(Hualien, Taiwan)

While most people are familiar with the miracle of Taiwan’s rapid economic growth, fewer are aware of how Taiwan achieved this growth while maintaining low income inequality. Professor Chuang Yi Chyi from the economics department at Chengchi University attributed this largely to land redistribution by the KMT in the 40s and 50s. He also cited how Taiwan’s dependence on labor intensive industries and small and medium enterprises (SME) played a part.

(Hsinchu, Taiwan)

What caught my attention was a chart comparing income inequality with selected countries – including Singapore’s. Singapore’s income inequality (as measured using a deciles system) shows Singapore’s income inequality skyrocketing over the past eight years.* I do not know how such drastic changes in income distribution could have come about in Singapore over such a short period. My guess is that instead of a change in income levels between the pre-2001 top fifth and bottom fifth, Singapore might have experienced an influx of wealthy immigrants.

Another interesting point by the Prof. Chuang was how Taiwan tries to overcome the lack of R&D by SMEs through a national technology agency to promote technology transfer and development. His view is that the tradeoff between a Korean model (big firms with massive R&D) and Taiwanese model is that the lower R&D investment in Taiwan comes with faster commercialization and diffused innovation as technology flows rapidly between the many of firms populating the island.

*The measure, compiled by the Taiwanese government, compared the income of the top fifth against the bottom fifth in some Asian countries including Singapore, Taiwan and Hong Kong. While all of them trended upwards towards more inequality, in Singapore, the change was drastic.

**Also check out my “Taiwan Food to DIE for List”

The first thing I did in Rio was to watch “Cidade De Deus” – the City of Gods. The movie, named after one of Rio’s favelas (slums), portrays the culture of violence, corruption and drugs in the favela. Rio receives a bad rap for crime and watching the movie made me, for the first time in my travels, paranoid about security.

The presence of security in Rio is palpable. In Centro, the business district, Armored Personnel Vehicles (APVs) sat on every street corner, accompanied by buff towering private police wrapped in bulletproof vests carrying submachine guns. I half-expected robbers with AK47s to burst out at any moment.

And they are everywhere. The security personnel were outside shopping centers, in tunnels and by shops. At places where the richer neighborhoods joined the favelas near the hill, there were gates slicing up some paths, dividing Rio into the haves and have-nots.

I also noticed how on the bus and in many shops, servers were not allowed to handle money. Instead, there is a single person who handles all cash. In the shop, one gets a receipt from the casher and heads over to the cash-handler, who takes the money. Perhaps the lack of social capital leads to this division of labor. There is a trust deficit and a hanging paranoia in this superficially beautiful party town.

I recently visited Vietnam, adding another country to my list of communist regimes to visit before I die. I am interested in seeing the transition to a market economy from a communist system, and Vietnam, with its North-South division, has an interesting dynamic that makes it more relevant to the Korean situation.

Communist Countries (Cuba, North Korea)
Transitional Communist Countries (China, Vietnam, Laos PDR)
Former Communist Countries (Russia, Mongolia, East Germany, Parts of East Europe… - incomplete listing)

I managed to cover Ho Chi Minh and Da Lat (the central highlands) on this trip. Unlike China or North Korea, communist-style architecture was less visible. Perhaps it was because I was in the southern part of Vietnam. People were relatively open about criticizing the communist system. When I visited the Cu Chi tunnels, my guide was a former translator for American GIs during the war. At 60 years old, he was still healthy and told us proudly how he quickly learnt to farm after being sent for re-education after the war. He told us not to believe all the propaganda from the videos at Cu Chi tunnels.

Motorcycles) are everywhere. The favorite part of my stay was actually dodging the motorcycles. Standing in the middle of the road and watching the wave of motorcycles coming after you and parting just where you stand must be how Moses felt when the sea opened up before him. Vietnamese coffee (café se dua) probably ranks with the motorcycles as one of the things I like about the place. Sitting at a café, amidst the sweltering heat and drinking that strong sweet liquid is heaven.

It is fascinating how a river through a city can be such a barrier. Crossing Saigon River, one leaves Ho Chi Minh City center with its Sheraton and Ritz Carlton hotels for a ramshackle collection of tin and wooden houses. In Bangkok, the river also acts as a similar barrier to integration. Exploring this divide in the different cities always adds an interesting element to any tourist’s itinerary.

