The World Economic Forum releases annual reports on gender gap, available at the following URL: http://reports.weforum.org/global-gender-gap-report-2013/. The analytical work takes a four-prong approach, looking at educational attainment, economic participation, health, and political empowerment. After observing Singapore’s trends, I noticed a few key points:
Never mind health. Singapore is relatively equal on health despite ranking 85th. There are just marginal differences. But do give it some thought – among the ageing population now are males who are within the first batches of national servicemen. Is the inequality inherently due to males having went through conscription having slightly loftier CPF accounts?
It may be tempting to ask me to ignore another trivial issue – education – as well. The gap in Singapore is rather shocking. Well, it seems that girls grow discouraged in some point in time during their educational career in sexually secular Singapore. From another point of view, this may be because men generally attend more postgraduate courses compared to their counterparts. But why are career women not hitting the books again? An easy reason would be the need for the middle and working classes to stay in their jobs with the intent of providing livelihood.
But that isn’t wrong at all. Singapore ranks 12th for economic participation, signifying women contribute a considerably equal portion to economy as men. This is much higher than most Asian countries (only behind Laos and Mongolia). There is little doubt it is desirable for women to contribute to the economy as well, notwithstanding a once ideal family life with full-time mothers, very much parallel to traditional Chinese ideals. Poor nations, where people have little purchasing power on the other hand, need to have women out there to earn a living for their families. This possibly points towards the skyrocketing costs of living in Singapore, henceforth pushing women out into the workplace. If we take a step back, nonetheless, it may be due to the rising life expectations of Singaporeans (e.g. the need for travel, a car, uplifting homes, etc.)
Political empowerment is the area with the most room for improvement. This has been the talk among politicians for the past few years (after pressing and key issues of course). There is much for Singapore to do, and much more for the women of Singapore to do. Slowly but steadily, I believe, we will reach there. But the progress must not stop. There must be ongoing efforts to encourage women to step forth and give back to not just industry, but the country as well.
It seems that at times, in frantic economic resuscitation efforts, regulators and stakeholders sometimes overlook the need to focus on fuelling the right propeller. Most of the talk have surrounded bailing out large multinational corporations (MNCs) and state-owned enterprises (SOEs), and many regulators have left small and medium enterprises, which are paramount to economy and have survived the crisis pretty well, to struggle and fight the crisis on their own.
Saving, igniting and re-igniting enterprise at the SME level has a host of benefits. Doing so is, essentially:
- Relatively low-cost and low-risk: No big bucks are required for nominal grants to entrepreneurs who already have a bit of capital on hand, while campaigns are relatively cheap to finance compared to inter-government loans. Furthermore, there is no SME which is too big to fail.
- Productivity enhancing: A vibrant SME fraternity, with adequate and appropriate quality control and support framework (both monetary and non-monetary), is the ideal breeding ground for innovation and new practices. This translates into productivity gains in even the short-term.
- Diversity adding for the economy: Startups often give rise to unconventional ideas in areas such as art and design, specialized services, exotic cuisine or tourism. These form only seemingly a trivial fragment of economy, but add immense amounts of diversity, flavour and colour to their respective industries.
- Saving an increasingly pivotal segment of industry: With more SMEs and larger of such companies, they also employ an increasingly significant amount of the workforce, including self-employed contributors to the economy.
The conventional, government-based ways seldom drift away from the themes of grants and subsidies, campaigns and school penetration – most of which circle around the potential high yields one might get from being an entrepreneur.
Governments can only do that much. They can set up centres of excellence, institutes, and industry-enhancing agencies, but that’s pretty much they can do. Some things are often found by the government difficult to do.  Thankfully, there are NGOs willing to shoulder this responsibility as well, and do what the government sometimes cannot, or did not.
There currently lies, in a little secluded segment of our society, a group of individuals who are full of ideas and zest, never failing to form multiple thought institutes, with the most minor ones just a few like minded idealists getting together, and the more major ones able to conduct courses and boast a followership. Many of them deal with the creative industry, but in general advocate for people with ideas to dare to promulgate them through setting up a firm and dedicating their lives to doing what they feel for. I would consider them the champions of entrepreneurship, especially in their field, where start-ups are relatively easy to erect financially.
