Another Nobel Surprise for Economics


October 18, 2017

Another Nobel Surprise for Economics

by Robert J.Shiller

https://www.project-syndicate.org/commentary/richard-thaler-nobel-behavioral-economics-by-robert-j–shiller-2017-10

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University of Chicago Economist Richard Thaler wins 2017 Nobel Prize in Economics

Richard Thaler (pic above) has shown in his research how to focus economic inquiry more decisively on real and important problems. His research program has been both compassionate and grounded, and he has established a research trajectory for young scholars and social engineers that marks the beginning of a real and enduring scientific revolution.

 

NEW HAVEN – The winner of this year’s Nobel Memorial Prize in Economic Sciences, Richard Thaler of the University of Chicago, is a controversial choice. Thaler is known for his lifelong pursuit of behavioral economics (and its subfield, behavioral finance), which is the study of economics (and finance) from a psychological perspective. For some in the profession, the idea that psychological research should even be part of economics has generated hostility for years.

Not from me. I find it wonderful that the Nobel Foundation chose Thaler. The economics Nobel has already been awarded to a number of people who can be classified as behavioral economists, including George Akerlof, Robert Fogel, Daniel Kahneman, Elinor Ostrom, and me. With the addition of Thaler, we now account for approximately 6% of all Nobel economics prizes ever awarded.

But many in economics and finance still believe that the best way to describe human behavior is to eschew psychology and instead model human behavior as mathematical optimization by separate and relentlessly selfish individuals, subject to budget constraints. Of course, not all economists, or even a majority, are wedded to this view, as evidenced by the fact that both Thaler and I have been elected president, in successive years, of the American Economic Association, the main professional body for economists in the United States. But many of our colleagues unquestionably are.

I first met Thaler in 1982, when he was a professor at Cornell University. I was visiting Cornell briefly, and he and I took a long walk across the campus together, discovering along the way that we had similar ideas and research goals. For 25 years, starting in 1991, he and I co-organized a series of academic conferences on behavioral economics, under the auspices of the US National Bureau of Economic Research.

Image result for Economist Merton MillerMerton H. Miller–The Nobel Laureate in Economics, 1990

Over all those years, however, there has been antagonism – and even what appeared to be real animus – toward our research agenda. Thaler once told me that Merton Miller, who won the economics Nobel in 1990 (he died in 2000), would not even make eye contact when passing him in the hallway at the University of Chicago.

Miller explained his reasoning (if not his behavior) in a widely cited 1986 article called “Behavioral Rationality in Finance.” Miller conceded that sometimes people are victims of psychology, but he insisted that stories about such mistakes are “almost totally irrelevant” to finance. The concluding sentence of his review is widely quoted by his admirers: “That we abstract from all these stories in building our models is not because the stories are uninteresting but because they may be too interesting and thereby distract us from the pervasive market forces that should be our principal concern.”

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MIT Economist Stephen A. Ross

 

Stephen A. Ross of MIT, another finance theorist who was a likely future Nobel laureate until he died unexpectedly in March, argued along similar lines. In his 2005 book Neoclassical Finance, he, too, eschewed psychology, preferring to build a “methodology of finance as the implication of the absence of arbitrage.” In other words, we can learn a lot about people’s behavior just from the observation that there are no ten-dollar bills lying around on public sidewalks. However psychologically bent some people are, one can bet that they will pick up the money as soon as they spot it.

Both Miller and Ross made wonderful contributions to financial theory. But their results are not the only descriptions of economic and financial forces that should interest us, and Thaler has been a major contributor to a behavioral research program that has demonstrated this.

For example, in 1981, Thaler and Santa Clara University’s Hersh Shefrin advanced an “economic theory of self-control” that describes economic phenomena in terms of people’s inability to control their impulses. Sure, people have no trouble motivating themselves to pick up a ten-dollar bill that they might find on a sidewalk. There is no self-control issue there. But they will have trouble resisting the impulse to spend it. As a result, most people save too little for their retirement years.

Economists need to know about such mistakes that people repeatedly make. During a long subsequent career, involving work with UCLA’s Shlomo Benartzi and others, Thaler has proposed mechanisms that will, as he and Harvard Law School’s Cass Sunstein put it in their book Nudge, change the “choice architecture” of these decisions. The same people, with the same self-control problems, could be enabled to make better decisions.

Improving people’s saving behavior is not a small or insignificant matter. To some extent, it is a matter of life or death, and, more pervasively, it determines whether we achieve fulfillment and satisfaction in life.

Thaler has shown in his research how to focus economic inquiry more decisively on real and important problems. His research program has been both compassionate and grounded, and he has established a research trajectory for young scholars and social engineers that marks the beginning of a real and enduring scientific revolution. I couldn’t be more pleased for him – or for the profession.

The Economic Case for China’s One Belt, One Road Initiative


October 14, 2017

The Economic Case for China’s One Belt, One Road Initiative

by Shang-Jin Wei*
https://www.project-syndicate.org/commentary/china-belt-and-road-economic-case-by-shang-jin-wei-2017-10

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In recent years, many of the world’s most influential countries have turned inward, with politicians promising protectionism, immigration restrictions, and even border walls. But, to achieve stronger economic growth and development, the world needs initiatives focused on building bridges – initiatives like China’s Belt and Road.

NEW YORK – Since 2013, China has been pursuing its “Belt and Road” initiative, which aims to develop physical infrastructure and policy linkages connecting more than 60 countries across Asia, Europe, and Africa. Critics worry that China may be so focused on expanding its geopolitical influence, in order to compete with the likes of the United States and Japan, that it may pursue projects that make little economic sense. But, if a few conditions are met, the economic case for the initiative is strong.

As a recent Asian Development Bank report confirms, many Belt and Road countries are in urgent need of large-scale infrastructure investment – precisely the type of investment that China has pledged. Some, such as Bangladesh and Kyrgyzstan, lack reliable electricity supplies, which is impeding the development of their manufacturing sectors and stifling their ability to export. Others, like Indonesia, do not have enough ports for internal economic integration or international trade.

 

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The Belt and Road initiative promises to help countries overcome these constraints, by providing external funding for ports, roads, schools, hospitals, and power plants and grids. In this sense, the initiative could function much like America’s post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe.

Of course, external funding alone is not sufficient for success. Recipient countries must also undertake key reforms that increase policy transparency and predictability, thereby reducing investment risk. Indeed, implementation of complementary reforms will be a key determinant of the economic returns on Belt and Road investments.

