Whose Moral Relativism?

In the Hutong
Dry dry dry dry
1701 hrs

Uber-establishment public intellectual and Newsweek International editor Fareed Zakaria does a decent job calming the otherwise financially panicked in a pallative column from June 13.

What I found most intriguing about the article was the conclusion (proving, once again, that it does occasionally pay to read long essays all the way through,) where he explains that the West is in the throes of a crisis of morals as much (or arguably more) that a crisis of finance. When he first started this bit of his rant I shook my head. “Yes,” I thought. “We’ve all heard this before – the old Wall Street is an Ethical Wasteland argument, with Bernie Madoff, Allen Stanford, Alan Greenspan, Wall Street traders, and subprime mortgage brokers all trotted out as poster children.”

But then Zakaria pointed out that Wall Street was not alone.

“Most of what happened over the past decade across the world was legal. Bankers did what they were allowed to do under the law. Politicians did what they thought the system asked of them. Bureaucrats were not exchanging cash for favors. But very few people acted responsibly, honorably or nobly (the very word sounds odd today). This might sound like a small point, but it is not. No system—capitalism, socialism, whatever—can work without a sense of ethics and values at its core. No matter what reforms we put in place, without common sense, judgment and an ethical standard, they will prove inadequate. We will never know where the next bubble will form, what the next innovations will look like and where excesses will build up. But we can ask that people steer themselves and their institutions with a greater reliance on a moral compass.”

(Italics mine)

Leave aside for a moment the problem that when you start blaming society, you deflect the blame from the bad guys. I do not get the impression that this is Zakaria’s intent.

No More Higher Ground

Zakaria makes two points, one implicit, one explicit but not sufficiently so, that we need to take into account for China.

The first is one I have discussed and heard from other China hands over the past year. Anyone who thinks that Chinese leaders and the Chinese people are blind to the malfunctioning moral compass in the West – especially in the wake of current events – is wrong. If we ever were in a position to preach, either at a systemic, enterprise, or personal level, we have lost that position.

And that means that any American who excoriates corruption in China will be dismissed as a hypocrite; any foreigner who tries to explain to a factory owner why it is better to make produts safer will be held to a higher burden of proof; and any executive trying to preach the importance of integrity and ethics to a recent recruit will face annoyed skepticism.

The Law of Rules

But the larger point – the one I do not think Zakaria makes plain enough – is that rule of law is not all that we have made it to be. As we talk about China’s development, we attach to the concept of “rule of law” a Holy Grail-like quality, as if the quest for the rule of law, as much as finally attaining it, will be the answers to many of China’s major social challenges.

In pointing out that in America, the paragon of societies living under a fully developed body of law, legislative process, and criminal and civil court systems, is deeply socially flawed in spite of the rule of law, Zakaria sends us a warning about China, one that will discomfort many of us. Rule of law, as important a goal as that may be for China, is inadequate to ensure that leaders, enterprises, and people behave in ways that are not sociopathic.

A rule of law must be paired with what I would call a Law of Rules, a detailed code of behavior that is rigid enough to withstand relativism, is adaptable enough to stand despite massive social change, and is set forth by a body or entity that operates at a level removed from our own unlimited ability to rationalize almost any behavior.  Law of Rules is more than just a moral compass. It is a clear description of how to live, so that the rule of law – the nation-specific constitutional, criminal, and civil codes standards of behavior – need only come into play in exceptional cases. The rest of the time, it is our fear of doing wrong and our desire to do right that guide us, not the fear of the cop, the lawsuit, the jury.

The Law Gone Missing in China

Twice in the last hundred years, China has had its Law of Rules stripped away. The first was what might best be called Confucianism, an imperfect but longstanding code of behavior rooted in a system of rigid interpersonal obligations. Ripped away in the aftermath of the 1911 overthrow of the Manchus, it died a slow death, and was eventually replaced by Maoism.

Maoism was battered by almost continuous challenge and upheaval, until finally its precepts of egalitarianism, service, self-sacrifice, and patriotism were abandoned in the 1990s. What replaced them were two simple maxims: “To Get Rich is Glorious,” and “It doesn’t matter if the cat is black or white, as long as it catches mice.”

Now, we are told, all that we need to lay upon this highly practical foundation is a legal system backed with apolitical courts, and everything will be fine. Not bloody likely. If the fear of prison and death are not enough to keep the chief executive of a dairy from making decisions that will kill babies, no rule of law can hope to end such behavior.

There is no silver bullet solution to this problem for China, no simple path to change, because the change that must take place is not in institutions but in individuals. This is not one battle, but 1.3 billion battles. And for that reason, it is the greatest single challenge facing China today.

Where to begin?

Indra Nooyi’s “focus” on China

In the Hutong
Fall hath Fallen
1634 hrs.

Pepsico CEO Indra Nooyi did a grand tour of China not too long ago, forgoing the normal jet-in-jet-out itineraries that frame most global CEO China visits. Given the time constraints that face any CEO, regardless of the size of the business, carving 12 days out of the executive schedule to do a deep dive anyplace is no mean feat. It must have been that much harder for Nooyi, who runs a Fortune 500 fast-moving consumer goods company with a global market.

