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Economic
Development in the Philippines in an Emerging Global Economy
Dr. Lesther Carl Thurow
Manila Peninsula, December 4, 2003
The year is 1700, 300 years ago. In 1700, economic historians
believed that there was no significant difference in the per
capita income between the wealthiest country in the world
and the poorest country in the world. Because in 1700, in
every country in the world, 97- 98% of the population were
farmers and every farmer in the world used exactly the same
technology. People power, animal power, human and animal manure,
seeds collect from the last crop. There were places in the
world that had better soil and rain fall but they just had
more people and economic historians believe that in 1700,
half the GDP of the world were inside India and China because
half the people of the world were inside India and China.
And then in the early 1700s the French invent, and in the
late 1700s the British perfect the steam engine. The first
industrial revolution in all of that and with the invention
of the steam engine what the economic historians says is 8,000
years of agriculture are over as the dominant human activity
and if you want to be rich as an individual accompanying your
country you have to play the industrial game. And in the country
were this game begin, Great Britain usually dated in 1780,
within just thirty years, by 1810, the wealthiest industrious
of Great Britain were wealthier than the landed dukes. The
people who have been the wealthiest person in Great Britain
for the previous 1,000 years in the New World were at hand.
Some countries leapt into that revolution, and some still
haven’t. If you continue in that course in economic
history, your economic historian will teach you about the
second industrial revolution which occurs about a hundred
years later, in the 1880s. This is a revolution based on a
one great idea and one great invention. The great idea is
the German idea. When the Germans invent their chemical engineering
industry, they invent the concept of systematic investment
in industrial research and development based on academic science.
And it forever changes the nature of technical change, speeds
it up, systematizes it and means for the first time, you can’t
get rich unless you have an educated population. The great
invention was electricity. And the peculiar thing about electricity
is it if you write it in encyclopedia and you want to sell
it, one article in the encyclopedia has to be different for
every country in the world because every country in the world
claims to have invented the electricity. And we don’t
know how pervasive electricity is until it goes off. If you
are in the recent blackout in New York city and had a hotel
room, you couldn’t get in to it cause electronic keys
don’t work when electricity is off and so you were sleeping
in the hallway even though you had a bedroom. And in both
of these revolutions, some of the world participated and some
didn’t. There are about 6 billion in the world and tonight
when they go to bed, 1.6 billion of them will go to bed in
a house that does not have electricity. Approximately 30%
of humanity is not participating in the electricity revolution,
one hundred and twenty years after it started.
Three hundred years later in the year 2000, because some
people in some countries have jumped in this revolution and
some haven’t, the difference in per capita income between
the wealthiest country in the world and the poorest country
in the world is today 140:1. And in 300 years, we have basically
replaced the world of great equality with a world of enormous
inequality not the because the poor have gotten poorer but
because the rich have gotten richer and the poorest people
today run an economy that looks remarkably like that agricultural
economy in 1700s.
The Third Industrial Revolution
Now I believe, that 50 or 500 years from now, economic historians
of that day and age are gonna talk about our period of time
as the third industrial revolution. And this is a shift from
an industrial, natural resource society to a knowledge-based
society. And this revolution is based on leaps on interaction
between six key technologies: microelectronics, computers,
telecommunications, man-made materials, robotics and biotechnology.
And if we have the time in each of those areas, I could tell
you a major revolution is gonna occur. New materials make
the fuel cell fissable which means the world in the next thirty
years will shift from a hydro-carbon economy to a hydrogen
economy and the biggest industry in the world, oil and automobiles,
are gonna be turned upside down. Now sometimes, in the middle
of these revolutions its very hard to figure out, what’s
the equivalent of the steam engine that will be remembered
from a thousand years from now or electricity. But in this
revolution I think I now precisely what that historian 500
years from now is gonna say about the year 2000, plus or minus.
