The great leap forward!


By Ben Blanchard, Reuters

China says no expiry date on Communist Party rule

Looking at Mao’s life, his achievements should be put first, and his mistakes second …

BEIJING (Reuters) – China’s Communist Party sees no reason why it cannot stay in power indefinitely, having made the nation into the envy of the world with its economic success, one of the Party’s top official historians said on Thursday.

Li Zhongjie, a deputy head of the Party’s History Research Centre, made it clear that China will use the impending 90th anniversary of the Party’s founding as a time for rousing pride, rather than reflection on a history that has spanned war, revolution, mass famine and deadly purges.

Under the Party’s rule, China had made leapfrog developments, Li told a news conference, and he said it was foolish to expect any party to want to give up power.

“Over the last 90 years, especially the last 30 years of reform and opening up, we have made major achievements. This is something the world basically recognises,” Li said, ahead of the Party’s anniversary of its 1921 founding on July 1.

“I could ask, ‘Mr. Obama, does your Democratic Party still want to contest the election’? Do you still want to stay in power? They would think that a weird question. Of course our Party hopes to remain in power.

“…Objectively, the issue is rather: how is your rule, and how effective is it? Is it welcomed by the people? Are you running the country well, or into the ground? The Communist Party has built China to what it is today. Many countries in the world are extremely envious. So why can’t we carry on? It’s a very simple question.”

His impassioned answer drew applause from the audience, made up mainly of state media and Chinese academics, with a smattering of foreign reporters.

While the Party’s rule has seen China become the world’s second-largest economy, lift millions out of abject poverty and put men in space, critics say it has come at the expense of individual freedoms, with the Party brooking no dissent.

Under the late Mao Zedong, China went through disasters such as the 1958 Great Leap Forward campaign to catapult it to prosperity, but ended in a three-year famine in which an estimated 30 million people starved to death.

“Objectively speaking, Comrade Mao made some mistakes later in his life, which created major damage,” Li said. “But looking at Mao’s whole life, his achievements should be put first, and his mistakes second … He established ‘New China’ and socialism’s basic system.

“We should ‘seek truth from the facts’ in analysing and researching the lessons from Mao’s mistakes,” he added. “What Mao hoped to do, we should ensure we do even better.”

Pressed after the news conference on whether China would one day set up a public memorial to those who suffered during the Great Leap Forward, or the chaos of the 1966-76 Cultural Revolution, Li answered cryptically: “We are making overall plans. It’s being considered.”

But there would be no atonement for the bloody crackdown on pro-democracy demonstrators around Tiananmen Square in 1989, which the Party these days labels a “political disturbance.”

“We have already reached a solemn conclusion,” Li said. “There’s really nothing more to say.”

(Editing by Nick Macfie)

First China aircraft carrier


Aircraft carrier symbol of China’s naval ambitions

By Damian Grammaticas BBC News, Dalian

It is the most visible symbol of China’s rising military power.

The giant, grey hulk of China’s newest warship, 60,000 tonnes of steel, sits at a dockside in the port of Dalian, almost ready to set sail.

The People’s Liberation Army (PLA) has been reluctant to say anything about its first aircraft carrier as it has not yet entered service. But it must be the military’s worst-kept secret. It is there for all to see, somewhat incongruously, right behind Dalian’s Ikea superstore.

The huge carrier has been years in the making, and it is an unmistakeable sign of China’s expanding military and its desire to project Chinese power further beyond its borders than ever before.

“An aircraft carrier is a symbol of the power of your navy,” says General Xu Guangyu, who used to serve in the PLA’s headquarters and is now retired.

“China should at least be on the same level as other permanent members of the UN Security Council who have carriers.”

Gen Xu now advises China’s government on its military modernisation programme. Seven nations currently operate carriers – it used to be eight, but the UK has just withdrawn its last one from service and will have to wait several years for a new one to be built.

“It’s also a symbol of deterrence,” adds Gen Xu, “It’s like saying, ‘Don’t mess with me. Don’t think you can bully me.’ So it’s normal for us to want a carrier. I actually think it’s strange if China doesn’t have one.”

Refit

Dalian is not just a major naval base, it is a major commercial port too. Its docks curve around a huge bay. There is an oil refinery, quays for cargo, and the shipyards where giant cranes tower over the hulls of massive container vessels and tankers under construction.

Size comparison of world aircraft carriers. List of aircraft carriers by country: US 11, Itay 2, France 1, India 1, Spain 1,  UK 1, Russia 1, Brazil 1, Thailand 1

“The development of our armed forces is connected with the development of our economy,” says Gen Xu.

“In energy supplies and trade we now have interests that span the globe. There are vital shipping routes in Asia, the Indian Ocean, Africa, and both sides of the Pacific that we need to protect. So our military strength needs to match the range of our economic and diplomatic activity.”

The carrier is a relatively old design and it was not built by China. It was constructed in the 1980s for the navy of the USSR. Named the Varyag, it was never completed. When the Soviet Union collapsed, the rusting hull of the Varyag sat in dockyards in Ukraine.

As other Soviet warships were cut up for scrap a Chinese company with links to the PLA bought the Varyag claiming it wanted to turn it into a floating casino in Macau. It took several years to finally tow it all the way round the world to China, where it was then taken to Dalian. Reports claim it will be named the Shi Lang, after the Chinese admiral who conquered Taiwan in the 17th Century.

The PLA is focusing on both the navy and the air force in its modernisation, having identified them as relatively weak. When it is launched, the carrier will mark a significant leap forward for China’s navy.

Watching all this closely is the United States. For more than half a century, since the end of World War II, the US Navy has operated its carrier battle fleets unchallenged in Asia and the Pacific. The US has 11 carriers of its own.

The US and China view each other’s military programmes with suspicion. Many in the PLA believe America is trying to encircle it and prevent its rise.

America says China’s military developments are opaque and shrouded in secrecy, its real intentions unclear.

“For the longest time China denied that they were going to pursue an aircraft carrier navy even trying to get the world to believe that the purchase of the first aircraft carrier from Ukraine was all about creating a new casino in one of their harbours,” says Rick Fisher, a senior analyst at the International Assessment and Strategy Center, a think tank in Virginia, US.

“[It] is going to have aircraft comparable in capability to the recent fighters on American fighter decks in about two to three years time.”

Shift of power

Some observers believe China wants to build up to four carriers of its own.

Mr Fisher, who has spent 20 years studying China’s military, says it has big ambitions.

China's aircraft carrier is seen under construction in Dalian, Liaoning province (April 2011) (above) and on Google Maps (below) The 300m (990ft) carrier, under construction in Dalian, is thought to be nearly finished

“The aircraft carrier is part of China’s fulfilment of its 2004 historic mission that the People’s Liberation Army will increasingly defend the Communist Party’s interests outside of China,” he says.

“By the 2020s China wants a military that will be globally deployable and will be able to challenge American interests where they need to be challenged.”

Last month the visit of Chen Bingde, the Chief of the General Staff of the PLA, to the Pentagon was trumpeted as an effort to improve long-strained military relations between the US and China.

US and Chinese military bands played together as Gen Chen was hosted in America.

He tried to allay American fears by saying China would never seek to match US military power. China, he said, is way behind America.

“This visit to America, I saw America’s military power, I feel stunned, not only do we have no ability to challenge America, but also the American warships and aircraft, America’s strategy, it’s a real deterrent for us.”

China’s military is generally believed to be 20 years behind America’s in its development. But in its rapid expansion, China is focusing on weapons designed to blunt US military power.

