Globalization And Rise of China's Economy Part Seven, Social Trust And Social Cohesion.

"Virtually every commercial transaction has within itself an element of trust"
                                                                                 ---K J Arrow

Living in the modern society like ours, we take for granted how our lives are utterly dependent on others. We trust that we won't be robbed while we walk past strangers. We don't stock six months of food and water, trusting that the water will always come out of the tap. We put our money in the bank, trusting that it will be there for us tomorrow. Trust is the foundation for social cooperation and fundamental to the working of modern societies, but it has not always been that way.

When we were hunter gatherers, we only trusted our small tribe. Strangers were viewed with suspicion. If you see a stranger in your hunting ground, your instinct is to kill him, because he competes with you for your food source. Nicholas Wade, in his book  Before the Dawn, documented research findings that indicated hunter gatherer societies were significantly more violent compared to agricultural societies. Our skulls were thicker before farming and we went through Gracialization while forming our agrarian society. Indeed, the history of humanity has been a story of increasing cooperation involving ever larger number of us in one place. Ever increasing trust is required by each member of the society as we congregate in increasing numbers and specialize, making the society more productive and making us more dependent on others. Along the way, living with large group of humans in close proximity changes us. It changes our culture. It changes our personality make up, which has a strong basis in genetics. To go from a small tribe to a large empire, we got a jump start through agriculture, where a group composed of many unrelated families must live in close proximity and cooperate to have successful farming. The rest was accomplished mostly through conquest. The victors, which started out as a single group, had high social cohesion and trust. The losers were either vanquished completely, or assimilated into the group. This involved passing the genetics and the cultures of the victor group to the loser group and could take centuries as tribes turned into nation states.

It stands to reason that societies that had gone through long periods of urbanization will have members that are more suitable for dense living environment that requires high degree of cooperation. Societies with multi-ethnic groups where each group has similar powers fare worse than societies with a single dominant group. Societies that were still basically tribal until the British arbitrarily drew a line in the map and declared them as countries will have a harder time with social trust. This was made worse as the British drew their national borders to ensure internal strife. They ensure strife by ensuring that each nation contain several different religious or ethnic groups. It would be difficult for a country like, say, Afghanistan or Iraq, to pick themselves up and transform into a high trust society in the foreseeable future.

This foretells a dim future for many countries in the world with regard to their ability to modernize. Many will fail at this first step to modernity and it could take centuries, if ever, before they grow to become high trust societies.

The United States was a high trust society at the beginning, at least among the colonists. However, things had degraded over time. In the absence of an external threat like the Soviet Union, our internal fissures like race and gay rights, which first surfaced in the sixties, have grown more intractable and more strident. We balkanize into thousands of special interest groups that will sacrifice the interests of the nation for their own interest. In my neighborhood, one of the most desired place for a teacher to be working, the teachers have collectively bargained for ever more benefits and pay. Their salaries are already one of the highest in the state and maybe the country. The resulting compromise by the school board and the teachers resulted in a lot of days where the kids don't get to go to school. It was so called development days for the teachers, who only works nine months out of a year and have the entire summer to do their development. We are still a fairly coherent society, at least for a majority of us, but the trajectory is not headed in the right direction.

The Chinese has a pretty high societal trust among its citizens. Indeed, I think the biggest achievement of the Chinese civilization was to forge one of the largest group of people who identified themselves as Chinese, with similar language, genetics and culture. The Chinese have had a long history of urban civilization compared to most of the world. However, in the absence of external challenges, Chinese societal trust and cohesion had degraded. In 1900, an alliance of eight European nations invaded China. The Chinese lost. What is poignant is that if you look at many images of the period, you see the many Chinese working alongside the foreign invaders for pay. In many cases, with our European masters picking who should die, the Chinese were actually the executioners of our own people.

Seen in this light, the external forces so rudely awakened China from her slumber had helped us to re-define ourselves as Chinese again, this time in the context of other competitors stronger then ourselves. This process of re-discovering our societal cohesion takes many generations and sees many painful lows. For example, many from Hong Kong still don't see themselves as Chinese, but part of Britain.

Going forward, still facing competition and pressure from the outside, but economically ascendant, We can expect the Chinese social cohesion to strengthen. The high social trust and growing social cohesion of the Chinese is one of the bedrocks from which Chinese economic modernization is built.

Globalization And Rise of China's Economy Part Six, A Strong Financial System

"Here we don't pray for the weak, we prey on the weak"
                                                   ---Teresa Mummert

The Tech Industry has a cluster of some of the world's strongest companies. Yet if you trace the Tech Industry since its inception, you will find that every decade, the leading companies are almost completely changed from the previous decade. Many once major player in the industry like JDSU, 3Com, Yahoo have ceased to exist altogether, while others like IBM(the tech part), HP, Sun Micro Systems etc. have been reduced to a shadow of their former selves. In their place are upstarts that just a few years ago was unheard of by the vast majority of the world.

The constant culling of the weak and the boosting of the strong is what made the Tech Industry so strong. For a nation, that is also true. The countries that allow this process to go to its logical conclusion stands to be stronger and prosper in the long run even though there is more pain in the short term. The financial system plays a decisive role in this.

In this regard, the United States stands heads and shoulders above most countries. Fortress Europe has resulted in a Europe that has few tech companies. Indeed, few new companies of any kind. In Japan, over-investment, which can be blamed by the financial system along with the Japanese government, results in bubbles. When the bubbles burst, the financial system, again controlled by the government, propped up the companies that should have gone bankrupt. Zombie companies that should have died long ago are still around, decades later. This resulted in the Lost Decade, a multi-decades long slump that could have been at least mitigated. The Japanese went from being 17% of the world economy in their peak to 4% of the world's economy today. In contrast, during the 2007 burst of the housing bubble, not only do we allow smaller companies like Countrywide to fail, very large financial institutions like Lehman Brothers and Bear Stern were all bankrupt or taken over. While some intervention was made for the remainder of the financial companies, the United States have allowed the market a much freer hand to deal with the fate of the companies. This is one of the reasons why the United States is so strong financially today. The companies in the U.S., on average, are subjected to a much greater degree of market pressure compared to other major industrial countries.

The Koreans did not fare better in this regard compared to the Japanese. The Chaebols contains captive banks which finance their masters. Competitive lending did not apply to them. Instead of relying on the market mechanism, the government just told some Chaebols that did not do well in certain industries to get out and give the market share to another that had better success. While this is not as good as the invisible hand of the market at picking winners and losers, it does produce some pretty impressive results. Samsung for electronics, Hyundai for cars, they all seems to hold their own against their international competitors. Still, the financial system is held captive not only by the government, but also by the Chaebols. The lack of a more rational financial system that does a better job of picking winners and losers could at least partly explain why the Koreans are stuck at a lower GDP per capita compared even to the Europeans and the Japanese.

How about the Chinese? The private sector, the so call small and medium size companies that are privately held, are very efficient. Since the banks favor the state sector, the private companies must pay a premium for the capital. Those that survived with this added cost are very competitive. The large state own enterprise is a mixed bag. Most state own enterprises still have to compete to survive. On the other hand, State enterprises sometimes are tasked with other missions besides making a profit. For social stability, or acquiring technology abroad, or ensuring that the country has enough oil, State Enterprises are often asked to undertake work that are money losing deals. While in the West, private money could at least be counted on to protect its own interest, in China, those who operated using money that belongs to the country may also become entrenched vested interests that will defy even the central government to protect their own special interests. Since they also have power, they often will direct the state to invest in something that turn out not to be the best use of capital, as long as they benefit. In the future, this will lead to significantly slower growth even in the most optimistic case. Michael Pettis, the most credible economist on this front, predicted that the best case scenario is 2-3% for the next decade. I believe the reason Xi Jinping spend so much effort to consolidate his own power did so in order to deal with these special interest groups outside of the central government.

On the positive side, There are a few strengths that partially mitigated problems with capital allocation. First, China is sufficiently large that competition still exists for these enterprises. Even in Telcos, there are multiple companies representing various part of the country where as a smaller nation may have a monopoly. Second, up to now, there is still a lot of low hanging fruits for investment. Third, China has enough smart folks such that the people making the policies are very capable. Finally, if it looks like the ship is about to capsize, the collective communist party members will over rule some of the worst special interest groups to ensure the survival of the party and the nation.