Shared office space, or co-working space, is also a springing trend, which paves the way for ultra-easy set-up of an operating environment. This translates to yet another incentive for entrepreneurship, where one major concern is well taken care of, at a relatively low cost. 
Developing enterprise and support for businesses
Putting a startup out on the market requires a great deal of ideas, capital, and, when all else fails, also confidence, determination and support. This is especially so for young first-timers whose SMEs are new to the market. Their companies could possibly do well with adequate networks and the right connections (“It’s not what you know, it’s who you know”), strong support frameworks, and an industry backing they know they can fall back on.
However, if they fail by their own accord i.e. lack of will or financial failure, no one else could help. But the rest of the entrepreneurship community could prevent seeing an aspiring entrepreneur waste his startup in whatever ways they could.
Ireland, by most accounts, has an adequately strong framework in Startupbootcamp. This is a (now) multinational institute which provides training, guidance, and funding for the beginners, and most importantly, at least for Ireland’s case, the networking and support they need in business development and sustainability. 
And such frameworks bring the best out of SMEs. Training is provided by “mentors”, many of which are industry leaders with a little name in their field, who, besides providing training and insights, could connect the right people to the right young entrepreneurs. In Ireland’s case, a number of startups have benefitted from IBM’s presence at the institute, for instance.
Encouraging starups – a social take
Entrepreneuship ought to start in school. To begin with, society, including parents and teachers, have to banish the dogma of staying on the ‘safe side’, and instead help to identity budding individuals with start-up potential – full of ideas, affiable, energetic, a go-getter, able to get things done. These qualities ought to be developed in school more proactively, and more importantly, get every student involved and interested. In the local context, we could make it more spontaneous and channel our resources to those who are really interested, for instance conducting an elective business study module instead of having a mass activity day. Which works better?
Outside education, people ought to look beyond being their cubicle mice. I’m not asking for mid-career switches, which tend to pack capital yet often relatively unsustainable business ideas, or say, blueprints which cannot target up to a certain critical mass (yes, we want startups around, but healthy ones too). The public ought to be more supportive of young, aspiring startups and the people behind them, so as to encourage them to generate ideas which could impact our society deeper. Entrepreneurs are humans too, they work on response. Their motivation comes from positive feedback. After all, the fraternity and its statutory boards and NGOs can only provide the framework. Economically, they are but a tiny slice of the revenue pie.
The Internet is an interesting place to watch. With the propagation of new media platforms and software technology improvement, the Internet has become a place not just for information exchange, but monetary ones too. On social media, even within personal networks, we see people selling bags, clothes, ornaments, articles, objects, and goods alike. Now, Facebook (I don’t have to hyperlink or describe it anymore) has become a primary marketing platform for many online ‘shops’ which own Facebook pages and a web domain, and provide ordering, confirmation, and delivery all off the keyboard. The carrot? Trendiness and money, I suppose.
From ground level up – what the business world needs to do
Some might argue that there is evidence that the industry is doing well. Indeed, a recent survey has stated that Singapore’s entrepreneurship is indeed robust – and ranked the city state second in the world for entrepreneurial activity among its sample group.  Through a strong culture of mutual assistance, entrepreneurs often see no trouble in tapping on their connections to smoothen business processes. At least, most corporate structures in the larger firms have no restrictions on doing business with SMEs and very young start-ups, although a minority may have reservations. It’s the human factor in play.
But there is a bit more the corporate fraternity could do to help these start-ups. Don’t worry, there won’t be any unhealthy competition as firms tend to do business laterally, i.e. with firms from other industries, to fulfill their business needs – either sales, supplies, or services.
To smoothen these things out, entrepreneurs might like to plunge into an all new concept – starting consultancy firms – be it marketing, business development, or huamn resources – from scratch. Instead of the common buy-package-sell process, consultancies take an all different model: engage-try-excel (ideally). Consultancies now tend to be viewed as a service affordable only to MNCs, but that dogma ought to change. With smaller consultancies looking at smaller margins (due to smaller overheads) and hence targetting smaller businesses which can only return smaller scale sales, the start-up scene could actually benefit by having their constituents to look at business from a different point of view and discover new information useful to business. And for these consultancies which have helped out other SMEs, please affiliate yourself to a larger firm to reap the benefits from their impeccable databases.