What they’re gonna say is in year 2000, plus or minus,
for the first time in human history, because of biotechnology
and the human genome program, people could change their own
genetic make-up. And that is the most important invention
in the human history. That’s more important than the
wheel. We could change ourselves and we will and we are cause
this is not tomorrow, this is today. Anybody in this room
who wishes to, who has young children can make them 10cm.
taller, human growth hormone – cheap, plentiful, available,
no known side effects. In many countries its illegal for vague,
ethical reasons but I can tell where in the Bahamas to get
the hormone to make your children taller. And we have Americans
doing it today. And they’re not people with short children.
They’re usually people who want to build basketball
players.
Knowledge is Wealth
Now he didn’t cause this revolution but the symbol
really is Bill Gates because for the whole of human history,
the wealthiest person in the world has always commanded natural
resources. And I use the world commanded deliberately cause
usually they were a general or an emperor. Julius Caesar was
the wealthiest man in ancient Rome because he’s the
general who conquered Spain and he own all the gold mine of
Spain. Sometimes it was the emperor of China, sometimes it’s
a sultan, sultan of the Ottoman Empire, sometimes it was the
king of Saudi Arabia. For the last hundred years, its been
oil. Starting with John D. Rockefeller in the late 1890s and
ending up with the sultan of Brunei in 1996. But in 1997 it’s
Bill Gates and the question is what does he own? No land,
no gold, no oil, no buildings, no machines, and no patents.
What he does is control the knowledge process. And that makes
him the wealthiest person in the world and depending on the
day, it makes his company the most variable company in the
world and today is one of those days.
This is a symbol of a profound economic change. For the first
time in human history, you can get fabulously rich by controlling
knowledge. Now this first revolution has led to the second
revolution, which we call globalization. And I supposed you
understand that the world is much less globalized today than
it was a hundred years ago, cause a hundred years ago is the
peak of the colonial empire. In 1900, 25% of the globe was
ruled from London, 15% of the globe was ruled from Paris,
the United States was running Cuba and the Philippines, Japan
was running Korea and Taiwan. The great powers have divided
China. There were only 50 independent countries in the world
as opposed to today’s 200. And thirty more will be granted
independence because there were Latin American countries that
were under the thumb of the American Maneural Doctrine when
it came to their foreign policies.
A different kind of globalization
This globalization is much less globalization but it’s
a very different globalization because instead of being lead
by governments and armies, its lead by business firms. Because
an economy is very easily defined and a business firms always
asks the question over “what area do I search to find
the cheapest place to make my product?” what area do
they search? If it’s a region, it’s a regional
economy, it’s a nation, it’s a national economy
and if it’s a globe, it’s a global economy. Same
thing when businesses asks over what area do I search to find
the most profitable places where I could sell my products,
if the answer is the globe, it’s a global economy and
because of these technologies that I have already mentioned,
its increasingly a global economy. And the thing to remember
is that governments are generally very reluctant about this
revolution because they lose power. Because in the 20th century,
governments got used to thinking of themselves as the air
traffic controllers, the referee, the writers of rules and
regulations, whatever. And they can’t do any of those
things in the 21st century. And probably even more important
that they have a very different role. Their role is to be
an airport builder. Can I build a runway so the rest of the
world would like to land in my economy and operate and a runway
where my firms can take-off and operate in this global economy.
And I build that runway out of educated people, infrastructure,
legal systems and physical safety. And the problem of course
is that governments have to learn how to sell themselves.
What’s your selling proposition? China knows what it
is. We’re the cheapest place to manufacture everything.
Ireland knows what it is. We have zero corporate income tax
and this is the place to come if you want to pay the least
taxes. And the problem is most countries couldn’t tell
you their selling proposition because they’re not used
to a world where they have to sell themselves. And the problem
is today, you have to persuade that international business
community to land and can you persuade them to do that?
More than just the third world and first world debate
Now the interesting thing about globalization, of course,
is often when you go to Cancun or wherever, you’re gonna
see people with the sign on “Stop Globalization! Protect
the Third World” But ask yourself a simple question.