Even better, Nooyi prepped extensively for the trip before she even got on the plane, and once here she pulled herself out of the standard boardroom-and-powerpoint grind that is the meat of most CEO visits, and actually got out on the streets and into the hinterlands.

Granting that there is a limit to what you can learn in two weeks, and that there are dangers implicit in thinking you know China better than you do. I remain skeptical of any CEO who calls China a “core” market but will not pick up and move here for a year or more.

Nooyi, however, deserves a lot of credit for making an effort that sets a new standard for CEO visit to China should be. By her actions she has issued a challenge to other senior corporate leaders to match or beat her approach. What will be interesting is to see what initiatives come out of Pepsi in China as a result.

Nooyi needed to come to China, because the core fizzy-sugar-water business is probably not going to grow here to anything like it is in parts of the world where people have been slurping carbonated beverages for generations. Pepsi in China is going to have to go its own way if it is going to grow, much less fight off growing local competitors like Wahaha or the marketing and distribution monster that is Coke.

And getting the boss here to see exactly why that is the case was a superb ste

Afghanistan 2009 = China 1945

In the Hutong

Contemplating Awareness

0936 hrs

Starting to catch up with my reading – I’m at least four years behind – I came across some of the writing CFR Fellow Elizabeth Rubin is doing from Afghanistan, in particular an August 4 piece in the New York Times Magazine called “Karzai in His Labyrinth.” I spend less time than I should reading into the situation in China’s neighbor to the southwest (an oversight, because much of China’s thinking about the world is dictated by the “near abroad”), so this piece was something of an eye-opener.

The more I read about the Afghan political scene in the midst of a brutal civil war, the more similarities I see with China in 1945. The United States is, once again, essentially supporting a leader who has forged a weak and tenuous polity out of an uneasy alliance of warlords and narco-barons that have emerged from the wreckage of a weak and brutal neo-feudal theocracy offers.

The U.S. has  done this in the name of expediency and ideology, preferring a corrupt, secular, and nominally democratic alliance to a centralized fundamentalist state. And, to be fair, the U.S. did so with the best of intentions but with painfully little care, planning, and expertise.

As a result, it is working little better in Afghanistan than it did in China 65 years ago.

None of this is to suggest that America and its NATO allies should throw in the towel and come home. It is, however, time for some realpolitik and some more creative thinking.

In World War II, the U.S. sent a combined military-civilian mission to Yan’an to investigate the possibility of working with the Communists after the war. Called  the “Dixie Mission,” the three year effort was eventually undermined by a combination of McCarthyism, a failure to appreciate the latent rifts between the  Soviet Union and the Chinese Communist Party, and the policy myopia of the Truman Administration and specifically Ambassador Patrick J. Hurley.

If there is an implicit message coming from the ground in Afghanistan, it is that we need to start looking for alternatives to the present situation rather than bolstering it. Even if the Taliban were to pack it in tomorrow, would what was left truly be the kind of government of which we could be proud – or that would promise stability for anything longer than a lunch break?

None of this is meant to suggest that the U.S. ally itself with the kind of regime that ruled Afghanistan prior to October 2001. Instead, it is time to start getting a little more creative in casting about for solutions, rather than “backing a horse and sticking to him.”

“Sticking to our horse” failed in China in 1946, in Cuba in 1959, in Vietnam in 1975, and in Iran in 1978. It has failed in Afghanistan for two centuries at least. History may not repeat itself, but it does echo, and this is an echo worth heeding.

It is also an echo that suggests that China has as much – and perhaps more – at stake in the eventual outcomes in Afghanistan than the U.S. and NATO (as do Iran, Pakistan, India, and the Central Asian Republics), and that if there was ever an opportunity for China to begin exercising itself on the world stage, this is it.

That is, of course, unless China’s strategy is to hang back, watch the U.S. make a mess of Afghanistan, and then swoop in and try to clean up the mess afterward. In which case, we can only hope they learn from the mistakes of their predecessors rather than repeat them.

Questioning China’s CyberLegions

In the Hutong
Not a Caveman
1045 hrs.

The Open Society Institute is not an organization you would classify among China’s great supporters. But OSI Fellow Evgeny Morozov suggests in the Boston Review that our fears of “digital Pearl Harbors” and “cyber-Katrinas” launched from non-democratic countries are, at best, overblown, and at worst distract us from more worrisome threats.

Not least of those in Morozov’s mind would be the implicit threat to democratic regimes by their own governments who may curtail freedoms in the effort to secure their systems, driven by good intentions but hamepred by a misunderstanding  of the real threat.

Skynet? No…er, not YET

Morozov does an excellent job taking apart some of the misperceptions and complexities around computer security and cyber-warfare, adding some balance to a discussion normally dominated by the voices or proxies of what we might call the Cybersecurity Industrial Complex (CIC, pronounced “sick.”)

Morozov resists the temptation to turn China into a punching bag, choosing instead to take a wide-angle look at the issues, and in the process putting to rest much of the fear, uncertainty, and doubt around cyber-security.

