demonstrate a tool-making, and tool using, capability comparable to Palaeolithic man’s. Dr Gavin Hunt, a New Zealand biologist, spent three years observing the birds. He found that they used two different forms of hooked “tool” to pull grubs from deep within tree trunks.

Other birds and some primates have been seen to use objects to forage. But what is unusual here is that the crows also make their own tools. Using their beaks as scissors and snippers, they fashion hooks from twigs, and make barbed, serrated rakes or combs from stiff leathery leaves. And they don’t throw the tools away after one use–they carry them from one foraging place to another.

Scientists are still debating what this behavior–shown in program three–means. Man’s use of tools is considered a prime indication of his intelligence. Is this a skill acquired by chance? Did the crows acquire tool making skills by trial and error rather than planning? Or, in its ability to adapt and exploit an enormous range of resources and habitats, is the crow closer to humans than any other creature?

Dr Hunt, then of Massey University in New Zealand, said this of his research: “There are many intriguing questions that remain to be answered about crows’ tool behavior. Most important would be whether or not they mostly learn or genetically inherit the know-how to make and use tools. Without knowing that it is difficult to say anything about their intelligence, although one could guess that these crows have the capability to be as clever as crows in general.”

The woodpecker finch, a bird of the Galapagos, is another consummate toolmaker. It will snap off a twig, trim it to size and use it to pry insects out of bark. In captivity, a cactus finch learnt how to do this by watching the woodpecker finch from its cage. The teacher helped the pupil by passing a ready-made spine across for the cactus finch to use.

Sometimes a bird species’ very survival depends on its ability to learn fast. Birds need to recognize a cuckoo egg dumped in their own nest and either throw out the strange egg or desert the nest to start afresh. In Japan, the common cuckoo recently switched to a new, unsuspecting host on which to dump its eggs, the azure-winged magpie. The emerging cuckoo chicks ejected their foster siblings, and the magpie population dropped dramatically.

Ten years on, the magpies started to fight back. They learnt to detect the “foreign” eggs. Within a few years, there was a four-fold increase in its rejection of cuckoo eggs. The speed with which the magpie changed its behavior has astounded biologists.

Another sign of intelligence, thought to be absent in most non-human animals, is the ability to engage in complex, meaningful communication. The work of Professor Irene Pepperberg of the University of Arizona, Tucson, has now shown the general perception of parrots as mindless mimics to be incorrect.

The captive African grey parrot Alex is one of a number of parrots and macaws now believed to have the intelligence and emotional make-up of a 3 to 4 year old child. Under the tutelage of Professor Pepperberg, he acquired a vocabulary of over 100 words. He could say the words for colors and shapes and, apparently, use them meaningfully. He has learned the labels for more than 35 different objects; he knows when to use “no,” and phrases such as “come here”, “I want X,” and “Wanna go Y.”

A bird’s ability to understand, or speak, another bird’s language can be very valuable. New Zealand saddlebacks, starling-like birds, occupy the same territory for years. They have distinct song “dialects” passed on through the generations.

New territory vacancies are hard to find, so young males are always on the look-out for new widows into whose territory they can move. While they wander around the forest, they learn the different dialect songs, just as we might learn a language or develop a regional dialect. As soon as a territory-owning male dies, a new young male may move in to take over within 10 minutes. He will immediately start singing the dialect of the territory he is in.

Intelligence–if this is what scientists agree these birds possess–is not limited to the birds we always thought of as “bright.” In recent experiments at Cardiff University in Britain, a pigeon identified subtle differences between abstract designs that even art students did not notice. It could even tell that a Picasso was not the same as a Monet. The experiment seems to show that pigeons can hold concepts, or ideas, in their heads. The visual concept for the pigeon is Picasso’s painting style.

Some birds seem to indulge in “intelligent” play. The kea, a New Zealand parrot, has been filmed ripping (inedible) windscreen wipers off cars. Young keas, in a neat variation of ringing the doorbell and running away, are known to drop rocks on roofs to make people run outside.

Jack the jackdaw was raised by wildlife film producer John Downer. As soon as Jack was mature, he was released into the wild. However, he couldn’t stay away. “One thing he is totally fascinated by is telephones,” said Downer. “He knows how to hit the loudspeaker button and preset dial button. Once we came into the office to find him squawking down the telephone to the local travel agent.”

Jack also likes to fly down onto the mirror of the production car when he sees somebody going out. “He turns into the wind, gets his head down and surfs on the air current until we reach about 30 mph when he gives up.

“Like all jackdaws, Jack shows great versatility and intelligence. Because he has to exploit a wide range of foods, he is investigating things all the time.”

However, scientists believe it is not physical need that drives creatures to become smarter, but social necessity. The complexities of living together require a higher level of intelligence. Corvids and parrots, along with dolphins, chimps, and humans are all highly social–and smart–animals.

Some ravens certainly apply their intelligence for the good of the flock. In North America, they contact other ravens to tell them the location of a carcass. Ravens are specialized feeders on the carcasses of large mammals such as moose during the harsh winter months of North America. The birds roost together at night on a tree, arriving noisily from all directions shortly before sunset. The next morning, all the birds leave the roost as highly synchronized groups at dawn, giving a few noisy caws, followed by honking.

They may all be flying off in the direction taken by a bird, which had discovered a carcass the previous day. This bird leads the others to his food store, apparently sharing his prize finding with the rest of the flock.

Ravens share information about their findings of food carcasses because dead animals are patchily distributed and hard to find. Many eyes have a better chance of finding a carcass, and once one has been located, the information is pooled.

Although the carcass now has to be shared between more individuals, the heavy snowfall and risk of mammal scavengers taking the kill mean that a single bird or a small group could not eat it all alone anyway. Some are even believed to solicit help with the carving, by tipping off other predators, such as wolves, about the meat so they will rip it open and make it more accessible to the ravens.

The African honeyguide lures badgers to bees nests, and feeds on the leftovers. To humans they offer their services as paid employees. They call and fly backwards and forward to draw local tribespeoples’ attention to the location of honeycombs, and are then rewarded with a share of the takings for their trouble.

Of course, the bird world has its share of “bird brains.” There are the birds that build three nests behind three holes under a flower pot, because they can't remember which is which, and birds that attack their own reflections. The Hawaiian goose is as innocent of danger as a baby crawling along the girder in an unfinished skyscraper. It would walk up to an introduced mongoose on Hawaii, and be attacked.

The level of intelligence among birds may vary. But no living bird is truly stupid. Each generation of birds that leaves the protection of its parents to become independent has the inborn genetic information that will help it to survive in the outside world and the skills that it has learned from its parents.

They would never have met the challenge of evolution without some degree of native cunning. It’s just that some have much more than others.

The High Class Salesmen Who Sold Loot Back to Owner

One of this week's major news was about metal figurines of animals being auctioned by Christie's and Sotheby's in Hong Kong. China claimed that those were works of art looted from its Summer Palace in Beijing during the Opium War of 1860. A government related company with links to the PLA reportedly paid US$4 million to buy back 2 of the pieces.

If the Chinese government claim (which I am sure can be independently verified) is true, then the auction is a blatant insult and challenge to the Chinese government and its people. It appeared to me that it was like an owner having had valuables stolen from his house found a few years later (except that this is a span of 140 years) that a high class salesman was trying to sell the items back to him in his own front yard! And no one says anything, not including the governments of the countries where the thieves originated. Although the individuals that stole the items are long dead and the 'prizes might have pass through many hands', it does not deny the fact that the original perpetrators committed their crimes under the cover of certain countries that still exist today. Surely those governments must feel some obligation to help the Chinese recover them.

While those governments' silence and the international community's disinterest in this is itself unacceptable to me, it also may be a sinister and brazen challenge to the Chinese government to see if it seizes the items and therefore end up interfering with the 'rule of law' in HK and its promised one country 2 system policy.

I am sure many Chinese must have felt the same and will remember this well into the future. Quietly but surely they will.

Note : Forwarded above note to Straits Times Forum but not published.

Just Another Colonial Story - Cecil John Rhodes

Recently there were news reports of black people of Zimbabwe (formerly known as Rhodesia) robbing land belonging to white people. White people who represent 1% of the population occupies 50% of arable land. The British government announced plans to help evacuate 50,000 people threatened by the action of the blacks. According to yesterday's report, the British government 'feels responsible for those white people given the history linkage'.

I took a look at website of Slate magazine and found this historical background. A review commentary by contributor to Slate on a film made by BBC on Rhodes:

Rhodes' story is an inherently implausible one: a sickly, asthmatic vicar's son from Bishop's Stortford, England, heads to South Africa for the sake of his health and ends up the richest man in the Western world and the colonizer of a vast tract of Africa. Rhodes had three simultaneous careers in his 49 years--diamond magnate, politician, and imperialist. His big idea was to "save Africa from itself." Only after his death, in 1902, did the dizzying extent of his imperial fantasy become apparent. In his will, he left a fortune for the establishment of a "secret society" modeled on the Jesuits, with the aim of extending British rule throughout the world.