(Turfan, China) Are we heading in this direction?

Having last visited Singapore 2 years ago, I expected the city to be radically different. However, the area where my family stays hardly changed and even Orchard Road looks the same. City Hall appears different, but it is in the prices that I observed the biggest change. What struck me in particular was not so much the increase in prices, but how uneven the price changes have been. This uneven price changes has distributional impacts on what I see as two diverging segments of society.

Singapore is increasingly populated by two groups of people: the Hawker and the Banker. In Singapore, hawkers refer to the people who work in large food centers selling food or drinks. A few strike it rich but most are typically uneducated and belong to the poorer segment of society. I know this because my father is one of them, selling drinks in one of the large outdoor food centers that populate the island. But the Hawker I use in this analysis is a larger segment of society: the Singaporeans who lack the education to be globally mobile and benefit from global wage levels. This group is larger than you think. It includes many local graduates who accept stagnant local wage structures, and compete with educated immigrants from China, India or Nepal for white-collar jobs. On the side of the divide are the Bankers, not just people in the financial industry, but people who have a world-class education (often international) that gives them opportunities to pursue jobs as consultants, investment bankers, traders…etc. These jobs pay a globally competitive wage – a premium often reaching two or three times the average wage of a local graduate.

What struck me about prices when I returned was how the food sold by hawkers around the area I lived has barely budged. I do not know if this phenomenon is island-wide, but it was surprising to see a plate of Char Kway Teow still at the $2 or $3 I paid when I left. I met my former boss, a distinguished economist, and he felt the same way about the unequal prices. Are the Hawkers competing in a different world? One where being local meant facing competition that erodes pricing power and depresses wages? I talked to my mother, a nurse, and she said that wages have not risen in line with inflation over the past two years. While these prices have remained stagnant, I noticed that it was not so in the city area. What I though of as a fancy night out at Crystal Jade La Mian Xiao Long Bao now came with fancier prices. I went to look at cufflinks at Alain Figaret as I liked to do. They are now 20 percent pricier.

Another night, I was at a dinner hosted by one of Banker-type firms. It was for students studying at overseas university. All of the Bankers hosting us were from distinguished American and British universities. A Singaporean student at the table flew with her family to exotic locations every holiday, sometimes over weekends, dined frequently at expensive restaurants in Singapore whose fancy names I never heard of, and could hardly pronounce. One of the Banker-types was born in Singapore, grew up in the US/UK, and never ate in a food center in Singapore. They earned the global wage, one most Singaporean undergraduates dream off. They lived in another world beyond the sight of most ordinary Singaporeans; one I did not know existed until I left Singapore.

The Economist (Economics Focus Dec 22, 2007) observed that rising income inequality in modern societies does not result in a large difference in material comforts. However, I worry about what this gap means for a society in terms of power inequality and shared experiences. Can the Banker understand the life of a Hawker? Can he empathize with their difficulties or being so far removed from them, he wonders why anyone would need social security, handouts or subsidized healthcare? Will inequality mean that we have two groups living in two Singapores: one where fine dining, exotic holidays, and posh cars define a Singaporean experience, another where hawker food, trips to Johor Bahru, and SBS dominates? Walking around Bugis, I glimpsed people sleeping on the sidewalks and I wonder.

(Beijing, China) The consumer’s paradise - just because some of us come out on the better end of the economic curve does not mean we should abuse that power and shirk our collective responsibilities.

dropped by the Huntsman Program office yesterday as Michael Dee, former Managing Director of Morgan Stanley and regional head of the Houston office, wanted to give a talk to Huntsman students. He sits on the Huntsman external advisory board, and is now heavily involved in non-profit education work since retirement. I really admire Michael’s passion for non-profit work, especially his belief in a collective responsibility that we have for all segments of society.

Michael spent many years in Singapore’s Morgan Stanley office as regional CEO and was involved in the education reforms of Singapore. His involvement happened when Tharman Shanmugaratnam left the Monetary Authority of Singapore to head the Ministry of Education. Tharman asked Michael what Singapore could do better to increase creativity and entrepreneurship. Michael also sat on the board of the Singapore Management University and the Economic Development Board of Singapore. His public service was recognized when the Singapore government made him an honorary business representative of Singapore in Houston when he left the country.