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President Xi Jinping’s One Belt, One  Road Initiative  aims to knit together Asia, Europe and Africa through land and maritime corridors that collectively encompass a set of countries representing about 65 percent of the world’s population and one-third of its total economic output. China plans to spend roughly $150 billion a year to advance the initiative through infrastructure projects ranging from railways and roads, to ports and pipelines, to power plants and telecommunications networks.

For China, the Belt and Road investments are economically appealing, particularly when private Chinese firms take the lead in carrying them out. In 2013, when China first proposed the Belt and Road initiative, the country was sitting on $4 trillion in foreign-exchange reserves, which were earning a very low dollar return (less than 1% a year). In terms of China’s own currency, the returns were negative, given the expected appreciation of the renminbi against the US dollar at the time.

In this sense, Belt and Road investments are not particularly costly for China, particularly when their far-reaching potential benefits are taken into account. China’s trade-to-GDP ratio exceeds 40% – substantially higher than that of the US – owing partly to underdeveloped infrastructure and inadequate economic diversification among China’s trading partners. By addressing these weaknesses, China’s Belt and Road investments can lead to a substantial increase in participant countries’ and China’s own trade volumes, benefiting firms and workers substantially.

This is not to suggest that such investments are risk-free for China. The economic returns will depend on the quality of firms’ business decisions. In particular, because efficiency is not the primary consideration, Chinese state-owned enterprises (SOEs) might purse low-return projects. That is why China’s SOE-reform process must be watched carefully. Nonetheless, while the Belt and Road initiative is clearly driven partly by strategic objectives, a cost-benefit analysis shows that the economic case is also very strong – so strong, in fact, that one might ask why China didn’t undertake it sooner.

Even the United States and other countries may reap significant economic returns. A decade after the global financial crisis erupted, recovery remains weak and tentative in much of the world. Bold, large-scale infrastructure investments can provide much-needed short-run stimulus to global aggregate demand. The US, for one, is likely to see a surge in demand for its own exports, including cars, locomotives, planes, and high-end construction equipment, and financial, accounting, educational, and legal services.

In the longer term, the new infrastructure will ease logistical bottlenecks, reducing the costs of production inputs. The result will be higher productivity and faster global growth.

If Belt and Road projects are held to high environmental and social standards, significant progress can also be made on global challenges such as climate change and inequality. The more countries choose to participate in these projects, the better the chance of achieving these standards, and the greater the global social returns will be.

In an era when some of the world’s most influential countries are turning inward, talking about erecting trade barriers and constructing border walls, the world needs initiatives focused on building bridges and roads, both literal and figurative – initiatives like the Belt and Road strategy.

 

‘Minister of Finance Inc’ – A Political Economist’s Study of Minister of Finance Incorporated and GLICs in Malaysia–Terence Gomez


September 30, 2017

‘Minister of Finance Inc’ A Political Economist’s Study of Minister of Finance Incorporated and GLICs in Malaysia–Terence Gomez

by M Krishnamoorthy @www.malaysiakini.com

 

Dr. Terence Gomez, in his latest book, “Minister of Finance Incorporated: Ownership and Control of Corporate Malaysia”, traces the government’s role in the corporate sector. He provides an assessment of Malaysia’s new political economy, with a focus on ownership and control of the corporate sector.

Gomez, who is a Professor of Political Economy at Universiti Malaya, is also the author of “Politics in Business: UMNO’s Corporate Investments”, a pioneering publication in 1990, which traced how UMNO secured a huge equity interest in Malaysia’s corporate sector.

 

In “Minister of Finance Incorporated”, Gomez (photo above) and his team of researchers offer another pioneering assessment of Malaysia’s corporate sector, though their focus is now government-linked investment companies (GLICs), a type of state enterprise that has long prevailed in the economy but has not been analysed.

Gomez argues that corporate power is now concentrated in these GLICs that are ultimately controlled by the Minister of Finance. Interestingly, Gomez admits that these GLICs are well-managed by highly qualified professionals, though these people can be subservient to the dictates of the Minister of Finance.

By focusing on the GLICs, “Minister of Finance Incorporated” ignites interesting debates about the role of the government in the economy, an issue that requires thoughtful consideration given their dominant presence in the corporate sector. Through in-depth research, novel insights are provided into this question of government ownership and control of corporate Malaysia.

This review is presented as a question-and-answer dialogue with the author, to draw attention to this study’s major findings. Much of what is outlined below is from this book.

The Interview

Professor Gomez, in your latest book, “Minister of Finance Incorporated”, what are your major findings?

Malaysia’s political economy has undergone a major transition since the 1990s that has escaped public attention.

Corporate power has shifted from UMNO and well-connected businessmen to the government. Huge business groups controlled by the government have emerged, seen in the dominance that a mere seven GLICs have over the corporate sector.

During this transition, one extraordinary outcome was the removal of UMNO, its members and the business associates of party leaders as owners of publicly-listed government-linked companies (GLCs).

 

UMNO now has direct equity ownership of only one quoted company, the media-based Utusan Melayu, while no UMNO member figures as a major corporate player.

UMNO’s absence from the corporate sector has major implications. The power nexus involving politics and business has fundamentally shifted at the federal level.

If this political-business nexus once involved numerous powerful UMNO politicians who had enormous influence over the corporate sector, economic power is now concentrated in the Office of the Minister of Finance.

Who are the GLICs?

Seven institutions have been classified by the government as GLICs. These are the Minister of Finance Incorporated (MoF Inc), the government’s holding company, which participates actively in corporate manoeuvres and owns a diverse range of firms known as government-linked companies (GLCs).

The sovereign wealth fund, Khazanah Nasional Berhad, is policy-based and implements major plans, including venturing abroad to support the government’s business internationalisation effort.

 

 

The investment trust fund, Permodalan Nasional (PNB, or National Equity Corporation), is portfolio-oriented, though with a policy agenda to redistribute wealth more equitably between the nation’s ethnic groups.

Two savings-cum-pension-based funds, the Employees’ Provident Fund (EPF) and the Kumpulan Wang Persaraan Diperbadankan (KWAP, or Retirement Fund Incorporated), are portfolio-based with an equity interest in a vast number of companies.

Lembaga Tabung Angkatan Tentera (LTAT, or Armed Forces Fund Board) is also a savings-cum-pension-based fund but is active in the management and development of large businesses in various sectors.

 

 

Lembaga Tabung Haji (LTH, or Pilgrims Fund Board), though portfolio-based, has an organic form of enterprise development, active in the development of Islamic-based products and services.

How are these GLICs owned and controlled?

The Ministry of Finance sits at the apex of a complex business group structure comprising its holding company, MoF Inc, as well as other GLICs, quoted GLCs and a huge number of unquoted private firms.