He was one of few men in history, apart from Simón Bolívar, who managed to get a sizable mainland country named after himself--two countries, actually, Northern and Southern Rhodesia. Only one person topped that, the Italian-born explorer Amerigo Vespucci, who claimed an entire continent. Of course, Northern Rhodesia became Zambia in 1964. And when "Southern Rhodesia" was jettisoned for "Zimbabwe" in 1980

His most enduring legacy in the post-apartheid world is the De Beers cartel, which he set up to manipulate the world diamond market.

But somehow this shabbily dressed buffoon, with his falsetto giggle; this fidgeting, bumbling public speaker who was once described by a senior Colonial Office mandarin as "grotesque, impulsive, school-boyish, humorous and almost clownish - not to be regarded as a serious person" rose to become a business colossus and the prime minister of the Cape Colony, and ran rings around the British government. Lord Salisbury, the British prime minister, eventually granted Rhodes his royal charter to occupy the north. "Take all you can--and ask afterwards," was his typically wimpish advice, as Rhodes' pioneer column trekked into the interior. So, like much of British imperialism, the conquest of Rhodesia was a private-sector colonization, costing the British taxpayer nothing, at least initially.

All that remained in the way of Rhodes' imperial vision of controlling the African interior was "one naked old savage," as Rhodes called King Lobengula. The story of how the ruler of the Matabele, a tribe that lives in what is now southern Zimbabwe, was cheated of his lands is truly a sad one, and one of the most affecting parts of the miniseries. A pair of binoculars here, a few hundred Martini-Henry rifles there failed to do the trick. So Dr. Jameson, Rhodes' sidekick (played by Neil Pearson), treats Lobengula for his gout by turning him into a trembling morphine junkie, prepared to sign anything put in front of him for his next fix. As Rhodes announces to his shareholders in London that shares in the Charter Company have risen 1,500 percent, Lobengula, defeated, his people reduced to servitude, kills himself.

The film leaves the impression, too, that had it not been for Rhodes' invasion of Mashonaland and Matabeleland, they would somehow have been spared the terrible subjugation of colonization. Hardly: Paul Kruger and the Transvaal Boers were already eyeing the territory north of South Africa avariciously, as a haven to which their trekkers could escape from British domination. And the Belgians, Portuguese, and Germans were also scrambling for African territories.

Rhodes and the white pioneers in southern Africa did behave despicably by today's standards, but no worse than the white settlers in North America, South America, and Australia; and in some senses better, considering that the genocide of natives in Africa was less complete. For all the former African colonies are now ruled by indigenous peoples, unlike the Americas and the Antipodes, most of whose aboriginal natives were all but exterminated.

Risk Taking

To wake up is to risk spoiling a dream
To dream is to risk missing out on reality
To be realistic is to risk being mediocre
To be mediocre is to risk not achieving the best
To be the best is to risk missing out on other things in life
To enjoy things in life is to risk not making enough money
To make more money is to risk missing out on sleep
To sleep is to risk not waking up
(return to top)

How Some Good People Are Helping the Poor

I read a Straits Times article a few months back about a small but quite popular tourist area somewhere in India. It is on some mountainous area with good view etc. Just like all other places in India including the large cities like Delhi and Mumbai, there were many poor people making a living by scavenging and begging. Poor parents and children spend their time rummaging through the rubbish dumps and streets just to find enough to survive.

As this place was quite popular, there was a lot of trash thrown all over the place. A man who was either a university professor or someone with some government body came up with an idea to both rid the area of rubbish and give the poor people a decent income. The idea was for the poor to be organised into teams that will collect thrash like plastic containers and cans from the various parts of the area and sell them to recycling plants. He got the recycling plants to agree to the plan. He also got the local hotels and shops to place their garbage for collection by these teams of poor people. Apparently the program worked very well and a man who used to beg was quoted as saying that he now finds a decent income and could afford to send his children to school. To him it was a wish that would not have been possible without this idea and effort from this one gentleman.


Mobile Phones Give New Hope to the Rural Poor

Today I read this acticle about a bank in Bangladesh that gives small loans to small farmers and business people (micro credit). The Grameen Bank was founded by a 'celebrated banker of the poor' Professor Muhammad Yunus. The company also has a phone company of the same name that pioneered the sale of mobile phones at subsidised rates to village women. The women were selected from their track record as the bank's borrowers. The villagers then used the phones to get in touch with markets in towns which were far away from their village. In that way, middle men cannot cheat the farmers anymore. The phone company conducts a day long training session before issuing the phones. The only condition is that at least one member of the family must recognise the English alphabet.

It was really nice to know of such people and what they were doing for the poor in their countries. What contrast it is to compare that to what I hear about what happens in the different countries:

Malaysia : I hear so many similar stories from different relatives and friends from all over Malaysia that there must be quite a lot of truth to it. PM Mahathir himself was reported in Malaysian newspapers recently to have complained that the government has to review its student loan policies. That's because the students were not appreciative of what the government did for them and were supporting the opposition. He said that all of them get study loans when they go the university (Malays go in under a quota system) and the first thing they do with the money was to buy motorcycles to go round with. They were not interested in studying but politicking.

There was also a story that my cousin in Simpang Rengam (in Johore Malaysia) related to me. There was a Malay couple about to retire as teachers (most teachers in the last 20 years were Malays as part of the government program to promote their involvement in all aspects of the economy). Apparently in Malaysia, a retiring government employee can borrow about 30 thousands dollars each from the government as seed money to help them start whatever business they choose. So everyone does it (the Malays that is, since they makes up 80 to 90% of the civil service). They will get some wood to build a cart and sell something (whatever) and apply for the loan. Once the loan is obtained, the money will be used first to buy a car or motorcycle which they will parade through town. The supposedly new business almost always never take off and the loans not returned. Apparently, the couple went round the small town bragging to the others that they will get 50 over thousand Ringgit just like that when they retire.

Talking about teachers, PM Mahathir also commented about the rising number of non-Chinese students in Chinese schools and the government was looking at increasing the size of those schools. That was just before the Malaysian general elections of 1999. He said the reason why the other races are sending their children to Chinese schools was not because they wanted to learn Chinese. Just that the teachers there are 'more committed'. I guess he meant what everyone knew for decades. The teachers in government schools who are mostly Malays were useless.

Singapore : The government has just topped up S$250 into the CPF account of each Singaporean. There was a long queue of old people in the CPF today to collect the 'bonus'. Only people above 55 years old and who meet criteria like having more than the minimum savings are allowed to withdraw the money. It was quite refreshing to know that the Singapore government appreciated the plight of the older generation who needs the money more than the younger ones.

Another Example of Endless Human Greed

Some months ago I received an e-mail from someone asking people to give support to a center for stray animals known as Noah's Ark Lodge. Apparently the land occupied by the center was leased from the Singapore government and the lease was about to end. The man who ran the place applied for an extension but was rejected and the e-mail was an appeal for public support for the extension appeal. I remember seeing somewhere in Noah's Ark Lodge's website that the Primary Production Department (PPD) cited the reason for not extending the lease as the need for ensuring 'best use of the land through the process of bidding'.

My thought then was that it was quite ridiculous to consider the extension solely on that basis. I therefore put in my little piece in Noah's Ark Lodge's website suggesting an appeal to PM Goh since he appear to me to be one who may 'have more in his heart than just making money'.

In today's Straits Times is a report that said that the current operator of Noah's Ark Lodge, a Raymond Wee, has 'lost the bid' for the land. An ex-pet shop owner, he setup the center because he wanted to have 'a more humane way of handling the strays other than to put them down". He had reportedly sold his shop house and spent $1.5 million dollars of his own money and the last 7 years running the center. The winning bidder is a pet businessman who will use the land for business and had offered to accommodate the stray animals as long contributions for their upkeep continue to come in. The chief executive of the Food and Veterinarian Authority of Singapore, a Mr Ngiam, was quoted as saying that 'other animal lovers concerned about the welfare of the animals can also help by adopting the animals and contributing to their upkeep'. I guess that was probably stated in light of public concern for the closure. Prompted by the news report, I took a look at Noah's Ark Lodge website today. In its message section are expressions of disappointment from some people and there were some really nasty messages with four letter words.

I was thinking about this whole story, the public official statements and what they really meant. It is clear that many people were saddened by what happened. And may be unable to reconcile the outcome to their hearts, some good intentioned people have resorted to foul languages to express their exasperation at the failure of a nation to make a difference for some helpless animals and to let a man with the willingness to help them to continue to do so.

It was clear that settling the issue by determining best use of a land by bidding meant that the land should go to one with the highest dollar return. It would not take much for anyone to appreciate that 'humanitarian' work cannot be valued the same way as running a business. Otherwise Mr Wee would have made instead of spent a million dollars doing it. Many people including GIC would be doing it! Surely they also do not expect the animals to earn their right to live as they have done for millions of years (and, unlike humans, taking only what they need and no more) by producing revenue for humans! When it is only fair that animals should have some right to a decent existence, we humans in our usual selfishness have somehow assumed that humans have the right to every inch of space on earth. After that, we in our arrogance try to insist that everything under the sky should follow the rules that some of us had dictated. Our insatiable greed concealed in nice sounding man-made concepts (and taught by governments and schools) like "free market" and "maximum returns" have blinded us to the fact that those concepts are not laws of nature. To top it up, when an issue like this concerning the life of other life forms should perhaps be a whole nation's concern, a public official obviously with some responsibility for wild-life has taken the presumptuous liberty to tell all his countrymen that it is essentially not his business. He probably does not realise that what he was really implying was that while a whole nation has collectively deprived other animals a space for continued survival only those few with the heart and desire to help the animals should pay for that 'robbery'.

