Wednesday, October 31, 2012

Westerners who laud a Chinese meritocracy continue to miss the point

A CENTURY ago China tried its first experiment with representative government, after millennia of imperial rule. The first president, Sun Yat-sen, soon stepped down. His successor, Yuan Shikai, was a mustachioed military man admired in the West as a progressive conservative. He even asked the American government for help in drafting a new Chinese constitution. A legal scholar from Columbia University, Frank Goodnow, arrived in Beijing in 1913 and advised on the drafting of two versions. The first gave Yuan Shikai nearly unchecked powers over Chinese citizens, the budget and foreign policy. The second, in 1915, would have made him emperor, but Yuan died soon after, in 1916.

Mr Goodnow believed that Chinese conditions and culture were not suited to democracy, and that Yuan was just the sort of autocrat China needed. History judges Yuan less kindly. He stamped on the green shoots of the new republic, while nourishing his own corrupt ambitions. As for the unfortunate Goodnow, he came to be remembered as the foreign stooge of a Chinese dictator. He had, he realised too late, been manipulated by those who found him useful—not the first, nor the last, Western adviser to China to feel this. But he maintained his view that the “efficiency and stability” of an autocratic ruler were more important to China at that point than “liberty and popular government”. The title of a later academic paper on Goodnow labelled him an “embarrassed monarchist”.

Many other Westerners have followed Goodnow in believing China’s unique history or economic backwardness ill suits it for representative or, what Chinese critics call, “Western” democracy. In the 1960s and 1970s some Western intellectuals, smitten with China fever, were persuaded that Mao Zedong had achieved an egalitarian society. They said the Chinese Communist Party rejected selfishness and promoted sacrifice and service to society. In the light of what was later revealed of the Mao-made famine of 1958-62 (see article) and the turmoil of the Cultural Revolution, those views now appear grotesque. Most of Mao’s erstwhile admirers acknowledged this and some are among the party’s harshest critics today.

Now, thanks to China’s stunning economic rise, a new group of admirers has emerged. Their cheers have grown louder since the global financial crisis laid bare Western shortcomings. Thomas Friedman, a columnist at the New York Times, declared in 2009 that parts of China’s authoritarianism looked more appealing than America’s dysfunctional democracy. “One-party autocracy certainly has its drawbacks,” Mr Friedman allowed. “But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages.”

Part of a belief in Chinese enlightenment is built on a conviction that China’s leadership system is increasingly meritocratic. The city-state of Singapore provides the model: clean, efficient and run by Nanny—an enlightened meritocracy, epitomising what used to be called “Asian values”. 

Kishore Mahbubani, a former Singaporean diplomat and dean of the Lee Kuan Yew School of Public Policy, has long argued that the West does not know best. He asserts that China is fast getting to where Singapore is in terms of governance. “Far from being an arbitrary dictatorial system,” Mr Mahbubani wrote recently in the Financial Times (part-owner of this newspaper), the Communist Party may have succeeded in creating “a rule-bound system that is strong and durable, not fragile and vulnerable.” He suggests that this rule-bound system has thrown up “possibly the best set of leaders that China could produce”. Jim O’Neill, a Goldman Sachs analyst who came up with the “BRIC” acronym for the emerging economies of Brazil, Russia, India and China, says that if China were a football team, you would want to wear its shirt.

Among the shirt-wearers is a Canadian political theorist, Daniel Bell of Tsinghua University in Beijing, co-editor of “A Confucian Constitutional Order: How China’s Ancient Past Can Shape Its Political Future”. Mr Bell believes that the party’s emphasis has shifted to “the task of good governance led by able and virtuous political leaders.” The scholar-official, it seems, stands in for the gentleman from Whitehall who thought he knew best. The party recruits the best and the brightest, says Mr Bell, and the vetting process for the promotion of top leaders is impressively objective and rigorous, though he admits scope for improvement, especially through more transparency.

But to believe virtue always floats to the top in a system such as China’s is fantasy. Chinese government and society are shot through with corruption. Even official media report about cadres gaining promotion through connections, not merit, and despite the occasional execution of corrupt officials, the government can do little about it. The Confucian ideal of self-cultivation is admirable, but it neglects the crucial detail known as human nature.