MoF Inc is the “super-entity”, given its enormous influence over the corporate sector through its substantial ownership and control of the other GLICs and the financial sector, comprising Malaysia’s leading commercial banks. Through its ownership of these commercial banks, the government can control the economy indirectly by acting as a lender to private firms.

However, MoF Inc’s vast network of business interactions constitutes only one part of the government’s complex system of control over the corporate sector. State governments have a similarly sizeable interest in the corporate sector.

In this system, the Board of Directors are important. Directorships function as a primary avenue through which the government can dictate decision-making within GLICs and GLCs.

Our comparison of ownership and directorate patterns in 1996 (prior to the 1997 currency crisis) and 2013 revealed a new phenomenon.

 

Only a small number of UMNO members remain as directors of these government-owned enterprises. These findings are particularly astonishing as Umno remains a party riddled with money politics, patronage and rent-seeking.

How did Malaysia get to this point?

Three major events have contributed to these transitions where the Prime Minister and GLICs have emerged as economic powerhouses. The first was the implementation of the New Economic Policy (NEP) in 1971, which allowed these enterprises to gradually acquire a major presence in the corporate sector.

The involvement of the GLICs in the corporate sector diminished with the active promotion of privatisation from the mid-1980s. With this spate of privatisations, major enterprises fell under the ownership and control of UMNO and well-connected businesspeople.

The second defining event was the 1997 currency crisis and the momentous intra-elite political feuding that ensued the following year. The GLICs’ bailout of ailing well-connected companies and their takeover of firms associated with ousted Umno leaders led to their re-emergence as major actors in the corporate sector.

 

The third defining moment was when reform of the GLICs and GLCs was initiated by Dr. Mahathir Mohamad in the late 1990s, though actively implemented by Abdullah Ahmad Badawi (photo) from 2003. Najib Abdul Razak continued these reforms when he took office in 2009 as Prime Minister.

The current concentration of economic power in the office of the Prime Minister is particularly salient because when Najib took office in 2009 he voiced his intention to transfer GLCs to the private sector, arguing that the private sector should function as the primary engine of growth.

Unlike Mahathir, Najib appeared personally uninterested in business as a government tool for economic and corporate development when he came to power. Najib, however, soon came to realise the significant economic influence that the GLICs have over the corporate sector.

Why was this type of corporate control structure created?

This complex system of ownership and control of the corporate sector is not one that was designed or envisioned by ruling elites.

In fact, since the 1980s, all Prime Ministers – Mahathir, Abdullah and Najib – have persistently advocated privatisation of the GLCs on the assumption that these enterprises would function far more effectively and productively if under private ownership.

Even when the NEP was conceived, the plan was to transfer corporate equity acquired by the GLICs to bumiputeras, in order to redistribute wealth more equitably among the ethnic groups.

When Mahathir’s vision of creating business groups led by corporate captains was dismantled by the 1997 currency crisis, the GLICs and GLCs were deployed to bail out well-connected ailing, debt-ridden enterprises.

 

When a bitter feud ensued between Mahathir and his Minister of Finance, Anwar Ibrahim, over these bailouts, Anwar was ousted from public office and his business allies lost control of their corporate assets.

When a similar feud ensued between Mahathir and Daim Zainuddin, Anwar’s replacement as minister of finance, companies controlled by his allies and UMNO were channelled to the GLICs. Having had persistent feuds with his trusted allies who he had appointed as Minister of Finance, prime minister Mahathir then took charge of this ministry.

The new structure of Malaysia’s political economy has also arisen out of the need for the UMNO President to reduce the influence of party warlords.

UMNO’s major businesses now under the GLICs include media companies that own the major newspapers, The New Straits Times and Berita Harian, as well as TV3, the party’s cooperative KUB, the huge construction-based UEM Group, the hotel-based Faber Group (now UEM Adgenta) and the Bank of Commerce, now a part of Malaysia’s third largest banking enterprise, CIMB Group. Control of these companies ultimately falls under MoF Inc.

If UMNO members once had many sources of patronage, what is the situation now?

UMNO members now have only one source if they wish to obtain access to federal government-generated economic concessions. This is profoundly problematic in terms of public governance as the minister of finance concurrently holds the position of prime minister, a situation that does not prevail in democracies.

In this governance structure, there is the possibility of checks and balances being deeply undermined, opening space for abuse of power that can have serious implications on the economy and the corporate sector.

Who is accountable for the running of the companies?

The board of directors of these companies are accountable. While most of these directors are professionals who manage the GLCs in a productive manner, since they are appointed by the minister of finance, they can be compelled to follow his dictates.

There are also serious concerns in some GLICs. In LTH, a number of its directors, including its chairperson, are UMNO members who are elected representatives but hold no position in government. LTAT is led by Lodin Kamaruddin (photo), a longstanding close business associate of Prime Minister Najib.

 

There is sufficient evidence that these GLICs could be vulnerable to political interference unless sufficient oversight measures and institutional reforms are introduced to ensure they are well-insulated from such abuse.

In the boards of directors of the GLICs and GLCs, what has also increased is the number of former bureaucrats. These ex-civil servants, like the professional elite, have no political influence. However, they also appear to function as mere figureheads.

The most influential decision-makers are the chairpersons of these boards and the managing directors who, when necessary, take the cue from the Minister of Finance, further indicating his overwhelming influence over the corporate sector.

There is evidence of “inner circles” among the GLICs. One inner circle revolves around Nor Mohamad Yakcop, until recently the deputy chairperson of Khazanah. Professional managers groomed by him lead the GLICs and GLCs.

An inner circle is also evident in the media sector. An obscure private firm, Gabungan Kesturi, controls the leading media enterprise, Media Prima, along with PNB.

The directors and shareholders of Gabungan Kesturi are Shahril Ridza Ridzuan and Abdul Rahman Ahmad, both groomed by Nor Mohamad. Shahril is the CEO of EPF, which also owns a huge interest in Media Prima. Rahman was appointed the CEO of PNB in 2016.

The use of private companies like Gabungan Kesturi obscures the identity of the ultimate shareholder, the Minister of Finance, as well as the extent of the state’s control over major media companies.

Did our leaders groom and place executives in GLICs for their vested interests?

Daim Zainuddin (photo) groomed and placed professionals he had trained as executives and owners of companies associated with UMNO.

 

A similar practice of grooming young professionals as executives and CEOs emerged in the late 1990s after well-connected firms came under the control of the GLICs. Professionals trained by Nor Mohamed took over the management of these enterprises.