If you look at the last ten years, who is the biggest winner
from global globalization? The answer of course is Mainland
China. In the third world, 1.3 billion people per capita income
in dollar terms of less than a thousand, in PPP a little less
than 4,000. China wouldn’t be growing with the growth
rate it is growing at if it couldn’t get technology
from the rest of the world, if it couldn’t sell products
in the rest of the world. China is the big winner. But this
is a very complicated thing. Because if you say who’s
the second biggest winner, is also an easy answer, the United
States. A country of a very different place in the economic
spectrum because think about the following trivial pursuit
statistics. In the 7 years, from 1995 through 2002, 60% of
all the GDP added to the world economy was added inside the
United States. And so who wins and who loses is not a first
world-third world division, there’s some big winners
in the third world and there’s gonna be some big loser
in the first world. Cause if we come back 50 years from now,
we’re gonna find some of those first world countries
in the third world and we’re gonna find some of those
third world countries in the first world. Now the interesting
thing about globalization and hopefully we have time to come
back to this, it leads to a lot of anxiety. We see it in the
rock throwers at Bologna, Seattle or wherever. I couldn’t
prove it but I would bet the entire family fortune that if
every newspaper in the world tomorrow morning had the headline
“Globalization ends”, more than half of humanity
would feel relieve. They couldn’t tell you exactly why
but they would feel a little better about life if they knew
globalization wasn’t going to happen.
Abolition of Communism
Now there’s a third revolution at work. And this revolution
also has three magic dates: 1978, 1989 and 1991. In 1978,
Deng Xiaoping announces that Mainland China will abandoned
communism, the communes will be abolished and every hectare
of land in China will be pass out to some peasant family under
the family responsibility system and China decides to join
the global capitalist economy. In 1989, communism disappears
in Central Europe and in 1991 it disappears in the Soviet
Union and 15 new countries emerged where there used to be
one Soviet Union. Communism disappears into the history books,
never to be seen again in real life. And what we didn’t
realize is that when communism disappears, it would cost socialism
to also disappear. There is no place in the world today where
you could stand up without being laughed at and say, “I
am a socialist and believed that government ought to own all
the means of production”, and not make a fool of yourself.
That’s just not a viable proposition anymore and in
every country in the world that used to have parties with
the word socialist in their titles and almost all of them,
that word has to be taken out of their titles in order to
win elections. And what we didn’t understand that when
communism and socialism disappeared, capitalism will change.
Where do you think Darwin got the phrases survival of the
fittest and extinction. He didn’t invent them for biology.
He borrowed them from a 19th century British economist by
the name of Spencer who is writing about capitalism in the
1850s who said what makes capitalism efficient is this battle
which he calls the survival of the fittest, where fit firms
and fit individuals drive unfit firms and unfit individuals
into extinction and he’ll lead them in starvation and
he thought that was good thing cause you’ll improve
the human species economically speaking by starving those
who are unfit and getting them out of the system so they couldn’t
propagate. Now we’re not going back to survival of the
fittest capitalism, we are going back to a harsher version.
And you can see it very clearly in the United States. IN the
50s, 60s, 70s and 80s, if you are working for a profitable
American firm, you knew you are not gonna be laid off. But
in the 90s that changed. IN the 90s, in each and every year,
big, profitable American firms laid off between 600,000 and
800,000 people per year. Because the bar has changed. The
bar between success and failure is no longer zero, its do
you meet or don’t meet Wall Street expectations? And
if Wall Street expects 8% earnings and you earn 6, there are
gonna be massive lay-offs, because you have to earn 8, if
you want to survive. And if you take the 2 ½ million
people who’ve lost jobs in America since President Bush
has become president, every single one of them, maybe that’s
a little exaggeration, 99% of them worked for profitable firms.
There are no unprofitable firms in America today, this is
a very nice recovery when it comes to profitability.