In discussing public education systems, Michael points out how American schools are failing its people because it cannot keep politics out of it. He favors national standards because state control over the schooling system subjects education to capture by political interests. He cites how Texas lowered its testing requirements in order to give George Bush a positive record when running for the presidency. On the other hand, he criticizes the public education systems that currently exist: he argues that the French education system is elitist. The top business and political leaders all come from the same school, with less room for outsiders in the system.

I appreciate Michael Dee’s belief in the collective responsibility of individuals. We were discussing taxes, and Michael (as a Republican) believes that higher taxes are necessary. Michael believes in fiscal responsibility. He also believes that we have an ethical obligation to take care of the poor. He points out why people are so against higher taxes: the ones sitting in the room discussing this with him are not the ones out there suffering from the dilapidated schools. Until we have lived through that experience, it is easy for us to say no to higher taxes since we have been beneficiaries of the status quo.

(Shanghai, China) The environment and growth…

I recently found out that the ArtIntern, the social entrepreneurial project I helped initiated and founded was featured by the International Labor Organization as a best practice in youth employment in their global study of the field. I am delighted that our work could possibly inspire similar projects elsewhere, although their details on our work are a little dated.

I took some parts of my research this summer out for an article on corporate social responsibility in China which is published by CSR Asia. I will also have a separate article coming out in another publication on CSR in Asia (in China specifically).

I have uploaded the full paper here. The abstract is below:

Just this year, China’s biggest telecommunications firm, China Mobile, issued its first corporate social responsibility (CSR) report. For a country where CSR is a relatively new concept, and with few organized groups of stakeholders demanding accountability, this might come as a surprise. What explains this change?

Pressure for firms to consider their broader impact of their economic actions on society originates from the social, political, and environmental circumstances they face. In China, the concept of corporate citizenship and the social and environmental responsibilities it entails for firms is barely adhered to with failures in work safety or labor conditions which could potentially disrupt the legitimacy of economic expansion. However, there is also great potential for corporate citizenship to be advanced within the framework of the Harmonious Society policy in China. This policy emphasizes the tackling of social and environmental challenges as national priorities. While proponents of corporate citizenship have observed the overlap between the Harmonious Society policy’s aims and corporate citizenship objectives, they have not established how the two concepts converge or diverge, especially in the mechanisms and theoretical basis underlying either concept. Most importantly, there has been limited exploration of the obstacles that must be cleared before the gap between the potential and reality of corporate citizenship under this framework is diminished.

My paper argues that the Harmonious Society policy can be a framework driving corporate citizenship. However, it faces definition and implementation challenges that can be overcome through state, industry, and civil society dialogue.

Update: I am glad that my article makes an impact. I just received an email about it from a leading executive of a large investment management fund who hopes to learn more.

On 25 Oct, I finally took time off my projects in Philadelphia to visit Washington D.C. I was there to attend a lecture at the World Bank on Financial Stability by Stijin Classens (senior financial advisor World Bank) and Subir Lall (Deputy Chief IMF Economics Research Department). I was also there to drop by the office of my former employer, Centennial Group.

I enjoyed the lecture and after hearing them present the latest issues on global financial stability, I am considering doing a research paper on that topic and capital markets development in China as my Huntsman thesis.

World Bank-IMF Lecture on Financial Stability

Classens spoke on the International Financial System and how it should be structured. He started off by describing financial integration using three measures: (1) measurement of international capital flows, (2) interest rate parity across countries and (3) gross foreign asset positions. However, he points out that capital flow in the past was spread out equally among developing and developed countries but have in recent decades shifted to a net flow to developed countries. Classens added that globalization, technology and deregulation have contribute to the sharp increase in flows after World War 2.

Classens argue that the financial crises that occurred in the past two decades and their intense cross-border contagion effect indicate the need for an international financial system. This system is shaped by developed countries and favors in particular the financial sector in these countries. This lopsided approach has led to lack of support for tools such as a Sovereign Debt Reduction Mechanism (SDRM) which could head off crises. Asian countries have also taken to accumulating large reserves to “insure” themselves. This is a less than optimal use of savings.

Subir Lall talked about how banking in Anglo-Saxon countries and elsewhere differed as the former had a more “arms-length” banking system while the latter had a more relationship-based system. The former is defined by the lack of personal contact and private information on lenders. Lall argued that countries with an “arms-length” system have greater access to capital. However, a relationship system is less volatile as personal ties induces bankers to continue lending to a company during downturns.