However, while Nor Mohamad and Daim groomed and placed professionals in control of major quoted enterprises, their reasons for doing so differed.

As Minister of Finance, Daim, also UMNO’s Treasurer and a longstanding businessperson, appeared intent on securing enormous control over the corporate sector to serve his vested business interests. The professional-managerial team groomed by Nor Mohamed was not necessarily trained to manage the GLICs and GLCs.

What are the possible repercussions of this ownership and control mechanism?

Through this pyramiding system, with the Minister of Finance at the apex, the GLICs and GLCs can be subjected to considerable abuse. This pyramiding system allows the minister to secure numerous political and business benefits from the GLICs and GLCs, as well as abuse them.

It is noteworthy that MoF Inc has ownership and control of controversial companies such as 1MDB and the National Feedlot Corporation (NFC).

The GLIC-based business groups have control over companies through majority equity ownership, which accords them significant voting rights. This has serious implications for minority shareholders, and the economy, in the event of abuse of the companies.

Our study noted that the EPF appears to have been forced to take control of RHB Capital from a firm linked with the former Chief Minister (and now Governor) of Sarawak, Abdul Taib Mahmud (photo above ). This financial institution has long been an enterprise that has come under the control of a number of well-connected people and GLCs.

Politics evidently matters, influencing how these enterprises are run. Policies also matter as they shape the different ways in which these institutions are managed.

There can be a link to between politics and policies, especially redistributive policies and enterprise development strategies when determining how these enterprises are employed.

After his party fared badly in the 2013 General Election, Najib announced that contracts and other concessions would be channeled through GLICs and GLCs to bumiputeras, justified by his new ethnically-based affirmative action policy that targeted this ethnic group. This was evidently to consolidate the political support of this ethnic community. 

What reforms are required to deal with this issue?

These powerful GLICs are a clear manifestation of high concentration of corporate ownership in the state. This concentration of corporate wealth is justifiable only if GLICs are managed in an accountable and transparent manner.

Inevitably, to inspire confidence among private investors, political reforms are imperative to enforce stringent institutional checks and balances by independent oversight institutions.

 

The technocratic professional elite at the epicentre of this GLIC-GLC network can remain, but must be subjected to close scrutiny by parliamentary action committees led by the Opposition. And the Prime Minister cannot also serve as the Finance Minister since it is an obvious case of conflict of interest.

Book Review: No Is Not Enough by Naomi Klein


September 25, 2017

No Is Not Enough by Naomi Klein  Book Review – Trump the Master of Disaster

by Hari Kunzru

Klein’s new study in shock politics is a warning of the enormous toxic potential of the Trump presidency and a call to oppose it. Refusal needs to turn into resistance. In Trump world there are only two existential categories: winners and losers. Trump stands for winning, and if you oppose him, you are a loser.

Donald Trump announces his candidacy for the presidency at Trump Tower.

Donald Trump announces his candidacy for the presidency at Trump Tower. Photograph: Christopher Gregory/Getty Images

The United States Should Join the Asian Infrastructure Investment Bank (AIIB)


September 21, 2017

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Number 397 | September 20, 2017

ANALYSIS

The United States Should Join the Asian Infrastructure Investment Bank (AIIB)

By Niruban Balachandran

The United States has not yet joined Beijing’s Asian Infrastructure Investment Bank (AIIB) as a member state, partially because of the perceived risk of legitimizing or normalizing this new multilateral development bank (MDB) at the expense of the Bretton Woods component of the postwar liberal international order: the World Bank and International Monetary Fund. A related US hesitation is the potential for Beijing to mainstream weaker, watered-down infrastructure quality standards across the East Asia and Pacific region. US policy toward the AIIB also ostensibly seeks to prevent Beijing from increasing its checkbook diplomacy in developing countries. This is understandable, given that Beijing has previously provided conditional aid with eyebrow-raising terms to developing countries, such as aid to Costa Rica and Panama under the condition that they cut off diplomatic relations with Taiwan. However, the AIIB is most likely here to stay, and as a result of Washington’s absence, the United States will have no voice or voting presence in the bank. Such a position hinders Washington’s ability to influence and shape Beijing’s development effectiveness in the region.

 

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The United States has not yet joined Beijing’s Asian Infrastructure Investment Bank (AIIB) as a member state, partially because of the perceived risk of legitimizing or normalizing this new multilateral development bank (MDB) at the expense of the Bretton Woods component of the postwar liberal international order: the World Bank and International Monetary Fund. –Niruban Balachandran

Some Trump administration staff have expressed interest in US membership in the new bank. For example, Trump Advisor James Woolsey wrote last November that the US should have joined AIIB, adding that he hoped its reception to Beijing’s Belt and Road Initiative would be “much warmer”. Even Japan, Washington’s key ally in Asia, has recently hinted at joining AIIB. An absent US does not serve American or regional interests.

AIIB’s mandate is to provide loans, grants, and technical assistance to build infrastructure such as roads, ports, housing, and bridges for developing countries. To date, AIIB comprises 57 founding member states, a number that will most likely rise to about 70 in the near future. The AIIB’s initial capitalization is $100 billion, with Beijing contributing half of this total. In contrast, the World Bank is governed by 189 member states, and its capitalization is over $252 billion, with the United States contributing about 17% and Japan contributing about 8% of the total; it provides loans and grants in health, education, energy, climate change, and other sectors beyond infrastructure to client countries.

Unfortunately, the voice of the United States in the AIIB is absent. According to an exhaustive February 2017 Congressional Research Service report, “China’s voting share at the AIIB (28%) is over 350% that of the second largest AIIB member nation, India (8%). This is the largest gap between the first and second largest shareholders at any of the MDBs…” In the same vein, while the United States is criticized by other governments for having “too much power” in the World Bank with a capital shareholding of roughly 17 percent, China’s AIIB capital shareholding runs at an enormous 50 percent. Additionally, unlike most other MDBs, the AIIB does not have a resident board of executive directors that have a daily voice in bank processes and decisions.

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The New Boy on the Block

If the Trump administration joins the AIIB, it can help negotiate a higher voting share for the United States, a higher capital shareholding proportion for the United States, and resident board membership for all member states within the new bank. Such outcomes would help alter Beijing’s disproportionate power in AIIB. Although negotiating for more favorable conditions on behalf of Washington and other member states may be more difficult, it will by no means be impossible. While some in Beijing might view US membership in the AIIB as a strategic risk to China’s long-term aspirations for a Sinocentric regional order, it’s worth remembering that including Washington’s voice in key infrastructure projects can advance quality of life for the poor and unblock the free flow of water, goods, and people while drawing upon America’s most innovative infrastructure experts, unmatched global and subnational convening power, and enormous US diplomatic apparatus around the world.