Going forward, in the longer term, the Chinese will have a stronger economy if they have a financial system that performs the job of selecting the right winners and killing the losers as quickly as possible. While it does not have to mimic the U.S. financial system in every way, it should at least do this job as efficiently as the financial system in the United States. China will continue to prosper if they can successfully reform to get there. Since there is currently serious misallocation of capital by the state sector, in the intermediate term, they need to at least correct these misallocations.

Globalization And Rise of China's Economy Part Five, the Rule of Law

The freedom enjoyed in Western society under the rule of law and constitutional government explains both the quality of its civilization and its wealth.
                                                                                            ---Paul Johnson


Imagine that your cousin with whom you have grown up all your life has come up with a great idea about making some better tennis shoes. To start a company, he will need some money. Since you knew him all your life, you would be able to invest in his company with your hard earned money. Had he been a stranger trying to convince you of his company in a busy street corner in New York City, you would almost certainly turn him down. Without the rule of law, a good idea gets turned into a good product only if the inventor is sufficiently connected to raise the funds to turn the idea into a company.

The genius of the Western society is that the rule of law enable every investor, big or small, to invest in the best companies. While a sound financial system directs investment to the best investment opportunities, it is the rule of law that is the foundation which empower even the smallest and least able members of the investor class to channel their hard earn money to the best use. Without the rule of law to enforce good behavior and punish bad behavior, investors would be very afraid of being swindled and would not invest in something that they don't personally know. This severely limits the scope of their investments. The rule of law also minimize bad investments by those with power and also control how large amount of money is being invested. Had this been their own money, they would surely invest for the best return. In the case where this is not their own money, they would invest this in order to maximize their own benefits, even if the investment itself yields negative returns.

The rule of law is more than just some words written down about what is allowed and what is not allowed. It is also a state of mind. On paper, Greece and Sweden both probably have similar rules. In practice, there is a world of difference on how these two countries are run. Similarly, India was endowed with the same rules that the British use for their country, but by any measure, Britain is light years ahead of India in having better rule of law. To go from a third world to first world, every citizen must go through the growth to gain a mindset similar to their Western counterpart, both in obeying the laws and in the low tolerance of others breaking the law.

Were there abuses of the system? sure, Do the crooked still take advantage of the hapless? absolutely, but by and large, the rule of law works amazingly well in the United States. There is low impedance for investors to invest in the best companies. When corporations commit malfeasance, the people responsible are generally held accountable. We all know the fabled stories of Enron and Countrywide. In some cases, some of the perpetrators were spared, like most of the financial system after 2007 financial melt down, but this was done for the good of the country.

In this regard, the Chinese still lag very far behind the United States. The powerful runs rough shot over the population. This is especially egregious at the village level, where heads of villages often stage land grabs which drove the fellow villagers from their land and their livelihood. Corruption by those with power by definition means those without access to power is placed at a disadvantage. Most of the Chinese view the stock market as a casino, not a place to put most of their hard earn cash. As a result, those with money puts most of their money into real estate, causing bubbles to form. Michael Pettis, an economist intimately familiar with the Chinese economy, has warned for many years that the marginal return on investment has gone down and is turning negative. This is partly because in many cases, the state owns the companies, while the people who run them are able to run them for their own personal gain at the expense of the companies.For example, while the Chinese oil companies and defense industries are very competitive, the banks and the financial sector in general are still mired in corruption and low efficiency.

To be fair, there are also benefits that resulted from the government fiat rule, at least during the current stage of China's development. Think of the commercial jet industry, So far, there is Boeing and Airbus dividing the world market. For a third company to get into this business, playing by the rules, it would mean a Chinese aircraft industry would never get off the ground. To compete against two well funded and entrenched companies supported by their respective states means decades of money losing without end in sight. No sane person would invest in something like that. In fact, the government is able to to take this hit. The Chinese military needed to build fighter jets and military transports anyways, so decades long perseverance (and money losing) have paid off. This technology has spilled over to the civilian side and the C919 was born. In fact, many industries in China were born and thrive because the government assisted. In many cases, joint ventures set up by the government enable the local partners to gain the expertise from their foreign counterpart and be able to compete world wide. While Trump would call this unfair practice, the reality is somewhat different. Companies go to China to do business. The treatment they get depends on what they bring to the table. Witness how Amazon's search for a new headquarter sparked the mad rush of all the cities that comes out of the wood works to offer them special treatments. They would not have done that for Joe's diner. What a business brings to the table in China include the possibility of sharing their technology. Technology is perishable item. Sharing them gets these company a better deal.

How did China managed to do so well all these decades with rule of law so under developed? Well, for one, back when Deng started, China had little investment and very outdated practices in running their businesses. They went on an investment spree. During this investment spree, the interest of the ruling class largely coincides with that of the country. More investment means more opportunities to enrich themselves. The dearth of investment prior to this means that the return on investment was largely positive. Since the ruling elite also control most of the money at that time, enabling efficient private investment was not a big factor in the Chinese national development.

The Chinese state run businesses, in theory, would not run as efficiently as the private enterprises. In practice, there are factors mitigating this. Imagine a company like Exon, with large and diverse share holders. A group of managers and a CEO is hired to run the company. The people who run the company owns a very insignificant share of the company, yet were incentivized to do a good job. This is not very different from Sino Petroleum and Chemical corp, the Chinese counterpart to Exon. The caveat is that the government must run the company in the best interest of its share holders, the people of China, similar to the board of Exon. In any case, the share of companies that are state own enterprises is shrinking. When China started reform in the early eighties, there were no private sector. In 2015, the share of wealth comprising the state own companies are now down to 30% or so. They comprise 3% of the total number of companies in China. So, by now, most of the state own enterprises are large companies that are not that different then the typical multi-national corporations in the United States with diverse stock holders.

China is exiting the phase where easy and obvious investments awaits those who have money to throw at them. While there are still many worthwhile investments awaiting to be done, such as the Hongqi River Project, the likelihood of resource miss-allocation is growing significantly. Part of the reason is China has a lot more money now to invest and opportunities are no longer ubiquitous as before. At the same time, the Chinese stock market is still not well developed. To increase the efficiency of the economy, China needs to have a developed stock market so money could be channeled to the best uses. Going forward, the rule of law will become increasingly important to the economic well being of China. The ability to reform to ensure better government by rules rather than by fiat and to have better accountability will mean the difference between stagnation and continue growth.

Globalization And Rise of China's Economy Part Four, An Independent Foreign Policy

There are only a handful of countries in the world that have independent foreign policies. United States being the foremost global hegemon obviously qualifies. Russia, China, India and Iran has independent foreign policies due to their relative size in their geographical area. A number of African countries were left alone due to the fact that they do  not have anything worth the effort from the other powers. The remainder of countries all live in the shadow of one or more powers.

Obviously, countries like Germany and Japan were able to reach developed nation status without having an independent foreign policy. However, I would argue that countries like Russia, India and China will not become first world countries until they have their own independent foreign policy. The reason has to do with their size.

While NATO and EU was willing to take in smaller countries like Poland, when the Soviet Union imploded, and Yeltsin wanted to join NATO, Russia was not allowed to join. The reason is simple. Russia could only join EU and NATO if it is in the interest of the bigger NATO powers. With the size of Russia and the proximity to Europe, Russia will be the biggest power in EU and NATO after United States, not only will this threaten the U.S. hegemony, it will displace the other heavyweights like Great Britain, Germany and France. Even Poland, after they joined EU, the European market was still closed to the Polish companies. The Japanese, after they become successful with their auto and electronics in the eighties, were forced to push up their currency as well as other "voluntary" restraints to allow the American auto makers to survive, even if the U.S. companies were unable to compete economically, we would use our non-economic power to bend the rules our way. Japan and South Korea as well as Taiwan benefited tremendously as junior partners in a cold war against the Soviet Union. While they were beating the U.S. in many industries, they were allowed to continue their operation because the U.S. needed them to fight the cold war. With the cold war over and U.S. industries in disarray, Trump is abandoning the rule of law and WTO etc in a naked attempt to reshuffle the deck. If China did not have its own independent foreign policy, no doubt the U.S. would use every means at its disposal to prevent the industrialization of China once it reach a state that is alarming to the United States.