The PLA has invested heavily in submarines. It is believed to be close to deploying the world’s first “carrier-killer” ballistic missile, designed to sink aircraft carriers while they are manoeuvring at sea up to 1,500km (930 miles) offshore, and it is building its own stealth fighter aircraft along with advanced carrier-based aircraft built from Russian designs.

All of these can target US bases, US ships and US carriers in Asia. They will make it much more dangerous for US carrier fleets to operate close to China’s coast, pushing them out further offshore.

In any future conflict they could make it much harder for the US to operate as freely as it would like. That in turn opens up more room for China to flex its own military muscles in Asia.

Having an aircraft carrier will then enable China to project power further than it has before. So looking on with concern are Vietnam, the Philippines and Malaysia, who all have territorial disputes with Beijing in the South China Sea.

And Taiwan, Korea and Japan that look to the US for their security may start to question how much America can really protect them in future. This may, one day, undermine US security guarantees and its influence in the region.

There is much work to do before China’s aircraft carriers become a potent force. But, sitting in the port in Dalian, the carrier is a clear sign of China’s naval ambitions and the shift of power that is likely to bring.

Map

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US dollar died, debt default is unimaginable, “playing with fire”, creditors say


The Day the Dollar Died


UD debt default is unimaginable

The National Debt Clock next to an IRS office near Times Square, May 16, 2011. REUTERS/Chip East

By Emily Kaiser  SINGAPORE,Agencies

SINGAPORE – Allowing a brief US debt default to force government spending cuts is a “horrible idea” that could destabilize the world economy and sour already tense relations with big creditors, government officials and investors said on Wednesday.

A growing number of US Republican lawmakers think a technical debt default might be a price worth paying if it gets the White House to accept deep spending cuts. This idea, once confined to the party’s fringe, is seeping into the mainstream, Reuters reported on Tuesday.

“How can the US be allowed to default?” said an official at India’s central bank. “We don’t think this is a possibility because this could then create huge panic globally.”

Indian officials say they have little choice but to buy US Treasury debt because it is still among the world’s safest and most liquid investments. It held $39.8 billion in US Treasuries as of March, according to US data.

The US Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The US Treasury Department has said it will run out of borrowing room by August 2.

If Washington cannot make interest payments on its debt, the Obama administration has warned of “catastrophic” consequences that could push the still-fragile economy back into recession.

“It has dire implications for the economy at a time when the macro data is softening,” said Ben Westmore, a commodities economist at National Australia Bank.

“It’s just a horrible idea,” he said.

‘WOULDN’T HAPPEN’

The Republicans’ theory is that bondholders would accept a brief delay in interest payments — maybe a couple of days — if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on.

But interviews with government officials and investors show they consider a default such a grim — and remote — possibility that it was nearly impossible to imagine.

“It just wouldn’t happen,” said Barry Evans, who oversees $83 billion in fixed income assets at Manulife Asset Management. “They would pay their Treasury bills first instead of other bills. It’s as simple as that.”

As for China, Washington’s largest foreign creditor with $1.14 trillion in Treasuries as of March, a default could fray political and economic ties.

Yuan Gangming, a researcher with the government think tank Chinese Academy of Social Sciences, smelled some political wrangling behind the US debt debate as the 2012 presidential election draws nearer and said Republicans “want to make things difficult for Obama.”

But with time running short before Treasury exhausts its borrowing room, Yuan said default was a real risk.

“The possibility is quite high to see a default of the US debt, which would harm many countries in the world, and China in particular,” he said.

China warns U.S. debt-default idea is “playing with fire”

By Emily Kaiser

(Reuters) – Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday.

The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.

But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn.

Li Daokui, an adviser to the People’s Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.

“I think there is a risk that the U.S. debt default may happen,” Li told reporters on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire.”

China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, U.S. data shows, so its concerns carry considerable weight in Washington.

“I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar’s value,” Li said.

Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The U.S. Treasury Department has said it will run out of borrowing room by August 2.

If the United States cannot make interest payments on its debt, the Obama administration has warned of “catastrophic” consequences that could push the still-fragile economy back into recession.

“It has dire implications for the economy at a time when the macro data is softening,” said Ben Westmore, a commodities economist at National Australia Bank.

“It’s just a horrible idea,” he said.

Financial markets are following the U.S. debate but see little risk of a default.

U.S. Treasury prices were firm in Europe on Wednesday, supported by a flight to their perceived safety on the back of the Greek debt crisis and worries about a slowdown in U.S. economic growth.

Marc Ostwald, a strategist with Monument Securities in London, said markets were working on the assumption that the U.S. debt story “will go away.” But nervousness would grow if a resolution was not reached in the next five to six weeks.

‘WOULDN’T HAPPEN’

The Republicans’ theory is that bondholders would accept a brief delay in interest payments if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on.

But interviews with government officials and investors show they consider a default such a grim — and remote — possibility that it was nearly impossible to imagine.

“How can the U.S. be allowed to default?” said an official at India’s central bank. “We don’t think this is a possibility because this could then create huge panic globally.”

Indian officials say they have little choice but to buy U.S. Treasury debt because it is still among the world’s safest and most liquid investments. It held $39.8 billion in U.S. Treasuries as of March, U.S. data shows.

The officials declined to be identified because they are not authorized to speak to the media.

Oman is concerned about the impact of a default on the currency reserves of the sultanate and its Gulf neighbors.

“Our economies are substantially tied up with the U.S. financial developments,” said a senior central bank official, who spoke on condition of anonymity.

“It just wouldn’t happen,” said Barry Evans, who oversees $83 billion in fixed income assets at Manulife Asset Management. “They would pay their Treasury bills first instead of other bills. It’s as simple as that.”

Monument’s Ostwald called the default scenario “frightening” and said bondholders’ patience would wear thin if lawmakers persisted in pitching this strategy in the coming weeks.

“This isn’t a debate, this is like a Mexican standoff and that is where the problem lies,” he said.

Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, a government think tank, smelled some political wrangling behind the U.S. debt debate as the 2012 presidential election draws nearer and said Republicans “want to make things difficult for Obama.”

But with time running short before the U.S. Treasury exhausts its borrowing room, Yuan said default was a real risk.

“The possibility is quite high to see a default of the U.S. debt, which would harm many countries in the world, and China in particular,” he said.

(Reporting by Kevin Lim and Jong Woo Cheon in Singapore, Suvashree Dey Choudhury in Mumbai, Aileen Wang and Kevin Yao in Beijing, Abhijit Neogy in Delhi, Marius Zaharia in London and Umesh Desai in Hong Kong; Editing by Dean Yates and Neil Fullick)

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Ghostbuster can’t heal busted hearts


By WINNIE YEOH winnie@thestar.com.my

GEORGE TOWN: Ong Q Leng might be an accomplished spiritual healer and ghostbuster but some people seek her help even to solve problems brought unto themselves, especially marital problems.

But Master Ong, as she is better known, says these are problems she cannot solve.

“Marital problems require the individuals involved to find a solution. Some women told me their husbands used to love them a lot but later had mistresses.

“I told them they needed marriage counsellors. There are no spirits involved,” she said.

Fighting the fires: Ong showing a sign which she used to chase away the djinns from Zainab’s house in Kelantan.

Ong, 34, offers services of healing, spiritual cleansing, feng shui tips and general consultation to her clients.

As a little girl, Ong used to be scared out of her wits by ghosts that delighted in disturbing her, knowing that she could see them clearly through what is believed to be her “third eye”.

Her fright even caused her to stutter and by the time she was 11, she was so fed up of being frightened that she started “scolding the spirits and threatening them not to bother her”.

In June 2007, while she was working as a sundry goods sales representative, she knew through her sixth sense that she was destined to help people.