It is understandable that aid and development projects managed by less-experienced donors like the AIIB might run greater risks of displacing indigenous peoples, threatening physical cultural-heritage assets, and constructing dangerous, disaster-prone, and less-than-green infrastructure. In addition, a report by a prominent watchdog group ranked the AIIB the lowest among the MDBs in level of public information transparency, most notably in terms of its lack of access to information procedures and public registry for information requests, as well as its failure to adopt time-bound disclosures of board minutes, draft strategies, and policies. The United States can drive capacity-building in these domains.

If Washington’s objective is to support Beijing’s efforts in development effectiveness and infrastructure quality, then it is imperative for the Trump administration to reverse course, seek to join the AIIB as a member state, and encourage resident board membership for all member states in line with MDB governance best practices. As in the World Bank and other multilateral institutions, it is on this platform that Washington can then negotiate on weighted AIIB voting practices, express its voice in day-to-day decision-making, convene like-minded stakeholders around policy and programmatic issues, build coalitions, and vote on projects that reduce poverty.

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The Go It Alone Man in a Globalised World–America First

The AIIB is only one component of Beijing’s proposed “China-led” regional architecture, which includes the New Development (BRICS) Bank, BRI, the Regional Comprehensive Economic Partnership (RCEP) free trade agreement, the Shanghai Cooperation Organization, the China-ASEAN Interbank Association, the China-Eurasia Economic Cooperation Fund, and other multilateral initiatives. The Trump administration should therefore acknowledge that these new Chinese institutions will probably not be going away anytime soon, and that in many cases, it is best to try to advance American interests from within, or in close partnership with these institutions. For example, in May 2017, the World Bank and AIIB signed a joint Memorandum of Understanding (MOU) that establishes mechanisms for staff sharing, knowledge exchanges, country-level coordination, and other forms of close cooperation.

It is also worth noting that Tokyo’s $200 billion, whole-of-government answer to Beijing’s AIIB and OBOR – the Japan Partnership for Quality Infrastructure (PIQ) – combines the multidisciplinary capacities of the Asian Development Bank (ADB), the Japan International Cooperation Agency (JICA), the Japan Bank of International Cooperation (JBIC), and the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN). As The Straits Times recently reported, “While Japan cannot compete with China in dollars, it has touted its superiority in its capability to build high-quality infrastructure and commitment to train local workers.”

In the same vein, Washington should also seek to further improve the AIIB’s quality-control, governance, accounting, and safeguards by first negotiating to join the new bank’s executive board, then ensuring not only that meticulous M&E practices are utilized, but also that strict environmental and social safeguards are enforced in the field to protect communities, indigenous peoples, and families across every full project cycle.

Lastly, at the bilateral infrastructure aid level, an impartial self-governing body similar to that of the World Bank’s Independent Evaluation Group (IEG) should execute an omnibus, cross-sectoral American infrastructure aid review to refine the subnational service delivery, donor coordination functions, and development effectiveness of USAID, the Millennium Challenge Corporation, the US Overseas Private Investment Corporation (OPIC), the Asia Foundation, and other crucial bilateral instruments of American infrastructure aid to the East Asia and Pacific region. Comparatively efficacious project execution and whole-of-government initiatives such as US-ASEAN Connect will continue to provide powerful insurance against the long-term marginalization of Washington’s bilateral infrastructure-aid instruments.

About the Author

Niruban Balachandran is a recent graduate of Harvard University’s John F. Kennedy School of Government’s Master’s of Public Administration, focusing on international order and strategy, as well as US-Southeast Asian relations.He can be contacted at Niruban_Balachandran@hks17.harvard.edu.

 

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

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“Who’s Afraid of the AIIB: Why the United States Should Support China’s Asian Infrastructure Investment Bank”

Phillip Y. Lipscy (Stanford University)
Foreign Affairs, May 7 2015

When China first proposed creating the Asian Infrastructure Investment Bank (AIIB) in 2013, it generated considerable anxiety in Washington and many other capitals. Many pundits and policymakers view the AIIB as a bid to undermine or replace the international architecture designed by the United States and its allies since the end of World War II. Although several U.S. allies, including Australia, Germany, and the United Kingdom, have declared their intention to join the AIIB, others, including Japan, have expressed ambivalence. For its part, the United States has made it clear that it will seek to influence the institution from the outside. But it would be a mistake to shun or undermine the AIIB. Rather, it should be welcomed. Both the United States and Japan have far more to gain by joining the AIIB and shaping its future than remaining on the sidelines.

The details remain vague, but the AIIB is meant to be a multilateral development institution that will focus on infrastructure needs in Asia. There is no question that this is a deserving cause. Asia’s large population, rapid growth, and integration with the global economy all generate demand for better infrastructure. A report by the Asian Development Bank (ADB) estimates the region needs about $750 billion annually in infrastructure-related financing. [i] Citing historical underinvestment, McKinsey & Company, a global management consulting firm based in New York City, proclaims a “$1 trillion infrastructure opportunity” [ii] in Asia. Although precise estimates vary from one report to another, the broad point is uncontroversial: Asia needs more infrastructure, and international financing can help.

Why, then, is the AIIB itself controversial? There are essentially two reasons. First, Western governments fear that the AIIB will, in one way or another, undermine existing international aid institutions. U.S. policymakers have publicly expressed concern that the AIIB will undercut social and environmental standards adopted by existing institutions such as the World Bank and International Monetary Fund (IMF). An underlying fear is that the AIIB could eventually overshadow and undermine these institutions, which are based in Washington and seen as closely reflecting U.S. interests. Japanese policymakers have expressed similar reservations.

Second, there is concern about China’s intentions within the broader context of its economic and geopolitical rise. The AIIB signals that China intends to play a larger international role. Will China act like a responsible stakeholder by further integrating itself into the existing world order, or will it focus more on challenging U.S. hegemony by seeking to undermine and replace the post–World War II international architecture? The AIIB seems to indicate that China is interested in the second scenario. After all, why else would China choose to design its own development institution from scratch rather than working through existing institutions?

Yet both sets of concerns are largely misplaced. The AIIB is highly unlikely to undermine existing aid organizations, and the creation of the AIIB conveys very little information about China’s broader international intentions. On balance, the United States and Japan have more to gain from joining the AIIB and shaping its future than seeking to exert influence as bystanders.

