CHAPTER FOURTEEN
LEADING ACROSS NATIONAL BOUNDARIES
There are those who argue that our age is an age of finance; others, including Alan Webber, founder of Fast Company magazine, says it is an age of innovation, while still others, Deepak Chopra among them, assert that we are living in an age of consciousness. In my view, it is a combination of all three. In the twenty-first century, major wars are unlikely to occur because any massive nuclear attacks will lead to a nuclear winter, which will essentially herald the end of the world.
In his book, Money and Power: How Goldman Sachs Came to Rule the World, William D. Cohan asserted that the age of finance had arrived. As a result of the financial meltdown in 2008, much of the Western world is in deep trouble. America’s federal debt has exceeded $15 trillion, and including private sector debt and household debt, America’s debt reaches $55 trillion. This does not even take into account the American government’s “implicit” liabilities to fund Social Security and Medicare benefits. Social Security is sometimes referred to as the third rail by American politicians, because those politicians who touch it by suggesting any cut in benefits tend to receive a violent political shock from the American Association of Retired Persons (AARP). The shortfall in meeting these liabilities had been calculated to amount to $45 trillion. In other words, America is technically broke. The QE2, a policy pursued by the Federal Reserve by buying $600 billion of Treasury securities by June 30, 2011, has amounted to monetizing the federal debt, a polite way of saying “printing money.” Certainly, America is inflating away its debt. But the consequence is, of course, the depreciation of the greenback and American real assets, or the fact that real assets denominated in American dollars could become cheap to buy. Thus far, there has been political resistance to sell off such assets to would-be buyers. But the day will come when people starved of cash will be desperate to sell.
Europe is in a debt crisis: the PIGS problem. PIGS stands for Portugal, Italy, Greece, and Spain. Currently, the Greek people have to accept austerity measures. As of June 24, 2011, European Union leaders agreed to give Greece another 120 billion euros of support. The money would come from 17 Eurozone countries and the International Monetary Fund (IMF). It is likely that Greece would not exit from the Eurozone, and the euro as a currency would not break apart.
Nearing the end of his eight-year term, Jean-Claude Trichet, head of the European Central Bank, suggested a European finance ministry that would oversee spending by national governments. There are already daily protests in Greece against austerity measures that many see as being imposed from outside. The suggestion that European officials might essentially dictate policies would be seen as a fundamental challenge to Greek democracy. Although Britain is not a member of the Eurozone, Prime Minister David Cameron faces formidable opposition as he tries to instill austerity measures too. As we’ve seen, there is a fundamental antagonism between finance and democracy in the West.
China is now the second largest economy in the world and holds a foreign exchange reserve exceeding $3 trillion, of which $1.15 trillion is held in U.S. Treasury securities. China is investing in European bonds in a move to diversify away from the falling greenback. In China, the antagonism is between finance and corruption. Rapid social and economic changes have made China prone to corruption, and the ruling Communist Party faces a major challenge stamping out deep-rooted official graft. In 2010, the Communist Party investigated more than 139,000 cases of “disciplinary violations”—a phrase that refers to official wrongdoing—and punished more than 146,000 party members. Of those punished, only 5,373 cases were handed over to the state judiciary for criminal proceedings.
According to a report released by China’s central bank, between 16,000 and 18,000 officials and employees of state-owned companies have stolen more than $120 billion and fled overseas, mainly to the United States between the mid-1990s and 2008. The study said corruption inside China was severe enough to threaten the nation’s economic and political stability.
This is certainly an age of finance because major conquests by war would be ruled out, but how finance can perform its proper function remains to be seen. Broadly speaking, financial services are to cater to people’s fear and anxiety by providing a sense of peace and security. But by appropriating economic rent instead of providing a sense of peace and security, modern finance has failed in its function and role in society.
C. K. Prahalad and M. S. Krishnan have written a book, The New Age of Innovation: Driving Co-Created Value through Global Networks (2008). The authors expound on the proposition that the focus is on the centrality of the individual by designating this pillar as N=1 (one customer experience at a time), and another focus is on access to resources, not ownership of resources by designating this pillar as R=G (resources from multiple vendors and often around the globe). While this sounds appealing, it is questionable on the grounds of having too much faith in the omnipotence of ICT (information and communications technologies).