While MNCs could allow SMEs to branch, such relationships are not limited to just consultancies. Any industry could make use of these special relationship to facilitate SME growth. It then appears that there is no particuar reason why MNCs should do that. I’ll bring across a few:
- SMEs take a small bit of market share away from MNCs while keeping the integrity of majority of sales volume for the latter, henceforth preventing overheating and excessive competition in the industry.
- SMEs innovate, with little pressure on keeping business, the best and most effective ways, which MNCs can in turn use.
- MNCs are the industry leaders, and should there be accreditation for helping aspiring entrepreneurs set up shop, I’m sure MNCs would rush to attain it. Even without, wouldn’t it look good on their corporate profile, at least locally?
- Releasing enterprise is like releasing ladybugs into a garden. They roam on the ground, you don’t see them, but they ensure your garden blooms, and it is the larger plants and humans who benefit eventually.
Talented bosses, talented executives
A ‘talent-race’ hence ensues in today’s corporate climate, where companies look to people with the best attributes to run and lead them. One of the ways to stay ahead in this race is a focus work-life balance. With many PMETs and the top brains looking beyond cheques and ladders, SMEs ought to make use of their small size and flexibility in work and industry to allow its executives (less the Director who can decide it for himself) a better balance between time and effort spent in the office and at home.
While SMEs are obviously not as deep-pocketed as MNCs to offer (superficially) attractive remuneration and monetary benefits, or even invest in welfare infrastructure, they have proved to be more able to win the hearts of the employees themselves. Workplace cohesion and unique cultures tend to be forged more easily with institutions of strength 150 or less , and that’s what MNCs can never reach, try as they might.
Gradually, the Gen Y has started to stream into the job market. There are very particular ways to reach out to youngsters looking not just for survivability, but also finding purpose in what they do. They yearn to do things eccentrically, and require attention from their superiors in making them feel assured. Though they are resultantly constantly on the move, SMEs can afford the manpower and time-resources to keep them engaged and committed to the company, and should use that to their benefit.
Many youths also aspire to be their own bosses in future, and some SMEs have been, and most should, assist them in doing so, which can eventually spell mutual benefits, such as the young businessman sharing ideas with a company he feels comfortable with or new talents emerging start-up being picked up by the SME.  This seems to strike-out the need for institutes and networks such as Startupbootcamp, but do note that such a situation which happened in Gallup requires a really outspoken employee and a healthy work culture.
In my conscription military service, I witnessed the implementation of an organisation-wide “i-CARE” model in 2011 where ‘I’ stands for integrated, and the rest – commitment, aspiration, recognition and experience. SMEs, similarly, can adopt this framework in engaging their team, and ensuring that they remain committed, possess high aspirations, feel recognised, and have positive experiences.
One difference between SMEs and MNCs is their locality. While MNCs such as McDonalds and Citibank might have strong metropolitan presence, with some others even setting up RHQs here, they lack the national rootedness local SMEs could bring. SMEs must be first able to engage rooted and committed people, in order to understand the needs and wants of job-seekers, and reach out to them more personally and effectively.
The attraction and retention of talent is a ‘very human thing’, and requires, as well, the best people to do it. SMEs must always give a personal touch, and use their small size as a pivot not to outdo MNCs, but to ensure they have adequate high-calibre team members. And because humans never fail to be central to any organisation, society, and phenomenon, it is important that organisations must communicate right through to each individual the heart way.
At the end of the day, in encouraging and incubating entrepreneurship for a better economy, people are still at the core of it.
An international impact on entrepreneurship in the region:
 SPRING Singapore sets up and reinforces Enterprise Development Centres (EDCs) in March 2013: http://www.spring.gov.sg/NewsEvents/PR/Pages/Enterprise-Development-Centres-Help-SMEs-Stay-Competitive-and-Productive-in-Challenging-Times-20120328.aspx#.Uabzt9JkNUw
 Some co-working spaces in Singapore include: The Co, Cowork.sg, HUB Singapore, Space at 8. A quick search engine run will show a comprehensive list of providers available.