She then healed her 84-year-old grandfather, who was suffering from testicular cancer, and went on to help more people and her enthusiasm grew along with her success.

The most recent case was when she helped 73-year-old Zainab Sulaiman from Kelantan to chase away the evil djinns that caused hundreds of small fires at the latter’s house.

Zainab made a trip to Penang on Sunday to express her gratitude to Ong.

The widow, who lives in a wooden house in Kampung Penambang Bunga Emas near Kota Baru with her daughter-in-law and two grandchildren, had been plagued with mysterious fires which destroyed over 250 articles of clothing, mats, curtains, mattresses and many other things.

At least five paranormal experts had attempted to exorcise Zainab’s house since late last year till January a bomoh, a Thai medium, an American couple who practise exorcism, a group of Muslim ghostbusters, and Ong.

Ong added that some parents also sought her help with their children’s studies. She said she could help by changing their names as that would bring improvement in some cases.

“A person’s name is very important and it can affect one’s whole life. In everyone’s life, God decides 50% of our fate when we are born while the rest depends on our choice.”

Because of her young age, Ong said she was often “challenged” by other masters on her skills.

“I have received calls and visits by people pretending to be sick but I know their intention. We should be helping the needy instead.”

Entrepreneurs Need to Learn to Be Good at Sales


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Martin Zwilling

Cover of "Field of Dreams (Widescreen Two...Martin Zwilling Startup Professional’s Musings

A good entrepreneur is not necessarily born a good salesman. In fact, they are often the opposite, more focused on building things rather than selling them. Yet, in today’s world of information overload, marketing and selling skills are critical to the success of every startup.

The alternative “If we build it, they will come” approach has long been relegated to the field of dreams, after Kevin Costner’s movie by the same name. In my own effort to keep up with the times, I just finished a new book by Julie Steelman, “The Effortless Yes: Demystifying the Selling Process.” Julie is known as the entrepreneur’s selling mentor, for both men and women.

Steelman does a good job of outlining the key selling steps that separate great salesmen from the rest of us. In my view, every entrepreneur has to be a great salesman to succeed (among the many other required skills), so you should take a hard look at these points:

  • Dust off your moxie. Don’t hope that a miracle will happen and your products and services will sell themselves. Be passionate about what you are selling, and decide to be of service, by providing your customers with something of value in exchange for deserved payment. Set aside fear and doubt, and stand tall with your message.
  • Claim your sweet spot. The sweet spot if the essence of your brand. The way to claim it is to name your expertise or specialty, describe for whom it’s meant and clearly state how it delivers on its promise (or what is called your unique payoff proposition). Make it real for you and your customers.
  • Craft your irresistible pitch. An irresistible pitch is a clear and concise explanation of what you do best, benefits to your customers, an honest statement of why you do what you do, a question that pulls the listener in, and words and language that engage the hearts and mind of your ideal customer.
  • Socialize your message. Generate leads using social media, but don’t rely on it alone to make sales. Use the media to initiate contact, highlight your human element, and communicate your specialty or expertise in a way that anticipates what your customers might be thinking about. Facilitate a transition to a private environment for closing a sale.
  • Engage graciously. Always treat customers with respect, honesty, and warmth to make the selling process more enjoyable, fun and delightful. The goal is to deepen the relationship, and discover if their needs match your offer. Listen closely for what they are saying and expressing. Don’t forget to follow-up. Skip the cold calling – it’s just too cold.
  • Discover your signature selling style. Learn to sell in a way that matches your personality and your strengths. Check the definitions in this book or other sources to see if you are the humanitarian, visionary, maverick, romantic, nurturer, mentor, or one of a dozen others. Tune your approach and you will find yourself enjoying the selling process.
  • Perfect your natural ask. As you go through the sales cycle with your customer, there comes a point when it’s natural for the transaction to conclude. Asking the customer for their decision demonstrates leadership on your part, shows you have confidence in your offering, and prompts them to make a final decision. You can’t win if you don’t ask.

I’m not suggesting that a startup founder has to do all the selling, and doesn’t need to find or hire people whose focus is marketing and sales. In a startup, everyone has to sell – you can’t afford to rely on specialists for everything.

Just recognize that if you are in business for yourself, you are in the business of selling. Selling well is about creating relevancy with customers and aligning your product suite with their needs. That has to lead to a win-win close where the customer satisfies a need and you make money, or you don’t have a long-term business. Are you comfortable with your selling skills?

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Radical management: it’s happening! make more money!


Radical Management Makes Much More Money

“Radical management: it’s happening” is the headline in the editor’s letter of the management journal, Strategy & Leadership, Volume 39, Issue 3. Robert Randall offers twin messages:

“One, corporations are failing their stakeholders by wrongly favoring some more than others or by not managing discontinuity through best practices that foster continuous innovation; two, it’s time to try something else.”

He continues:

As a result of working with these authors and reading manifestos by other leading strategic management thinkers that also call for a reinvention of management, I’m confident that we are witnessing a best-practice revolution. When respected management thinkers like Michael Porter and Gary Hamel tell management to re-boot, then it’s time. It’s not as if the failings of hierarchical, shareholder-first management are a secret. So it should be no surprise that many of the principles of radical management are quietly being adopted by leading companies around the world, to a greater or lesser degree.

Management reinvention… offers company-wide rapid-business-model development as a response to market discontinuity. To compete successfully despite frequent and sudden change, firms have to foster the competencies that promote continuous innovation in both offerings and operations. In practice, managers shift their focus from producing low-cost or high-differentiation offerings to satisfying customers. They become enablers instead of controllers, coordinate their organizations through dynamic linking of teams and customers rather than command and control, make social and customer values their prime concern, and communicate so as to further stakeholder conversations. Leading advocates are Gary Hamel (“It’s time to reinvent management,” S&L V36, N2), Stephen Denning (“Masterclass: The reinvention of management,” S&L V39, N2 and “Reinventing management: the practices that enable continuous innovation,” in this issue), John Hagel in The Power of Pull, and others.
(Note: Those articles require a subscription.)

Outstanding article award

Meanwhile the Emerald Literati Awards For Excellence were officially announced last week.  My article, “Rethinking the organization“, was selected as the Outstanding Article in Strategy & Leadership for 2010. The direct link to all Outstanding and Highly Commended Papers is here.

As a special exception, my prize-winning article, Rethinking the Organization, is available free for unlimited distribution until September 1 here.

____________________

Steve Denning’s most recent book is: The Leader’s Guide to Radical Management: Reinventing the Workplace For the 21st Century 

Surprise! Radical Management Makes Much More Money

My colleague, Dennis Rebelo, has written a generous piece about my book,  The Leader’s Guide to Radical Management (Jossey-Bass, 2010). (Jossey-Bass, 2010) while also asking: is radical management really so radical? Isn’t this really just a restatement of the humanist principles that have been formulated many times before?

The bridge between radical management and humanist values

In his blog, Dennis notes the connection between the humanistic principles taught at Saybrook University and the principles laid out in my book and has crafted “a list of some rules of thumb to offer leaders to expand on (but not replace) Steven’s interlocking principles – bridging his concepts to humanistic studies, topics and approaches.”

1. “Focus the organization on delighting clients” (Steve Denning) which means “become more aware of the role of a collaboration culture in supporting the mission you joined to serve fellow human beings” (Dennis Rebelo).

2. “Work in self-organizing teams” (Steve Denning) meaning “focus on natural formation versus control and command styles of the carrot and stick era of management so that you can experience joy at work” (Dennis Rebelo).