When a country claiming to be a 'first world' nation with highly schooled people and top officials pegging their salaries to 'the best' cannot seem to appreciate the above, it is indeed a frightening future for the world.


Sent the above note to the Straits Times the day the report was published hoping that it will get onto their Forum page. They must have thought that I was being ridiculous. It was not printed.

A week after the news report, the message function in Noah's Ark Lodge website was closed. Message on the site was "We have also decided to close this message board. While there were many constructive and well intentioned feedbacks, there were also a lot of immatured, shallow and irresponsible messages. Perhaps it is due to the anonymity of the Internet, many had based their criticism on superficial observations. One or Two had been using this message board as a vehicle for personal attacks, hiding behind fake identities. No wonder it took the government so long to allow the "Speakers' Corner". Even then, judging from the messages on this "virtual soap box", we are probably still not quite ready for it yet."

What's So Smart about That?

At lunch yesterday someone mentioned that she's smart and seemed impressed with herself. So I thought I'd try and see if that's really true. I told her that I need to ask her a few questions to see if that's true (from my perspective at least).

So I asked "Are you a Christian?"
Answer "Yes"

Question "So tell me why you believe in Christianity"
Answer "That's because I have faith in it"

Question "How did you get that faith"
Answer "That's because I spend time talking to God"

Question "That's it?"
Answer "Yes, that's all you need. Obviously you have not communicated with God before and do not have the faith in you"

I said "That's it? And you claim you are smart and that's all you need to believe in a religion?" The lady was obviously taken aback. And I told her that I know I was very blunt but I did that purposely to provoke her since she said that she is smart. The questions were meant to get her thinking about what thinking she had actually done on such an important matter. I asked if there is any smartness involved to say that one has the faith in something and therefore it must be right? Any Tom Dick and Harry could have done that! There's nothing smart about it.

Then yesterday evening I read a book with collection of articles contributed by various renown people as part of their views and hopes for the new millenium. In it was a letter contributed by a biologist who said it was intended for his 10 year old daughter. In the letter, he said that we should conduct ourselves based on rational thinking and not faith.

He asked how can faith be reliable if the faiths of a Mohammaden in an Arab country, a Catholic in Ireland and a Hindu in India are totally at odds with each other? How can all or any of them be right when their faiths which are no less stronger than the other's are in total conflict with each other? The biologist then proceeded to explain in the letter to his daughter that she should not believe all things passed down as tradition, revelation etc. as truth but needs to seek to understand the world around her better through rational thinking.

Sim Wong Hoo's Message from Mom

Sim Wong Hoo is a Singaporean who made it big as head of Creative Technologies, a computer company specialising in sound processing and multimedia technologies for computers. Creative Technologies is listed in Nasdaq (a US exchange for technology stocks) and Sim Wong Hoo is now a multi millionaire. So it is no surprise that he was awarded Businessman of the Year twice The Singapore government often cites him as an example of a successful local entrepreneur in the new world of information technology. Someone that all of Singapore should try to emulate.

During lunchtime a few weeks ago I came across a book written by Sim Wong Hoo in the MPH bookstore near my office. The book is actually a collection of short articles he has written over the years about lessons learnt and his insights into things. So I took a quick read of all the articles in the book. One of them was about something that happened during dinner one day when his family was celebrating his Businessman of the Year award the 2nd time round.

According to him, his mother quoted a Chinese saying in her dialect out of the blue and kept entirely quiet after that. Neither a word more to explain what she meant. That was a few months before she had a stroke. Sim Wong Hoo said that his mom's saying really caught his attention then and it had not got out of his mind since. He said that his mom who was then an uneducated 80 year old has never said that particular quote before even though he used to hear many of her Chinese sayings before. He said that his mom's quotes were learnt by word of mouth as it was passed through the generations. Other than being rich in meaning, the saying also had a very nice rhyme to it when spoken in his native dialect. It was "Hao Go Kan Bai Jia, Hao Ren Yi Tian Xia". Literally that means "A good dog watches after a hundred homes, a good man benefits all beneath the sky".

I know what Sim Wong Hoo meant by the richness in those old sayings. I also enjoyed the company of my old aunt in Taiping (my father's sister who's more than 10 years older than him) because she has the knack for quoting some old Chinese sayings whenever we talk about something. One or two short phrases with four to six words each. I used to go off trying hard to remember the sayings that she learnt from word of mouth and through a traditional Chinese book known as the "Tung Sing" (in Cantonese).

Sim Wong Hoo's short story also took my attention and it stayed in my mind. For I interpreted, as I was sure Sim Wong Hoo did, that what he had achieved will not mean much (to his mom at least) until he does something more meaningful. She could have easily joined in her son's celebration and expressed pride of his achievements. But she chose instead to remind him of something else. Her silence after was equally significant and it reminded me of a Slovenian proverb : "Speak the truth, but leave immediately after."

Then 2 weeks ago when I was flying to New York I happened to read a news item in the Chinese article about a donation that Sim Wong Hoo made to setup an eastern cultural development center (don't know it's real name as my Chinese was not that good). May be it wasn't by chance that I noticed that article (given my little bit of Chinese language capability). May be it had to do with the fact that the story was very much still fresh on my mind - how many of us can even consider ourselves comparable to the good dogs as described in the saying let alone good men? That is also why I have to write this down. He had also offered a section of his company premises for use by the center. The reason he gave for why he did that was that he thought that the future of the Internet (or IT in general) lies in the content business and he sees the benefit and synergy of the center's work to his IT business.

That event however made me wonder how much of that had actually been affected by what an uneducated old woman once said to her son over dinner. In her quiet way and in less than 10 words, she might just have made a difference. May be some of that has also got to do with her genes and what she had passed on to her son. The genes that gave him the awareness and control that helped him realise what his mother was trying to tell him and to continue her principles of life Who knows.

To me the story also reflects certain aspects of the Chinese language and the character of the Chinese. A language that can be succinct and yet beautiful. A people whose relative silence may belie the wisdom they possess. A people whose wisdom if deployed will be done so discreetly and without repeat that the future generation will miss it altogether if they are not fast enough or attentive enough to catch it in its quick passage. A people whose tradition teaches one to see meaning beyond personal achievement and personal wealth, and reminds its people of the importance of the greater good. Even if it has to be done through the word of mouth. We should remember not to lose that culture. Hopefully then, the Sim Wong Hoo's of the future will have the benefit of the mother that Sim Wong Hoo had.

Now I can go back to my Chinese lesson 102 without this story bothering me at the back of my mind. Is there any old ladies around for me to talk to?

Saw this quote by Mark Twain one day : "If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man."

The Magic of Magic

Children are always fascinated by magic tricks. The proof lies in the rapt attention magicians get from children (for performances that may last 30 minutes) - something that adults find hard to do. Children's joy is obvious whenever the word 'magic show' is mentioned.

Wai Ling was no exception. When she was barely 3 years old we happened to walk pass a video shop (selling VCDs) that had on show on their shop TV a program called 'The Magicians Secrets'. It explains and shows how magic tricks are done. Firstly it shows the magic as seen by audiences. It then show how the trick is achieved - sleight of hand, visual illusions, 'behind the scene' view and special compartments and preparations of the props used etc. Finally, it shows the trick again in slow motion. Wai Ling was captivated by the show and she seemed to understand that they are all just tricks - there's always an explanation to the 'magic' and no real disappearing act or things appearing out of nowhere.

The VCDs were pretty expensive then - it was a set of 3 but a piece cost $12 or $15 - so we did not buy them. But we had numerous opportunities to watch the show on our subsequent shopping outings as it was quite commonly shown on shop TVs then. We would just stand at the shops with me carrying her and repeating the explanations for the tricks as they unfolded. I'm quite sure it must have been a pretty popular show - kids and adults alike must have loved it! We did. When it got cheaper ($10 for set of 3), we bought the set and it was magic show everyday for a while until Wai Ling got tired of them.

It was also time to attempt some tricks ourselves. So I went to look at some magic books to try and learn some simple tricks. Also bought a magician toy set from Toys'R'Us. It had magician hat, magic wand, a guide book and plastic props (coins etc.) to be used in the tricks. Gave us some fun for a while but did not last long. The wand and hat broke quickly, and the plastic items did not look real.

But I picked up a neat little trick from a book that gave us a tremendous time of fun. It was a trick on 'shredding tissue to bits and making it whole again'. Simple but it gave the 2 of us some great fun for a long while. Showed Wai Ling how it worked and she tried doing it but her hand was too small to hide the thing. We 'did the show' for her cousins in Batu Gajah during one of our trips last year (1999) and had a field day.