An independent foreign policy allowed the Chinese to continue to develop their economy without fear of undue foreign meddling. 

Globalization And Rise of China's Economy Part Three, A Strong Government

   I am not afraid of an army of lions led by a sheep, I am afraid of an army of sheep led by a lion.

                                                                                    --- Alexander the Great

We in the West are skeptical of the power of the government. At least, that is the position of a significant portion of our citizens. However, when we look at all the third world countries that rose to be developed nations, not only were they a very small number, they all started with strong authoritarian rules. If we remove the nations that were part of Western Europe which participated in and benefited from the original industrial revolution led by England, and remove the resource countries like Saudi Arabia, we are left with Japan, South Korea, Taiwan, Singapore and Hong Kong. All of these were ruled by strong authoritarian governments during their initial ascend. While Japan was nominally a democracy, the same party had ruled the country for fifty years. Taiwan was not a democracy until it was developed. Ironically, Taiwanese economic development stopped after it transitioned into a democracy. South Korea was run by strongmen during its initial development. Lee Kuan Yew ruled with an iron fist in Singapore. Even in Hong Kong, the locals simply did not get much of a say on how things were run. Until shortly before it was returned to China, Hong Kong was run by the British without much consultation of the locals.

This is not a coincidence. During the initial transition from a third world economy to a developed country, a strong government plays an important role.

Internally, a strong government is needed to provide infrastructure. A strong government is needed to maintain law and order. A strong government is needed to ensures a virtuous investment environment and a single accessible domestic market place. Gorbachev, with the Goldman Sachs advisers, failed to turn the Soviet economy around precisely because they did not strengthen the government. Privatization of the Soviet companies allowed the private individuals to loot the country without requiring these companies to maintain being viable and also shoulder social responsibility of the economic transition. While a fully developed economy is guided by competition, an economy in transition must be guided by a strong hand to overcome its internal contradictions and provide the public good needed for the economy to thrive. In this context, Western economic theories are inadequate to guide and explain the economy in transition. One simply cannot transplant a matured Western economic model to an economy in transition. Instead, experimentation, pragmatism and continue reforms are needed to transition the economy of a developing nation. A small government, as George W. Bush envisioned, is a luxury of the matured Western economy that a developing nation simply cannot afford.

Many people now blamed Bill Clinton for letting the Chinese into the WTO. This is easy to say in the rear view mirror. America, the strongest economic power after World War II, set up the liberal trading order not out of charity to the other nations, but out of the believe that such a system favors the American corporations. At the time of the Chinese entry into the WTO, it was fully expected that the American corporations, the lean, mean killing machines that they were, would crush the Chinese state own enterprises and occupy the high end of the value chain. The Chinese would be relegated to making textile, toys and shoes. The WTO and Most Favored Nation status that the Chinese got came with very strict strings attached. Out of the multitude of nations granted this status, only a handful of East Asian nations with the high IQ populations and strong governments made it past the mid income status. Given the decrepit state of the state own enterprises for China, that the Chinese can work within the confines of the strict terms set out for WTO entry and still beat the West was something that was not anticipated by Bill Clinton and the others in charge at the time. A strong Chinese government played a pivotal role in making the Chinese corporations competitive. By leveraging the Chinese market to trade for technology, by organizing and create companies with the critical mass to win against Western multinational behemoths and by taking the loss needed to climb the learning curve, the Chinese government had enabled the domestic companies to rise up and able to compete against the strongest from the West. By setting up barriers of outside companies until their industries are competitive, the government bought time for the domestic companies to get their acts together. Unlike their Soviet counterparts, the Chinese used the principle of the markets but did not copy the Western system wholesale. They pragmatically choose what works and took the gradual approach to their reforms. To a lesser extend, the Korean and the Japanese government did the same. To produce companies that are competitive, the Korean government actually told some of the less competitive Chaebols to exit certain businesses to make room for the more competitive Chaebols to take over, something that would be unthinkable for the United States or Europe.

The Chinese government did something else. They were able to maintain an independent foreign policy. This is hugely important for the economic and political revival of China. Something I will discuss in my next post.

Globalization And Rise of China's Economy, Part Two, Intellectual Elite

Two qualities are indispensable: first, an intellect that, even in the darkest hour, retains some glimmerings of the inner light which leads to truth; and second, the courage to follow this faint light wherever it may lead.
                                                                                       ---Carl von Clausewitz

The reason the Western Pundits failed to provide a convincing explanation as to why the world failed to converge economically is because they had blinders on. There are things that seem very obvious but no one wanted to talk about them because they are politically incorrect or is offensive to certain countries or continents. I am sure I will have my own blinders and limitations, but hopefully, my blinders are different from the other Western Pundits such that a grain of truth could be uncovered. Here, I have listed the factors that made the United States such a economic power house, from the most important to the least.

1. Sizable and high quality Intellectual Elite.
2. A strong government
3. An independent foreign policy
4. The rule of law
5. A solid financial system
6. Social trust and cohesion
7. A strong education system
8. Industrious and driven population
9. Can do start up culture

In the next few posts, I will explore each of these topics. In this post, I would like to explore the first one. How does the size and quality of a country's intellectual elite impact its economy?

Of all the qualities of a nation, this one is hands down the most important for a country's economic development. Countries with enough bright people could overcome years of terrible indoctrination and bad government. Countries without an intellectual elite will fail to develop in spite of being endowed with good natural resources such as oil or having good government as a legacy of colonial rule. Yet, due to the politically correct Western Culture, This is the least appreciated factor of national development. I define intellectual elite as the portion of the population that has an IQ of over 130. In the United States, as is with the rest of the world, the intellectual elite runs virtually all the corporations, makes virtually all the discoveries and provide most of the driving force to push the boundary of our civilization forward. From the invention of the 30 year mortgage to the assembly line of Henry Ford to space travel, most of these have been achieved by our intellectual elite. Having an intellectual elite is the first prerequisite for economic development. Further, to sustain economic development, it is also important to have a large fraction of the population that are not quite but near our intellectual elite level. Any machine shop owner will tell you that having a couple of master machinists (IQ 120 or so) makes the entire crew much more productive.

When viewed in this light, many of the conundrums so puzzling to the Western pundits are no longer very mysterious. The Middle Income Trap, can now be considered as a sort of IQ ceiling. As we see that all the countries that made it past the mid income trap like Japan and South Korea belong to East Asian nations with 100+ average national IQ. The remainder of the third world countries that are stuck at the middle income level typically have a national average IQ in the eighties. Failure of globalization to make vast majority of the developing countries more economically advanced could at least be partially attributed to the lack of such an intellectual elite in these countries. African countries that failed to even make their first step in economic development have average national IQ in the seventies.

 Due to the anti-elite streak in our culture, the United States have not taken much extra effort to develop our own intellectual elite in our primary education. Bright people are mostly left to find their own ways. Past high school, the United States has generally done a good job at recruiting the brightest to our best colleges, affirmative action not withstanding. As with the rest of the population, the good life has degraded the drive for our intellectual elite. There is the observation that compared to previous generation, the current crop of the students at our ivy league schools read fewer books and know less. However, we are able to attract the brightest people from the world over and are able to make very good use of their talent. The United States still provide the best opportunity in the Western World for bright people. Unencumbered by an ancient culture, we are open to learn from the best the world has to offer. We also have the most freedom and support for people pursuing ideas. When something of value is created, the creator gets to keep the fruits of his labor. As a result, bright people like Andy Grove come from world over to create world class corporations like Intel. They made the United States world's biggest power house in research and development. They also create new industries like drugs and the digital revolution that even most of the industrialized world failed to keep pace.