INSTITUTION IN-CROWD

China has a unique relationship with post–World War II international organizations. After the Chinese civil war, Chiang Kai-shek’s Taiwan remained the de jure representative of all of China in major international organizations. This was a serious fault line of the early Cold War, triggering the Soviet boycott of the UN Security Council in 1950. However, the United States used the boycott to its advantage, securing UN Security Council authorization for operations against North Korea during the Korean War. The Soviet Union grudgingly returned to the council to aggressively exercise its veto, but the question of Chinese representation remained unresolved.

China exacerbated its international isolation by withdrawing from several international organizations, such as the Universal Postal Union and the World Meteorological Organization, in protest of Taiwan’s membership. As a result, by the 1960s, China had essentially no representation in the postwar institutional architecture. There were a few occasions on which China endorsed proposals that would pose competition with existing institutions. For example, the premier of China, Zhou Enlai, encouraged Indonesia under President Sukarno to challenge the architecture: “In these circumstances,” he said, “another UN, a revolutionary one, may well be set up so that rival dramas may be staged in competition with that body which calls itself the UN but which is under the manipulation of United States imperialism and therefore can only make mischief and do nothing good.” [iii]

China sent the largest delegation and won the most medals at Sukarno’s “Games of the New Emerging Forces,” an athletic competition created to pose direct competition against the Olympics, from which China was excluded. Indonesia also became the only country in the UN’s history to formally withdraw from the organization in 1965, and Sukarno proposed the creation of an alternative institution, the New Emerging Forces Organization (NEFO). The proposal raised concerns among U.S. policymakers, who worried that the initiative might entice developing countries away from the UN. NEFO ultimately went nowhere, though, as Sukarno’s grip over his own country slipped. Indonesia returned to the UN only a year later.

If China’s isolation from the international architecture had continued in subsequent decades, such challenges may have become more serious. However, in a pivotal UN General Assembly vote in 1971, China displaced Taiwan as the sole representative of its country in the UN. Although membership in other organizations came with varying lags, within about a decade, China had completely turned the tables on Taiwan.

China’s history of contestation over representation sets the scene for contemporary debates about the international architecture. For decades after the end of World War II, a major Chinese foreign policy objective was to secure recognition and status in postwar international organizations. Once that status was secured, China’s unique method of entry gave it significant advantages that were denied to many other rising powers. The postwar architecture systematically advantaged the major Allied powers of World War II over countries on the wrong side of the war (Japan and Germany) or countries that were weak or colonized (Brazil and India). In many respects, China avoided these disadvantages: it automatically assumed the formal privileges that had been granted to the Republic of China, most notably permanent membership and veto power in the UN Security Council.

These factors mean that when it comes to major international institutions, China is more of a status quo power than one might expect. Much of the contemporary Chinese foreign policy narrative emphasizes China’s contributions to the Allied victory in World War II against fascism and militarism. [iv] Undermining the architecture is not in China’s interest: it provides material benefits, enhances Chinese legitimacy, and is not obviously biased against China. For sure, Chinese underrepresentation is an important problem in several areas, such as in the voting rights of the IMF and the representation of Chinese nationals among the personnel of major organizations. However, for the most part, China has more to gain from incremental adjustments of the architecture than from a wholesale redesign.

 

HOW AID WORKS

The AIIB does not alter this basic picture. It is useful to consider some features of contemporary development aid. Development aid is a highly competitive and fragmented policy area. There are at least 28 multilateral international organizations that already specialize in international development akin to the AIIB. [v] In addition, most major economies also engage in bilateral aid through their own aid agencies. These include 29 members of the Development Cooperation Directorate of the Organization for Economic Cooperation and Development and a host of developing countries, including China. To top it off, numerous private foundations and firms participate in development directly or indirectly. On a yearly basis, the ADB and Inter-American Development Bank each disburse the equivalent of about 40 percent of the World Bank’s disbursements. Yearly U.S. bilateral aid is typically on a par with World Bank disbursements.

Aid organizations often work collaboratively, pooling expertise and resources to implement projects. However, competition is also an important feature of contemporary development aid. Donors have numerous channels through which they can give out aid; likewise, potential recipients can receive aid from a wide range of sources. This is particularly true for the rapidly developing countries of Asia, which the AIIB will target.

The competition imposes accountability and places important limits on international aid organizations. A good example is the United Nations Development Program. The UNDP is considered one of the premier international development organizations. It was established in 1966 as a major agency of the United Nations, and it has near-universal membership. However, the agency was created with a decision-making structure that limits the influence of important donor states: following the broader UN principle that each member state should have equal representation, the organization follows a one-country-one-vote rule. Hence, the United States, one of the largest donors to the organization, has the same voting power as Nepal, a major aid recipient.

This means that large donor states feel their interests are not sufficiently reflected in UNDP decision-making. As a consequence, they have effectively shifted their attention elsewhere, depriving the UNDP of resources and forcing the organization to pursue “noncore” arrangements over which it has limited control. The UNDP has faced a chronic shortage of funding: adjusted for inflation, core disbursements by the UNDP peaked in 1981 and have steadily declined to about half those levels.

This type of competition has two implications for the AIIB. First, to remain relevant, aid organizations must be accountable to their stakeholders. If the AIIB is seen as being overly dominated by China, other members will turn their attention elsewhere, depriving the organization of resources, attention, and skilled staff. There is no plausible scenario under which the AIIB could supplant existing organizations such as the World Bank and ADB unless the organization suitably reflects the concerns and interests of the broader international community.

Second, maintaining governance and accountability standards in development aid is already extremely difficult, particularly when dealing with relatively successful developing countries that can pick and choose from a wide range of multilateral, bilateral, and private financing sources. For this reason, the entry of the AIIB as an additional funding source in Asia is unlikely to make a significant difference in social and environmental standards. If China truly seeks to undercut the quality and conditions of existing aid agencies, it can already do so more expediently through bilateral aid and overseas activities of its state-owned enterprises.

INSTITUTIONAL POWER

Many pundits and policymakers see the AIIB in zero-sum terms: if China is successful, the United States and its allies lose. A recent article in the conservative Japanese Sankei newspaper is illustrative, arguing that the AIIB represents China’s attempt to follow Sun-tzu’s teachings to subdue the United States and Japan without engaging in direct combat. [vi] But there is a fundamental problem with this worldview: international institutions are not like military equipment or strategic territory, which makes a country more powerful and potentially threatening.

Multilateral international institutions are fundamentally cooperative arrangements, premised on mutual benefits. On net, the activities of the AIIB are much more likely to bring benefits rather than costs to the United States as well as the broader international community. The most obvious of these is the positive spillover of economic development. China itself is testament to the importance of infrastructure investment for growth. Better infrastructure in Asia will mean more economic activity and business opportunities not only for Chinese firms but also for American, European, and Japanese firms. For sure, some infrastructure can be designed to bring disproportionate benefits to specific countries: for example, roads and pipelines that direct traffic toward China. However, in an age of interconnected markets and global supply chains, it is practically impossible to limit positive spillover effects to a single country.

