Daniel's blog

I started travelling around the world nine months ago and had many questions on my mind at the time. While I got answers to some, many are still waiting to be resolved. One of the biggest ones is what makes a society succeed? For this purpose, I define success as above average living conditions and stable social and economic environment. Why did Europe colonise Africa and Latin America and not vice versa? Why did US manage to liberate themselves from the British rule already in the 18^th century and went on to become a global superpower while Latin America got independence in the 19^th century and Africa only in the 20^th century and neither continent is particularly successful today (may be with the exception of couple countries in the southern Latin America). Why are living standards better in China than they are in India?

I am still far away from understanding these phenomena but based on what I have seen, the conversations I have had with many people around the world and what I have read, here is my first attempt to shed some light on the matter. I believe there are three broad elements which when present, make a society more successful.  These are 1) working habits defined mainly by agricultural tradition, 2) nature of society’s leadership and its ability to make decisions and 3) society’s ability to define and stay true to its core values but to embrace openness and innovation in everything else.

Working habits

One my Colombian friend who studied history and economics in the US told me that you cannot understand a society until you stay with them for at least one whole agricultural cycle. Since agriculture used to be the main source of livelihood for people for thousands of years and at the same time its nature is very different across geographical locations, it should have some influence on working habits of societies. Malcom Gladwell gives an interesting example in his book Outliers: The Story of Success where he argues that East Asian people are very hard working because of their tradition of cultivating rice fields which require high labour input all year round. Compare this to for example Europe where people work on fields only half a year and the other half a year are free, or to a life in tropical areas where worst comes to worst, one can always pick up a banana or some kind of root from the ground at any time of year. I think these traditions have a significant impact on how hard people work nowadays.

The other influence comes through climate. Especially in the northern parts of Europe and US, people have only a limited window of opportunity to grow their food, often having only one harvest. This forces them to plan for that one harvest in advance and to make sure it happens. They have to build a house to survive the winter and they cannot be in war at the time of planting. It also teaches them to understand the concept of deferred consumption – they cannot eat all the potatoes in autumn because they would starve during the winter; actually, they must learn to resist the temptation of eating all their potatoes even during the times of hunger because otherwise they would not have any seeds to grow new ones from the next year. Again, compare this to a society which can grow its crops at any time of year (it does not have to plan) or can eat wildly growing plants (it does not need to get used to deferred consumption) and can sleep outside without freezing to death at night (it does not have to build sophisticated communities). Successful societies possess all these qualities and I believe that agricultural tradition has had a big influence on how well they have mastered them.

Leadership and decision making

There are three important conditions for this element to be present and impactful. Firstly, it is a tradition of centralized leadership, good or bad, giving the society a tradition of cohesion, order and some level of certainty about the future. I think that the Roman Catholic Church played a crucial role in this aspect in Europe, acting as a central institution for dissemination of knowledge and order. China has a similar thousands year old tradition of ruling dynasties with one emperor at helm. On the other hand Africa is to date fragmented into hundreds of tribes with poorly developed relationships between them and a lack of a central authority (current states trying to assume this role are failing or only moderately succeeding in most cases as we could see for example in Kenya, one of the most developed African states, during its 2007 post election violence fuelled by arguments between the Kikuyu and Lou tribes. This was still a hotly debated issue when I was visiting Kenya four years later.) The indigenous Americans and SE Asians have not had any central authority for most of their histories either.

Secondly it is an ability of society’s leaders, its central authority, to make decisions. United Stated have had for most of their history only two main political parties, the Republicans and the Democrats. The winners enjoy a majority in the Congress for at least first half of the presidential term, giving them a chance to pass important legislation. China is another good example with the Communist Party being the ultimate decision maker capable of making sweeping changes to the society. What a stark difference to for example India’s system where the wining party usually has to enter into a collation with lots of small regional or caste specific parties which are often interested only in protecting interests of its niche electoral group rather than those of the nation as a whole, leading to decision making vacuum and paralysis.