3. “Operate in client driven iterations” (Steve Denning) or “engage in a dialogue in the Bohmian-spirit to suspend judgment en route to understanding others” (Dennis Rebelo).

4. “Deliver value to clients” (Steve Denning) in other words “work with honor as you promised you would to serve” (Dennis Rebelo).

5. “Foster radical transparency” (Steve Denning) which is to say “graciously accept the sharing and critical thinking that stems from diversity” (Dennis Rebelo).

6. “Nurture continuous self-improvement” (Steve Denning) because “people are naturally inquisitive and so let the human endeavor at work encourage learning” (Dennis Rebelo).

7. “Communicate interactively” (Steve Denning) which is to say “dialogue versus monologue because no collective wisdom comes from watering down the thoughts of another human” (Dennis Rebelo).

Dennis concludes: “To be human means to accept, honor and be able to work with ease and grace despite having differences in thoughts and feelings with other people… Perhaps being human to get a human back is not a radical concept after all. Let’s not let it be.”

The article is a useful reminder that some of the roots of radical management have been around for a very long time. Indeed much of the spirit of radical management is driven by a wish to transform organizations from places where employees and customers are treated as things to places where people are treated as people. As Dennis points out, that ought not be a radical thought.

Future historians and psychologists will undoubtedly look back on the 20th Century and scratch their heads, wondering why did hundreds of million people accept to go on, day in and day out, treating other people as things and allowing themselves to be treated as things. What illness of the human spirit could have afflicted so many people to act in such a strange way?

More than just the old humanist principles

Yet this line of thinking should not delude us into thinking that radical management is really no more than the general humanistic principles that have been around for centuries. There are at least five fundamental ways in which radical management goes beyond general humanistic principles.

1. A change in the goal of the organization

Fixing the goal of the organization on delighting customers (or stakeholders) involves a lot more than “becoming more aware of the role of a collaboration culture”.

It is a fundamental change in the goal of organizations from making money for the shareholders to delighting the customers or stakeholders. It is a change in the basic geometry of organizations. Top-down becomes outside-in.

By and large, the humanist school of management from Mary Parker Follett onwards tried to work within the existing framework of shareholder capitalism, without always realizing that the goal itself would inexorably undermine humanist values. Instead of working within the goals of shareholder capitalism, radical management changes the very goal of the organization. Radical management rejects the framework of assumptions of traditional management and offers a different framework.

2. Radical management makes much more money

Happily, when the organization changes its goal to delighting the customer, it ends up making more money for the shareholders, because the organization is now in sync with today’s marketplace, where the customer is in charge. Delighting the customer is not just profitable, it is hugely profitable, as one can see from the results of Apple [APPL], Amazon [AMZN] and Salesforce.com [CRM], particularly in comparison to companies still being run in the mode of shareholder capitalism, such as GE [GE], Walmart [WMT] and Intel [INTC].

Hence radical management doesn’t have to depend on persuading business people to treat people as people just because that’s the right thing to do (which it is). Happily the economics is inexorably driving the change, whether business people want it or not. Wall Street is already putting traditional, thing-driven firms out of business at an accelerating pace, as Deloitte’s Shift Index conclusively demonstrates. In one sense, this phenomenon is a triumph of humanism. But we should not forget that there is a lot more than general humanist principles that is responsible for what is occurring.

3. Many of the practices are genuinely new

Many of the people-oriented vocabulary and practices would be unfamiliar to the humanist writers. That’s because these practices and this vocabulary are genuinely new:

  • At the organizational level, the goal of the firm to delight customers is measured by the Net Promoter Score. It enables the organization to measure whether it is delighting the customer by inviting the customer to imagine a story: “Would you recommend this product or service to a colleague or friend?”
  • At the level of the team, work is planned in the form of user stories—a special kind of story devised to formulate the goals of teams in terms of customer outcomes.
  • The user stories that are developed are then sized and prioritized using other methodologies called “story points” and “planning poker” to measure how much work is involved in making any of the user stories “come true.” In such work places, people routinely speak of “implementing stories.”
  • Value stream mapping is a tool that creates a story of the organization seen from the customer’s point of view, and helps identify any delays in delivering value to the customer. It enables the organization to manage the forgotten competitive weapon: time.
  • These story-based measures enable the firm to go further and—for the first time—calculate the productivity of a firm in terms of human outcomes rather than merely the production of things.

With radical management, we are thus in a world of NPS, user stories, story points, planning poker, team velocity and value stream mapping. This vocabulary and these methodologies represent an evolution of the innocent world of general humanist values. In effect, by using these discoveries, radical management is able to transform general humanist principles into actionable business processes. The humanist principles are sound. But by themselves, they are not enough to run an organization.

4. Doing all the changes together is new

Individually none of these seven principles is new. Each principle has been implemented by some organizations for many years:

• Finding ways to measure client delight and the consequent impact on firm growth has been systematically studied by Fred Reichheld and his colleagues at the consulting firm Bain & Company for over twenty-five years.

• Self-organizing teams have been the staple of new product development for several decades.

• Iterative work practices have been promoted since the 1930s by Walter Shewhart, a quality expert at Bell Labs.

• Reducing inventory and delivering value to clients each iteration lie at the heart of lean manufacturing, which was invented by Toyota some fifty years ago.

• Radical transparency has been a guiding principle of software development practices known as Scrum and Agile for several decades.

• Continuous self-improvement is a legacy from the total quality movement for more than half a century.

• Interactive communication—storytelling, questions, conversations—has a rapidly growing literature and practice in the past decade.

Individually, then, none of the seven principles is new. What is new is for organizations to break free from the interlocking assumptions of traditional management and put all the principles of radical management together as an integrated, mutually supporting whole. It’s the integrated implementation of all the pieces that gives the approach its full power. Each of the components adds an increment: when they are combined, the increment becomes exponential.

As I noted in my post yesterday, many companies have mistakenly approached radical management (and its forerunners: Scrum, Agile and Lean) as it if were just another business process to be bolted on to the existing business processes. The result is generally a failure. Radical management is a different way of thinking, speaking and acting in the workplace. It is only when firms realize this that they achieve the full benefits from implementing it.

5. An end to mere PR

Traditional managers have often professed to be devoted to delighting their customer and valuing employees as the organization’s most important asset. Yada, yada, yada. Everyone knew that the real bottom line was neither customer focus nor valuing employees: the real goal was making money for the shareholders. The other stuff was PR bullshit.

So if radical management were to be merely talking about becoming more aware of the role of a collaboration culture, there would be a serious risk that people would see it as more of the same traditional management PR bullshit. They would suspect that the real bottom line of radical management was really still what it always was: making money for shareholders. By being crystal clear that this is a shift in the real bottom line of the organization from making money for shareholders to delighting the customer, we get to the heart of the matter of what is really driving the organization. This is not just PR bullshit. This is a fundamental change in the way organizations are run. This is what makes this thinking radical.

________________________

To learn more about the principles and practices of radical management, read Steve Denning’s book: The Leader’s Guide to Radical Management: Reinventing the Workplace For the 21st Century (Jossey-Bass, 2010).
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Supremacist thinking, race, religion conspiracy theories of threat: same actors, same old script!


Sharing The Nation By Zainah Anwar

There should be zero tolerance against those who abuse race and religion to promote supremacist thinking and incite hatred.

WHOSE voice should prevail? Those who perpetually see race and religion as being under threat and demand that every person who believes, thinks, behaves, dresses, acts and opines differently should be “fixed” through state-sanctioned operations (such as boot camps or rehabilitation camps), punished under the Internal Security Act, the Sedition Act, the Official Secrets Act, the Printing Presses and Publications Act, the Syariah Criminal Offences Act, or just denounced and demonised as enemies and traitors of race, religion and country?