Blowing up the fixed points
Now what these three revolution have done, I would argue,
is meaning, you can no longer think of yourself as leaders,
government leaders, business leaders or social leader. You
have to think about yourself as explorers. And leader is somebody
who knows they’re at point B, they know they want to
go to point A and all they have to do is find the route and
some way to persuade the troops to follow them. An explorer
is somebody who doesn’t know where he is, doesn’t
know where wants to go, doesn’t know how he’s
gonna get there but knows he wants to get rich. And the mental
model has the to be the model of the explorer because all
the fixed points are being blown up. You don’t know
where A & B are because they don’t exist anymore.
In this new book, I gave lots of example but let me just
give a couple at the moment. What’s the oldest industry
in the human history? What’s the first time in recorded
history were we could prove that one person could pay another
person to do something? People joke to this prostitution,
but that isn’t true. The oldest industry in the world
is professional music. Cause we know archaeologically speaking,
in ancient Egypt, in Mesopotamia 3 or 4 thousand B.C. 6000-7000
years ago, people were paid to sing at weddings, funerals
and religious events. Professional music is the oldest paid
industry on the face of the earth. And what’s happening
to professional music? We’ll if you watch the data,
the sales of CDs are on a steep downward minus 10-15% a year
curve, now straight line projections are never the way to
do forecasts, but if you do them, the last CD in the world
will be sold in 2011. And professional music as we now know
it will cease to exist. And we have that dramatically illustrated
to us in Cambridge, Massachusetts this summer. At Harvard
and MIT there are 40,000 students, and for generations there
has been a very large, record CD store in the middle of Harvard
square, big, multiple story and in July it closed its doors
forever. 40,000 students and you can’t sell a single
CD because they all download free.
Now if that were your problem, what would you do? MY argument
this morning is that it’s your problem. Because these
revolutions are gonna blow up every business model just as
profoundly as they’re blowing up the music model. I
can’t go through everyone this morning but I’ll
challenge you in the question. Name me an industry and I’ll
tell how these three revolutions blow you up. One more example,
when you do a book tour in America, which I am now doing and
wonder around the 20 big American cities, you do a radio and
T.V. shows, you talk to groups like this at break fast and
lunch. I’m in Phoenix, the 500 chief information officers
of the 500 biggest companies in America are having their annual
convention and that convention is in chaos and there is only
one topic of conversation. Some CEO has read in the newspaper,
if you move your IT to India, you can cut your cost by 50%.
Which means every other CEO in America picks up his telephone
calls his CIO and says, “ if you don’t cut our
cost by 50% you’re fired!” And then they don’t
know what the hell to do. Whether you moved to India or what
don’t you move to India, probably the first article
wasn’t even shown. There was only one topic of conversation
at that three-day convention, CIO magazine told me, their
editor told me they write articles. And in a normal article,
they get 36 responses; e-mails, letters whatever. They wrote
an article on IT outsourcing and they got 200,000 responses.
Think about this. Everything you know about planning your
career has been blown up. One other quick example, I’m
in Chicago and a man of about 40 years of age comes up to
me after a breakfast to talk and says, “you know, I
used to be a CFO of one of the divisions of Motorola, (Chief
Financial Officer) they outsourced my job to some third world
country and then pay my replacement, one fifth what I was
paid. Now this a guy with a university education, an MBA,
he’s not CFO of the company, but he had to be $200-250,00
and he’s been outsourced. It blows up all the fixed
points, when you think about planning your career. Now let’s
focus this afternoon on how does this blow up the fixed points
as far as the developing world is concerned, cause what I
would argue to you is that it blows up your fixed points just
as profoundly as it blows up the fixed points of these CIOs
in the United States.
Every country in the world has been successfully achieving
economic development in the last 50 years has followed the
strategy of export-led growth. And the problem is that exactly
the minute, everybody is persuaded there is a good strategy,
it’s a dead strategy. First of all there is a simple
mathematical problem, the Japanese invented the model and
the model says that export will go thrice and grow twice as
fast as your GDP and you’ll generate an export surplus.
What’s the problem of the whole world that tries to
do this? It’s mathematically impossible. Everybody’s
export can’t grow twice as fast as GDP because every
exports and imports has a subtraction from GDP somewhere.