Was having dinner in a seafood shop and there were 10 kids there (a couple of them around 10yrs old). I took some tissues from the shop and did the trick. The kids were clearly enthralled by it and asked that it be repeated again and again. At one stage Wai Ling began to explain how it worked and I had to stop her very quickly (otherwise no fun for me!). We did it so many times that the shop floor around our table was filled with pink pieces of servettes! The shop staff did not seem bothered. In fact, they and the other adults were all watching the trick too!

Of course, the adults and one or two of the older kids soon saw through the trick (especially those watching from behind!) but the other younger kids were still 'impressed' after we were done and wanted more. But I gave the excuse that I cannot do too many times a year, otherwise my magic will not have effect. So they will have to wait till the next year.

Of course they weren't entirely satisfied with my excuse and continued asking why. That's children's natural inquisitiveness. But I had enough encores for one night. They are probably still wondering what happened - must go back and try on them again.

Since then I've tried this simple trick on kids that I run into (on buses, in restaurants, shopping complexes etc.) and I can always see the wonder in their eyes. But I always made it a point in the end to show the torn tissue hidden in my palm. Then I'd see the sheepish smiles and the 'Oh, that's how it worked!' looks in their eyes.

Soon, I've gathered a few other simple tricks from books in bookshops. Too expensive to buy them. Some cost $30 a copy.

Tricks

Shredding tissue to bits and making it whole again
Roll one tissue into small ball and hide in ball of left palm
With back of palm facing audience, tear another piece of tissue into bits
Forming left palm into 'round tube' push torn tissue into palm (at same time, torn bits must form a ball to be hidden in palm like that of the good piece)
Take the good tissue ball out of palm and open up to show

Disappearing coin
With left palm facing upwards, hold a coin between thumb and 1st finger
With palm of right hand in front of left palm and back of right palm facing audience, pretend to grab hold of coin using right hand
As audience's view is covered, drop the coin into bowl of left palm and move left palm away from view
Move right palm (closed in bluff 'coin in hold' position) and pretend to push the coin onto head of audience etc.
Open right palm to show that coin had disappeared
Using left hand (with coin still in palm) pretend to pull coin out of ear of audience.

Fate or Payback Time?

The football team I play in consists mainly of current or ex-employees of Morgan. Due to shortage of players we occasionally get outside people to play for the team - friends or acquaintances. There was this guy, about 40 years old and whose name I cannot remember, who played goalkeeper for our team a few times. Late last year he stopped playing for a few months. So when he finally joined us back, I asked how he had been and what had happened to him. He told me that he had an operation a few months ago to remove part of his intestines. Apparently it was quite serious. I asked for more details and found out that his intestines dried up and rotted. So the doctors had to remove parts of it. Guessing that it could be the effects of smoking, I asked if he had been smoking for a long time. He replied yes. So I told him that that was the cause of it. I asked if he was married and has children. He said yes, and the children were less than 10. I then suggested that for the sake of his children he should stop smoking.

Although he kept quiet and his head down after that, what caught my attention was the look of amazement on his face when I 'guessed' correctly that his problem was due to smoking. He must have been wondering how I could have gotten to the source of his problem so quickly because I barely knew him. I guess he must have been unaware or indifferent to the well-known effects of smoking, and only understand it when his intestinal problem was diagnosed as most probably due to smoking.

That led me to think to myself how all of us can be like him. Each day, our actions or activities may have implications to our future but because we are unaware of the possible effects and the effects are either not immediate or directly obvious, we go about those activities assuming that they are alright. And when the accumulated effect of those actions finally hit us later down the road, it was already too late. And we simply resign ourselves to it and say that it is fate. Attributing things to fate is but a quick and simplistic excuse. If we care to begin to be aware of our actions and learn from others' experience (especially the findings of science), there is a very good chance that we will begin to realise that there is a cause and effect to many things in life. Many of us just do not bother to notice them.

The above story was a very simple example of this phenomenon. It was nothing special about my observing that the cause of that man's problem was smoking - if one is aware of all the scientific/medical findings about smoking.

May be that also explains how fortune-tellers work. Find out about something it one's past, and predict the future based on the fortune-tellers' knowledge accumulated through observing what had happened to others. After going through a sufficiently large 'sample size', the chance of a correct prediction can be pretty good.

What is an English Name

A group of kids were playing outside our house one evening. A woman who was talking to a neighbour asked one of the boys what his name was. The boy who was about 7 years old replied "Yang Yang". The woman continued "But don't you have an English name?" to which the boy gave her a puzzled look but did not reply. When the woman repeated her question, the boy annoyedly replied "Yang Yang lah! That's my English name!" I could not help but laughed inside. The boy appeared to have more brains that that woman.

Poor Indonesia

It was sometime after the Asian Financial Crisis. We had a new maid of quite pleasant character who was working outside Indonesia for the first time. After a month or so after she joined us I asked her for her views on Singapore, and how she found Singapore compared to Indonesia. She said that Singapore had many Chinese who were rich like Indonesia where the Chinese were also rich.

Sensing that she was alluding to the common Indonesian perception that it was so because the Chinese were greedy and predatory (during the Suharto era it was common for politicians in Indonesia to blame the Chinese for their country’s poverty), I said if that was the case the Indonesian themselves could have done something about it. Instead of blaming the Chinese and rioting against them once every now and then like what happened during the 1997 crisis, the Indonesians who formed more than 95% of the population could have setup their own distribution/retail businesses and boycotted the Chinese businesses. That would have been the sure-fire way for them to cut the supposedly greedy and predatory Chinese off from the whole thing and there will be no need to blame anyone.

As this maid had a secondary school education, I could see that she quickly got the logic of what I said. I proceeded to give her my views of what I thought were the real causes of her country’s poverty. The reality is not what she had been led to believe by her government and politicians. The reason why her government had not tried to cut the Chinese businessmen out of the Indonesian economy is because they were actually adding real value (granted that many Chinese businessmen were greedy and selfish but that was no different from any other Indonesian businessmen).

In contrast, the Indonesian politicians and bureaucrats preferred to take the easy route to personal riches. So instead of helping set up and promote Indonesian businesses, they preferred to steal from their own country in the form of corruption and kick backs which they often got from the Chinese businessmen in symbiotic relationships.

It is a lot more obvious to the common man that the Chinese businessmen were making money because people could see them going around doing deals and selling things. And to avoid getting entangled with the law, the Chinese (already living under constant racial threats) were more likely to declare their income more honestly to the authorities. As such their wealth was much more ‘open’ than that of their local counterparts.

In contrast, many of the richest Indonesians were corrupt government officials and politicians who had to ‘lie low’ and hide all their ill gotten wealth overseas. These figures would not get into the books of the tax authorities. It would also be stupid of them to admit to their corrupt incomes. Those were reasons why the common Indonesians do not ‘see’ the wealth of the rich Indonesians.

The young Indonesian girl gratefully thanked me for explaining things that way to her - she said she had not looked at things that way before. I was glad she understood the points I made for it will her help and those around her to better understand their country’s challenges when she return to it. (When she was about to board her flight home after her 3 years with us, I gave her an 'ang pow' of about two hundred dollars and some residual Rupiahs from my days working in Jakarta. When she arrived home she called to thank me for the gift.)

The thing that saddened me was how the Indonesian government and politicians of her time managed or tried to mislead their own people into believing things which were largely untrue.

It reminded me of an exchange I had with an officer of Bank Exim Indonesia while I was working on a project there in the mid-1980s. While having lunch together at the Bank’s canteen, I said that smoking was unhealthy. He however said that he was smoking kretek (local clove cigarette) because it was good for the local economy. Surprised, I asked for the reason.

The man explained that buying kreteks supported the Indonesian farmers who grew cloves. When I said that he could do the same by buying more local bananas or papayas he countered that cloves were different as it was ‘actively’ promoted as such by the Indonesian government! Exasperated I did not bother to continue the discussion.

It was later that I understood the reason for that non-sensical thinking. Months later I found out that the son of Suharto operated a monopoly that collected cloves from farmers throughout the country. As this was obviously good money for this fella, the name of the government was used to hoodwink its own people into smoking kreteks in the name of supporting the clove farmers!

Here is another sickening thing I learnt when I was working at Bank Exim. I had just started working then and was ‘new’ to the workings of the world. Soon after I started on the project I noticed people in the Bank & on the project saying that despite it being the 5th largest and thus smallest of the government owned banks, Bank Exim had the highest profit for the year before. Initially, I was impressed by that and thought perhaps it also explained its management’s progressiveness in employing a foreign consulting company (for so much money).

It was only later that I learnt that on that ‘good’ year the Indonesian government had devalued the Rupiah substantially and the bank had made a lot of money by taking short positions on the Rupiah before the devaluation. It was merely a case of insider trading at the expense of the millions of poor Indonesians who saw their little life savings shrunk overnight because of the devaluation!

Asian Economic Crisis: Retrospective

It is now about one and a half years since the start of the so called “Asian Economic Crisis” that started with the collapse of the Thai Baht. The currencies of many Asian countries (Thailand, South Korea, Indonesia, Malaysia etc.) have dropped by up to 60% against the US dollar within a few months. Some experts recently warned that this crisis threatens to be the biggest financial crisis the world has ever seen since the Great Depression of the 1930s that culminated in the 2nd World War. Although it seems that way only recently, it wasn’t the case when it first started and was isolated only to the Asian countries.