China, with 1.4 billion people with average 100+ IQ, has a large group of intellectual elite and near elite. They generally do a good job of filtering these intellectual elites into the best colleges based on their Gaokao score, which is a good proxy to their IQ. Unfortunately, the path to Gaokao was littered with the corpses of Chinese misspent youth. Youth driven with a singular purpose, to score the highest score during Gaokao. This produces good workers that can handle a lot of pressure, but lack initiative and the sense of wonder that allow that person to go down an unfamiliar path to blaze new trails. Today, the damage of this kind of unenlightened competition has done is still manageable, as China is still in a sort of catch up mode. Soon enough, we will see the limitation of this approach. As China moves from manufacturing to higher value added industries and more sophisticated research and development, they will need more people that can follow their own drum beats. As the Koreans and the Taiwanese have shown, one can get pretty far with this type of culture, but long before they reach parity with American level of productivity, they would run out of steam.

Like the United States, the smart fraction in China are put to good use. In spite of restrictions the government places on the internet and other media, the Chinese seems to be very up to date with what is happening in the world. They are still eager to learn from the best in the world. The brightest people are recruited to join the government. They ran the corporations, many of which are world class. They staffed the military industrial complex, which is rapidly catching up to the United States. They manned the increasingly sophisticated R & D activities, which are beginning to yield results.

On balance, I expect the Mainland Chinese to keep the juggernaut going for a lot further then the Taiwanese and the South Koreans. The biggest reason is the sheer size of the Chinese intellectual elite and the number of uber genius that is produced due to the size of the Chinese population. I will expand on this a bit more in an upcoming post about the Chinese start up culture.

Having a high IQ is a prerequisite but not the whole story. The Europeans have essentially the same people as Americans, but failed to converge to the same level of productivity. The Koreans and the Taiwanese have 100+ IQ but are stuck at even lower per capita GDP compared to their European counterpart. The Russians have a pretty high IQ, but failed to developed their economy beyond resource extraction and military. In the next few posts, we will explore other aspects that makes America such an economic power house.

Globalization And Rise of China's Economy, Part One, What Went Wrong With Globalization

To rule a country of a thousand chariots, there must be reverent attention to business, and sincerity; economy in expenditure, and love for men; and the employment of the people at the proper seasons.

                                                                                    --- Confucius

A strong economy is a prerequisite for a country to achieve greatness. China certainly have come a long ways after Deng took over in the seventies. The question is, will they continue and how far would they go?

Regarding the future development of China's economy, there are two schools of thought. The optimists point to the big discrepancy between the per capita Chinese GDP and the West in general and United States in particular and say that there will be more convergence. The pessimists, exemplified by Peter Thiel, say that globalization has run its course and the Chinese will have a harder time converging with the West. Who is right?

To go down that rabbit hole, I would like to explore a different but related topic. Today, the U.S. GDP per capita is at $57000, one of the highest for any normal economy. By normal economy, I am excluding a few city states like Singapore and Luxembourg since their status as wealth heaven or as a port city/financial hub cannot be replicated by a normal country without this unique niche to exploit. What we are talking about here is economic development as opposed to pure economic growth. Economic development refers to the production of ever more sophisticated goods in increasing quantity. So the Saudis, after they discover oil, had a lot of economic growth, but very little economic development. There is no secret to how we achieve this level of GDP. All the practices of the United States are opened to all countries that wish to study and emulate it. Globalization was supposed to spread these best practices of the world from the developed world to the rest. So one would expect that the developing world to converge to the productivity and living standard of the leader, the United States.

The problem, to paraphrase Greg Cochran, is that this convergence did not bother to take the trouble of actually happening. In the developed world, all the major economies like France, Germany, Japan only achieve some 70% of the American per capita GDP after all these decades. In case you retort that they will catch up in the future, their GDP growth have lagged behind that of the United States for decades now and show no sign of catching up. The next tier down, the Koreans and the Taiwanese, are similarly stuck, but at a lower level. These are the lucky ones. You would think a country like Ethiopia, which produce $600 worth of GDP per capita on currency exchange bases, would be able to produce something of value. The knowledge to make, say, a bicycle, could be downloaded from the internet for free. Capital flows across the world to where money could be made, yet these countries failed to make the most basics of industrial goods long after the knowledge of the industrialization has spread to other parts of the globe.

There are many who come up with arguments for why this is the case, but no one has come up with a satisfactory explanation. Some argued that exports, such as the ones associated with the Four Tigers is what lead to economic development and growth. Indeed, for a desperately poor nation, exporting their labor is the first step in joining the world economic order. Many nations today like South Korea and Germany are still heavily reliant on export for their economy. On the other hand, there are many nations that, while at one point or another, relied on exports, have relatively small proportion of their economies as exports during most of their development. The U. S. is a case in point. we were never an export powerhouse before WWII. We shot up in the fifties as an export nation after Europe was exhausted from the war. Today, export is merely 13% of the U.S. economy. On this count, with exports accounting for only 19% of the economy, China is actually closer to the United States than to South Korea. The point is, export is not needed to sustain high economic development. Exports are nevertheless very crucial to the initial development of a nation that started out desperately poor. In the process of exploiting the cheap labor of the country, outsiders, motivated by profit, have brought in the latest technology and best practices. Indeed, this is how all the East Asian countries such as Japan, South Korea and China started their economic ascend.

Since various countries are stuck at different points in their economic development, we must conclude that it is not enough to just learn about the production of widgets, or even the best practices of corporations. To become as productive as the United States, a country must have other qualities that the United States possesses. In the next post, I will outline what I believe to be the most important factors contributing to the success of the United States. I will also compare how the Chinese stack up on these factors.

The Transformaton of the Chinese Government

"China is a sleeping giant. Let her sleep, for when she wakes she will move the world."

                                                                                                       --- Napoleon Bonaparte


I still remember in the eighties, when the Japanese took over the auto and electronic industries. There was a sense of doom in the United States. Angry people smashed Japanese cars on TV, though the TV sets they watched were also made in Japan. If the auto industry, the iconic symbol of American post war industrial prowess, was taken by the Japanese, what else can't they take from us?




With the benefit of hindsight, it turned out the Japanese threat was much less menacing. This also spoke to the dominance of the White Anglo Saxon Protestant civilization. There has been three revolutions that had or will have a huge impact on recent human history, the Industrial Revolution, the Information Revolution, and the upcoming Artificial Intelligence Revolution. The WASP civilization gave birth to all three of these, along with other events such as the explosion of modern music. Everything that we do today, from double ledger accounting to space exploration, owed its origin at least partly to the WASP civilization. After losing the auto and electronic industries to Japan, the Americans simply invented new ones. Computers, internet, Artificial Intelligence, Genetic research, the list goes on. The Japanese, with their more rigid culture, simply were not a strong participant in any of these new ones. At the same time, they have lost virtually all of their electronic industry and part of their auto to the Koreans and Chinese. The Europeans, in the mean time, have gone on a steady relative decline compared to the United States after bouncing back from the devastation of World War II. Such is the power of this single tribe from a once insignificant part of the world, its contribution to humanity in recent history completely dwarfed the contribution from all other tribes combined. While some groups such as Europe and East Asia played catch up, they were not able to follow the lead of of the WASP tribe into new industries. They were the more fortunate ones. Vast majority of the world is still not able to catch up to the Industrial Revolution, still stuck in the dark ages.
Like other East Asian countries, the Chinese are playing catch up to the West. While the jury is still out that they will be able to catch up to the most prodigious tribe in the world, what they achieved thus far is nothing short of astonishing. We all are familiar with the story about the decades long double digit growth which lifted the largest number of humanity out of poverty, but that was just the beginning of the story. The classic economic theories says that after countries climb up the economic ladder, they do more and more sophisticated thing, not before. The Chinese, apparently, did not get the memo. In fact, while they struggle in some traditional technologies like making jet engines, they are quickly moving to the top tier of countries in all areas of emerging technology. In most cases, they are pulling away from the pack and sprinting towards the leading country, the United States. When the "rest of the pack" consists of Western Europe and Japan, this is no mean feat. The Japanese were not able to achieve this even after they became fully industrialized. 