 Dyson, E., Principal of Edvantage, wrote for Project Syndicate: “How do Start-Ups Succeed”, June 20, 2012. http://www.project-syndicate.org/commentary/how-do-start-ups-succeed
 The Nanyang Business School survey ranks Singapore second in entrepreneur activity, April 30, 2013: http://www.nbs.ntu.edu.sg/News_Events/News/Pages/NBS_study_ranks_Singapore_No.%202_in_entrepreneurship.aspx
 Gladwell, M. (2000), The Tipping Point: How Little Things Can Make a Big Difference, Little Brown. ISBN: 978-0316346627
 Clifton, J. (2011), The Coming Jobs War, Gallup Press (New York). ISBN: 978-1595620552
 A faction Singapore’s defence force put in place an i-CARE framework in March 2011 in hope of engaging their people more openly. Mass engagement activities and one-to-one chats were focused on the four parts to the approach, and the campaign is seen as a more sustainable way for management to get to the ground.
The aftershocks of Lehman-2008 created multiple peripheral crises and tumbled economies around the globe. Now, as recovery is picking up worldwide (at least statistically), there are numerous organisations, countries, and groups of countries that seem to be stuck in red. Here’s who, how, why, and what can be done. Two rather separate issues with somewhat a link between them in this post.
I choose to believe that sustainable growth must always come within. In the case of a company, they must focus on their human capital, which ought to be collectively engaged and constantly look out for effective methods of doing things. For economies, just extrapolate that desired behaviour. Industry leaders must be motivated to develop the best people and firms, while regulators ought to focus on productivity. A firm should not put too much focus on marketing and revenue expansion, just as external economies will never work out in the long run.
The financial sector is an industry of interest in this case. While some economists and thought leaders have subconsciously put the blame (and shame) for this crisis on bankers on Wall Street, the US government made life a little tougher with regulation, to both they cringe. Inevitably, all these have made bankers on Wall Street feel a little disorientated and disillusioned. They start to question themselves. A few more literary ones have penned down their thoughts.
The uphill factor here is the engagement of bankers and brokers in the financial sector. If the industry is to do well, these individuals must re-find dignity in what they do – they must be engaged, motivated, and ready to make a difference, this time in a socially responsible manner. In my opinion, bankers are inherently altruistic – they want to help people and firms, and with economic backgrounds, they understand the gravity of the situation, and what is at stake for those they are meant to help – except that many a time intuitive human greed gets into them, and they end up with the wrong decisions. Now we understand how a single decision bankers make can affect our daily lives. They understood it from the start – many were just careless.
With unmotivated employees and little confidence, it is no wonder why financial institutions are recovering a tad slower than other professional services firms housing white-collared employees. Yet, it would be a little far-fetched for me urge all of us out there to put some confidence in the industry (after all, it is your money you are putting in), or to bring out some ubiquitous policy suggestion that would provide bankers with a better working ecosystem. The only way out is for the industry itself to slowly regain confidence through mutual and internal affirmation, and make both its providers and recipients understand its weight, and the impact they have on both life and the economy.
As mentioned, healthy growth ought to come from within. Countries that are struggling with their economy, more often than not, face one of such factors:
- Policy conflict – The monetary and fiscal policies cannot act in tandem, and policies are stuck in deadlock.
- Political dilemma – Certain controlled variables are not shifted to allow a healthy tilt for the selfish rationale of vote counts.
- Overreliance – Either on the external or internal economy. Necessary anti-directional policy adjustments would compromise years of sustained growth.
In order for their economies to overcome growth hurdles, governments ought to enable it from the inside, and not drive the external economy when the internal components to sustain it cannot cope. This happens to be the case for failed industrialisation attempts across half of Africa, and other regions including Asia and Latin America. Typically, investors find the workforce not productive enough, which is in fact the case. There is no point in boosting the demand function if supply cannot cope.
So what if education and infrastructure development takes a longer time? Let it be, if that means healthy, robust and sustainable growth is to occur in an additional 30 years. As easy as it sounds, it takes a lot of political will and follow through, apt leaders, and minimal corruption in order for such to happen. That’s the hurdle that humanity has the key to overcoming, but some components of it refuse the release.