Multilateralism will also make it more difficult for China to overtly manipulate projects funded by the AIIB. An important reason the United States established multilateral institutions after the end of World War II was to reassure its allies that their voices would be heard and that the United States would not seek unilateral domination. Multilateralism not only enhances but also constrains the ability of powerful states to get what they want. For all the shortcomings of U.S. foreign policymaking since the end of World War II, its emphasis on multilateralism has been a resounding success.

Take trade. Before the 1930s, U.S. trade policy oscillated between openness and closure depending on which political party controlled Congress. The contemporary trade architecture, initially based on the General Agreement on Tariffs and Trade and more recently the World Trade Organization and a host of regional arrangements, prevents such dramatic swings. It also surely benefits U.S. economic interests by maintaining the free flow of international commerce.

The same logic applies to the AIIB. The AIIB will likely give China some important advantages akin to what the United States and Japan enjoy, respectively, in the World Bank and ADB. However, China will also be constrained by other members of the institution. The structural advantages that China enjoys in the AIIB will be beneficial only insofar as other members take the institution seriously and provide funding, skilled staff, and coordination. If the institution is perceived as being unfair or nontransparent, it will become nothing more than a shell organization through which China disburses bilateral foreign aid.

To put it differently, China has a basic choice. It can create an AIIB that is mutually beneficial, reflects the broader concerns of its members, and perhaps modestly overrepresents Chinese interests. If, instead, China seeks to dominate the AIIB, the institution will shrivel into irrelevance. In the former case, U.S. membership in the AIIB will provide an opportunity to influence and shape the trajectory of an institution that will make a meaningful contribution to economic development in Asia. In the latter case, there is no meaningful threat to U.S. interests anyway.

COOPERATIVE CONFLICT

Realist international relations scholars have predicted that China and the United States face inevitable conflict based on the idea that power transitions create turbulence as rising powers seek to assert their newfound authority and status quo powers resist. An optimistic alternative, based on the liberal tradition, predicts a more benign outcome, in which the pacifying effects of economic interdependence, international institutions and norms, and, perhaps one day, democracy will push Beijing and Washington toward cooperation rather than conflict.

Between these two extremes is a third possibility that ought to be taken more seriously: the renegotiation of the world order. To some degree, contestation over international institutions replicates the functions performed by military clashes in prior eras. It shapes geopolitical and economic outcomes, provides markers for relative status among states, and integrates states into groupings that share common values and purposes.

Japan’s emergence in the late twentieth century is illustrative. Scholarly work in the early 1990s predicted confrontation between Japan and the United States as the former emerged as a major economic power. The political scientist Kenneth Waltz, for example, forecasted that Japan would increase its military capabilities and perhaps acquire nuclear weapons as it reemerged as a great power and reasserted its authority. [vii] Others worried that tensions between the United States and Japan could intensify as the latter sought to reestablish its predominant position in the East Asian region. [viii]

For the most part, Japan instead maintained close ties with the United States and focused its diplomatic attention on international institutions as venues for promoting its newfound status and policy prescriptions for the international order. A crucial battleground for competing Japanese and American visions has been international economic institutions. In the World Bank and IMF, Japan sought to achieve greater voting rights and recognition for its economic approach, which has emphasized greater state intervention and a focus on basic infrastructure. Japan also sought to create regional institutions through which it could exercise influence, such as the ADB and the failed Asian Monetary Fund.

Of course, China differs from Japan in many respects, but its proposal for the AIIB is best seen in this light. The AIIB would give China somewhat greater material and ideological influence over multilateral development lending than it currently enjoys. Perhaps equally important, the AIIB can be interpreted as a marker of status and prestige. One could argue that a multilateral development bank is one of the bells and whistles that comes with contemporary great power status: the United States has the World Bank, Japan has the ADB, and the EU has the European Bank for Reconstruction and Development. China will have the AIIB.

The upshot is that the influence and prestige of contemporary international institutions give countries a new avenue through which to gently contest the contours of the world order. There is less of a need to resort to coercion or military conflict. The heart of the matter is this: Does the United States prefer a world in which China seeks to establish its influence and international prestige by building multilateral development banks or one in which it seeks to do so by building aircraft carriers? Pushing back against the former sends the troubling message that the United States is concerned about not just the means but the ends of China’s rise. The AIIB provides an opportunity to acknowledge and applaud China’s emergence as a builder of multilateral institutions and a contributor to global public goods. The institution may very well give China more influence over development in Asia, but it will be a more transparent and accountable way of exerting influence than through bilateral economic or military pressure. The AIIB may or may not ultimately succeed, but it poses very little risk to U.S. and Japanese interests, since it enters a crowded, competitive field of multilateral development agencies. The United States thus has every incentive to encourage, not discourage, Chinese foreign policy initiatives such as the AIIB.

This article was originally published by Foreign Affairs, and has been reproduced here with permission. The article is also accessible on the Foreign Affairs website.

[i] Asian Development Bank and Asian Development Bank Institute, 2009, “Infrastructure for a Seamless Asia,” Manila and Tokyo: Asian Development Bank and Asian Development Bank Institute.

[ii] Naveen Tahilyani, Toshan Tamhane, and Jessica Tan, 2011, “Asia’s $1 trillion infrastructure opportunity,” McKinsey & Company Insights and Publications.

[iii] Kent, Ann. 2007. Beyond Compliance: China, International Organizations, and Global Security. Stanford: Stanford University Press, 45.

[iv] E.g. see http://www.chinaconsulatechicago.org/eng/fyrth/t1072338.htm

[v] See Phillip Y. Lipscy, 2015, “Explaining Institutional Change: Policy Areas, Outside Options, and the Bretton Woods Institutions,” American Journal of Political Science, 59 (2): 341-356, DOI: 10.1111/ajps.12130

[vi] http://www.sankei.com/world/news/150331/wor1503310067-n1.html

[vii] Kenneth Waltz, 1993, “The Emerging Structure of International Politics,” International Security 18(2), 56, 65.

[viii] Miles Kahler and Jeffrey Frankel, 1992, “Introduction,” in Regionalism and Rivalry: Japan and the United States in Pacific Asia, edited by Miles Kahler and Jeffrey Frankel. Chicago: University of Chicago Press, 8.