Or those who envision a democratic and just future, where rights are recognised on the basis of citizenship rather than just race, religion, or sex?

The choice is obvious to most of us, the good citizens of Malaysia who love this country and are determined to be resilient, resourceful, and open-minded to face the challenges and realities of the 21st century.

Healthy beat: Even the innocuous fun of poco-poco is considered a threat. — Filepic

But there are demagogues in our midst who are relentless in their abuse of race and religion to stir up fear and conflict.

For what purpose? To remain in power so that their privileges and entitlements are entombed forever?

Could this escalating rhetoric of racial and religious-based recriminations be a last ditch do-or-die effort to maintain business as usual, never mind the consequences to the nation or even their own party?

Is it because the elections are coming and they remain myopic in their belief that race and religion will win them the battle?

So they endlessly manufacture many more new threats – from the innocuous fun of poco-poco to the relativism of post-modernism, from calling Muslims opposed to Umno and PAS unification as “pengkhianat Islam” (traitors of Islam) to accusing Christians of plotting to turn Malaysia into a Christian state!

Even the outdated “communists under every bed” threat is now being thrown into the cauldron of dangers besieging the Malay community. All this, of course, to add to the existing long list of threats that include pluralism, liberalism, feminism, secularism, kongsi raya, open house, tomboys and yoga.

If this is merely tiresome, one can just laugh it off. Alas, it is not. It is corrosive to the body politic and well-being of the nation. It foreshadows a downhill slide into ethnic and religious conflict. It contributes to the record outflow of capital and talent that the country is suffering now.

It has got to stop!

And yet, for years, a mainstream daily newspaper continues to be the conduit for such inflammatory, unverified, provocative stories with front page banner headlines, giving it authority and legitimacy with seeming support from the powers that be.

The Government cannot talk about 1Malaysia, economic transformation, government transformation, talent recruitment or high income country on the one hand, and on the other legitimises, whether directly or indirectly, the use of race and religion to incite fear for short-term political gain.

It is hard to understand why these same actors are trotting out the same old script that cost the Barisan Nasional government so dearly in 2008. It’s as if nobody has learnt any lessons from that political tsunami.

Since attacking liberal Muslims and ungrateful Chinese did not work in 2008, they have amended the script to add Christians and the so passé communists. Aren’t they creating more enemies instead of making friends?

Ashutosh Varshney, the Indian political scientist based in the United States, spent 10 years examining three pairs of Indian cities, one riot prone and the other peaceful, in confronting the same contentious ethnic issue.

In his seminal work Ethnic Conflict and Civil Life: Hindus and Muslims in India, he establishes three findings significant to Malaysia.

First, the role of the press. In violent cities, instead of investigating rumours, often strategically planted and spread, the press simply printed them with abandon. In studying peaceful Calicut and violent Aligarh over the Babari mosque agitation, he finds Aligarh’s local newspapers printing inflammatory falsehoods, while Calicut’s newspapers neutralised rumours after investigating and finding them unfounded.

When I was a journalist 20 years ago, my editors would not print any news – and certainly not on the front page – with alarming headlines without authoritative verification. Now some mainstream newspapers act just like irresponsible bloggers who turn rumours into instant fact, intentionally to damage reputations and serve partisan interests.

Second, Varshney finds that whether violence or peace prevails depends on the role politicians play in polarising citizens along ethnic lines. Politicians who seek to polarise Hindus and Muslims for the sake of electoral advantage can tear at the fabric of everyday engagement among citizens.

He finds that conflict erupts into violence when organised gangs are not just involved, but are also protected by politicians, thus escaping prosecution under the law for their criminal actions.

Third, and most importantly, he finds that trust built on inter-ethnic social and civic ties is critical for peace. Inter-ethnic associations in cities, such as trade unions, business associations, teachers, lawyers, doctors, non-governmental organisations and some cadre-based political parties, are decisive in preventing violence because they build bridges and manage tensions in times of ethnic conflict.

Varshney finds that a synergy emerges between communally integrated civic organisations and local arms of government. This leads to better monitoring and preventive action as these relationships nip rumours, small clashes and tensions in the bud. In the end, polarising politicians either do not succeed or eventually give up trying to provoke and engineer communal violence.

The lessons for us are clear. The sources of threat to our society and the sources of strength for bridge-building in our multi-ethnic society are clear for all to see. Thank God, again and again, many fair-minded Malaysian citizens have not risen up to bite the bait thrown out by the demagogues.

The point is our diversity, our pluralism, had always been our strength. We have a proud and long history of the races and religions living and working together. Malaysia was truly Asia. Now this rings hollow, meant only to trot out in tourism campaigns. Why is our pluralism now a threat? On what basis? Where’s the evidence? Who benefits from such a projection of threat?

What makes it mind-boggling is why these supremacist groups are given so much face and space? Think of the number of meetings held by those searching for solutions to ethnic, religious and regional conflicts that have been stormed by these “thugs”? Those of us meeting peacefully indoors, sharing our concerns and exploring possible solutions were the ones forced to abandon our meetings because they posed “a threat to public order”!

It is high time the Government unequivocally adopt a zero-tolerance policy against such agent provocateurs who abuse race and religion to promote supremacist thinking and incite hatred.

Our leaders must seriously come to grips with our new political realities and work harder to bring the message of change to its grassroots leaders. Some others do not even feel they need to be protected – by anyone. They feel 40 years of affirmative action are enough for them to stand on their own two feet and compete on their own strength and merit. What they want now is just simple good governance to enable them to thrive and for everyone to be given a fair chance to reach their full potential.

I wish these demagogues would spend their time and energy finding real solutions to real threats. For a start, how about chewing on the fact that a Merdeka Center survey found that 70% of Malays feel that the main threat to the Malay political position in the country is corruption among Malay leaders. Not the Chinese, Christians, communists, liberalism, pluralism, feminism, post-modernism, poco-poco, or yoga.

Can we please not waste any more time and emotion on imagined enemies and threats before we reach a point of no return? I know problems exist. But can we please search for solutions through rational dialogue and mutual respect, using verifiable facts, data and analysis instead of inflammatory pronouncements and conspiracy theories?

Embrace China, says Najib; US not restricting China & to keep military prence in Asia: Gates


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Embrace China, says Najib

By NELSON BENJAMIN nelson@thestar.com.my

SINGAPORE: China should be engaged in a positive and constructive manner and not seen as an adversary, Prime Minister Datuk Seri Najib Tun Razak said.

He said Malaysia was fully convinced that the rise of China would be a benign influence in the region. “We do not feel threatened by China.

Guiding hand: US Secretary of Defence Robert Gates gesturing as he meets Najib on the sidelines of the Shangri-La Dialogue yesterday. — Reuters

“It will be a mistake to see China as an adversary and if we treat China in a positive and constructive manner, they will also respond to us positively.

“I can tell you that the Chinese have a good memory and if you do them a good deed, they will remember for a long time,” he said at the 10th International Institute for Strategic Studies Shangri-La Dialogue here yesterday.

Citing an example, Najib said Malaysia was the first South-East Asian country to establish diplomatic ties with China during his late father Tun Abdul Razak Hussein’s tenure and until today, it was still being talked about in the country.

“I am optimistic that besides China, we can also develop a meaningful and constructive relationship with India,” he said, adding that trade with these two countries had been on the rise.

“In Asean we do not have to make a choice.

“We do not want to go back to a Cold War mentality and we look forward to engagements and relationships not just with India and China but others, including the United States,” he added.