The people must be empowered, be it in corporations (engaging them) or economies (educating them). And because people are the centre and the core for all things human, that is what coming from within means.
Are the governance challenges facing China’s new leadership really that different from other countries?
for Project Firefly, February 10, 2013 (not published). Submitted under the ‘Emerging Leaders’ essay competition.
Setting the stage
Just like any other newly minted administration, China’s new leadership faces a host of governance challenges. Given its population of 1.4 billion, growing worldwide interconnectedness with the information age, and a gradually rationalizing people, China no doubt has to grapple with a unique, complicated set of challenges in governance.
As compared to other countries, the impending examination on China’s government shows a few distinct characteristics:
- China faces its challenges at a time of worldwide uncertainty. And that uncertainty does not revolve only around economy, but increasingly, geopolitics and information technology as well. Other developed nations didn’t have to face such a world order in the last century.
- Almost all possible forms of challenges are coming towards China now – business competitiveness, economic growth, social media issues, information protection, eldercare, strife within the CCP, et cetera. Probably no nation had to grapple with that many hurdles simultaneously.
- With such a large population, it is inevitable that policy formulation will be more convoluted than countries with relatively small numbers. One cannot simply parallel the decision frameworks of China and, say, Japan, not just because of varying socio-political and economic landscapes, but due to the intricacies of managing the far more citizens at once.
It is indeed evident that China’s new leadership may just not be minted in the best of times. The world waits to see how they can take up this extraordinary set of policy and governance challenges.
One major facet of the myriad challenges facing Xi Jinping and his administration is the economic legacy their predecessors left behind. Hu Jintao’s leadership focused largely on manufacturing- export based industries and strong financial regulation, which brought about, since 2001 the following to the economy: 
- A rapid economic growth not dipping below 8% every year. China’s GDP expanded from $1.3 trillion in 2001 to $5.9 trillion ten years later.
- Increasingly higher inflation rates beyond 6% since 2007, except for a negative year due to the worldwide crisis. Inflation was previously relatively healthy, though.
- Across a decade, a six-fold increment in net foreign direct investment (FDI) inflows from $44 billion to $243 billion.
- Trade reliance hovers around 50% of GDP, peaking at 64% 2006. For many other economies, a huge consumer base usually doesn’t entail such trade slant.
- Not just an economic issue, but a social one as well – the widening income gap forming a rich/poor and even rural/urban divide across the country.
These results act collectively as a two-edged sword. Xi’s leadership will have the fortune of riding on their predecessor’s successes, yet must resolve the underlying issues from these outcomes. Seldom has another First World country experienced all these economic phenomena acting in tandem, nor has the previous leaderships of China faced such situations in an increasingly panicky, every-nation-for-itself world.
In a time when faced with that many tests and a pessimistic world outlook, China’s policy options must be aimed at a few key thrusts – regulating economic growth, stabilizing the pivot on FDI and trade, narrowing the income gap, and interacting effectively with the worldwide community. This would inevitably involve some of the following:
- The forced and direct monetary cooling of the overheating economy. Policies must revolve around areas like interest and exchange rates control, fiscal spending, financial in attempts to slow growth and prevent runaway inflation. 
- The engagement of the middle class, beyond tapping on their consuming power, is imperative. This dynamic class of skilled labour is essential to the professional, management, and executive (PME) workforce to create productivity, which the economy urgently needs.
- China’s explosive growth period is probably over. Productivity is central to sustaining true and longer term economic growth without feeling the backlashes such as hyperinflation and income inequality. Education reform is also a must.
These policy options and their relevant challenges seem rather generic in nature, and that any other country may use it. Indeed, this is a stage that Korea has just gone through, Mexico is going through, and India is going to go through soon. However, to face it with complex situations at home and abroad makes it special. I content that the trickiest areas would be closing the socioeconomic gap and managing peers on the diplomatic ground.
In addition, the new government needs to manage Sino-American debt, trade, and politics effectively, another impending challenge in time to come. Besides US themselves, no other country has came to worldwide political and economic power like China’s rise.
In theory, the economy works two-way. Yet we can never have a hypothetically efficient market in actuality, and it is therefore vital to note these factors of consideration, given further the intricacies of managing a really vast economy.