The quick & sharp collapses were due to huge capital flight whereby investors, creditors and even locals were taking their money out of the countries. The real cause as explained by many including the IMF to which many Asian governments went to for financial assistance is that it was the result of easy credit given by banks and creditors to locals, bad management especially of the financial system by governments and “cronyism, corruption and nepotism”. The only way out of it is to let ‘bad’ companies fail and do away with bad government practices like corruption etc.

The result of these austere & tough measures was the fall of governments in Korea, Thailand and Indonesia. A lot of companies went bankrupt. Many people lost their jobs and have to default on loans and sell their properties. There were cases where 1 year old Proton Wira cars in Malaysia being disposed of by finance companies at RM25,000 each when they used to sell at RM45,000 just a few months ago. It is probably worthwhile to note here that a Wira car is really worth about USD10,000 in the US – a Japanese equivalent is worth about USD13,000 to 15,000. So we can also say that the Malaysian economy is not ‘real’ due to various governmental measures (cronyism included) to make sure the Wira manufacturer makes money! Using the price of the Wira car to determine purchasing power parity, we can say that the Ringgit to USD exchange rate should have been about 4.5. But the prevailing rate before crisis was only about 2.4. The same disparity can be observed about many big-ticket items like housing - exception is basic foods.

There were a lot of riots in Indonesia where average income for most of the people is less than 100,000 Rupiah per month. Before the crisis when the exchange rate is about Rupiah 3,000 to a US Dollar, salary is about USD 35 – very low even at that time. At its worst, the Rupiah exchange rate was 15,000 to 1 USD. That means salary was only about USD8 a month. (See also attached e-mail I sent to colleagues about the Indonesian riots.)

In terms of governmental reaction to the problem, Malaysia was the odd country out among those most affected (the Ringgit to USD exchange rate fell from about 2.3 to about 4.0). Prime Minister Mahathir Mohammad of Malaysia insisted that the problem is due to ‘attacks’ by speculators and hedge funds out to make quick money. According to him, it is a planned assault intended to impoverish the developing countries. And when the currencies are low and assets cheap (which was what happened), the rich countries will buy up the local companies (which also happened). To him it is another way for western countries to re-colonise the developing countries. It should also be noted that it is also true that many companies in Malaysia are in very bad state and will collapse if not helped. And many are owned by people related to or are friends of politicians. Malaysia refused to approach the IMF for help and insisted that local companies should be helped to survive the crisis instead of being left to fail. That was certainly not the view of many people including those in the IMF and, according to Mahathir, the US and Western governments. For them the IMF approach was the right way.

I also remember very clearly that a few months after the onset of the problem (around Qtr 4 1997) an e-mail sent out by the then head of JP Morgan Asia, Peter Woicke (by now the head of the International Finance Committee of the World Bank). JP Morgan (as were all other major financial institutions) at that point in time was reeling from the bankruptcies and loan defaults happening in Asia, and of course had some losses. (The financial crisis was then only restricted to Asia). In the e-mail Peter Woicke reminded the Asian staff about the need to be more ‘thorough’ when reviewing credits and essentially admonished the Asian staff for being taken in and blinded by the over-optimism of the ‘Asian miracle’. At that point, I thought he was probably right since he is a senior banker of a top financial institution, I did not know much about the guys doing credit reviews and I know for sure there were a lot of cronyism and corruption in countries like Indonesia and Malaysia.

However, things didn’t quite look that way towards the end of 1998. By October 98, the crisis has spread to Russia (largest economy in Eastern Europe) and Brazil (largest economy in South America). The Russian Ruble collapsed and caused the almost collapse of a large American hedge fund called LTCM (Long Term Capital Management). LTCM did not collapse because the US Federal Reserve got LTCM’s creditors (big Western banks) together to ‘solve the problem’. The banks extended more credit to LTCM so that it can cover its current debts while buying time so that its investments can be ‘disposed off in an orderly manner’. Analysts think that if LTCM was left to default in its debt and go into immediate bankruptcy, the sudden liquidation of LTCM’s positions would cause prices to swing so significantly that it would have resulted in a collapse of the global financial system. That gives an indication of the size of positions that LTCM and other hedge funds were holding. A corporate announcement by the management of JP Morgan said then that the ‘exercise was a private sector response to a private sector problem’. Malaysia’s PM took the opportunity to highlight the different ‘standards’ followed by the western governments. In this case, the US government was quick to step in to help resolve the situation quickly and bad management in LTCM did not matter much. In the Asian cases, governments trying to do the same are seen as supporting their cronies.

The LTCM problem arose because it was given huge credits to make ‘investments’ that finally lost money. With a few billion dollars of capital they were given 40 times that in credit and took positions with total size of more than a trillion dollar! So, while banks have to maintain capital ratio of 8% and countries generally keep reserves of 7%, LTCM was only required to keep 2% capital for their borrowings! That happened because banks had little information about total credit given to hedge funds by other banks, and hedge funds were seen to be almost risk-free. They were making huge profits for themselves as well as the banks and everyone was happy (until now). LTCM is still under receivership and run its creditors.

The truth in the case of LTCM is that there are significant deficiencies in the global financial system. One is the eagerness of banks to lend to hedge funds thinking they will always make profits for themselves and their creditors (the banks). The other is the lack of regulatory control over hedge funds that are setup in small countries like Bermuda where there are little control over them and other governments have no jurisdiction. The hedge funds have been making full use of these deficiencies to make large bets on investments and countries etc. They also have the advantage of being able to go to all the major banks to borrow money, determine all the current thinking of their bankers and to execute their market movements. They therefore know about what the banks themselves and their other clients are doing much better than everyone else! This was actually noted by bankers familiar with hedge funds.

The potential global financial problem that would have been created by LTCM was ‘wrapped up’ by the major banks involved who said that it was a ‘private sector problem’. To say otherwise would damage the reputation of these banks that have been trying for many years to convince regulators that they can ‘self regulate’ themselves and close the window on them on potential profits arising from the activities of the hedge funds. As banks make huge profits by executing trades on behalf of the hedge funds as well as from the volatility created by uncertainties created by hedge fund trading, it is possible to understand the banks’ interest in maintaining the present system. For example, the biggest source of revenue from the business group that I work for (futures and options brokerage) is from hedge funds trading in exchanges around the world!

Professor Paul Krugman, a noted economics professor of MIT, reported that he was told by Australian government officials that hedge funds actually told them that they were attacking a number of Asian, Eastern European and African currencies and Australia was just a small part in the ‘game plan’.

I think it is probably right to dispose of LTCM’s investments over time. Except that if that’s the case, may be it is also the right approach to address the sudden affliction that hit Asia. And it clearly made me think about what Mr Peter Woicke would have said to his staff if he is still around in JP Morgan Asia. Like people like Professor Krugman said, it is time to rethink conventional wisdom and the crisis can and should be ‘managed’. Malaysia has since introduced capital controls and fixed the USD exchange rate to 4.0.

See also attached articles written by Professor Krugman :
- what hedge funds did during the 1997 Asian Financial Crisis
- what sustainable economic growth is versus one-time improvement (written in 1994, 3 years before the Asian economic crisis)


I KNOW WHAT THE HEDGES DID LAST SUMMER
(Paul Krugman July 1998)

In spite of Gillian Anderson, I'm not much of a fan of the X-files, or of conspiracy theories in general. I've seen some of the world's movers and shakers up close, and they seem a lot like the rest of us - that is, most of the time they haven't got a clue, and fly by the seat of their (well-tailored) pants. Anyway, as an economics professor I am by nature inclined to the view that the truth isn't out there, it's in here - that usually you learn a lot more by thinking really hard about the data than you do by sniffing around for supposedly inside information.

Yet conspiracies do sometimes happen. George Soros really did stage a run on the pound back in 1992; Sumitomo's Yasuo Hamanaka really did rig the world copper market for a couple of years; and a cabal of hedge funds apparently did try a squeeze play on Hong Kong's currency and stock market last August. I've even heard a rumor that some guy in Seattle has been trying to take over the ... (That's funny: my computer keyboard froze when I tried to finish that sentence). But no conspiracy could be big or smart enough to play games with the whole world financial market.

Or could it? On a recent visit to Australia I had a fairly spooky conversation with some government officials. Australia, in case you didn't know, is the miracle economy of the world financial crisis. Even though most of its exports go either to Japan or to the stricken tigers, Australia has managed to ride out the storm so far without even a serious slowdown. The key to this resilience has been a policy of benign neglect toward the exchange rate: instead of raising interest rates to defend the Aussie dollar, the central bank allowed the currency to slide from almost 80 U.S. cents in early 1997 to the low 60s by the summer of 1998. The result was that while export prices plunged in U.S. dollars, they held up in local currency, and strong domestic demand kept the economy humming.

Luckily, financial markets apparently decided that the decline in the Aussie dollar - unlike, say, the decline of the Indonesian rupiah - represented a buying opportunity rather than a foretaste of things to come. As a result, the currency stabilized itself instead of going into free fall. But there have been some anxious moments. In late August, in particular, it began to look as if the Aussie dollar was going into free fall after all: day after day it fell, reaching a low of barely 56 cents. If it had kept on falling, the Reserve Bank might have had to raise interest rates after all.