The virtues of law

The answer to China’s challenges is not a return to some exclusive cultural wellspring of virtue. It doesn’t exist. The lesson of China’s 19th century was that supposedly meritocratic Confucian government, unchallenged and unchecked, had failed. “Western” systems of government have plenty of flaws too. Families and groups with more money or power perpetuate their influence in society. But the door is always open for talented outsiders to gain power and earn wealth and, more importantly, to lose it. Richard Nixon was undone by a free press and by the institutions of his own government, not, as with the Chinese former Politburo member Bo Xilai, by a lieutenant who turned against him and fled to a foreign consulate. What will create more meritocratic government in China is continued economic development; more education for more people; open competition; moving towards a free press; an independent judicial system; and, in time, a representative political system. Illustration by Michael Morgenstern, article by Banyan for The Economist

Fears Rise Over Investment Risk in Indonesia

JAKARTA, Indonesia—Indonesia is struggling to contain rising concern that contract disputes and nationalism could impede investors' access to its valuable stores of oil, gas and minerals.

European financier Nat Rothschild stepped down last month from the board of London-listed Bumi BUMI.LN -0.42% PLC after Indonesia's Bakrie family offered to buy the coal miner's Indonesian assets. U.K.-based Churchill Mining CHL.LN -10.26% PLC is locked in a battle with local authorities over a coal project in Borneo. Australia-listed mining company Intrepid Mines Ltd. IAU.AU +6.25% says its employees were forced off a gold and copper exploration project by Indonesian investors. And four employees of U.S.-based Chevron Corp., CVX -0.84% which has been in Indonesia almost 90 years, have been jailed as the attorney general's office investigates possible corruption at a Sumatra environmental cleanup site. 

"The issues are accumulating to say that investing in Indonesia is not easy," says Dipnala Tamzil, executive director of the Indonesian Petroleum Association trade group."While this has not stopped investment in the country, it shows there are problems that need to be resolved."

Business disputes can crop up in any country. And this archipelago of nearly 250 million people, with one of the world's fastest-growing economies in the world, has attracted record foreign direct investment in recent quarters. 

But Indonesia's recent incidents are fueling concern about regulatory transparency and predictability, says Andrew White, managing director of the American Chamber of Commerce in Indonesia. 

"The question is: How much more investment could Indonesia realize if it addresses these critical issues?" he says. "There are tens of billions of dollars sitting on the sidelines."
Chevron spokesman Alex Yelland says the company "regularly reviews its investment plans, and confidence in the legal and regulatory framework is a critical part" of any decision. 

Indonesia's foreign direct investment rose to a record $5.9 billion in the third quarter, up 22% from a year earlier, a sign the country remains attractive to foreign investors because of its swelling middle class. 

Indonesia's policies are "robustly supportive of a continuously improving investment climate," says Indonesian Trade Minister Gita Wirjawan last month. 

Yet while Indonesia ranks among the world's top 10 countries in mineral potential, it is among the bottom 10 as far as the effect of government policies on exploration, according to a survey late last year by Canadian think tank Fraser Institute of about 800 mining-related companies. 
Indonesia, a former member of the Organization of the Petroleum Exporting Countries, has been a net importer of oil for years as its aging fields have yielded progressively less oil. 

As the presidential election approaches in July 2014, there is also a "very nationalistic tone" to the country's mining regulations that could hurt foreign investment, says Adam Worthington, an analyst with Macquarie Securities. 

Mr. Rothschild, the European financier, wrote in his resignation letter that the Bakrie family's offer to buy the coal miner's Indonesian assets was "obviously not in the interests of minority shareholders" and the "vast majority of Indonesian business people are shocked by the appalling impression" that the dispute gave to foreign investors. The Bakries declined to comment.

Indonesia has introduced new restrictions on foreign ownership of mines and is renegotiating mining royalty rates with major foreign investors. 