The Chinese Communist Party, which has been in sole dominant power since 1949, has long been known, like many other communist parties, for their tight party discipline governing its members and officials. Yet, in recent years, there has been a rise in graft, corruption, and crime within the CCP. Some recent cases include:
- The arrest and expulsion of Bo Xilai, and wife, for the murder of Briton Neil Haywood in early 2012. Bo was the mayor and party chief of Chongqing, and a member of the Politburo Standing Committee, one of the highest offices in China. 
- Liu Zhijun, former Railway Minister, who was expelled from the CCP and political office for being found with illegitimate business relationships, causing inefficiency in the system; and the intent to bribe himself into the Central Committee of the CCP. 
- The laxity in building standards of schools and buildings in the affected disaster zone of the Sichuan Earthquake in May 2008 revealed that constructors and authorities kept a blind eye to safety and cut corners, in order to pocket the balance. 
The new leadership faces an uphill task in keeping graft within the party and government at bay. China ranks 80th out of 176th on the Corruptions Perception Index, which leaves the party with a lot of work to do.  Letting the uptrend continue would inevitably stumble development and seamless governance.
Unlike many other countries in Asia and sub-Saharan Africa, China’s proliferation in corruption comes at a time when its officials are raring for more and its people are getting more well-informed, simultaneously. There can no longer be cover-ups for most scandals, and that poses an immense challenge for the new leadership of the party.
Xi’s administration also operates in a tense regional environment with numerous multilateral territorial disputes, such as over the Senkaku Islands that escalated in mid-2012. Many of these conflicts involved the military. 
China’s military pivot – including the burgeoning military spending (which hit $106 billion in 2012) and the acquisition of an aircraft carrier in late 2012, has become a cause of concern for Western powers operating in the Far East.  The new leadership must exercise sharp foreign policy and take on leading roles in regional and international military issues. That might pose some difficulty for a usually laid-back diplomatic team.
Society vs. media
The usage of the Internet is allowing the people more space, freedom, knowledge, and information, yet it is taking away the undeserved state privacy from the CCP. New media in China is gradually claiming importance, and its people are eager to embrace the information age.
China’s Internet revolution involves extensive blogging and discussions on topics such as national issues, world and regional events, international disputes, political scandals, and party officials’ personal lives. Sina Weibo, the most popular and celebrated microblogging wbsite, has 368 million registered users.  That slant shows just how articulate the Chinese have become since they are equipped with the World Wide Web. Being oppressed for sixty years or so, it is finally time for some freedom of speech, albeit virtually and not fully liberal.
We all know that China censors Facebook and Twitter, and provide their own versions in place. They also regulate and repress certain local websites and content, spotting any trace of anti-CCP sentiment. While this totalitarian method is being frowned upon, we do have to appreciate that the Internet can bring good in the form of healthy interactions, and bring bad through the possibility of organized crime (including political crime which further destabilizes its political position).
China is rather unique in this aspect – they can never compromise political stability, unlike most democratic nations around the world which are mostly running a free-Internet policy. This just explains the challenge that all CCP leaderships face in keeping themselves in power, and hence the country secure.
A strong administration and sound policies are always key to good governance, and any relevant challenges can always be overcome. Should we content that China’s aims with the new leadership are a sustainable economy, political stability, social inclusivity, and becoming a responsible world player, a competent leadership is required.
China’s governance challenges, however, comes under varying situations compared to their counterparts, and that calls for even stronger and tighter policymaking processes.
References and Notes
 Chinese economic data extracted from World Bank online database: http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true&ispopular=country&pid=1
 China has used extensive expansionary monetary policy to create proper business conditions, largely through controlling interest and exchange rates, and money supply expansion, also known plainly as ‘money printing’.