What was all that about? Well, the officials I talked to confirmed what I had guessed: a lot of the plunge had to do with hedge funds shorting the currency. But what I didn't know was that some people from the hedge funds actually told the Australians, in effect, that resistance was futile - that they were only a small piece of a coordinated play against Australia, New Zealand, South Africa, and Canada - not to mention Hong Kong, Japan, and China.

Was this just boasting? There is no question that last summer a number of hedge funds did, in fact, bet on the proposition that a lot of dominoes were about to start falling: that the yen was going to plunge, dragging down the HK dollar and the renminbi with it, or vice versa, and that the currencies of commodity-exporting countries like Canada and Australia would get dragged down by the backwash. It is less certain whether the hedge funds were actually the dominant source of speculation against the potential dominoes. And whether they acted collusively is hard, perhaps even impossible to know: if there was collusion, it could have been tacit, a matter of carefully phrased generalities uttered over a bottle or two of expensive wine.

Of course, if there was a conspiracy, it failed. In fact, if you wanted to make up a supposed secret history of world financial markets over the past 6 months, it would go like this: during the summer a few big hedge players - let's call them the Relativity Fund and the Pussycat Fund - agreed to stage a run on Asia plus. They acquired huge sums of cash by borrowing in yen, shorting Hong Kong stocks, getting Australian credit lines, etc.; then they began ostentatiously selling all of the target currencies, spreading rumors about imminent Chinese devaluation, and so on. Meanwhile they put the borrowed money into various high-yielding assets, including things like U.S. corporate bonds and mortgage-backed securities, and also some risker things like Russian GKOs. But somehow it all went wrong: Hong Kong refused to play by the rules, then Russia fell apart, and investors around the world got more risk averse. Suddenly the funds found some of their credit lines pulled. And since they had become such gigantic players, this started a sort of cascade of margin calls: for example, as Pussycat began to unwind its yen shorts it drove up the value of the yen, causing losses that forced it to unwind even more. And correspondingly, of course, the assets the funds had been buying - like non-investment grade dollar bonds - plunged in value.

In short, all the strange things that have happened these last few months - including the bizarre run up in the yen and the mysterious near-collapse of U.S. financial markets - are, according to this story, the byproduct of the ravelling and unravelling of a vast get-rich-quick scheme by a handful of shadowy financial operators.

How seriously do I take this? The story does seem kind of out there; but it just might turn out to be the truth.



The Myth of Asia's Miracle by Paul Krugman, 1994
A CAUTIONARY FABLE

ONCE UPON a time, Western opinion leaders found themselves both impressed and frightened by the extraordinary growth rates achieved by a set of Eastern economies. Although those economies were still substantially poorer and smaller than those of the West, the speed with which they had transformed themselves from peasant societies into industrial powerhouses, their continuing ability to achieve growth rates several times higher than the advanced nations, and their increasing ability to challenge or even surpass American and European technology in certain areas seemed to call into question the dominance not only of Western power but of Western ideology. The leaders of those nations did not share our faith in free markets or unlimited civil liberties. They asserted with increasing self confidence that their system was superior: societies that accepted strong, even authoritarian governments and were willing to limit individual liberties in the interest of the common good, take charge of their economics, and sacrifice short-run consumer interests for the sake of long-run growth would eventually outperform the increasingly chaotic societies of the West. And a growing minority of Western intellectuals agreed.

The gap between Western and Eastern economic performance eventually became a political issue. The Democrats recaptured the White House under the leadership of a young, energetic new president who pledged to "get the country moving again"—a pledge that, to him and his closest advisers, meant accelerating America's economic growth to meet the Eastern challenge.

The time, of course, was the early 1960s. The dynamic young president was John F. Kennedy. The technological feats that so alarmed the West were the launch of Sputnik and the early Soviet lead in space. And the rapidly growing Eastern economies were those of the Soviet Union and its satellite nations.

While the growth of communist economics was the subject of innumerable alarmist books and polemical articles in the 1950s, Some economists who looked seriously at the roots of that growth were putting together a picture that differed substantially from most popular assumptions. Communist growth rates were certainly impressive, but not magical. The rapid growth in output could be fully explained by rapid growth in inputs: expansion of employment, increases in education levels, and, above all, massive investment in physical capital. Once those inputs were taken into account, the growth in output was unsurprising--or, to put it differently, the big surprise about Soviet growth was that when closely examined it posed no mystery.

This economic analysis had two crucial implications. First, most of the speculation about the superiority of the communist system including the popular view that Western economics could painlessly accelerate their own growth by borrowing some aspects of that system--was off base. Rapid Soviet economic growth was based entirely on one attribute: the willingness to save, to sacrifice current consumption for the sake of future production. The communist example offered no hint of a free lunch.

Second, the economic analysis of communist countries' growth implied some future limits to their industrial expansion--in other words, implied that a naïve projection of their past growth rates into the future was likely to greatly overstate their real prospects. Economic growth that is based on expansion of inputs, rather than on growth in output per unit of input, is inevitably subject to diminishing returns. It was simply not possible for the Soviet economies to sustain the rates of growth of labor force participation, average education levels, and above all the physical capital stock that had prevailed in previous years. Communist growth would predictably slow down, perhaps drastically.

Can there really be any parallel between the growth of Warsaw Pact nations in the 1950s and the spectacular Asian growth that now preoccupies policy intellectuals? At some levels, of course, the parallel is far-fetched: Singapore in the 1990s does not look much like the Soviet Union in the 1950s, and Singapore's Lee Kuan Yew bears little resemblance to the U.S.S.R.'s Nikita Khrushchev and less to Joseph Stalin. Yet the results of recent economic research into the sources of Pacific Rim growth give the few people who recall the great debate over Soviet growth a strong sense of déjà vu. Now, as then, the contrast between popular hype and realistic prospects, between conventional wisdom and hard numbers, remains so great that sensible economic analysis is not only widely ignored, but when it does get aired, it is usually dismissed as grossly implausible.

Popular enthusiasm about Asia's boom deserves to have some cold water thrown on it. Rapid Asian growth is less of a model for the West than many writers claim, and the future prospects for that growth are more limited than almost anyone now imagines. Any such assault on almost universally held beliefs must, of course, overcome a barrier of incredulity. This article began with a disguised account of the Soviet growth debate of 30 years ago to try to gain a hearing for the proposition that we may be revisiting an old error. We have been here before. The problem with this literary device, however, is that so few people now remember how impressive and terrifying the Soviet empire's economic performance once seemed. Before turning to Asian growth, then, it may be useful to review an important but largely forgotten piece of economic history.

'WE WILL BURY YOU'

LIVING IN a world strewn with the wreckage of the Soviet empire, it is hard for most people to realize that there was a time when the Soviet economy, far from being a byword for the failure of socialism, was one of the wonders of the world--that when Khrushchev pounded his shoe on the U.N. podium and declared, "We will bury you," it was an economic rather than a military boast. It is therefore a shock to browse through, say, issues of Foreign Affairs from the mid 1950s through the early 1960s and discover that at least one article a year dealt with the implications of growing Soviet industrial might.

Illustrative of the tone of discussion was a 1957 article by Calvin B. Hoover. Like many Western economists, Hoover criticized official Soviet statistics, arguing that they exaggerated the true growth rate. Nonetheless, he concluded that Soviet claims of astonishing achievement were fully justified: their economy was achieving a rate of growth "twice as high as that attained by any important capitalistic country over any considerable number of years [and] three times as high as the average annual rate of increase in the United States." He concluded that it was probable that "a collectivist, authoritarian state" was inherently better at achieving economic growth than free-market democracies and projected that the Soviet economy might outstrip that of the United States by the early 1970s.

These views were not considered outlandish at the time. On the contrary, the general image of Soviet central planning was that it might be brutal, and might not do a very good job of providing consumer goods, but that it was very effective at promoting industrial growth. In 1960 Wassily Leontief described the Soviet economy as being "directed with determined ruthless skill"--and did so without supporting argument, confident he was expressing a view shared by his readers.

Yet many economists studying Soviet growth were gradually coming to a very different conclusion. Although they did not dispute the fact of past Soviet growth, they offered a new interpretation of the nature of that growth, one that implied a reconsideration of future Soviet prospects. To understand this reinterpretation, it is necessary to make a brief detour into economic theory to discuss a seemingly abstruse, but in fact intensely practical, concept: growth accounting.

ACCOUNTING FOR THE SOVIET SLOWDOWN

IT IS A TAUTOLOGY that economic expansion represents the sum of two sources of growth. On one side are increases in "inputs": growth in employment, in the education level of workers, and in the stock of physical capital (machines, buildings, roads, and so on). On the other side are increases in the output per unit of input; such increases may result from better management or better economic policy, but in the long run are primarily due to increases in knowledge.

The basic idea of growth accounting is to give life to this formula by calculating explicit measures of both. The accounting can then tell us how much of growth is due to each input--say, capital as opposed to labor--and how much is due to increased efficiency.

