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October 08, 2007

Richard D. North asks, have the South-East Asian tycoons really contributed as little to their countries economic growth as Joe Studwell claims? Asian Godfathers - Joe Studwell

Posted by Richard D. North

Asian Godfathers: Money and power in Hong Kong and South-East Asia
by Joe Studwell
London: Profile Books, 2007
Paperback, 15

Joe Studwell should know where the bodies are buried. He is editor of China Economic Quarterly and helps run a research firm specialising in Asian economics. When he tells us about the mega-rich men and their families who might be thought to personify the Dragon economies, we are bound to listen. We do so, not least because the telling presumably took a good deal of courage. He has a cracking tale, and a bold thesis to promote.

The Godfathers are like the heroes in Richistan (reviewed here) in being quite different to expectations. The Richistanis turn out to be conventionally valuable and the apparent engines of the Asian miracle turn out to be venal. Probably because he knew that he was about to get into a great deal of what he calls "bottom up" detail, Studwell tops and tails his story with the big messages he wants to convey. This is the "structural sleight" of his work. It's a bit of a failure: he says the story of the Godfathers matters for what it tells us about the much more valuable non-Godfather economies which surround his subjects. Fascinating as his characters are, one ends up wishing he had started with Asia's little men.

Studwell says the famous Asian tycoons, mostly but not all Chinese, are not very entrepreneurial. Indeed, their fortunes often depend on corrupt dealing. And sometimes their trick was more like clever exploitation of unintended generosity by government, as when the shipping magnate Y K Pao used Japanese support of its shipbuilding business to develop the world's largest fleet. He went on to became a big player within the Hong Kong Bank later, HSBC - which bankrolled him.

Either way, the Godfathers are the business arm of more or less unsavoury and slouchy governments. What's more, Studwell thinks their being good at what they do isn't particularly "Chinese". There are a few other important things to note, Studwell tells us. The Godfathers are not good innovators, and are not keen on technology or modern branding or marketing. If they get into, say, the mobile phone business it's because there are licences to milk and that is a trade they know. The Godfathers are, in the main, not very valuable to the Dragon economies, whose real strength is exports made or at least assembled by masses of cheap and diligent labour, fairly unimaginative but diligent local management, and the masses of capital floating around the world looking for opportunity.

The Godfathers invert this process: they take local capital and income flows such as gambling earnings, and abuse them. It's the separateness of the tycoons from the real economy which makes it hard to take very seriously Studwell's claim to use them to throw light on the world around them.

This is not a campaigning or a grumpy book. Studwell rather likes the Godfathers he meets. They are, he says, "enchanting plutocrats", charming and friendly, up to a point. His use of the word "Godfather" is not to imply that these men are Mafiosi, or (most of them) violent. He does note that their reputation for prodigious hard work is not always deserved. The famous Li Ka-shing, Asia's richest tycoon, may get up early, but he plays a lot of golf, and does a great deal of socialising. But Studwell's thesis is that the Godfathers thrive by schmoozing politicians and each other, so they are bound to make sure their relationships are in good order.

Being an old-fashioned sort of person, and bloody-minded with it, I rather believe in racial stereotypes. Younger readers will perhaps warm to Studwell's very different take. He is explicit that the Chinese are no more racially prone to being good at money than the Jews are. This line of argument matters to him. To the modern mind, to imply that there might be a racial component to a phenomenon is tantamount to Nazism.

It might have helped if Studwell had more forcefully allowed that apart from DNA, there is room for the idea that the Chinese culture produces people who love deals. He accepts that, but prefers the view that insofar as Chinese gravitate to a particular form of economic activity, it is because they are uneasy immigrants who can establish particular relationships with political elites. That's to say, the political elites can play these unsettled people to mutual advantage.

Studwell tries to persuade us that historic circumstance even more than culture or genes accounts for the power of the Chinese Godfathers. Indeed, Studwell is keen to point out that the Chinese Godfathers are much more apparently than actually Chinese: they are "chameleon" - as though they are uncertain whether to promote or disguise their ethnicity. He is especially fierce about anyone who claims there is something Confucian about the Chinese Godfathers or their form of capitalism. Indeed, he sees the ethnic posing of the likes of Lee Kuan Yew, erstwhile Prime Minister of Singapore, as a sort of social manipulation, which enjoins workers to be obedient and quiescent in case something damages the special but fragile economy in which they toil.