 The first outbreak of the news of the Bo Xilai case on The Guardian (online version), “China ousts Bo Xilai as Chongqing party boss”, March 15, 2012. http://www.guardian.co.uk/world/2012/mar/15/china-ousts-bo-xilai-chongqing
 Liu was removed from office in 2011 and subsequently expelled from the CCP the following year. “China ex-rail minister expelled from party amid corruption claims”, The Guardian (online), May 28, 2012 http://www.guardian.co.uk/world/2012/may/28/china-rail-transport
 “China Angers Over ‘Shoddy Schools’”, BBC News (online), May 15, 2008. http://news.bbc.co.uk/2/hi/asia-pacific/7400524.stm
 Transparency International’s Corruptions Perceptions Index (CPI).
 “China sends patrol ships to islands at center of dispute with Japan”, CNN (online), September 11, 2012. http://edition.cnn.com/2012/09/11/world/asia/china-japan-islands-dispute
 “China Raising 2012 Defense Spending to Cope With Unfriendly ‘Neighborhood’”, Bloomberg News (online), March 5, 2012. http://www.bloomberg.com/news/2012-03-04/china-says-defense-spending-will-increase-11-2-to-106-4-billion-in-2012.html
 “China navy takes delivery of first aircraft carrier”, AFP News (hosted on Google), September 23, 2012. http://www.google.com/hostednews/afp/article/ALeqM5gSrxMrCkrSKB3TmfZLaxRtk7OMhQ?docId=CNG.120f8ada7f83c4fd3321ff305b92c6ba.331
 ‘Weibo’ literally means micro-blog. Sina is not the largest and only microblog hosting website in China, but it has gained much ground that it has come to be known as ‘China’s Twitter’. Article: “China’s forgotten third Twitter clone hits 260 million users”, Millward, S., TechInAsia, October 22, 2012. http://www.techinasia.com/netease-weibo-260-million-users-numbers/
A friend, Arif, and I had a short conversation over Facebook two days back, about the fiscal cliff. Here’s the dialogue:
A: The deadline to the fiscal cliff has been postponed to the end of February and around the same period, slightly earlier, the discussion on the debt limit will be brought surfaced.
The fiscal cliff will result in an increase in tax cuts, increase in taxes basically, and also a reduction in government spending. Given that the US economy is still in a recession, with unemployment rate at around 8%,
1. What would be the impact of this issue if the automatic cuts and reductions happen and if the US is limited to borrowing more money?
2. How likely will the government allow the fiscal cliff scenario to be played out? Would they just extend the duration of the impending deadline and raise the debt limit to avoid the pain?
K: Background information: The US government dived into Keynesian-based stimulation by direct injections throughout the past decade. Throughout the course of it, they dried up reserves and accumulated debts used to service state welfare that would be otherwise funded by these rescue funds.
The fiscal cliff occurs when these policies, and Bush’s tax cuts of 2001 and 03, aimed at boosting an otherwise faltering economy, expire. The huge debt and fiscal deficit will be cut with the reverting of tax rates to normal if nothing is done.
1. An economy in crisis would inevitably benefit from fiscal injections, or the G function, from time to time. That’s partially, I suppose, what the US government aimed to do when it refused to solve the gridlock in healthcare (garnering huge criticisms).
Yet the government cannot forever provide and provide. The economy must find resilience within itself and build on the fiscal funds to improve its own productivity and efficiency.
Obviously, GDP will fall as G fall (in AD/AS analysis). In order for growth to stay constant and jobs to be effectively created, the economy cannot sit there and wait for a silver spoon. It has to get working.
The answer apparently is that given the shape US industries are in now, a recline is unavoidable should injections stop. They have reverted into a dependent state, thanks to poor regulation.
2. Debt is always a sooner-or-later thing. The pain will not be felt on the reserves, but on the economy. The impetus here is that they have to regulate the pain that will send chills and slowdowns throughout the whole economy.
That goes philosophical. How much pain, at what time, and how frequent, can the government ethically allow the economy to feel? What does the government’s caretaker role of the economy exactly encompass – does it include consciously allowing slowdowns to happen?
Industries that ride on fiscal debt (i.e. the govt bonds resale industry) are the only ones bound to benefit from a better debt rating of the US government. The rest, with lesser injections and higher taxes (though Obama promised minimal, doubt that will happen if Medicare is to sustain), are bound to feel the shock.
A: The outlook doesn’t look that good then. Since the repayment inevitable. But, history background, the US has been in debt for more than 30 years and they never paid it in full ever since. Why cant they just let the debt continue?