It’s only possible if some country is willing to run
a very large trade deficit to match everybody else’s
trade surpluses and of course that’s one of the places
where at the moment the global economy faces something like
a comet coming at the earth. The whole world only works in
the developing world because the United States is willing
to run a large trade deficit. This year we’ll run a
trade deficit of about $550 billion and the incredible thing
is how evenly it is right around the world. There’s
a little less $100 billion surplus in Japan and a little more
than $100 billion surplus in China. A little less than $100
billion surplus in South East Asia, $100 billion dollars surplus
in Europe, $130 billion surplus in Latin America and Canada
combined. And what does everybody knows in this room who has
ever taken a course in international trade, first thing they
teach you, no country can run a trade deficit forever, no
matter who you are. Because the problem is not economic, its
mathematics. To run a trade deficit, you have to have a capital
inflow we call it borrowing money that is equal to your trade
deficit. And in year number one, you borrow money to pay for
your trade deficit. In year number two, you borrow money to
pay for your trade deficit plus interest on your last year’s
borrowing. And in year number three, you’re borrowing
money to pay interests on interests and that’s called
compound interest and no human being has ever beaten compound
interest. And so there will come a day, when America’s
trade deficit ends, which means the rest of the world’s
trade surplus will end. In the United States we had a US trade
deficit commission appointed ‘98 to look at this problem,
6 republicans, 6 democrats. The six republicans now run the
world. They were Mr. Rumsfeld of the Defense Department, Mr.
Zoellick, the trade negotiator, Anne Krueger, the number 2
president of the IMF, Republican Vice-Chairman of the Federal
Reserve Board, Ronald Reagan’s ex-chairman of his council
of economic advisers. I was one of the 6 democrats but we
don’t run the world. The problem is, we know exactly
what’s gonna happen, when the American trade deficit
ends. The rest of the world is gonna lose 25 million jobs.
What we don’t know is when. And in this sense it’s
exactly like geology. Geologists understand the world, its
called plate tectonics, they know exactly where the San Andreas
Fault is to the middlest millimeter. They know when the 100%
certainty there will be a greater earthquake on the San Andreas
fault in California but they don’t know whether its
one second from now or a thousand years from now. But as one
of my colleagues says, if it has to happen, then it will happen.
China on the run
The other thing that blows up model of export-led growth
is called China, because China is big enough to be everybody
else’s competitor. And if they follow the model of export-led
growth, nobody else can because they suck up all the markets.
The interesting thing is that I’ve made three trips
around the world recently in the third world and there’s
only one topic of conversation, things moving to China. If
you go to northern Mexico, northern Mexico in the Bahilladoras
used to make the television sets for the United States, all
moving to China. And I could tell you similar stories about
every one of these underdeveloped countries, including India
were some companies were doing outsourcing to China. Now the
problem is, if you think about all of these, if you think
about economic development, on one level the economics is
trivial and it does go back to zero-zero sum societies. The
sociology politics in culture is phenomenally difficult. Because
what the economics says, there is a very interesting problem,
a puzzle. I’ll give you the puzzle and you think about
what’s the answer. You know everything we know about
human being say they’re normal. Some people are very
tall, some people are very short but most people are average.
Some people are very smart, some people are very dumb but
most people are average. Some people are very beautiful, some
people are ugly but most are average. There’s nothing
you could say about human beings where it doesn’t more
or less fit the normal distribution. But if you look at countries,
you don’t see that at all. What you see is something
exactly the opposite. In the world today, there are 28 countries
with a population of 847 million people whose per capita income
is above $15,000. In PPP terms, highest countries like the
United States and Japan have a per capita income of about
$40,000 but 28 countries and 847 million people above $15,000.
There are 169 countries with 5 billion people whose per capita
income is below $7500. And in between $7500 and $15,000, there
are only 11 countries with a 130 million people. This is zero-one.
You’re rich, you’re poor, and you’re never
in the middle. And if you look at the countries in the middle,
they’re either countries rapidly going into the top
group or like Argentina, rapidly going into the bottom group.