Technology–The Liberator and Great Equalizer, says Dr. Bakri Musa


September 19, 2017

Technology–The Liberator and Great Equalizer

by Dr. M. Bakri Musa, Morgan-Hill, California

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The challenge for Malays and non-Malays in this global era is to cultivate an open mind because the alternative means depriving yourself of new opportunities.–Dr. M Bakri Musa

Modern technology, specifically digital, brings us to the outside world, and it to us. Today what happens in the isolated caves high in the mountains of Kabul can be recorded on a cell phone and then posted on the Web for the whole world to see. Even a repressive regime like China could not control the dissemination of images of its tanks bulldozing innocent citizens back at Tiananmen Square in 1989, though not for lack of trying.

The success of the Arab Jasmine Revolution owes much to this digital revolution. Through social networks like Facebook and Twitter, ordinary citizens communicated with each other in real time to organize massive demonstrations that brought down powerful leaders like Egypt’s Hosni Mubarak.

I assert that the digital technology is a much more powerful and consequential instrument of liberation than the AK47, hitherto (still is) the favorite with not-so-bright revolutionaries worldwide.

Eygpt’s Hosni Mubarak was derailed not by a gunman, like his predecessor Anwar Sadat, but by a social revolution made possible by the online social network. If there were to be a leader of that movement, it would be Google executive Wael Ghonim. Unlike earlier Arab revolutionaries who were military officers, this guy was, for lack of better word, a geek. What an incredible achievement what he had done! No one could have predicted that Hosni Mubarak, who only a few months previously was the most powerful man in the Arab world, would face charges of premeditated murder for the deaths of those protestors.

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Digital technology is not the only modern agent of liberation. Modern transportation has reduced if not removed the barrier of geography. Today I can fly from San Francisco to Kuala Lumpur in less time than it took my sister to get from Kuala Pilah to Teachers’ College in Kota Baru via Malayan Railway back in the 1950s.

Travel, in so far as it affords one the opportunity to experience different cultures and realities, can be liberating. While the digital revolution might afford a virtual reality on the convenience and safety of your sofa, travel lets you experience reality in its raw, unfiltered physical form.

The liberating effect of travel works both on the traveler as well as the host. This liberating result, however, is not guaranteed. Seeing how the rest of the world operates may not necessarily open up minds; in some it would result in the exact opposite.

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The Chinese Emperor of the 15th Century sent out explorers out to the vast Pacific and Indian Oceans. Far from opening up Chinese minds, those exotics foreign expeditions merely reaffirmed their smug superiority that they had nothing to learn from the barbarians outside, a manifestation of a collective “confirmation bias” at the societal level.

The Chinese were so confident of their superiority that they eschewed the need for further foreign explorations. They went further. They ordered the dismantling of their advanced and massive maritime infrastructures and banned the building of boats, declaring that to be frivolous and resource-wasting exercises.

Meanwhile the Europeans continued with theirs. The scale was considerably much less, their ships pale imitations of the Chinese. The length of Columbus’s flagship Santa Maria was less than half the width of Cheng Ho’s.

Unlike the ancient Chinese, the medieval Europeans had no pretensions of grandeur; they explored the world with an open mind. They had no delusions about their ways being the best; instead they observed in those foreign lands things they could take home, like tea and spices. It did not take them long to recognize the enormous potential in trading those commodities by introducing new culinary experiences to European palates. The Europeans also soon discovered that the Chinese had a voracious appetite for opium, which the Brits could secure with ease from India. Lucrative commercial domination soon led to the political variety, and thus colonialism was born.

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Why one culture reacted a certain way and another, the very opposite, is intriguing. In the final analysis, it boils down to a culture’s openness to new ideas and experiences, its collective open mindedness. The ancient Chinese had closed minds; the medieval Europeans, open.

Today some foreigners arrive in a new country, and on encountering an alien culture would retreat, fearing it would “contaminate” their pristine values. They would close ranks and congregate in their own little ghettoes, refusing to integrate with the native majority. We see this in America as well as Malaysia.

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“…the Fourth Industrial Revolution (Technology and Digitization) is empowering the empowering the economically disadvantaged by giving them access to digital networks, increasing the efficiency of organisations, improving medical care with personalised drugs and providing a technological solution to climate change”.–Dr. Kao Kim Hourn, President, The University of Cambodia, Phnom Penh.

 

Others view their new experiences as open opportunities and endless learning. Some are simply grateful to be given a new lease on life after escaping the wretchedness of their native land. Eastern Europeans who came to America early in the last century were grateful and thus more than eager to join the American mainstream. They readily gave up their old ways to integrate as quickly as possible into their new society. They learned English quickly and changed their names to make them sound more Anglo-Saxon, with Pawlinsky morphing into the less jaw-breaking Paul.

Even when they were actively discriminated against, and the early Jews, Irish and Italians in America definitely were, they continued to adopt American ways. They did not rush to build Italian or Jewish schools; instead they built their own English schools so their children would not be handicapped in integrating into mainstream American society. They did not consider such actions as repudiating or denigrating their own culture. Far from it! They realized that their own culture and ways of life would more likely survive if were to thrive and be successful in their adopted land.

Today St. Patrick Day and Octoberfest are celebrated more exuberantly in Chicago and Milwaukee respectively than in Dublin or Berlin.

It is tempting to attribute the contrasting reactions of early immigrants to America from Europe to later ones from Asia and Latin America to the differences in circumstances that prompted them to emigrate. The Europeans were forcibly thrown out of their native lands through pogroms or wars. In contrast, recent Asian and Latin American immigrants cross the border voluntarily, for the most part (the South Vietnamese being the most recent notable exception). The Europeans did not ever want to return to their homelands. By contrast, many recent Hispanics consider their stay in America temporary, remaining just long enough to accumulate some money so they could return and live comfortably back in their native land. As such, they do not feel compelled to learn English or in any way integrate into American society.

A similar “temporary abode” mentality occurred with immigrants from China and India into Malaysia early last century. Brought in by the colonials to work the tin mines and rubber plantations, their mindset was to work hard, accumulate enough savings, and then balik Tongsan (return to their motherland, China). Hence there was little need to learn the local language or adapt to local culture. They remained insular, xenophobic, and closed-minded.

They were completely different from the Chinese men and women who much earlier voluntarily settled in the Straits Settlement, the Peranakan. They absorbed many of the elements of Malay culture, including the language and attire. They were not obsessed with balik Tongsan. When the British were in charge, those Chinese learned English; in independent Malaysia, they worked with the majority Malays.

The challenge for Malays and non-Malays in this global era is to cultivate an open mind because the alternative means depriving yourself of new opportunities.