We all do a primitive form of growth accounting every time we talk about labor productivity; in so doing we are implicitly distinguishing between the part of overall national growth due to the growth in the supply of labor and the part due to an increase in the value of goods produced by the average worker. Increases in labor productivity, however, are not always caused by the increased efficiency of workers. Labor is only one of a number of inputs; workers may produce more, not because they are better managed or have more technological knowledge, but simply because they have better machinery. A man with a bulldozer can dig a ditch faster than one with only a shovel, but he is not more efficient; he just has more capital to work with. The aim of growth accounting is to produce an index that combines all measurable inputs and to measure the rate of growth of national income relative to that index--to estimate what is known as "total factor productivity."

So far this may seem like a purely academic exercise. As soon as one starts to think in terms of growth accounting, however, one arrives at a crucial insight about the process of economic growth: sustained growth in a nation's per capita income can only occur if there is a rise in output per unit of input.

Mere increases in inputs, without an increase in the efficiency with which those inputs are used--investing in more machinery and infrastructure--must run into diminishing returns; input-driven growth is inevitably limited.

How, then, have today's advanced nations been able to achieve sustained growth in per capita income over the past 150 years? The answer is that technological advances have lead to a continual increase in total factor productivity--a continual rise in national income for each unit of input. In a famous estimate, MIT Professor Robert Solow concluded that technological progress has accounted for 80 percent of the long-term rise in U.S. per capita income, with increased investment in capital explaining only the remaining 20 percent.

When economists began to study the growth of the Soviet economy, they did so using the tools of growth accounting. Of course, Soviet data posed some problems. Not only was it hard to piece together usable estimates of output and input (Raymond Powell, a Yale professor, wrote that the job "in may ways resembled an archaeological dig"), but there were philosophical difficulties as well. In a socialist economy one could hardly measure capital input using market returns, so researchers were forced to impute returns based on those in market economies at similar levels of development. Still, when efforts began, researchers were pretty sure about what they would find. Just as capitalist growth had been based on growth in both inputs and efficiency, with efficiency the main source of rising per capita income, they expected to find that rapid Soviet growth reflected both rapid input growth and rapid growth in efficiency.

But what they actually found was that Soviet growth was based on rapid growth inputs--end of story. The rate of efficiency growth was not only unspectacular, it was well below the rates achieved in Western economies. Indeed, by some estimates, it was virtually nonexistent.

The immense Soviet efforts to mobilize economic resources were hardly news. Stalinist planners had moved millions of workers from farms to cities, pushed millions of women into the labor force and millions of men into longer hours, pursued massive programs of education, and above all plowed an ever-growing proportion of the country's industrial output back into the construction of new factories. Still, the big surprise was that once one had taken the effects of these more or less measurable inputs into account, there was nothing left to explain. The most shocking thing about Soviet growth was its comprehensibility.

This comprehensibility implied two crucial conclusions. First, claims about the superiority of planned over market economies turned out to be based on a misapprehension. If the Soviet economy had a special strength, it was its ability to mobilize resources, not its ability to use them efficiently. It was obvious to everyone that the Soviet Union in 1960 was much less efficient than the United States. The surprise was that it showed no signs of closing the gap.

Second, because input-driven growth is an inherently limited process, Soviet growth was virtually certain to slow down. Long before the slowing of Soviet growth became obvious, it was predicted on the basis of growth accounting. (Economists did not predict the implosion of the Soviet economy a generation later, but that is a whole different problem.)

It's an interesting story and a useful cautionary tale about the dangers of naïve extrapolation of past trends. But is it relevant to the modern world?

PAPER TIGERS

AT FIRST, it is hard to see anything in common between the Asian success stories of recent years and the Soviet Union of three decades ago. Indeed, it is safe to say that the typical business traveler to, say, Singapore, ensconced in one of that city's gleaming hotels, never even thinks of any parallel to its roach-infested counterparts in Moscow. How can the slick exuberance of the Asian boom be compared with the Soviet Union's grim drive to industrialize?

And yet there are surprising similarities. The newly industrializing countries of Asia, like the Soviet Union of the 1950s, have achieved rapid growth in large part through an astonishing mobilization of resources. Once one accounts for the role of rapidly growing inputs in these countries' growth, one finds little left to explain, Asian growth, like that of the Soviet Union in its high-growth era, seems to be driven by extraordinary growth in inputs like labor and capital rather than by gains in efficiency.

Consider, in particular, the case of Singapore. Between 1966 and 1990, the Singaporean economy grew a remarkable 8.5 percent per annum, three times as fast as the United States; per capita income grew at a 6.6 percent rate, roughly doubling every decade. This achievement seems to be a kind of economic miracle. But the miracle turns out to have been based on perspiration rather than inspiration: Singapore grew through a mobilization of resources that would have done Stalin proud. The employed share of the population surged from 27 to 51 percent. The educational standards of that work force were dramatically upgraded: while in 1966 more than half the workers had no formal education at all, by 1990 two-thirds had completed secondary education. Above all, the country had made an awesome investment in physical capital: investment as a share of output rose from 11 to more than 40 percent.

Even without going through the formal exercise of growth accounting, these numbers should make it obvious that Singapore's growth has been based largely on one-time changes in behavior that cannot be repeated. Over the past generation the percentage of people employed has almost doubled; it cannot double again. A half-educated work force has been replaced by one in which the bulk of workers has high school diplomas; it is unlikely that a generation from now most Singaporeans will have Ph.D's. And an investment share of 40 percent is amazingly high by any standard; a share of 7O percent would be ridiculous. So one can immediately conclude that Singapore is unlikely to achieve future growth rates comparable to those of the past.

But it is only when one actually does the quantitative accounting that the astonishing result emerges: all of Singapore's growth can be explained by increases in measured inputs. There is no sign at all of increased efficiency. In this sense, the growth of Lee Kuan Yew's Singapore is an economic twin of the growth of Stalin's Soviet Union growth achieved purely through mobilization of resources. Of course, Singapore today is far more prosperous than the U.S.S.R. ever was--even at its peak in the Brezhnev years--because Singapore is closer to, though still below, the efficiency of Western economies. The point, however, is that Singapore's economy has always been relatively efficient; it just used to be starved of capital and educated workers.

Singapore's case is admittedly, the most extreme. Other rapidly growing East Asian economics have not increased their labor force participation as much, made such dramatic improvements in educational levels, or raised investment rates quite as far. Nonetheless, the basic conclusion is the same: there is startlingly little evidence of improvements in efficiency. Kim and Lau conclude of the four Asian "tigers" that "the hypothesis that there has been no technical progress during the postwar period cannot be rejected for the four East Asian newly industrialized countries." Young, more poetically, notes that once one allows for their rapid growth of inputs, the productivity performance of the "Tigers" falls "from the heights of Olympus to the plains of Thessaly.

This conclusion runs so counter to conventional wisdom that it is extremely difficult for the economists who have reached it to get a hearing. As early as 1982 a Harvard graduate student, Yuan Tsao.) found little evidence of efficiency growth in her dissertation on Singapore, but her work was, as Young puts it, "ignored or dismissed as unbelievable." When Kim and Lau presented their work at a 1992 conference in Taipei, it received a more respectful hearing, but had little immediate impact But when Young tried to make the case for input-driven Asian growth at the 1993 meetings of the European Economic Association, he was met with a stone wall of disbelief.

In Young's most recent paper there is an evident tone of exasperation with this insistence on clinging to the conventional wisdom in the teeth of the evidence. He titles the paper "The Tyranny of Numbers"--by which he means that you may not want to believe this, buster, but there's just no way around the data. He begins with an ironic introduction, written in a deadpan, Sergeant Friday, "Just the facts, ma'am" style: "This is a fairly boring and tedious paper, and is intentionally so. This paper provides no new interpretations of the East Asian experience to interest the historian, derives no new theoretical implications of the forces behind the East Asian growth process to motivate the theorist, and draws no new policy implications from the subtleties of East Asian government intervention to excite the policy activist. Instead, this paper concentrates its energies on providing a careful analysis of the historical patterns of output growth, factor accumulation, and productivity growth in the newly industrializing countries of East Asia."

Of course, he is being disingenuous. His conclusion undermines most of the conventional wisdom about the future role of Asian nations in the world economy and, as a consequence, in international politics. But readers will have noticed that the statistical analysis that puts such a different interpretation on Asian growth focuses on the "tigers," the relatively small countries to whom the name "newly industrializing countries" was first applied. But what about the large countries? What about Japan and China?

THE GREAT JAPANESE GROWTH SLOWDOWN

MANY PEOPLE who are committed to the view that the destiny of the world economy lies with the Pacific Rim are likely to counter skepticism about East Asian growth prospects with the example of Japan. Here, after all, is a country that started out poor and has now become the second-largest industrial power. Why doubt that other Asian nations can do the same?

There are two answers to that question. First, while many authors have written of an "Asian system"--a common denominator that underlies all of the Asian success stories--the statistical evidence tells a different story. Japan's growth in the 1950s and 1960s does not resemble Singapore's growth in the 1970s and 1980s. Japan, unlike the East Asian "tigers," seems to have grown both through high rates of input growth and through high rates of efficiency growth. Today's fast growth economics are nowhere near converging on U.S. efficiency levels, but Japan is staging an unmistakable technological catch-up.