Nobody stays in the middle for very many years. So the question
is, given that human beings are normal, why do we have this
incredibly abnormal distribution of countries when you look
at per capita income?
And I think I know the answer. The answer is, do you have
what economist call the social capital to get organized. If
you can get organized, you make it, if you can’t, you
can’t. Because we know precisely what you have to do.
Question is, can you do it? First thing you have to understand
is that it’s a marathon run. Are you prepared for a
hundred years? It took the United States a hundred years to
catch up with Great Britain in terms of per capita income.
Japan chased the United States for 130 years before it caught
up. Just put your little calculator tonight, China, $1,000,
America, $40,000, how long does it take them to catch up?
The problem, of course, is the leaders moving. In the last
decade America’s per capita income has grown about 4%
a year. Almost no country in the world with the exception
of China had grown that fast. If the leader was standing still,
it would be easy to catch up but the leader is never standing
still.Because if today’s leader stood still, somebody
else would be the leader who is moving. And if I go to Latin
America, I know that there is one thing that I could say that
the audience would almost cry. I’d say it’ll take
you a hundred years and there’s no 20-year program.
And they refused to believe that. So they flip-flopped from
one program to another and no program can work in 20-years
cause that isn’t the way the world works.
Second, I have to have a low population growth rate. For
two reasons; first is the denominator. If my population is
growing at 3%, my economy could grow at 3%, then I make no
progress at all. But it’s worst than that. Because I’ve
got to make investments to those new citizens to bring them
up to the average level and in fact, its virtually impossible
to do. NO country in this top group, 28 countries at the top,
has ever had more than a 1% per year population growth rate.
There are no examples of countries with high population growth
rates who have ever made it.
Third, I have to mobilize resources. And I have to ask, what’s
in short supply and what do I need to do? In Asia, there are
a lot of people, but the answer is you generate a high savings
society. Mainland China saves 30% of its GDP. In the United
States, in the 19th century, the issue was people. We got
a lot of land, we’ve got no people, and so Americans
went out and recruited. Immigrants, Chinese whatever, to come
to America to work, cause that was the bottleneck. And of
course the Chinese were recruited to build the trans-American
railway. Chinese on one side, Italians on the other side and
they meet at a promitory point at Utah, coz you couldn’t
build a railway without immigrated labor. You gotta have a
motivation system. That was the problem in communism. They
mobilized resources like crazy in Russia but nobody worked.
The joke in Russia was they pretend to pay us and we pretend
to work. And you see it dramatically in China. Because the
miracle in China in 1980’s was not the cities you and
I visit, it was the country side. Deng Xiao Ping abolished
the communes and in the next ten year with no investments
in fertilizers, no investments in machineries, no investments
in transportation and no investment in communication, they
quadrupled agriculture output. Just based on better incentives.
And I remember the first time I went to Beijing, before the
communes have disappeared, I got the worst peach I’ve
ever had in my life. It was rotten, it was moldy, it was terrible.
I come back two years later, after the communes are gone,
I got the best peach in my life cause some peasant hand carried
it into Beijing. Its perfectly fresh, perfectly treated no
bruises because suddenly it made a difference as to how the
peach was treated in terms of determining your income.
Political leadership
Now the thing to understand here is that you don’t
need great political leadership but you do need leaders or
explorers. Think about United States for those of you who
know American history. No American can tell you the name of
any president between Abraham Lincoln and Theodore Roosevelt
in the mid-19’s till the end of the 20th century. For
50 years, these guys are not known because they deserve to
be known. Not a single one of them did anything worth remembering
which is why we don’t remember them. The only person
you might remember is Mc Kinley who was assasinated within
100 days when he was elected and he’s remembered because
he was killed. Not because he did anything. But there are
a whole set of people we do remember. Famous names that every
school child can give you the names; Thomas Edison, John D.
Rockefeller, George Eastman, Andrew Carnegie, Melan Morgan.