Those of us who are native to China, as I am, do believe in the wonderful world of technology and innovation. In fact, China has a long tradition of science, discovery, and invention that stretches over 3,000 years. Some of this is recorded in Joseph Needham’s monumental work, Science and Civilization in China. China’s Education Ministry says that there are now some 1.27 million students attending foreign universities. In 2010 alone, more than 284,000 Chinese went abroad to study, most of them privately funded. Chinese officials say the country has the largest number of overseas students in the world. While Chinese students have brought money to foreign colleges and universities hard hit by the global financial crisis, China is acquiring the knowledge and skills needed to drive the country’s rapid growth. In the past thirty years or so, more than 630,000 Western-trained students and scholars have returned home, about one-fifth of that number in 2010 alone. Many of them are now engaged in research and development that is boosting China’s global competitive position.
William E. Halal, Professor Emeritus of Science, Technology & Innovation at George Washington University, wrote a remarkable book, Technology’s Promise: Expert Knowledge on the Transformation of Business and Society (Palgrave MacMillan, 2008). In this fascinating forecast of science and technology, Halal shows that relentless technological progress is driving the creative transformation of business, society, the world, and even what it means to be human. In his words,
Both evidence and knowledgeable opinion confirm we are moving to a more populous world that is largely industrialized and intelligent, but that also poses unprecedented risks of environmental damage, energy shortages, climate change, weapons of mass destruction, and other threats that require sophisticated responses unimaginable by present standards. These crises seem insurmountable because the present world system is not sustainable, and a shift to a more sophisticated system is unavoidable to avert disaster. Some of these dilemmas may be ameliorated by advances in economics and technology, but they can only be resolved through the logic of evolution, which is now moving beyond knowledge. At about 2020, the very time when the planet is likely to teeter between calamity and salvation, routine human thought should be automated by far more sophisticated IT networks, a second generation of more powerful computers, and good AI (artificial intelligence). As various forms of machine intelligence take over common mental tasks, we will simply move up another level on the evolutionary hierarchy to address these global challenges. It’s impossible to really grasp the reality of a different era, but I think an ‘age of consciousness’ is likely to emerge, focusing on higher level understanding and on working together to make the tough existential choices needed to survive.
At a time of revolutionary scientific and technical mastery, it is ironic that the central role played by consciousness in this drama of the high-tech future leads back to the teachings of ancient prophets, who all saw that a domain of ‘spirit’ pervades life. Moses, Christ, Mohammed, Buddha, and other founding religious leaders may have missed a lot, but they all pointed toward this great unseen force that puzzles us still. Our challenge is to understand the mystery of consciousness in modern scientific terms, and use that understanding to shape awareness. The fate of the world hinges on our ability to harness the human spirit so we may guide ourselves more wisely. (Halal, 2008, xxii)
What does all this have to do with leading across national boundaries? Quite frankly, a lot. In the late 1980s, I taught an MBA course on international management at the University of Hong Kong. To prepare, I read many textbooks on the management of multinational enterprises. I followed my interests after I left the university post and came across a remarkable book, The Myth of the Global Corporation (Princeton University Press, 1998).
Critics and defenders of multinational corporations often agree on at least one thing: that the activities of multinationals are creating an overwhelmingly powerful global market that is quickly rendering national borders obsolete. The authors of The Myth of the Global Corporation, however, argue that such expectations commonly rest on a falsehood. They examine key activities of multinational corporations in the United States, Japan, and Europe and explore the relationship between corporate behavior and national institutions and cultures. They demonstrate that the world’s leading multinationals continue to be shaped decisively by the policies and values of their home countries, and that their core operations are not converging to create a seamless global market. With a wealth of fresh evidence, the authors show that Japanese and German multinationals, in particular, remain only weakly committed to laissez-faire policy orientations and continue to exhibit strong allegiance to national goals in such areas as investment and employment. They also bring to light the consequences of enduring differences in government policies on, for example, industrial cartels, capital markets, and research and development. The authors agree that the world economy is becoming more complex and integrated as overt barriers to trade and investment fall away.