To put some perspective on things, when Deng Xiaoping visited the United States in 1979, China was so poor that a country with the population of over 900 million did not have enough U.S. currency to pay for the trip. Jimmy Carter, who was president at the time, had to ask some rich billionaire to help sponsor Deng's visit. Fast forward 48 years, how things have changed. We need only to look at one industry, the e-commerce industry, to see the speed in which they move. The e-commerce industry was founded by the United States. By the time the Chinese started building their version of the e-commerce industry, there were already a formidable line up of companies such as Yahoo and Amazon in the United States. Starting with nothing, the Chinese now are the only other country with a e-commerce industry that is comparable in size and scope as the United States. This also helps them lay the foundation for one of the emerging technologies, Artificial Intelligence. 

What they have achieved in building up their military industrial complex is also quite miraculous. As late as the nineties, the Chinese military consists of hand me down 1950 era Soviet ware, which they were barely able to license produce. It was said at the time that the Russians can fly their fighter bombers, unescorted, all the way to Beijing, bomb it and return and the Chinese would not be able to do much about it. Today, their Type-52D and Type 55 destroyers rival the best the world has to offer, such as the U.S. Arleigh Burke class destroyers. They are able to build and field multiple aircraft carriers. China is the only other country besides the United States to field a homegrown fifth generation aircraft, the J-20. They have a whole family of missiles that will take out aircraft carrier strike groups. No other country, not even the United States, have this capability. 

In the next few posts, I will be exploring the rise of China. 

The China Challenge

"China is a sleeping giant. Let her sleep, for when she wakes she will move the world."



                                                                                                       --- Napoleon Bonaparte





I still remember in the eighties, when the Japanese took over the auto and electronic industries. There was a sense of doom in the United States. Angry people smashed Japanese cars on TV, though the TV sets they watched were also made in Japan. If the auto industry, the iconic symbol of American post war industrial prowess, was taken by the Japanese, what else can't they take from us?



With the benefit of hindsight, it turned out the Japanese threat was much less menacing. This also spoke to the dominance of the White Anglo Saxon Protestant civilization. There has been three revolutions that had or will have a huge impact on recent human history, the Industrial Revolution, the Information Revolution, and the upcoming Artificial Intelligence Revolution. The WASP civilization gave birth to all three of these, along with other events such as the explosion of modern music. Everything that we do today, from double ledger accounting to space exploration, owed its origin at least partly to the WASP civilization. After losing the auto and electronic industries to Japan, the Americans simply invented new ones. Computers, internet, Artificial Intelligence, Genetic research, the list goes on. The Japanese, with their more rigid culture, simply were not a strong participant in any of these new ones. At the same time, they have lost virtually all of their electronic industry and part of their auto to the Koreans and Chinese. The Europeans, in the mean time, have gone on a steady relative decline compared to the United States after bouncing back from the devastation of World War II. Such is the power of this single tribe from a once insignificant part of the world, its contribution to humanity in recent history completely dwarfed the contribution from all other tribes combined. While some groups such as Europe and East Asia played catch up, they were not able to follow the lead of of the WASP tribe into new industries. They were the more fortunate ones. Vast majority of the world is still not able to catch up to the Industrial Revolution, still stuck in the dark ages.


Like other East Asian countries, the Chinese are playing catch up to the West. While the jury is still out that they will be able to catch up to the most prodigious tribe in the world, what they achieved thus far is nothing short of astonishing. We all are familiar with the story about the decades long double digit growth which lifted the largest number of humanity out of poverty, but that was just the beginning of the story. The classic economic theories says that after countries climb up the economic ladder, they do more and more sophisticated thing, not before. The Chinese, apparently, did not get the memo. In fact, while they struggle in some traditional technologies like making jet engines, they are quickly moving to the top tier of countries in all areas of emerging technology. In most cases, they are pulling away from the pack and sprinting towards the leading country, the United States. When the "rest of the pack" consists of Western Europe and Japan, this is no mean feat. The Japanese were not able to achieve this even after they became fully industrialized. 

To put some perspective on things, when Deng Xiaoping visited the United States in 1979, China was so poor that a country with the population of over 900 million did not have enough U.S. currency to pay for the trip. Jimmy Carter, who was president at the time, had to ask some rich billionaire to help sponsor Deng's visit. Fast forward 48 years, how things have changed. We need only to look at one industry, the e-commerce industry, to see the speed in which they move. The e-commerce industry was founded by the United States. By the time the Chinese started building their version of the e-commerce industry, there were already a formidable line up of companies such as Yahoo and Amazon in the United States. Starting with nothing, the Chinese now are the only other country with a e-commerce industry that is comparable in size and scope as the United States. This also helps them lay the foundation for one of the emerging technologies, Artificial Intelligence. 

What they have achieved in building up their military industrial complex is also quite miraculous. As late as the nineties, the Chinese military consists of hand me down 1950 era Soviet ware, which they were barely able to license produce. It was said at the time that the Russians can fly their fighter bombers, unescorted, all the way to Beijing, bomb it and return and the Chinese would not be able to do much about it. Today, their Type-52D and Type 55 destroyers rival the best the world has to offer, such as the U.S. Arleigh Burke class destroyers. They are able to build and field multiple aircraft carriers. China is the only other country besides the United States to field a homegrown fifth generation aircraft, the J-20. They have a whole family of missiles that will take out aircraft carrier strike groups. No other country, not even the United States, have this capability. 

In the next few posts, I will be exploring the rise of China. 

The Doklam Standoff

"The situation in 1962 was different and India of 2017 is different,"
                                                                                   
                                                           --- Indian Defense Minister Arun Jeitley

In June 18 2017, the Indian army moved into the Doklam area after the Chinese started construction of a road there. This started a two and a half month standoff between China and India. The event ended when India withdrew from the area unilaterally. With the Indian and Western media declaring India the winner in this event. 

I detest the idea that the two giant neighbors should go to war over a small patch of land. The Western media's interpretation of the event was so lopsided and divorced from reality that I wanted to bear witness to this event in my blog. If for nothing else, it is to provide an alternative account of what actually happened for the sake of posterity. 

Chronology

First, let me layout the sequence of events as best I can gather them.

• June 4 or earlier, China notified India that they will be expanding a road in Doklam (This was claimed by the Chinese authorities. The Indian side did not refute this. In fact, during the dispute, one Indian official sidestepped the question when asked if the Chinese provided advance notice for the road building).
• June 9, The Chinese again notified India of their intention to expand the existing road.
• June 16, Chinese road construction crew started working on road in Doklam.
• June 18, Indian troops, carrying weapons, armed with two bulldozers, crossed the Indian Chinese border and stopped the construction. Citing concern for the strategically vulnerable area of the chicken's neck.
• June 29, Bhutan protested to China about the construction of the road on disputed territory.
• June 30, Indian minister external affairs stated that by extending the road, China has changed the status quo in violation of a 2012 understanding.
• June 30, in answer regarding Bhutan's protest, China spokesman stated that the area of the road construction is totally under Chinese jurisdiction and ask India to withdraw its troops.
• July 5, China said they reached an understanding with Bhutan and there is no dispute with Bhutan about the territory.
• July 19, China again ask India to withdraw its troops. China also held live fire drill in Tibet.
• July 21, Sushma Swaraj, Indian External Affairs Minister, proposed that both sides withdraw their troops. She also stated that the world is with us on this. When asked which country, she named U.S., Japan and Australia.
• July 25, U.S. State Department said they should seek ways to resolve this peacefully, but did not side with either country. Similar statements were made by Nepal and Bhutan.
• July 27, Ajit Doval, India's National Security Advicer, attended a much anticipated BRICS meeting in China but failed to produce any diplomatic breakthrough.
• Aug 8, China officially rejected the proposal by Sushma Swaraj for mutual withdrawal and stated that the time for peaceful resolution is running out, that China's position is India must unilaterally withdraw from the area as a pre-condition for any negotiation. There has almost been daily tirades by the Chinese with the same message from this point on.
• Aug. 9, Chinese trains were spotted transporting military equipment to Tibet, where an armed incursion into India is expected to be launched.
• Aug. 15, Chinese and Indian troops clashed near Pangong lake. They fought with sticks and stones. Several injured from both sides.
• Aug. 16, China signed deals with Nepal for gas exploration.
• Aug. 24, Chinese missiles were spotted heading to the Tibet region.
• Aug. 24, China issue travel warning to Chinese going to India.
• Aug, 24, China was said to have signed $10 billion package with Bhutan.
• Aug. 24, Large Chinese military convoys were spotted heading to Tibet.
• Aug. 25, Chinese Navy held live fire drills off Indian Ocean.
• Aug. 28, India announced that China and India has mutually agreed to disengage and the Indian troops are in a process of moving out of the area. The Chinese confirmed that the Indian troops and equipment have already moved out, but countered that only the Indian troops have moved back to their side. The Chinese troops have not pulled out and are still patrolling the area. When asked if they will continue to build roads in the area, the Chinese side stated they are "taking into account various factors like weather, we will make proper building plans in light of actual situation".
• Aug. 30, Indian Defense Minister Arun Jeitley, when asked if Modi won in the standoff against China, said, "Given the sensitivity of the issue, there is no need to make multiple statements,". He also announce the government's decision to carry out major reforms in the Army to enhance its combat capability, but said that this is unrelated to Doklam.