It is a superb article, and I agree with about 90% of it, especially his contentions that the most important targets for cyber warfare will (initially at least) not be militaries or governments but enterprises and NGOs, and that much cyber-conflict will take place in the realm of the criminal rather than the martial.

What concerns me about Morozov is that in the course of his article he gently manages to sing us to sleep vis-a-vis information warfare. His offhanded dismissal of cyberwar sounds a bit like the U.S. Admirals who ridiculed General Billy Mitchell’s contention in the early 1920s that aircraft would render battleships obsolete. The Admirals were absolutely right – at the time. On December 7, 1941 and dozens of occasions afterward, however, they were 100% wrong.

History has proven that the premature dismissal of a new technology because of poor initial performance on the battlefield is as foolish as it is common.

As difficult as it might be to separate calm, rational threat assessment from alarmist hyperbolic hucksterism, it would not do to allow Morozov to shrink military-class information security threats to the point of non-existence. Computers are commonplace and a billion people are online, but  we are only beginning to understand the full security implications of a connected world.

I am a still at the stage of “student” when it comes to information warfare. My greatest accomplishment to date on that score has been to assemble a fairly intimidating body of literature on the topic that by its very presence on my bookshelves tasks me to take it on.

But it does not take an expert to discern that China’s substantial budgetary challenges, balanced with a need to build a credible and modern national defense, will drive it to choose asymmetric strategies. China will build systems to deny advantages to its adversaries rather than try to match them. Put in concrete terms, that means building lots of anti-ship missiles rather than lots of aircraft carriers, anti-satellite missiles rather than its own constellation of GPS satellites, and hacks, cracks, viruses, and botnets rather than complex C4I networks.

That there are technical, doctrinal, and practical challenges to these approaches should not make us think that they cannot constitute the pillars of a viable and potent defensive (and possibly offensive) capability.  Wisdom, not hype or hysteria, suggests that every military commander in the world begin to plumb the evolving possibilities of anti-network warfare, and by all accounts the PLA seems, wisely, to be doing so.

Banks and the China UnStrategy

In the Hutong
Trying to like our new birds
1156 hrs.

The Financial Times has a style of reportage that I would place somewhere between a newswire and The Economist. The reporters are superb, the coverage is excellent, and I happily pay my monthly subscription for online-only access. But because of that same style, the FT all too rarely delivers stories that can deliver memorable analysis and insight. Those sorts of things tend to get shunted into “special reports” and the opinion section.

But occasionally there is an exception, and Sundeep Tucker and Jamil Anderlini penned one in early July entitled “Exiting the Dragon,” which chronicled the recent spate of global banks divesting their China financial holdings, putting that activity into the context of the troubles that the global financial industry has faced in trying to build businesses in China.

M&A is Not Strategy

As frequently happens when journalists dive deep into a topic like this, a host of other issues emerge that, while peripheral to the thrust of the article, are precious nuggets in their own right. The one that stopped me was this paragraph about China and strategy:

The strategic aspect of these deals was always overstated,” says Lonnie Dounn, formerly of HSBC in Asia but who in 2005 was named chief credit officer of Bank of China, becoming the first foreigner to hold a senior executive position at a top mainland lender. “The Chinese banks did not want to give the foreign banks access to their best customers and the foreign banks did not, going in, have clear strategies for the Chinese market,” says Mr Dounn, who is no longer with BoC.”

(Italics mine)

Dounn makes the single most important point that needs to be learned by both U.S. companies entering China, and by Chinese companies stepping into overseas markets. An investment, an acquisition, or a merger is not a strategy. They are tactics, and to make an investment strategic it must be a logical and necessary component of a clear and practical strategy.

So Much for Guanxi

Notwithstanding the substantial capital gains earned in the process, I would wager that a lot of these investments – Bank of America’s stake in China Construction Bank, the Royal Bank of Scotland’s holdings in Bank of China, and similar purchases by UBS and Citigroup – were at their core a form of capital-based government relations. By investing a lot of cash for nominal stakes in state-owned banks, western financial institutions were attempting to demonstrate their commitment to China to policy makers who in turn could grant access to China’s growing commercial and retail banking sectors.

All of that would have been fine if these investments really purchased any substantive and enduring goodwill. I would suggest that China gained little through these investments in the first place, and as such the banks gained little favor in Beijing for their trouble. Sadly, whatever goodwill there was has been liquidated along with the holdings. Global financial crisis notwithstanding Chinese leaders, businesspeople, and consumers do not appreciate companies that swear a deep and enduring commitment to the market, only to pack up and pull out when things get a little tough.

And memories are long here.

The Accidental Victory

One could argue that the banks that have cashed out of Chinese financial institutions are probably better off taking their profits from their investments than they would be in undertaking a massive and distracting effort to win over Chinese enterprise and consumer customers. That may well be the case, but given that this did not seem to be the motivation behind the original investments – or behind the divestments – the banks simply lucked into this. If the past two years have proven anything, it is that hope is not a dependable strategy for financial businesses.

If the banks in question were hoping to use these investments to root themselves into the Chinese financial industry at a critical point in its development, with a view to being a player in Chinese commercial and retail banking at some point in the future, they have failed utterly.