Visit to Centennial

At Centennial, I met Harinder Kohli and Claudio Loser. Harinder spearheaded the World Bank’s thinking on private participation in infrastructure and financial sector reform in the 1990s as senior advisor to the World Bank and Managing Director for infrastructure. Claudio, until November 2002, was Director of the Western Hemisphere Department in the International Monetary Fund.

I also met Harpaul Kohli who is an analyst at Centennial Group. He is an amazingly friendly person who immediately jumped on the chance to show me the immense economic database which he designed for the firm. I really appreciate his passion for his work and his enthusiasm. I also feel that he is a role model for what I wished to achieve out of college: a broad-based education that allows me to see things from different perspectives and pick up new skills along the way. Harpaul studied literature, philosophy and math at Harvard. After graduation, he joined the Wesley Clark campaign for President and picked up programming on the campaign trail. It really enjoyed meeting him and hanging out in the D.C. office.

(Sayre, West Philadelphia) What I hope to change in time by applying my creativity, people skills, leadership and dedication

I finally managed to get my Sayre project started. I am really excited about this project as I will be working with Sayre high school in impoverished West Philadelphia to set up the first sustainable community-based health center in America. This will be achieved through creatively integrating the health objectives of the center with the educational and research goals of both Penn and the high school. The health center will also act as the social glue rebuilding community spirit in West Philly by bringing people to the school. This project has grants worth over a million dollars and will be exciting and challenging for me to work on it. Most importantly, I hope to create a template which can be applied to the problems of urban health elsewhere.

Working on a real world problem has both its joys and frustration. In order to get the project started, I had to push through a complicated bureaucracy with differing interests from different constituencies. I contacted the person nominally in charge of the project, who referred me to another person who in turn referred me to yet another person. After several meetings, I managed to persuade several decision makers to allow me to carry out the project. Implementation risks remain as some of the health center staff might not share the same objectives in pushing the edge in health center design and integration with the community, as this would involve a radical rethink of their role in the health center.

In addition to the people I will work with at Sayre High, the Penn Center for Community Partnership and the Penn Medical School in implementing the project, I also managed to recruit a friend, Jeremy, from the Wharton School to help out. He is a really enthusiastic and smart person with great ideas. I enjoy working with him on my mgmt 100 project to create a tour template at a historic cemetery and look forward to working with him on this project.

In a way, I see this as a continuation of the project which I created and presented at the World Bank Annual Meet on Development. That project stressed social entrepreneurship in creating new solutions and new perspectives on problems to achieve breakthrough results, which is what I hoped to accomplish on this activity.

I applied to do academic research under the supervision of Howard Pack. My research will focus on government-chaebol relations from the perspective or risk-sharing and capital allocation role of the government. I hope to draw from this research lessons which China can learn from in managing its relationship with its state-owned entities. I will submit part of this essay to fulfill my requirements for my Hist 107 course on comparative capitalist societies.

I also recently received my Hist 107 short paper where I wrote on “Industrial Policy as Necessary Substitute for Market Arrangements in Modernization Process”. I am quite happy with the paper as it allowed me to explore the role of governments in “modernization”. I am also satisfied as the professor told me that I got one of the less than 5 A+ which he has given out in this course since he started teaching it many years ago.

The abstract:

In this paper, I argue that industrial policy exercised by the visible hand of the government is necessary in the ‘modernization’ of societies. This is made necessary by market failures inherent in developing economies, which frequently lack secondary institutional arrangement essential for forming competitive markets. My paper suggests how this is consistent with Rostow’s, Gerschernkron’s, Chalmers’, and Haber’s disbelief in market-led self-coordinating efforts towards modernization. I will provide economic analysis of the examples raised by them, and thus develop further the logic underlying Rostow’s and Chalmers’ support of a government-led process of modernization.

I have posted the paper here. I think the paper can benefit from a fuller explanation and elaboration but I do not have the time for it at this moment.

(Tokyo, Japan) Do we really need all the things we buy?

Singapore, Singapore - John Kenneth Galbraith, in ‘The Affluent Society’ (Mariner Books 1998), argues that pre-Affluent Society, the basic needs of food and shelter were better provided by the market. However, he argues that we have reached a stage where we have “private opulence and public squalor”, and it is the lack of public goods that impoverishes our society.