It is pretty clear based on the sequence of events that

1. The Indian side started this whole thing. The Chinese were initially surprised by the intrusion.

2. While India picked the fight, the Chinese finished it. However the Indian press or the Western press spin the events, India unilaterally withdrew from the area without any significant concession from China. No mutual withdrawal, no promise not to build the road per Indian request.

3. During the entire event, India, in spite of claim by Sushma Swaraj that "all countries are with us", failed to get a single country to endorse its position. The U.S. did not side with India. Japan, after stating that both sides should return to the status quo, was pounded by the Chinese. After that, it quickly clarified that it was not taking the side of India. Even the traditional allies of India, like Nepal and Bhutan, have not publicly sided with India.

Why did India make this move?

I was puzzled by the move made by India. The purported reason about the chicken's neck did not make any sense. India has two hundred thousand troops in the area, besides, if the Chinese wanted to attack the area, it is indefensible militarily. The Chinese only had to cut off transportation, and two hundred thousand troops would quickly run out of everything, ammo, food. Unless if India was doing this because of Bhutan. A blogger from Bhutan alerted me to this possibility.

Bhutan, a tiny kingdom of 800,000, has been under the control of India. India directs all the infrastructure projects. India provided the national budget. In turn, India has directed Bhutan's interaction with other nations. Bhutan only has diplomatic relationship with two countries, highly unusual for a sovereign nation. When the interest of the Bhutanese kingdom conflicts with that of India's, India always chose to sacrifice Bhutan's national interest to serve India's. Out of all the countries that shares border with China, Bhutan and India were the only two countries that failed to settle the border dispute with the Chinese. Bhutan and China has been negotiating to finalize their border without success for many years. The reason was meddling from India. The Chinese made a very generous offer. Bhutan would get all the northern territories in dispute with China back, if they would cede the territories in the tri-junction that is in dispute with China. India nixed the deal. However, all is not well with the relationship between India and Bhutan. There were rumors that Bhutan was on the verge of breaking away from the grasp of India and pursue a more independent foreign policy. Since India has saddled Bhutan with a large amount of debt, breaking away from India would require some assistance from a country with financial means.

India chose the timing and the location of the escalation well. Due to the rugged terrain and India's numerical advantage in the region, escalation of the conflict by the Chinese would be difficult, costly and protracted. While the Chinese may prevail at the end, the cost and duration of the war may deter the Chinese from escalation. With the upcoming National Congress Meeting, the Chinese leadership may also be distracted and in no mood to fight. If the Chinese do fight the Indians in the area and win, this would give India an excuse to move their troops into Bhutan in the guise of "protecting Bhutan". It would allow India to do a military takeover of Bhutan, similar to how they took over Sikkim(who used to be an independent kingdom like Bhutan). Heads India wins, Tails China and Bhutan lose. In addition, come September or October, India would have an honorable way to retreat by claiming that the weather makes stationing troops in the area impractical.

Since Vietnam also made a similar move in the South China Sea at the same time that India initiated this incident, I believe that there is coordination, which would point to the U.S. as a participant in this behind the scenes.

Some observations

The Chinese, of course, did not play the game so neatly laid out by India. In my opinion, they did a masterful job in handling this event. Initially surprised by the intrusion, they kept quiet for about two weeks, enough time for them to game out all the moves and counter moves. They came out swinging after that. Their message was consistent; India illegally trespassed into Chinese territory, they must withdraw as a pre-condition for any negotiations. China has the following objectives coming out of this. First, they must deter India from ever doing this again, not just prevent this occurrence. Second, they wanted the international community, if not on China's side, at least also not on India side. Third, they did not want to give India a pretax to take over Bhutan like they did with Sikkim. Fourthly, they wanted to ratchet up the cost to India over a period of time, so as to allow India to choose the peaceful if humiliating path over war. Finally, they wanted to use this opportunity to pull all the Indian neighboring countries away from India, to create a more neutral buffer zone.

The Chinese, while willing to give India time to react to their moves, have demonstrated that they are ready to go to war. The location of incursion chosen by the Chinese is far away from Bhutan, in the Indo Chinese border near Pakistan. This area, with better terrain, allows the Chinese to quickly move their armor divisions into India. From there, they can escalate in all directions, and a short distance from New Delhi. If they move east, they will quickly cut off supply for the 200,000 men army in Eastern India. They could even use the Indian transportation system, like roads and rail, to supply their attack. While India has spent a great deal of money on their military, they are no match for the Chinese. China would quickly (within days) control the airspace with their formidable ground to air missiles and better and more numerous fighter jets. Without air cover, Indian ground troops would quickly disintegrate. Apparently, I am not the only one with this view. If you look at my time line, you will see that around Aug. 24th, the Chinese took a big step in military escalation and was ready to invade India. The next step would be a public count down. At that point, China may demand more than the pull back of troops by India. For example, China may demand that India get out of East India, which China also claims. This would dramatically raise the price for the Indian retreat and increase the humiliation. The U.S., before invading Iraq, made similar unreasonable demands on Saddam knowing full well that he cannot possibly comply. I believe this is the reason for the hasty retreat by Modi.

At the end, the Chinese achieve all their objectives. Even if the Chinese were to continue their road building (which I am certain that they will next year when the weather gets better), India would not dare return to the Doklam area again(or make any similar moves). No military occupation of Bhutan took place. Not a single country sided with India. Judging from all the financial deals that happened near the end of the standoff, both Bhutan and Nepal have already moved away from the grasp of India and closer to China, precisely the event that India was trying to prevent by initiating this incident. They did this without firing a single shot at India. In contrast, the Indian side seems to be reacting to the Chinese moves after China went on the offensive. It seems they were looking for a way out but were not able to find it. This speak badly of the Indian leadership, which didn't think through all the scenarios when they initiated this incident.

Predictions

The obvious prediction to make is for Bhutan to establish diplomatic relation with China followed by resolving their border issues. There are other ramifications. Despite the wild spins of the Western and Indian media about Modi winning this incident, India and the West have lost a battle against China. All the small countries involved in the South China Sea, especially Vietnam, would be less inclined to go against China after this incident. India had made a big deal about the Chinese losing the goodwill of the Indian population, I think the opposite is also true. If China decides to give up on India as a partner and play hardball against India, they have a lot of cards to play with. The Indian economic growth, which exceeded that of China's for a few short quarters, has sputtered to 5.7%. Even that number was propped up by government spending. Without government spending, it was down to 4%. Spending even more on military at this juncture, which I think is a likely outcome of this tussle, cannot be good for India. I think it is tacky to declare winner and loser after two giant nations almost went to war. Unlike all the Western Media, I would definitely not call India the winner in this incident. 

The Neanderthal School of Wizardry Part Two, Broad Outline

"Let a hundred flowers bloom"
                                              ---Mao Zedong


My daughter had a terrible math teacher this year. 25% of the time, she simply did not bother to show up for class. Since this is advanced math, it means that the rest of the time when she did show up to teach, she went very quickly. Yet no effort was made to assess if the class understood the material. The test went ahead, even in some cases where a concept was quickly taught just a day before. When she did not understand a theorem, my daughter resorted to typing the theorem on google and learning from the material she found online. In fact, that is a great way to learn new material. There are plenty of material online, like khan academy, that will teach you everything under the sun.