Also, what are the likelihood that the US will allow some of the policies to be passed. Like you said, they have to balance the effect of the “pain” thus are you saying that they wont let the fall be a “sharp one?” What I mean is that will they be more likely to dampen things and not cause a drastic shock to the economy?
K: You’re tempting me to go philosophical again friend. For instance, it’s tempting to owe me incremental amounts of money for as long as you want at this age, but when you have dependents (i.e. spouse and children), you realise that you cannot carry on such habits. You have to repay. Your wife must spend less. Your kids must play less. They feel the pinch.
I’m not exactly sure why the US government doesn’t want to continue accumulating debt. The only reason I could probably smoke out is that they have come to realisation about the imbalances they are causing around the world due to their debt. To stay in power (or rather regain power) as the de facto world leader, they have to appear to do something beneficial to the larger world economic ecosystem.
The dampening like you mentioned is only an ideal. In actual fact, the impending general downward pattern would not be as beautiful as we work them out in frameworks. There are myriad microeconomic factors in play too, that affect to a large extent the entire economy’s behaviour and outcome. Regulation, especially for international financial institutions (IFIs), is paramount, I believe.
While I am an advocate for Keynesian-backed stimuli, which includes the availability of credit and ease of investment, and a big-government kind of political economy, here are some unconventional and rhetorical ideas for building a stronger economy. Not to be taken seriously.
1. Bank lottery
In a bid to raise propensities to save and hence allow for more credit available to consumers and investors alike, banks must think of ways to entice account holders to save more. One crazy method would be to put up a lucky draw in which the winner gets his balance multiplied by 50 times, the runner-up 40 times, a few others 10, 20 or 30 times, and so on – something along those lines. That would inevitably evoke the gambler inside each account holder – we are all implicitly lottery-crazy – to save even more in banks, causing fluid credit to be more available for luxury goods loans and fixed capital formation.
We of course recognise that this method would simultaneously drive down consumption on the open market, and that it could only be used when consumer confidence is low. If the outlook for buying from stores and shelves doesn’t look good, the banks ought to play their part in not just being the lending, but stimulating, institution of economy. This crazy, but only idealistic, method would entail a direct translation of confidence, and actual capital, from consumers to investors.
2. Keynes’ money-digging industry
What we have came to known as Keynesian-style stimuli means fundamentally the government injecting money into the economy to spur its growth. The fiscal sector plays a very, very proactive role in Keynes’ ideal. He once suggested that if the government can’t think of anything more creative than building roads and schools, they could print banknotes and stuff them into bottles before burying them in the ground. [see note] That would create an industry of money-digging – it is a second order stimulus as it creates investment above the direct injections these bottles of cash provide.
Ethical, moral, and psychological concerns of such a possibility aside, withdrawals are of slightly larger concern. Keynesian based policy actions pride themselves on fiscal leadership, direct or indirect, and this leadership must be effective. This whole package must have a multiplier effect of more than 1, an indicator which has become the darling of modern-day Keynesian economists. That means such an action must ensure that for every $1 from the reserve, the economy grows by more than $1. Let’s not point to any specific economy, for it simply inevitably varies.
3. Single-firm economies
In light of multiple countermeasures against under- and over-utilisation, externalities, and market failure, a government might want to state-own a for-profit single monopolist firm to do basically everything and anything for each or a few industries. Monopolies are known to be exploiting, and that would force the market to equilibrium (that is assuming reverse mechanism takes place) for income equality. Monopolies, on the other hand, are quantitatively able of maximising welfare by a simple plotting of the cost-revenue curves.
This somewhat resembles the East India companies of the 18th and 19th centuries established by European colonists in the Far East, mainly in territories in South India, the Indochina Peninsula, and the Malayan Archipelago. These companies controlled exports and imports in a time when entrepot trade was thriving, and sometimes distribute spices, clothing, rice (non-exhaustive) in the colonies they operate in. Yes, people were generally poor, but that was because of the social fabric of a colony. Anyway, that was just a crazy idea.
Note: John Maynard Keynes wrote in the 1936 book The General Theory of Employment, Interest, and Money (book III, page 129) about this hypothetical idea.