Furthermore, he argues in this Affluent Society, increased production is of decreasing marginal urgency, and wants are created by the very process of production, through advertising, emulation and suggestion (the Dependence Effect). When the goods produced are of low urgency, there should a focus on alternative sources of income for [the minority of] people who do not wish to work, and a general downgrade of the priority of increased production when measured against other goals of inflation, inequality or economic security.

This book is definitely an interesting read, as it departs greatly from the general body of economic thinking that I have been accustomed to. However, my main takeaway from this book is more personal. I always believed that increased material consumption is not the path for happiness for myself, and see little reason to earn a lot of money for that purpose . Galbraith has provided the intellectual foundations for my views.

(Muju, Korea) Minjung recommends that I find happiness in a girlfriend… I told her I would marry my work. I am sorry! 미안해요.

Selected Quotes

The Conventional Wisdom

“…a vested interest in understanding is more preciously guarded than any other treasure…Because familiarity is such an important test of acceptability, the acceptable ideas have great stability…I shall refer to these ideas henceforth as the Conventional Wisdom.” (p.7)

“…the enemy of the conventional wisdom is not ideas but the march of events” (p. 11)

“It is far, far better and much safer to have a firm anchor in nonsense than to put out on the troubled seas of thought.” (p.131)

Conservative Defense of Inequality (p.67)

“…as a matter of natural law and equity, what a man has received save by proven larceny is rightfully his”

“…essential as an incentive…”

Decline of Inequality as an Issue (p.72 - 80)

“[power and prestige of United States Government and technostructure ]…diminished the prestige of the power accruing to private wealth.”

Technostructure – “aggregation of technical and planning talent” (e.g. the professional managerial class)

“…display of expensive goods, as a device for suggesting wealth, has been condemned as vulgar.”

“Production has eliminated the more acute tensions associated with inequality.”

“….increasing aggregate output is an alternative to redistribution or even to the reduction of inequality.”

Economic Security (p. 82 – 94)

“And all who were subject to insecurity sooner or later set about eliminating it as it affected themselves…led those who were using one device to see it as a necessary precaution while they deplored the iniquitous measures devised by others.”

“[Economists] have far more frequently related such [management of prices] to the maximization of profits than to the minimization of risks.”

“Consumer taste and demand may shift. The modern large corporation resists this by its advertising…No criticism attaches to the effort of the modern corporation to minimize risk. It would be delinquent in its responsibilities if it failed to do so.”

“…that the modern concern for security is the reaction to the peculiar hazards of modern economic life could scarcely be more in error. Rather, it is the result of increasing fortune… [people] had much more to protect… [misfortune and suffering] have become episodic and avoidable.”

“Not only is there no inconsistency between the mitigation of insecurity and the increase of production, but the two are indissolubly linked. A high level of economic security is essential for maximum production. And a high level of production is indispensable for economic security.”

Consumer Demand and Dependence Effect (p.124)

“If the individual’s wants are to be urgent, they must be original with himself…And above all, they must not be contrived by the process of production.”

“As a society becomes increasingly affluent, wants are increasingly created by the process by which they are satisfied… Increases in consumption… act by suggestion or emulation to create wants… Or producers might proceed actively to create with advertising and salesmanship.”

Hence, “The higher level of production has, merely a higher level of want creation necessitating a higher level of want production… [Process by which wants depend on the process by which they are satisfied is the] Dependence Effect .”

Vested Interest in Output

“If production is of preoccupying importance, he [the business executive], as the man with the traditional and established right to the title of producer will be the dominant figure in the social constellation.”

On Inflation

“…[in an oligopoly, firms] have what amounts to a reserve of unliquidated gains from unmade price advances.” (Galbraith in ‘The New Industrial State’ explains how these restraint is not in conflict with the maximization of growth and exists due to the planning needs of the technostructure.” (p.160)

Because of this, “Prices are not restricted immediately when demand is curbed or excess capacity appears.” (p.161)

“Wages act on prices and prices on wages as capacity is approached. Controls prevent this interplay.” (p.182)

On the Social Balance (or Galbraith’s “private opulence and public squalor”)

“The line which divides out area of wealth from out area of poverty is roughly that which divides privately produced and marketed goods and services from publicly rendered services.” (p. 186)

Galbraith coins “Social Balance” to describe a “satisfactory relationship between the supply of privately produced goods and services and those of the state”. (p.189)