On the build-up of conventional arms in the region especially involving navies, Najib downplayed it as a modernisation effort saying that this was part of efforts by countries as their economies got stronger and wealthier.

He said there would be more to lose if countries were engaged in conflicts while there was more to gain if everyone continued to engage constructively.

Earlier in his speech, Najib reiterated Malaysia’s role as a responsible global citizen with actions to help ensure global peace and stability.

“We will continue to play our part and show that our commitment is not merely rhetorical but is backed up by action,” he said, touching on the peacekeeping efforts by Malaysian soldiers, the deployment of female doctors to Afghanistan, Malaysia’s fight against terrorism and the intermediary role it played in southern Philippines.

He also touched on Malaysia’s readiness to be deployed to Bahrain to play a role if invited by the people there.

He also added that there was a new set of asymmetric and non-traditional security challenges involving human trafficking, drug smuggling and nuclear proliferation.

Najib also called for border disputes among regional countries to be resolved in the spirit of mutual respect and cooperation.

Also at the event, Najib outlined six strategies to maintain peace and stability in the region and called for the setting up of a new Rapid Response Team with the ability to respond to disasters.

“The way forward is through dialogue, engagement and consensus,” he added.

Gates: US not restricting China 

By Li Xiaokun (China Daily)

SINGAPORE / BEIJING – Outgoing US Defense Secretary Robert Gates said on Thursday that the United States was not trying to “hold China down” and doubts that Beijing aims to match Washington’s military power.

“We are not trying to hold China down. China has been a great power for thousands of years. It is a global power and will be a global power,” he said.

Gates was speaking en route to the annual Shangri-La Dialogue, Asia’s most prominent security conference, scheduled for June 3 to 5 in Singapore, where he is scheduled to meet his Chinese counterpart Liang Guanglie on the sidelines of the meeting.

Liang is the most senior Chinese official to attend the security conference.

Gates added: “The Chinese have learned a powerful lesson from the Soviet experience, and they do not intend to try and compete with us across the full range of military capabilities.”

He was alluding to the ultimately fatal economic burden that the Soviets assumed in trying to keep up with Washington in the Cold War arms race.

Gates said he is very satisfied with the progress of Washington’s relationship with Beijing, but sees room for improvement between the two militaries.

“Under those circumstances, there is value in a continuing dialogue by the two sides of just exactly what our concerns are, what our issues are and how we might alleviate the concerns on both sides,” he said.

Gates added that Washington will continue to build relationships with its allies in Asia despite potential budget restrictions and that Washington plans to remain a reliable partner in the region.

“I would say, if anything, these pressures put a premium on multilateral responses to problems,” he said. “Whether it’s humanitarian assistance or disaster relief, we see opportunities with a number of countries out here, including China.”

It is Gates’ seventh trip to Asia in the past 18 months and his final overseas trip before he retires on June 30. US President Barack Obama has named CIA Director Leon Panetta to replace him.

Gates also said the reshaping of much of Obama’s national security team – including the selection of Gates’ own successor and the controversial search for a new chairman of the Joint Chiefs of Staff – was at least a year in the making.

In his first extended comments on the process, Gates said the key consideration was preserving what he called a sense of teamwork among the top national security aides as the administration winds down the US military role in Iraq and fashions a plan for turning over security responsibilities in Afghanistan by 2014.

Obama announced on Monday that he would nominate General Martin Dempsey, who had just taken over on April 11 as army chief of staff. Gates said he would not discuss publicly his own recommendation to Obama for the joint chiefs selection.

Li Qinggong, deputy secretary-general of the China Council for National Security Policy Studies, said Gates is likely to make full use of his last overseas visit as defense secretary to meet Chinese military leaders and give another push to military ties between Washington and Beijing.

“Gates, unlike his predecessor, has always been positive on improving military ties with China,” Li said.

Although he might talk about a Chinese military “buildup” and “threats”, the underlying theme of his speech and his meeting with Liang will be positive, Li added.

As for the change of US defense leaders, Li said it is unlikely to impact the improving ties between the two militaries.

“US leaders, including Obama, Hillary Clinton and the new military leaders all know that military ties with Beijing have become more and more important for overall ties,” he said.

However, potential disputes still linger on regional hotspots, such as Taiwan, the South China Sea and US exercises in Northeast Asia, said Li.

AP, AFP contributed to this story. Newscribe : get free news in real time

US to keep military presence in Asia: Gates 

By Ma Liyao and Zhou Wa (China Daily)

Neighbors appreciate China’s efforts in maintaining regional security

US to keep military presence in Asia: Gates

Chinese Defense Minister Liang Guanglie (right) shakes hands with former US defense secretary William Cohen at the Asia-Pacific security forum in Singapore on Saturday. [Photo/Agencies]

Singapore / Beijing – Despite its fiscal troubles, the US will maintain a “robust” military presence across Asia, backed up by new high-tech weaponry, US Defense Secretary Robert Gates said.

Gates made the remark during a speech on the second day of the Shangri-La Dialogue, hosted by the International Institute for Strategic Studies in Singapore.

The US military will expand its presence by sharing facilities with Australia in the Indian Ocean and deploying new littoral combat ships in Singapore, where it has regular access to naval facilities, he said.

“Gates’ comments were made as assurance to the allies of the US in the region that its policies will continue after his impending retirement,” said Major General Luo Yuan, a senior researcher with the Academy of Military Sciences.

Gates will step down by the end of June, and the current director of the CIA, Leon Panetta, has been nominated to replace him.

Worries about the ability of the US to maintain its military presence have been raised as President Barack Obama faces mounting political pressure to deal with Washington’s $1.4 trillion budget deficit and more than $14 trillion in debt.

Gates said that he would take a $100 bet that “in five years, the US influence in this region will be as strong, if not stronger than now”.

The US remains as the dominant power in the Asia-Pacific region, and its influence over the region will continue in the next five years, said Yuan Peng, director of the American Studies Center at China Institutes of Contemporary International Relations in Beijing.

In his speech, Gates also said the key to solving the maritime issues in the Southeast Asia is to provide a “peaceful mechanism” that will not intensify tensions.

“We should not lose any time before strengthening these mechanisms of dealing with the claims. Clashes serve nobody’s interests,” he said in answer to questions about the South China Sea issues.

China’s stance on these issues remains that they should be solved bilaterally, between China and other coastal countries.

Confidence is needed that the parties concerned can solve the problems themselves through a peaceful bilateral mechanism.

The regional disputes should be solved by countries in this region, Luo said, adding that a third party, who is not familiar with the history and culture in the region and has a different mode of thinking, can make things more complicated .

During meetings with Chinese Defense Minister Liang Guanglie on the sidelines of the Shangri-La Dialogue, China’s neighbors voiced appreciation on Saturday for Beijing’s efforts toward regional security and international assistance.

Kim Kwan-jin, defense minister of the Republic of Korea, appreciated China’s work at maintaining stability and peace on the Korean Peninsula and thanked China for its help in protecting South Korean merchant ships in waters off Somalia from pirate attacks in February.

Japanese Defense Minister Toshimi Kitazawa and Wayne Mapp, defense minister of New Zealand, thanked China for its rapid aid to their countries when they were struck by major earthquakes this year.

Liang also met with Russian Deputy Prime Minister Sergei Ivanov, who is in charge of the country’s national defense affairs and military industries.

Gates called for all countries to recognize the potential problems caused by cyber attacks, saying that the US defense system is under attack “all the time”.

The Pentagon is working to identify hackers, who will be responded to in kind or with traditional offensive action, Gates said. “We take the cyber threat very seriously and we see it from a variety of sources, not just one or another country,” he said.