They conclude, however, that the extent of this integration is decisively limited by structural divergence at the level of the firm. The book will be essential reading for those seeking to understand the growing interdependence of still-distinctive industrial societies and the wellsprings of the true global economy.
In my book, War and Peace Between America and China: How Solving the Taiwan Problem Can Lead to A Pacific Century (BookSurge, 2006), I wrote:
The greatest problem is that we are living in a highly uncertain world. In the scientific language, an entire system can collapse because of a perturbation to a specific part of the system. What is truly alarming is that we cannot predict how and when such a perturbation will arise, and what can constitute this perturbation. (Kwai, 2006, 113)
Truly, a perturbation can arise all of a sudden to cause a system to collapse, be it a political, economic, social, technological, or ecological system.
Leading across national boundaries is a very broad topic and one that I can only approach from a Hong Kong perspective. Under Deng Xiaoping’s “One Country, Two Systems” concept, Hong Kong is a Special Administrative Region (HKSAR) within China.
The HKSAR serves the following five purposes:
1. It is one of the three major international financial centers in the world. For two centuries, global finance has been much dominated by Anglo-Saxon countries. New York, London, and Hong Kong are conveniently located in three separate time zones. There is the English common law tradition in Hong Kong, which Shanghai does not have. According to a new report, Shanghai is on track to becoming the world’s largest financial center in a decade. KPMG and index compiler FTSE say that Shanghai will become increasingly important as China develops its stock, currency, bond, and derivative market. Shanghai will essentially serve the domestic Chinese market, and the Chinese economy will become the largest in the world in the next fifteen years.
2. Hong Kong, as the offshore RMB financial center, will become the RMB center for the world, and the size of the RMB bond market will be at least an order of magnitude higher than that of the equity market. Singapore will complement Hong Kong as an offshore financial center for RMB and will be connected to South Asia, particularly India.
3. Speaking of international trade and investment, there are three flows to be considered: physical flow, capital flow, and information flow. Because China’s financial markets and institutions have not been well developed and because rapid economic growth can cause social instability, for the sake of sustained economic growth and much desired social cohesiveness, the capital flow and information flow into and out of China may be somewhat restricted in the foreseeable future. Physical flow does not have to pass entirely through Hong Kong, but the Hong Kong SAR has a certain advantage in freer capital flow and information flow. Of course, the three flows, physical flow, capital flow, and information flow, have to be coordinated together.
4. Many multinationals have their regional offices in Hong Kong and many Chinese banks and corporations also have their representative offices in Hong Kong. Thus there can be convenient face-to-face contacts which somehow remove the fear of the unknown.
5. There is the anxiety of success. Although Hong Kong has been a successful story on the world stage, it needs to be integrated with the political economy of Mainland China in order to serve itself better and to serve China, East Asia, and the world more effectively. Hong Kong has often been referred to as a meeting place between the East and the West; there is no reason why Hong Kong should belittle itself in a rapidly changing world. Hong Kong has to keep on learning. When there are rapid changes, it is not the learned but the learners who inherit the earth.
Those who are leading across national boundaries have to recognize the following fundamental challenges and opportunities.
1. There is much uncertainty in the world. A perturbation can arise suddenly to cause a system to collapse, whether it’s a political, economic, social, technological or ecological system;
2. The rise of Asian financial power;
3. The rise of Asian technology and innovation;
4. The rise of Asian consumption;
5. East Asian integration; and
6. The myth of the global corporation.
As a matter of fact, there are few truly global corporations as of today, no matter how you define or classify them. Most are really globalizing enterprises. For them, they need a presence in China. And to have a presence in China, they need to have a presence, in whatever form, in the Hong Kong Special Administrative Region.
If one insists on the belief of a flat world or that of a borderless world, one may find oneself totally absorbed in revised editions of textbooks of management of multinational enterprises or transnational corporations, written from the Western perspective. Such a view and exposition are hopelessly outdated.
Dr. Terence H. Kwai was educated at Caltech and Harvard Business School. He worked at Union Carbide Corporation and Pfizer Corporation in the United States and at Citicorp, Cap Gemini Ernst & Young, and Egon Zehnder International in Hong Kong before founding China Specialists, a research and consulting firm, which was transformed in 2010 into East Asia Research Institute.