Imagine that the student is ready for the next lesson, she logs on, there are five different tracks on the same subject, all taught by some of the best teachers of the nation. In some cases, for those that are intellectually endowed, a few diagrams and some words of explanation gets the concept across. For most of us, a good lecture by the best teacher in the country makes the learning fun. Still for others, where perspiration is needed, the concept must be pounded in incrementally by breaking it down into several smaller segments and taught with examples and exercises. For each of these tracks, past students give comments and ratings. Having learned other subjects in the same system, the student would know which track generally works best for her. After getting the concept, the student does some exercises found for the track. Once she is confident that she mastered the subject, she takes the test on her own to see if she understand the subject. There is no need to cheat as she is alone, trying to check her own understanding of the subject. If she fails on some parts of it, the test sends her back to some other lectures that will explain those parts in greater detail. More exercises are done to help her understand the subject. She will take a different test to see if she understand the material. Once the student has a basic understanding of the subject ( as indicated by passing the test), she will consolidate her understanding of the subject by thinking about where the concept would breakdown. These are called the boundary conditions. After thinking about this on her own, she would then go to the next step where boundary conditions for the subject are explored. For 99.9% of the time, all the boundary conditions for the subject have already been thought of by others, these are posted and explored by her. for the rare case where she came up with a boundary condition that no one has thought of, she will post her thoughts on subject related forums. Others on the forum will try to help find a resolution to this new boundary condition. For those wishing to have a deeper understanding of this and related subject, there are pointers to other sites that help provide more reading for the related subject. If a student has a question about something, she can tap into the reservoir of Q & A related to the subject, all posed by past students and answered by other students and teachers. If she is unable to find the answer to her questions, she can even pose a question to a forum to ask. Students who learned the subject in the past will answer the question. These are added to the Q & A reservoirs.

What would be the role of the teacher in this system? If anyone ever dealt with kids, he would know that the natural inclination for a kid is to play. If you leave the kids alone, 0.001% of them would catch the learning bug on their own. The majority would be playing games with their iphone most of the time. Teachers in this school system will be there to provide advice, structure and direction. Teachers would organize the group interactions for the kids, including presentations, sports, and games. Teachers would make sure the kids stay on track. They would ensure that a kid who gets mental blockage or emotional issues gets addressed. They would encourage a kid with the intellect and curiosity to pursue extra-curriculum activity of her interest.

The first school that Neanderthal would run would be a boarding school. There are many reasons for this. The first reason is that boarding school minimizes the interference from the parents. In my observation, most of the parents, while well meaning, really ended up contributing negatively to their kid's well being by their meddling. A boarding school can help the kid build good habits and good interactions with others, especially nowadays where many kids don't even have cousins to play with. Being with a group of kids their age help them form bonds and interact with people. Finally, there are many tasks that is required of a boarding school, anything from laundry to cooking and cleaning to gardening to repairs. There are also administrative tasks such as budgeting, purchasing etc. These are tremendous opportunities for the kids to learn to contribute to the community. They learn leadership skills and integrity with the work they do at the boarding school. The students basically would take care of the school and themselves with the guidance of the teachers. It would also make it easy to learn organized sports and games since all the students are at the same place. Finally, older students would help out the young. This help them mature and be caring for others.

While the students are mostly learning subjects on their own, they would gather for reason other than attending classes. The gathering of the students would be much more about learning to interact with others and learn about cooperation and competition. After learning about a subject, a student would gather in small groups to present to each other about their newly discovered subject. They would gather to learn organized sports and play games designed to teach them about human interactions. They would put on shows for each other. For a student who did something really special, the reward would be for her to present to a larger audience her experience and findings. Students also come together to clean the school ground, the bathrooms, their own dorms. They would help cook for their fellow students and teachers. Of course, the teachers and the principle would be there along with the students at doing these tasks. When things break, the student would fix them while others learn from him. This is also a great opportunity to learn about the different subsystems of buildings and structures. Students would also be given some time during the week where they can just go play for fun.

To sum it up, students at the Neanderthal's boarding school would learn their material on their own. They would come together for activities that help students learn interactions with other students. They take care of each other and their school with the help of the teachers and principle.

The Neanderthal School of Wizardry Part One, Motivation For Change

"The first step in solving a problem is to recognize that it does exist."
                                                                                      ---Zig Ziglar

Schools have been around for a couple of thousand years, possibly longer. The idea of mass schooling for every child, on the other hand, has only been about a couple of hundred years old. This is a quantum leap that propelled the countries that practiced them to never before achieved heights. No longer is education restricted to a privileged few. Every kid gets an education which significantly enhanced his/her productivity and effectiveness.

As good as we have it in education today, there are a few drawbacks to the current education system. Drawbacks that could be remedied with today's technology and new approaches.

The biggest issue is the lumping of students of all abilities into a single class room. What this does is that the speed and depth of the teaching is targeted to the middle of the class. The slow ones suffer because it is too fast for them. The smart ones are bored and unchallenged.

Unevenness of the teacher quality is also an issue. Just as a great teacher has the ability to inspire a student, a bad teacher could really ruin the subject for the kids. I know this all too well as my kids have had both.

Kids always want to compare what they do to their peers. Problem is, they get discouraged if they end up at the bottom all the time. My son plays basketball. He is a pretty good player for his size. The problem is that he is small for his age. As a result, he feels that he is not making progress and year by year, he is losing interest in the game. When a kid sits together with his classmates, he can't help but to compare his performance with his peers. If he does badly, this could be pretty discouraging for a young person.

Developing character is the most important job of raising a kid today, but schools are mainly focused on learning knowledge. The teachers are there just to keep the order in school. In some schools, the teachers are afraid of the kids. Some parents also teach their kids things like cheating and bullying. Not only is this very bad for their kids to learn, but there is a echo effect where other kids would see this behavior and pick it up. School should do a better job developing the character for the kids.

Today, schools mainly push the knowledge to the kids. If a kid can pull the knowledge as he is ready to absorb it, then the kid develop discipline, self motivation and self direction. He has more ownership of the learning process. The kids also are used to make more decisions for himself and manage his own affairs at a young age.

Kids today are not given enough latitude to explore and find areas that they are interested. Not only does the school herd the kids into a few tracks, the parents are also imposing their idea of what is good for the kids. In areas where there are high concentration of Asians, parents are pushing the schools to go to overdrive. In these areas, kids don't have enough time to sleep, let alone do any sort of exploration. Parents also have their ideas of what is good for the kids. Unfortunately, most do not try to understand what the kids wanted to learn and try to cram this to their kids just because this is "good for them". For a kid that is already so busy that he does not have time to sleep, taking on extra-curriculum activities that he does not want to do adds to the burden without stoking their interest. Kids need some time to explore, uncoerced, subjects that might be of interest to them. Once they found their interest, they need to have the freedom to pursue it. This also means losing the baggage of learning things beyond the core knowledge that they have no interest or ability in doing.

Finally, while our kids spend the biggest part of their day with their fellow students, the interaction with their peers was a byproduct of having to learn at the same location instead of designed to teach them social skills which they will need when they grow up, and to help them mature. They spend the majority of their time sitting next to other students with minimal interactions while the teacher teaches. In some classes they do projects together with other students, but the focus is to complete the work. In recess and lunch they get together with their friends. Many learn their social skills that way, but it was left to their own device. Most kids did OK, but it could be a lot better. Some kids fall through the cracks because they are a little off. Most young kids do not want to associate with kids that are off. In the past, kids have time to play with other kids after school, but with the high intensity of after school learning and after school programs, kids don't have much time to play with their friends the way we once did.