“China is one of the biggest targets of cyber attacks,” said Luo, adding that China always tries to work with other countries to fight against such attacks.

AFP contributed to this story.
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US dollar cracking at the seams


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WHAT ARE WE TO DO By TAN SRI LIN SEE-YAN

MY last columns dealt with the international monetary system (IMS), specifically why the world monetary order is in disorder, and why free movement of capital underpinning the IMS is increasingly being challenged.

Today’s column concerns the basic anchor of the IMS the reserve currency role of the US dollar and why it will give way to rapidly rising pressures towards multipolarity, that is, the concurrent pulling of forces emanating from more than two growth centres.

In 20 years, the World Bank expects the newly emerging BRIIKs (Brazil, Russia, India, Indonesia and Korea) to join China as new drivers of growth towards a multipolar world. Today, none of their currencies is used for reserve accumulation, invoicing or exchange rate anchor. The status quo remains centred on the US dollar. But change is in the air. In 1991, the G3 (US, euro-zone and Japan) accounted for 49% of world trade, and the BRIICKs (BRIIKs plus China) only 9%. By 2010, the G3’s share had fallen to 29%, while the BRIICKs’ share rose beyond 30%. Without doubt, the post-war structure dominated by advanced nations is in the midst of fundamental change. Globalisation and the rapid growth of the emerging market economies (EMEs) are bound to translate into greater global economic power. It’s just a matter of time.

Multipolarity

We are witnessing the cracking of the global institutions created in 1945. They are still unadjusted to the growing weight of the EMEs, reflecting reluctance by the United States and euro-zone to come to terms with a world they no longer dominate. It is also a manifestation of uneasiness in China, India and Brazil that the management of their domestic economy, long the jurisdiction of internal prerogative, now matters to the rest of the world.

This is understandable. The founding of the Bretton Woods institutions (IMF and World Bank) after the devastation of the Great Depression and WWII set in motion an era of stability at a time when the US was unchallenged in the global economy. In international finance, this post-war order began to fall apart in the 1970s as the US economy floundered, the dollar tanked, Europe was rebuilt and Japan asserted itself.

The move towards multipolarism was, however, interrupted in the 1980s and 1990s by the Soviet Union’s collapse, the euro-zone’s indigestion after swallowing a re-united Germany, and the Asian currency crisis. The US was thrust into the forefront to lead. But, the home-made US financial crisis in the 2000s in the face of rapidly rising EMEs, brought the era of US dominance to an end.

Yet, neither the US, euro-zone nor China has the capacity and clout to manage global problems. Happily, the G-20 came along to replace the G7, stumbling on to a mutually beneficial co-operation. Prof Barry Eichengreen‘s reference in history of another scenario is scary: “The decades following WWI were marked by the inability of rising or declining powers to stabilise the world economy or create functioning global institutions; the result was the Great Depression & WWII.”

A definite shift is taking place, driven by the rising power of the emerging BRIICKs, together representing more than one-half of global growth in 14 years. According to the World Bank report, Multipolarity: The New Global Economy, the EMEs will grow at 4.7% per annum up until 2025, which is double the rate of the advanced nations (2.3%). The implications are far-reaching:

  • the balance of global growth and investment will shift to the EMEs;
  • this shift will lead to boosts in investment flows to nations driving global growth, with a significant rise in cross-border M&As, and a changing corporate landscape where established multinationals will largely be absent;
  • a new IMS will gradually evolve, displacing the US$ as the world’s main reserve currency by 2025;
  • the euro and the RMB (renmimbi, China’s currency) will establish themselves on an equal footing in a new “multi-currency” monetary system;
  • the euro is the most credible rival to the US$; “its status is poised to expand provided the euro can successfully overcome sovereign debt crisis currently faced by some member countries and can avoid moral hazard problems associated with bailouts within the European Union;”
  • the rising role (and internationalising) of the RMB should “resolve the disparity between China’s growing economic strength on the global stage and its heavy reliance on foreign currencies;” and
  • the transition will happen gradually

At no time in modern history have so many EMEs been at the forefront of an evolving multipolar economic system.

A strong US dollar a delusion

The US dollar is the reserve currency. This refers to its use by foreign central banks and governments as part of their international reserves. This role, combined with its widespread use as a medium of exchange (transactions and settlement vehicle), a standard of measurement (unit of account) and a store of value (method of holding wealth), has given rise to the key currency status of the US dollar. For these reasons, the US serves as world banker.

This was not planned. It just evolved since it met various needs of foreign official institutions and foreign private parties more effectively than any alternative could. Many of the reasons for the use of US dollar by official and private parties are the same. However, the aims of the two users need not always coincide. If the US dollar’s role as reserve currency was terminated, its use by private traders and institutions would most likely remain, perhaps even stronger. The wheels of commerce keep turning. The role of the US dollar as world banker remains relevant.

It is a long-standing tradition for the US Treasury to favour a strong US dollar. The US Fed has no say since it is outside its purview of fighting inflation and unemployment.

The exchange rate is just another price. The price of the US dollar relative to other currencies is determined in the market, and not under the control of anyone. An increase in demand for US dollar or a reduction in its supply strengthens the US dollar. Lower demand and increased supply will weaken the US dollar.

A strong US dollar is not always good. It depends on what causes it to strengthen; if the cause is rising productivity or innovation, that’s good. But in an economy struggling to grow and to create more jobs, a strong US dollar is not so desirable. A weak dollar means goods are cheaper relative to foreign goods; it stimulates exports and reduces imports. Foreign goods get more expansive but more US jobs are created.

At this time, US is better off with a weak dollar. Strangely, most politicians thinks it’s desirable for the US dollar to weaken only against one currency, the renminbi. The US Congress routinely bashes China for not weakening the US dollar enough. Indeed, a fall in the value of the US dollar against all currencies would help the US even more. Yet, in the next breath, the same Congress wants the US dollar to be strong. This delusion just won’t go away. They are like failed dieters who talk earnestly about healthy living while eating a chocolate doughnut.

The US dollar isn’t going anywhere. It is not about to be replaced anytime soon. The only dangers are (i) reckless US mismanagement giving rise to chronic inflation (or deflation if the exit of QE2, the second round of quantitative easing, is not well handled), which is implausible; and (ii) US budget deficits run out of control; outright debt default is far-fetched. Mark Twain once responded to accounts of his ill health by saying “reports of my death are greatly exaggerated”. He might well have referred to the US dollar. For the moment, the patient is stable, external symptoms notwithstanding. But there will be grounds for worry if he doesn’t commit to a healthier lifestyle.

The euro and renminbi

Today, the US dollar faces growing competition in the global currency space. The serious contender is the euro, which has gained ground as a currency goods are invoiced and as official reserves held. Nevertheless, share of reserves held in US dollar remains well over double the share held in euros; US$ share did fall from 71% in 2000 to 67% in 2005 and 62% in 2009, while euro’s share rose from 24% in 2005 to more than 27% in 2009. In terms of global forex, the US$ market turns over US$3.5 trillion daily, more than double that in euros. But the US dollar share of the market fell from 45% in 2001 to 42% in 2010. Euro capital markets are of comparable depth and liquidity as the US dollar’s, and the euro-zone and US economies are roughly the same size.

Events since 2008 have shaken faith in the US financial markets. But the banking crisis and its economic fallout are a trans-Atlantic affair. Continuing euro bailouts is a sign the old continent is not much safer than the US. Worried savers may still sleep better with US$ under their pillow. So for the euro, it’s going to be a long haul.