This was the half century when the United States catches up
with Great Britain and we have no political leadership whatsoever.
But we do have great business leaders. And these people are
great leaders on two dimensions. First of all, they built
the world’s first big corporations but more importantly,
they invented philantrophy. Not philantrophy in the sense
of giving money to poor people but the philanthropy in the
sense of making investments in charitable activities that
make the economy more productive. Andrew Carnegie was at one
time the richest person in the world and the richest person
in America. Every dollar of his fortune went to building libraries
in every little town in America. Because he believes in adult
education, he’d learned to read and write in public
schools and you educate yourself in the library, self-education.
And I can honestly say that I wouldn’t be standing here
this afternoon if it wasn’t for Andrew Carnegie. Cause
I grew up in Montana which is a little bit like saying I grew
up in Siberia, being empty and cold, and my schools were not
the best and the only reason I got into good universities
is I spent very long, cold winters in the Carnegie library.
Which meant I could compete in terms of these competitive
examinations with people who went to the fanciest prep schools
in the United States. And I wouldn’t be, wouldn’t
have had my career if it hadn’t been to Andrew Carnegie
who died a long time before I was born.
The question is, do you have not just political leadership,
do you have business leadership and think about MIT, my employer.
MIT in 1863 got an anonymous gift in the dollars of that day
and age of $76 million dollars. Now think about what that
is in today’s dollars. That came from George Eastman.
It was revealed who gave the money after he died. And so you
take the great educational institutions of America, Rockefeller
founded the University of Chicago. They built the great universities
in America. The only exception is Harvard that started in
the beginning of America when it wasn’t yet time for
anybody to be rich to found Harvard.]
Technology transfer
But the next thing you have to think about is where do you
get technology. Everything that is important to reach is technology.
There are two ways to get technology. The old way was the
Japanese way where you find ways to get it free and kinda
sneek it away from people. And the Japanese were very good
at it. In the 1870s after the Maji Restoration, the Japanese
sent delegation to every country in the world where they thought
that country is the best in the world, they copied it, they
brought it back to Japan and they tried to adapt it to Japan.
So they went to Paris because they thought Paris has the best
urban police department. They went to Prussia because Prussia
had the best army. Guess what they came to United States to
study in the 1870s, railways. Because in 1870, we have the
best railways, today we don’t. But in 1870 we did. And
after World War II they did the same. For example they noticed
that there was an anti-trust consent decree, that meant to
build labs of AT&T at that time had the sheerest technology
with anybody who was there to copy it but only Japan set up
an office in New Jersey to copy the technology. Any other
country in the world could have, but only they did it. I would
argue to you that today, you can’t do that because the
rest of the world has locked up technology. They don’t
let you do factory tours with camera, they don’t give
you free technology from the bell labs and people all around
the world are systematically locking up technology and there’s
only one way to get it. Somebody’s got to voluntarily
willing to teaching it to you. And that’s called foreign
direct investments. And that’s why foreign direct investments
are important.
Think about China. Hong Kong and China together have $500
billion dollars worth of foreign exchange reserves. With that
kind of money they could easily borrow another thousand billion
from the world capital market. The last thing in the world
that China needs is money. So why then is $50 to 90 billion
dollars worth of foreign direct investments are important?
Its not the money. It’s the fact that that $50-90 billion
dollars comes with technology, markets, scarce management
engineering design and marketing skills that no country has.
Anybody can make running shoes. But only Nike could sell.
And if you don’t have Nike your ability to manufacture
shoe is precisely worthless cause you can’t sell that
shoe for over varied reasons. And so that’s why that
selling slogan becomes important, what’s the proposition?
And I would argue to you there’s a direct relationship
between your ability to attract foreign direct investments
and how successful you’ll gonna be in the future. And
the reason that China is the most successful is that it gets
more foreign direct investments than all the rest of the third
world combined. And that’s why its more successful than
all the rest of the third world combined. And of course, that’s
also true in the first world. Who gets the most foreign direct
investment in the world? The United States. Cause its important
to America just like its important to China.