Raising Kids, Some Observations

"Quality is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skillful execution; it represents the wise choice of many alternatives.”
                                                            ---William A. Foster

One thing we in the West are good at is our ability to thoroughly understand something and professionalize it. Every endeavor has been crafted down to a science. Running a business used to be something that gets passed from father to sons. Now there is a whole groups of professionals looking at every aspect of running a business. With MBAs, finance and economics, nothing is left to chance, no stone left unturned. The same zeal is applied to raising dairy cows. From breeding to gestation interval to every aspect of a cow's life is controlled. The average American cow produces 21,000 lbs of milk. In contrast, a cow from China only produces 6600 lbs of milk.

If only this ruthless efficiency is applied to raising kids. When it comes to raising kids, there seems to be left to each set of parents, who is new to the game, to figure this all out. There are no owners manual when you have a kid, no training program. What is more, the best practices do not get spread out like the other professions. This is the last frontier ripe for applying some of the professionalism we have developed for our other endeavors. 

The biggest issue has been that people raise kids were doing things not for the kids but for themselves. For example, nowadays many have adapted a very soft way of treating the kids. They will not doing anything to get the kids mad because they want to be the kid's friend, they want their kids to like them. If we are doing things for the kids and not for ourselves, we would not care if the kids are mad at us, if this is for their own good. Another example is found with tiger moms, they drive their kids to the brink. Often times, there is a competition between adults to see whose kids got into the best colleges, or who went to the best summer camp. This is the same competition as who has the best handbags, or who drives the best car. It is for the parents. Though they will couch this as for the kids own good, if a kid did not do well, it is the parents that "lose face". The well being of the child is lost in this competition. 

The other issue is that we follow what is trendy. History is repleted with example of trends that seem sensible at the time but looks completely foolish in retrospect. The Tulip mania is an example, but when your relatives and your friends are all doing it, you feel that you will miss out if you don't join in the action. Not only do we follow what our friends do, the best of the lot will up the game and take it to the next level. In my kids school, there is so much work that they both stay up until at least 11:00 pm. This is crazy for kids who are 10 to 14 years of age, but most of their peers are doing the same. Some stay up until 1:00 or 2:00 in the morning. None of the parents are concerned of the harm that this does to their kids. In fact, they are the reason why the school drive their kids so hard.

There has to be a better way. In my next few posts, I will discuss a new model for schooling the kids.

Raising Kids Part Five, Character Building And Good Habits

"If I take care of my character, my reputation will take care of me".

                                                                         ---Dwight L. Moody

As I pointed out in my previous posts, we as parents don't have much control over how smart our kids turned out. It seems by the time they turn 17, up to 85% of their IQs are genetically determined. The remaining environmental factors were mostly not related to how parents raise their kids. If, at the end of the day, all the work to enhance their abilities have come to naught, perhaps we should focus our effort on something that we could influence.

In my life, I have seen many cases of smart people that are so flawed in their character that their intellect simply did not matter at all. Take the case of Fanny(not her real name), a first generation Chinese immigrant who grew up in San Francisco. When she was young, her family lived with relatives. Her family did not have good relationship with the host. She developed a victim mentality at a young age. Fanny got into one of the U.C. schools and later into a medical school. While in school, Fanny always try to minimize paying for anything, to the detriment of her friends and roommates. Before she leaves for home, she would write down the reading on the watt meter and again when she returns. She would argue that she is not responsible for that portion of the electric bill. When it was her turn to provide toilet paper, she would go around the campus and steal the cheap toilet paper that was in the campus bathrooms. However, when the shoe is on the other foot, she would never be shy about asking people for favors, again, totally disregarding the well being of the person she is asking the favor. When school ended, she asked one of her roommates to take her home, but she had not packed, so she made them wait for four hours while she packed up her stuff. In addition, it was very out of the way for the roommate since she was not going to San Francisco. Fanny even asked to move into the parents of one of her acquaintance during her medical internship and ask to use their car! The end result? Fanny went through her life without any friends. People, once they knew her, avoided her. She went through a bout of depression and needed to consult a psychologist for her depression. If Fanny was an anomaly, it might have been funny, but based on my experience, she was just an extreme example of how many Chinese immigrants behaved. Some of the enmity White people have for the Chinese were due to racism and jealousy, but some of their anger were directed at the behavior of people like Fanny, who shows complete lack of respect or concern for other people. Many of the Chinese from China, who were raised as a single spoiled child, are equally flawed in their characters. Character building, not learning more knowledge, is the number one job for the parents. I would say that it is also the number two and number three jobs of the parents.

Of all the character traits, by far the most important is integrity. Integrity means keeping your promises and treating others like you want to be treated. Integrity is the basis of all human transactions. As we meet people, we are learning who we can trust and who can get things done. Treating others as we like to be treated help us form that bond in knowing that we could be counted on to help our friends in good times and bad. Keeping our promises, under promise and over deliver shows that we can get things done. Opportunities in life come to us because people know they can count on us to get things done.

Sports are supposed to teach kids about cooperation and competition. However, many parents have taken this to the extreme. I have seen parents bribing coaches to get their kids more play time or play a more important role in the sport. One of the girls even trampled on her friends to get ahead in her sport, citing her dad who taught her that "friends are there to be used". In a modern society, in order to compete, we form groups, companies, political parties, churches, circle of friends. To be an effective competitor, we need to work well within the group. That means having integrity within our group and even toward the competition, because your competitor today maybe your group tomorrow. To cheat and to trample on your friends is precisely the wrong lessons that the kids should be learning. They will go through life cheating and trampling on people that they know. I have known many people in high place in a corporation. My kids were playing sports with their kids. They were CEOs, CFOs, VPs and directors in small companies, large corporations and important start ups like LinkedIn. None of the people who made it to high places in a corporation teach their kids to cheat or trample on their friends, or treat their friends as someone to be "used". They all teach their kids to have integrity and to treat their teammates well. Some of them coach the team. Instead of giving more play time to their kids, they mostly assign play time and roles based on ability of the kids. What they teach their kids speaks volumes on what it takes to get ahead in the work place.

Tenaciousness and follow through are also important traits to have. To get anywhere in life, we will experience our share of failures. The important thing is to get up after you failed and do it again. Follow through means when we start something, we should see to it that what we started gets completed. Many of the angel investors who fund start ups have expressed that even more important than a good idea, they are looking for a team that is tenacious, because they knew that the start up process is full of setbacks and disappointments. It is how the team handles them that determines if they will succeed.

We Chinese are a practical people, but intellectual curiosity is not our strong suit. Take Chinese medicine, There were a few pioneers like Hua Tuo, the father of Chinese herbal medicine who tried to find out what impact different plants have on the human body, but most who practice Chinese medicine just took what they learned as gospel and not investigate further about how the human body works. It was the West that had discovered the workings of different organs. The Chinese had a lot of inventions early on, but with something like compass and gun powder, we never tried to understand why it worked. Interestingly, in American college campuses today, there is also a stifling lack of intellectual curiosity. Charles Murray was to give a talk at Middlebury College the other day, a bunch of thugs just prevented him from making the speech. They are not interested in a debate as a college should be doing, they just want to shut people up when they encounter views that are different from theirs. Intellectual curiosity is the engine of new discovery and human progress. We need to teach our kids to get into the habit of always asking a lot of questions. When we encounter something that we don't understand, don't just pass it by. Try to understand it. When we half understand something, ask more questions until we completely understand it.

Self direction is another trait that the Chinese can do more of. Perhaps due to our heavy handed style of parenting, many of our kids just know to study, but do not have an internal compass and know what they want to do with their own lives. This goes back to making kids do things on their own and making more decisions early on.

Many people are not very punctual. However, if you ask them to examine their lives and see how many important meetings they were late to, they will be the first to admit that they were on time for these important meetings. Being punctual is showing respect for the other people involved. It goes back to having integrity. We should have integrity with every person that we deal with, not just the important ones.

Finally, exercising regularly and having discipline are important. Exercising keeps our body in prime condition. Discipline helps us control our behavior. both are prerequisite for everything else that we do in life.

We don't have much control over how smart our kids are, but we can shapes their character and their habits. Things like integrity, learn to compete and cooperate with a team, tenaciousness, follow through, intellectual curiosity and self direction are characters that we can teach our kids. In addition, they should get into the habit of being punctual, exercise regularly and have discipline.