The sheer dynamism of China and the globalisation of its corporations and banks will propel the renminbi to a greater international role. It can become a global settlement currency this year. China has made good progress, signing currency swaps with more central banks. The issuance of renminbi-denominated bonds is actively promoted. Renminbi offshore deposits in Hong Kong (to top 1 trillion renminbi by year-end) are rising rapidly, and offshore renminbi trading will expand beyond Hong Kong.

But with the undervalued exchange rate, an asymmetry in settlement has arisen. Foreign importers are reluctant to settle in renminbi, while foreign exporters are glad to do so. In the end, success at internationalising the renminbi depends on the pace China liberalises the capital account.

The problem lies in speculative capital flows aimed at profiting from arbitrage. Capital controls remain as China’s last line of defence against hot’ money inflows. Its policy continues to encourage non-residents to hold more renminbi and renminbi-denominated assets. The sequencing of policy adjustments remains critical as China moves forward. The road ahead is going to be bumpy.

Policies co-ordination

By 2025, the World Bank’s best bet is the emergence of a multipolar world centered around the US dollar, euro and renminbi. A world supported by the likelihood US, euro-zone & China will constitute the three major “growth poles” by then. They would provide stimulus to other nations through expanding trade, finance and technology transfers, which in turn creates international demand for their currencies. Already, private investment inflows into EMEs are expected at US$1.04 trillion this year (mainly to China) against US$990bil in 2010 and US$640bil in 2009.

Inherent in this shift is rising competition among them, which is real. This is bound to create situations of potential conflict, which can exact a heavy toll on global financial markets and growth. This calls for workable mechanisms to strengthen policy co-ordination across the major growth poles in particular. This is critical in reducing risks of political and economic instability.

In the recent crisis, the G-20 was able to pick low-hanging fruits by managing the re-alignment of macro-economic policies aimed at generally common objectives to get out of recession and to rebuild financial systems. In today’s world, shifts in policy co-ordination will be increasingly towards more politically sensitive domestic fiscal and monetary and exchange rate policies. Also, the interests of the least developed countries (LDCs) have to be safeguarded against pressures accompanying the transition to a multipolar order.

Against the backdrop of the tragic earthquakes and tsunami that hit Japan, the political turmoil of the Arab spring’ gripping much of Middle East and North Africa (MENA), and growing uncertainties emanating from euro-zone sovereign debt crisis, global growth remains at sub-par this year with high unemployment, and rising inflation in the EMEs and LDCs. This calls for building confidence and promoting investments to boost productivity and create jobs to absorb the large pool of youth in MENA in particular. The LDCs and MENA nations are heavily dependent on external demand for growth. Aid and technical assistance have the ability to cushion adjustments as they adapt in the transition process.

According to the World Bank: “It is also critical that major developed economies and EMEs simultaneously craft policies that are mindful of the growing interdependency associated with the increasing presence of developing economies on the global stage and leverage such interdependency to derive closer international cooperation and prosperity worldwide.”

A former banker, Dr Lin is a Harvard-educated economist and a British Chartered Scientist who now spends time writing, teaching and promoting the public interest. Feedback is most welcome at starbiz@thestar.com.my

The untold story of Malaysia foreign exchange controls


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Book reveals how Malaysia beat currency speculators in 1997/98 crisis

By Thean Lee Cheng, Starbiz

The untold story of foreign exchange controlsNor Mohamed (left) and Wong at the book launch

KUALA LUMPUR: Former Prime Minister Tun Dr Mahathir Mohamad toyed with the idea of exchange controls as early as May 1998 but was met with resistance from within the National Economic Advisory Council, the Cabinet and the central bank.

This was revealed in Notes to the Prime Minister, a new book that chronicles one of the biggest challenges and triumphs in Dr Mahathir’s 22 years as Malaysia’s Prime Minister.

Notes to the Prime Minister: The Untold Story of How Malaysia Beat the Currency Speculators was launched yesterday in Kuala Lumpur by Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop. Tun Dr Mahathir was not present as he was advised by doctors to rest at home.

The book, published by MPH Publishing, is based on 45 sets of notes written between Oct 3, 1997 and Aug 21, 1998 by Nor Mohamed when he became Dr Mahathir’s unofficial and unpaid economic adviser.

The Asian financial crisis, which first engulfed Thailand in the middle of 1997, hit Malaysia soon after. Selective capital controls were imposed on Sept 1.

The book is written by veteran journalist Datuk Wong Sulong, the former business editor and group chief editor of The Star.

In an excerpt from the book, Dr Mahathir told Wong that he decided on foreign exchange controls “after Nor Mohamed explained to me how currency trading works … millions and millions of ringgit can be transferred from a domestic account to a foreign account by a stroke of a pen … I realised that foreign currency trading can be stopped by stopping this balance transfer.

“But I must say it was not as easy as that. We needed to do a lot of background work and monitoring and Bank Negara (needed to) set up many committees to do that to ensure that the controls were effectively implemented. (Tan Sri) Dr Zeti (Akhtar Aziz, then deputy governor of Bank Negara) did a lot in that respect and also in the economic recovery.”

Notes to the Prime Minister is not only a valuable lesson on how Malaysia took unorthodox steps to solve the Asian financial crisis but it is also a story of how two Malaysians met halfway around the world and came up with the Malaysian solution to the Asian financial crisis.

It is an intriguing story of how Nor Mohamed, then chief executive officer of Mun Loong Bhd, was summoned by Dr Mahathir to meet him in Buenos Aires, Argentina, on Oct 2, 1997. The first set of those notes was written a day later, on Oct 3.

Prior to this unique flow of notes, Nor Mohamed was a Bank Negara adviser.

His expertise in foreign exchange landed him and then Bank Negara governor Tan Sri Jaafar Hussein in trouble. Both of them resigned to take responsibility for Bank Negara’s speculation on foreign exchange losses that went into billions of ringgit in the early 1990s. Nor Mohamed joined the private sector after that.

Said Nor Mohamed at the launch: “We learn in history that sometimes the lives of individuals and the fate of nations hinge on a millimetre’s difference in the trajectory of a bullet, a road not taken on a whim, or the random stray of a shrapnel.

“In my case, my fate was sealed … by the turn of a head Tun Dr Mahathir’s … It was a sunny afternoon in September 1997, when the PM’s motorcade was speeding along the streets of Kuala Lumpur.

“At one junction, as the motorcade slowed, Tun Dr Mahathir turned his head to look out. And he saw a forlorn-looking man walking towards a row of shops for lunch. That forlorn-looking man was me!”

Nor Mohamed was summoned a few days later to go to Argentina. In April 1998, Nor Mohamed resigned from Mun Loong to concentrate on being Dr Mahathir’s unofficial adviser.

During that period of assessement, Nor Mohamed went to Singapore to observe the operations of Central Limit Order Book (CLOB), a board on the Singapore Stock Exchange which dealt with a great number of Malaysian shares. Dr Mahathir felt that Malaysia’s currency crisis could not be solved as long as CLOB exists.

Dr Mahathir, aware that his adviser was unemployed, asked: “Do you have money to go down to Singapore?” Nor Mohamed laughed and assured him that the trip would not cost a lot of money. The rest, as they say, is history.

As for Wong, who shares a deep liking for Nor Mohamed, he was asked by his friend to write the book.

“I felt a sense of excitement and a heavy responsibility. These notes had never seen daylight and it shed a new light (on more than just the economic and political aspects of this country). You have to tell a story as honestly as possibile, but not technically, because it has to appeal to the average reader. So that was my dual challenge.”

Related post:

Capital controls: From heresy to orthodoxy

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