Some investors view the government's actions as nationalistic, and "maybe there's some truth to it," says Muhamad Chatib Basri, chairman of Indonesia's Investment Coordinating Board. But Indonesia needs to diversify from its reliance on natural-resource mining, so must encourage companies to move to higher-value services, according to Mr. Basri. 

Only a quarter of the companies in the American Chamber of Commerce's most-recent poll said they planned to expand in Indonesia, compared with 72% last year and 69% in 2010. The latest survey, of 356 chamber members in seven Southeast Asian countries, was conducted between June 15 and July 3.

While the reason for this year's drop wasn't clear, corruption, infrastructure, protectionism and government regulations consistently rank as top concerns for chamber members, Mr. White says. Whether contracts in Indonesia will be honored also is key, he says. 

Churchill Mining is pursuing its claims on the Borneo coal project through arbitration at the International Centre for Settlement of Investment Disputes in Washington. 

Intrepid Mines alleges that its Indonesia partner, PT Indo Multi Niaga, breached their contract by selling a stake in the gold-and-copper exploration project.

"This episode, and others in Indonesia recently, have demonstrated that some elements of the business community believe they can act unlawfully with impunity," says Intrepid Chief Executive Brad Gordon. 

Indo Multi Niaga declined to comment.

And Mr. Wirjawan, the Indonesian trade minister, calls the Bumi struggle a "corporate issue."
Meanwhile, the Chevron employee arrests could set a "new precedent" for the oil and gas industry, says the petroleum association's Mr. Tamzil, because production-sharing contracts say disputes should be resolved through civil not criminal law. 

The investigation also could hurt the country's "investment climate" by creating confusion about the dispute-resolution process, says Hadi Prasetyo, a spokesman for BP Migas, an oil and gas regulator in Indonesia. 

The Indonesian attorney general's office alleges Chevron's cleanup project was "fictional" and cost the country $23.4 million because oil-drilling-related waste wasn't removed from the soil.Adi Toegarisman, a spokesman for the attorney general, says the case won't deter foreign investors who operate by the rules.

Chevron's Mr. Yelland says the project was approved by the government and has rehabilitated enough soil for 75 football fields. The U.S. company requires employees to commit to a "stringent" code of conduct, he says.

Todung Mulya Lubis, a lawyer for the Chevron workers, says the project was conducted by the rules and proof submitted to the attorney general's office.

By KATHY CHU And I MADE SENTANA The Wall Street Journal

The Asian century rests on the backs of millions of poor workers, and this reality needs to inform Australia's engagement.

Buried in the government's Australia in the Asian Century white paper is a different story to that presented in the headlines.

Yes, it's true that there has been phenomenal growth in recent times which has led to hundreds of millions of people finding a pathway out of poverty. Living standards have been immeasurably improved; people are living longer and their children are more likely to survive infancy.

These undoubted gains should be celebrated – not just because they lead to new markets for Australian goods and services but also because it means people are living better lives.
And yes, the burgeoning Asian middle class with their bulging wallets are potentially rich pickings for an Australian industry equipped to respond.

The white paper's underlying assumption is that this massive growth will continue. Aside from a few short paragraphs, the white paper gives little consideration to whether the growth rates are sustainable, environmentally or socially. Because there is little discussion of these possible downsides, only a partial picture is presented.

For while the middle class is growing, the sad reality is that Asia remains home to the majority of the world's poor. And many of the countries with a growing middle class are those with the greatest persistence of mass absolute poverty.

A key trend that undermines the rosy picture of never-ending economic growth is the massive growth in income inequality. It is the underbelly of Asia's prosperity.

India is but one example of this trend. Inequality in earnings has doubled in this country over the past two decades. The top 10 per cent of wage earners now make 12 times more than the bottom 10 per cent.

India's per capita income has tripled from about 19,000 rupees in 2002-03 to 53,000 rupees in 2010-11, with an average growth of around 14 per cent over the same period. But the absolute number of people living in poverty has remained about the same. Much of the impressive growth has been in urban areas and in the services sector, and has done little for reducing poverty in rural areas dependent upon agriculture production.