One can easily imagine why the Chinese tycoons might be uncertain about flaunting their ethnicity. They will remember several cases where indigenous populations have turned against Chinese money-makers - most violently in Indonesia. As to the rest of Studwell's case, it may be nearer the truth than I think or like, but it does anyway rather well lead on into the heart of the book's thesis.

This is even more uncomfortable to my sort of gung-ho conservative. Studwell argues that colonialism - not least British colonialism - produced a pattern in which the white ruling class sought ways in which to exploit their suzerainties, and they resorted to a very old model in which the State sub-contracted much economic activities to favourites. This is how the European economies had managed things for hundreds of years, in a system which had helped early capitalism develop and whose demise marked the birth of modern capitalism.

In the colonies, the States' business partners were not the old pre-colonial indigenous aristocrats, who did not like economic activity any more than their equivalents in Europe had. It was the Chinese diaspora which provided the compliant co-conspirators. Come independence, and the new political elites (some aristocratic and some arriviste) stepped into the shoes of their former masters and kept the old game going. More by luck than judgement, "real" economies grew in parts of Asia, and did so with precious little help from the Godfathers.

Studwell notes that the Godfathers and their patrons naturally concentrate on activities where the State has control. That's anything where licences and planning come into play. Favoured areas are natural resources (forestry is the most obvious and controversial), big infrastructure projects such as ports, telephony - and banking. The mighty HSBC - the old Hong Kong and Shanghai Bank - grew by being a political player. Indonesia's rainforests are even now being wrecked by clients of the political elite. Mahathir Mohamad and his family still manipulate Malaysia.

The big picture takes up around 60 pages of the book, and though it is the most serious and almost academic part, it is also the most interesting. The remaining 130 pages ought to be the easiest and most fun. This is where we meet real men and real scams, and we should be swept along if only by the awfulness of it all. Actually, I fear we get rather bogged down.

Studwell is writing about several different economies. There the city states of Hong Kong and Singapore, and then countries such as Malaysia, Indonesia, the Philippines. He is rightly keen to neither overstate nor understate commonalities and differences between the various Godfathers and the countries and regions they work in. Well aware of the difficulties of any route through this rainforest of material - he has picked on a broadly thematic account. It all becomes a bit tedious as we learn scattered snippets about different places and people and have to keep track of what we were already told a few pages back. The problem for the story-teller is that nothing much happens: the same awfulness plods on, in slightly different guises, but largely unchanged.

Studwell helps us understand the late-90s financial collapse in the region, and he does so partly by telling the story of the lack of transparency in the relations between government and business, and not least in the privatisation programmes enjoined by the IMF. He is also persuasive when he discusses the corrupt banking practices of the period: banks often lent to their owners rather than to real businesses. This is where the story becomes vaguely familiar: most of us will have read that crony-ism was at the heart of the region's problems.

Where Studwell seems very useful is in his gloomy account of the largely unchanged power-relations which resumed after the famous crisis. If he's right, the Godfathers still do very well by serving their political masters. What's more, he insists that the sheer wastefulness of godfather economics has sapped the regional economies.

Are there signs of light? One's impression of many of the countries Studwell writes about is that the population is held in thrall of power with remarkable ease. Mahathir in particular treated his subjects as children, in a manner which was faintly reminiscent of Margaret Thatcher, but much more ominous. So far as one can see, there really is worldwide demand for better economic governance. I don't mean better government (thought there's that) and I don't mean better economic management (though there's that). I mean that business is required to be a bit more transparent. It's really only opacity which allows the Godfathers to swing along, and it's a commodity that's going to run out. Studwell discusses some of that, but seems gloomy.

Real responsibility rests with the politicians who allowed godfather economics to exist in the first place.
Or so says Studwell. That's true, but presumably it's only a smallish part of the story. The wonder of the modern world is what voters will fall for. And yet modern politics has become essentially a retail business. When the middle classes of Asia want to rein the Godfathers in, it'll happen quickly enough. And this remarkable myth-busting book will perhaps be marked as one of the turning points.

Richard D. North is the author of Rich is Beautiful: A Very Personal Defence of Mass Affluence and Scrap the BBC!: Ten Years to Set Broadcasters Free.


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