Second, while Japan's historical performance has indeed been remarkable, the era of miraculous Japanese growth now lies well in the past. Most years Japan still manages to grow faster than the other advanced nations, but that gap in growth rates is now far smaller than it used to be, and is shrinking.

The story of the great Japanese growth slowdown has been oddly absent from the vast polemical literature on Japan and its role in the world economy. Much of that literature seems stuck in a time warp, with authors writing as if Japan were still the miracle growth economy of the 1960s and early 1970s. Granted, the severe recession that has gripped Japan since 1991 will end soon if it has not done so already, and the Japanese economy will probably stage a vigorous short-term recovery. The point, however, is that even a full recovery will only reach a level that is far below what many sensible observers predicted 20 years ago.

It may be useful to compare Japan's growth prospects as they appeared 2O years ago and as they appear now. In 1973 Japan was still a substantially smaller and poorer economy than the United States. Its per capita GDP was only 55 percent of America's, while its overall GDP was only 27 percent as large. But the rapid growth of the Japanese economy clearly portended a dramatic change. Over the previous decade Japan's real GDP had grown at a torrid 8.9 percent annually, with per capita output growing at a 7.7 percent rate. Although American growth had been high by its own historical standards, at 3.9 percent (2.7 percent per capita) it was not in the same league. Clearly, the Japanese were rapidly gaining on us.

In fact, a straightforward projection of these trends implied that a major reversal of positions lay not far in the future. At the growth rate of 1963-73, Japan would overtake the United States in real per capita income by 1985, and total Japanese output would exceed that of the United States by 1998! At the time, people took such trend projections very seriously indeed. One need only look at the titles of such influential books as Herman Kahn's The Emerging Japanese Superstate or Ezra Vogel's Japan as Number One to remember that Japan appeared, to many observers, to be well on its way to global economic dominance.

Well, it has not happened, at least not so far Japan has indeed continued to rise in the economic rankings, but at a far more modest pace than those projections suggested. In 1992 Japan's per capita income was still only 83 percent of the United States', and its overall output was only 42 percent of the American level. The reason was that growth from 1973 to 1992 was far slower than in the high-growth years: GDP grew only 3.7 percent annually, and GDP per capita grew only 3 percent per year. The United States also experienced a growth slowdown after 1973, but it was not nearly as drastic.

If one projects those post-1973 growth rates into the future, one still sees a relative Japanese rise, but a far less dramatic one. Following 1973-92 trends, Japan's per capita income will outstrip that of the United States in 2002; its overall output does not exceed America's until the year 2047. Even this probably overestimates Japanese prospects. Japanese economists generally believe that their country's rate of growth of potential output, the rate that it will be able to sustain once it has taken up the slack left by the recession, is now no more than three percent. And that rate is achieved only through a very high rate of investment, nearly twice as high a share of GDP as in the United States. When one takes into account the growing evidence for at least a modest acceleration of U.S. productivity growth in the last few years, one ends up with the probable conclusion that Japanese efficiency is gaining on that of the United States at a snail's pace, if at all, and there is the distinct possibility that per capita income in Japan may never overtake that in America. In other words, Japan is not quite as overwhelming an example of economic prowess as is sometimes thought, and in any case Japan's experience has much less in common with that of other Asian nations than is generally imagined.

THE CHINA SYNDROME

FOR THE skeptic, the case of China poses much greater difficulties about Asian destiny than that of Japan. Although China is still a very poor country, its population is so huge that it will become a major economic power if it achieves even a fraction of Western productivity levels. And China, unlike Japan, has in recent years posted truly impressive rates of economic growth. What about its future prospects?

Accounting for China's boom is difficult for both practical and philosophical reasons. The practical problem is that while we know that China is growing very rapidly, the quality of the numbers is extremely poor. It was recently revealed that official Chinese statistics on foreign investment have been overstated by as much as a factor of six. The reason was that the government offers tax and regulatory incentives to foreign investors, providing an incentive for domestic entrepreneurs to invent fictitious foreign partners or to work through foreign fronts. This episode hardly inspires confidence in any other statistic that emanates from that dynamic but awesomely corrupt society.

The philosophical problem is that it is unclear what year to use as a baseline. If one measures Chinese growth from the point at which it made a decisive turn toward the market, say 1978, there is little question that there has been dramatic improvement in efficiency as well as rapid growth in inputs. But it is hardly surprising that a major recovery in economic efficiency occurred as the country emerged from the chaos of Mao Zedong's later years. If one instead measures growth from before the Cultural Revolution, say 1964, the picture looks more like the East Asian "tigers": only modest growth in efficiency, with most growth driven by inputs. This calculation, however, also seems unfair: one is weighing down the buoyant performance of Chinese capitalism with the leaden performance of Chinese socialism. Perhaps we should simply split the difference: guess that some, but not all, of the efficiency gains since the turn toward the market represent a one-time recovery, while the rest represent a sustainable trend.

Even a modest slowing in China's growth will change the geopolitical outlook substantially. The World Bank estimates that the Chinese economy is currently about 40 percent as large as that of the United States. Suppose that the U.S. economy continues to grow at 2.5 percent each year. If China can continue to grow at 10 percent annually, by the year 2010 its economy will be a third larger than ours. But if Chinese growth is only a more realistic 7 percent, Its GDP Will be only 82 percent of that of the United States. There will still be a substantial shift of the world's economic center of gravity, but it will be far less drastic than many people now imagine.

THE MYSTERY THAT WASN'T

THE EXTRAORDINARY record of economic growth in the newly industrializing countries of East Asia has powerfully influenced the conventional wisdom about both economic policy and geopolitics. Many, perhaps most, writers on the global economy now take it for granted that the success of these economies demonstrates three propositions. First, there is a major diffusion of world technology in progress, and Western nations are losing their traditional advantage. Second, the world's economic center of gravity will inevitably shift to the Asian nations of the western Pacific. Third, in what's perhaps a minority view, Asian successes demonstrate the superiority of economies with fewer civil liberties and more planning than we in the West have been willing to accept.

All three conclusions are called into question by the simple observation that the remarkable record of East Asian growth has been matched by input growth so rapid that Asian economic growth, incredibly, ceases to be a mystery.

Consider first the assertion that the advanced countries are losing their technological advantage. A heavy majority of recent tracts on the world economy have taken it as self-evident that technology now increasingly flows across borders, and that newly industrializing nations are increasingly able to match the productivity of more established economics. Many writers warn that this diffusion of technology will place huge strains on Western society as capital flows to the Third World and imports from those nations undermine the West's industrial base.

There are severe conceptual problems with this scenario even if its initial premise is right. But in any case, while technology may have diffused within particular industries, the available evidence provides absolutely no justification for the view that overall world technological gaps are vanishing. On the contrary, Kim and Lau find "no apparent convergence between the technologies" of the newly industrialized nations and the established industrial powers; Young finds that the rates in the growth of efficiency in the East Asian "tigers" are no higher than those in many advanced nations.

The absence of any dramatic convergence in technology helps explain what would otherwise be a puzzle: in spite of a great deal of rhetoric about North-South capital movement, actual capital flows to developing countries in the 1990s have so far been very small--and they have primarily gone to Latin America, not East Asia. Indeed, several of the East Asian "tigers" have recently become significant exporters of capital. This behavior would be extremely odd if these economies, which still pay wages well below advanced-country levels, were rapidly achieving advanced-country productivity. It is, however, perfectly reasonable if growth in East Asia has been primarily input driven, and if the capital piling up there is beginning to yield diminishing returns.

If growth in East Asia is indeed running into diminishing returns, however, the conventional wisdom about an Asian-centered world economy needs some rethinking. It would be a mistake to overstate this case: barring a catastrophic political upheaval, it is likely that growth in East Asia will continue to outpace growth in the West for the next decade and beyond. But it will not do so at the pace of recent years. From the perspective of the 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.

Finally, the realities of East Asian growth suggest that we may have to unlearn some popular lessons. It has become common to assert that East Asian economic success demonstrates the fallacy of our traditional laissez-faire approach to economic policy and that the growth of these economics shows the effectiveness of sophisticated industrial policies and selective protectionism. Authors such as James Fallows have asserted that the nations of that region have evolved a common "Asian system," whose lessons we ignore at our peril. The extremely diverse institutions and policies of the various newly industrialized Asian countries, let alone Japan, cannot really be called a common system. But in any case, if Asian success reflects the benefits of strategic trade and industrial policies, those benefits should surely be manifested in an unusual and impressive rate of growth in the efficiency of the economy. And there is no sign of such exceptional efficiency growth.

The newly industrializing countries of the Pacific Rim have received a reward for their extraordinary mobilization of resources that is no more than what the most boringly conventional economic theory would lead us to expect. If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain.

That's a hard answer to accept, especially for those American policy intellectuals who recoil from the dreary task of reducing deficits and raising the national savings rate. But economics is not a dismal science because the economists like it that way; it is because in the end we must submit to the tyranny not just of the numbers, but of the logic they express.