There are still more than 400 million Indians living in abject poverty.

Like India, other countries are experiencing galloping growth but persistent and increasing inequality – China and Indonesia, for example.

The white paper does discuss the implications of growing inequality, devoting some seven paragraphs in its more than 300 pages to this issue. Its brief discussion concludes: “Unless these growing disparities in incomes and living conditions, both within and between countries, are addressed, social stability could be threatened and could have an adverse impact on long-term economic growth."

But this caution seems to have not informed any of the white paper's recommendations or indeed, the underlying analysis.

Almost as an afterthought, the paper recommends that Australia should continue to be a “reliable and high-quality development partner”.

But the implications for the aid program of growing inequality are not seriously explored.
Nor is there a serious consideration of whether these growth rates are environmentally sustainable. The report does note, “Even under a conservative scenario of sea-level rise, by the end of the century the number of people affected by flooding in low-lying parts of the region, such as parts of Bangladesh, China, India and Vietnam, could increase from 13 million to 94 million”.

Yet this analysis is not reflected in the white paper, with only a scant mention of Australia's modest efforts to reduce emissions, and a recommitment to raise some of the finance that will be needed to help Asian countries adapt to climate change.

The enduring message of the white paper is: how can Australia benefit from the Asian Century?

The mind-boggling growth in Asia does present many opportunities for Australia, and the government understandably wants to exploit those opportunities.

However, the pervasive "what's in it for us?" perspective throughout the white paper sits uncomfortably with Australia's recent efforts to paint itself as a good global citizen, eager to work with the international community to tackle the world's most critical issues.

The Asian century rests on the backs of millions of poor workers across the region, and this reality needs to inform our engagement.

Australia needs a mature, big-picture approach to engaging with Asia. An approach that not only looks at the benefits for Australia, but also how we can work with our Asian neighbours to tackle challenges.

Ultimately, we will all benefit from an approach that sees Asian countries not simply as customers or suppliers, but as partners in a shared effort to make our region peaceful, prosperous and fair.
Andrew Hewett is Oxfam Australia's executive director.

Editorial: Asia welcomes Australia

For geographical, historical and cultural reasons, Australia could never become fully integrated with Asia. But this should not stop Australia from trying its best to be part of the rising Asian Century, and given its unique role in the region, in helping to shape the emerging Asia-centric world order.

The white paper, titled “Australia in the Asian Century” and released on Sunday, provides a most detailed plan on how Canberra intends to be part of this exciting century during which the center of economic and political gravity of the world is decidedly shifting to Asia, thanks to the rapid development of China and India, and to a lesser extent Indonesia.

The paper, commissioned by Prime Minister Julia Gillard, presents 25 objectives that Australia must pursue to take advantage of the rise of Asia. Many of these objectives have already been pursued by earlier administrations as Australia recognizes that its fate and economic fortunes are closely tied to the rise of Asia.

The early efforts have paid off. Australia is already deeply involved with Asia in many ways. Economically, Australia has integrated well with the region. Politically, it is also involved in many of the processes of integrating the region and in resolving common challenges, through the Asia Pacific Economic Cooperation forum, the ASEAN processes and the East Asia Summit, the vehicle of choice to build the Asia Pacific community.

Australia’s demographic mix is also changing through immigration, particularly from enterprising Asians, which will help break down the cultural barrier that divides Australia from the rest of Asia.

Australia comes to Asia with many things to offer, from its well developed economic and financial system and its international-standard universities to its mastery of science and technology as well as technological know-how in the agriculture and mining sectors. Its historical and traditional links, and hence access, with Europe and the United States makes its unique in the region.

The white paper emphasizes the role of the Australian people. On Indonesia, it encourages the Australian community in Indonesia to help take the already booming relations to the next level. On economic ties, there is room for improvement; Australian companies in Indonesia can be the bridge in alerting Jakarta of our policy shortcomings that have deterred foreign investors, and in informing their own people and government back home about the growing business opportunities in Indonesia.

With the white paper, relations between Australia and Asia, particularly with Indonesia, can only get better. The Jakarta Post