Debacle at Cancun
Now let me end my thinking about Cancun. Because various
people at Cancun said we had victories, blah, blah, blah.
But the answer is at Cancun, everybody was a huge loser. And
the answer is its very discouraging that after Cancun, no
political leader in the third world or the first world stood
up and said, we have a disaster and we’ve got to get
this back on track. They both all went home to their populations
and said it’s a victory. And the answer is this was
a disaster. It’s a disaster for very simple reasons.
If you’re in the first world and you’re all serious
about helping the third world, the easiest way to do it is
access for agricultural commodities. Because that poor farmer
in Africa may have lousy technology with a hoe and in the
end he grows some cotton. And if he can’t sell it, he
can’t make a living.
In the United States, there’s only 1% of the families
who get a majority of their income from agriculture. 3% of
these are farmers, but for two out of three, they get more
farm jobs, their wives earning whatever, as from post to real
farming, so were talking about 1% of Americans. And if you
want to give those 1% of Americans the money, you can still
do that. You can have a law saying every American farmer gets
a check every year from the American government for $100,000
a year. But you can’t have a law saying they’d
get $3 a bushel or a bail because if you have that law the
third world can’t sell. Now there is some inconsistency
here, of course, on two levels; One, you can’ t jump
from complete protection in agriculture to free trade in one
jump, it took us 50 years of manufactured products to make
that jump. And secondly, if you’re gonna do it, you
gonna do it across the board and there’s some place
where agriculture in the first world could run agriculture
in the third world out of business. And if the third world
won’t do it across the board and allow those farmers
in the first world to win then the first world is not gonna
do it for poor farmers in areas where they can in win.
It’s easy to explain why the first world protects agriculture
part of its is the political system. In the United States,
we now have 25 states with 50 United States senators whose
combined population is less than California. And you can think
of California centers, its intellectual property rights because
they’ve got Silicon Valley so they’ve got two
centers in intellectual property right in 50 interesting cows.
And so it’s almost impossible to get into the United
States Senate that affects farmers. And the other peculiar
thing in the first world, is you got a New York, Paris, Tokyo
wherever and say the first world, big city citizens, would
you love money and give it to farmers and they all say yes.
And nobody can exactly put a finger on why.
People write serious articles about it. Maybe New Yorkers
like to drive to Remont and see cows on the hillside some
times called the post card effect. But the fact of the matter
is there. But what we lost was of course what Cancun was supposed
to do. It will get something that helps the third world more
than the first world on farming and then well build something
on intellectual property rights that helps both sides. And
of course if we didn’t do the first, we’re not
gonna do the second. And because we don’t do the second,
everybody’s gonna be a huge loser. Because if you don’t
have a system intellectual property rights what happens? People
hide and lock up technology and it’s much harder to
gain technology in that kind of a world than in a world where
few people feel they have legal protection for a certain amount
of intellectual property right. Now the new system would have
to be a different system. It has to be system where very poor
countries can do some copying. It has to be a system where
you handle the problem about drugs, AIDS and Africa in all
that. But there has to be a global system if you’re
gonna make the system work. And the problem is at the moment
nobody sees that system. And so where we are I think is very
simple, because of technology, globalization’s coming.
You can like it or not like it. But it won’t be universal,
the question is who will be included and who will be excluded
because countries have to provide the basics. China’s
the big winner, who’s the big loser in the world. It’s
a group of countries that have no participation in globalization
whatsoever. Central Africa. No foreign direct investments,
no exports, no travel, very little tourism, nobody gets educated
abroad. Globalization doesn’t crush anybody, it does
something worse, it leaves them out. And I think the answer
is globalization is coming whether you like it or not. You’ll
have a series of positives and negatives. Probably the positives
will be bigger than the negatives but we can make the negatives,
a hell lot smaller if we’re willing to put a little
architecture into the system. And then the question is, are
we willing to put a little architecture into the system? Or
will we, as I say I guess in the song, “Que sera sera,
What will be, will be,”
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