Finally, it is important how the society selects its leaders. In Africa or India, where most of the voting population is uneducated, tribe or caste play much more important role than policies. My Kenyan friend explained me that most people vote representatives of their tribe. This leads to either people with wrong policies being voted in or to inconsistencies at the top as there are no traditional (consistent) political parties. With the exception of the Congress Party and to some extend the BJP, a Hindu party, the same holds true also for India, just swap tribe with region or caste. Looking at China, we can see a big change in how it is choosing its leaders and what progress this brings to the society. At the beginning of the Communist rule, intelligent people were being persecuted and killed en mass and uneducated peasants and workers guided by Mao Zedong were put in charge of China, resulting in a disaster during which 30 million people died of famine and millions of others were killed for political reasons. After Mao’s death however, the Party started transforming itself, and under the leadership of Deng Xiaoping evolved into an elite club of some of the country’s smartest people. While still not a democracy, China has nowadays a surprisingly meritocratic way of selecting its leaders. Its recent economic success and increases in living conditions are a world away from the life under Chairman Mao.

It is crucial for a country to have a system able to eliminate narrow minded populists from gaining positions and put educated people in charge of its development. If the system than holds them accountable to development of the society, be it through educated electorate as in the case of the US, or a thread of revolt as in the case of China (see my previous post), this condition is my opinion more important  to society’s development than whether its leaders are democratically elected or not.

Coexistence of tradition and progress

I borrowed this concept from Jim Collins’ recent book Great by Choice where he observes that some of the most successful companies were able to define a set of core values (or value propositions) which they did not change throughout their existence but were willing to evolve everything else around them. The same holds true in my opinion to societies well. Turning to the example of USA or China, a democracy at the core and an authoritarian communist country respectively, both are staying true to their values while are embracing innovation and openness in all other aspects. China’s leaders have correctly understood that for the society to prosper, they have to allow private enterprise and to open the country to FDI.

My Chinese friends go shopping to Wal-Mart, have furniture from IKEA at home and meet up in Starbucks. On the other hand India has traditionally been a closed country and even though its 1991 reforms by then finance minister, now PM, Mohammad Sing opened up the country a bit, it still remains hidden behind a wall of protectionism.  It is frequently reported that over one third of Indian food rots before it reaches consumers yet when the government voted last year to allow FDI in multi-brand retail which would bring much needed investment into its food supply channels thus eliminating some of this wastage, it was met with fierce resistance from small merchants and dealers benefiting from the current inefficient system of small corner shops. Its coalition partners forced it to reverse this decision at the time and even though it earlier this year passed a law allowing FDI in this sector, it attached so many strings that it will be difficult for investors to enter, thus depriving its people of so much needed development and affordable fresh groceries.

These are my first thoughts on the topic of what makes societies successful. They are by no means exhaustive. I am sure there are many more reasons, which I am looking forward to exploring in the future. In the meantime, I would love to hear your opinions!

I was reading last week a book called Red Dust by Ma Jian where the main protagonist, an artist with his day job as a journalist in the foreign propaganda office in Beijing of early 1990’s, is travelling across China, looking to understand his country and its people. At one point he is visiting an institute for drug addicts and afterwards reflects on his experience:

‘I always associated drugs with the Opium War, imperial decadence and foreign exploitation. What place do they have in today’s society? Perhaps when people have no ideals, money can only buy oblivion, not freedom.’ (p. 180)

Opium used to be a very important trade article between the British and Chinese in the early 19^th century. Produced in India and sold to China by the East Indian Company and later on through a network of smugglers, the Chinese were embracing it to a point when the Emperor had to act to stop wide spread addictions. Court’s attempts to stop the trade lead to two Opium Wars fought between the British and Chinese, both of which the Chinese lost, starting therefore a so called Century of Humiliation. This period culminated in the early 20^th century with defeats by the Japanese in both world wars and finished with a civil war and the establishment of People’s Republic of China.

A contemporary parallel immediately struck me with what my Chinese friend was telling me over dinner earlier that day. He was telling me that China has experienced a great progress in economic development over the past couple decades but little or no progress in political development. Lack of development in the latter has been tolerated because of progress in the former he continued. Busy playing Angry Birds on their iPhones and moving into new apartments, fighting for democracy is not on the agenda for many.

As with most drugs, their effects wear off after some time and larger and larger doses are required to achieve a desired level of satisfaction. Likewise, when addicted people get their drug taken away, they start to be stressed, rebel and use any means possible to get what they want again. My friend was wondering what will happen when the party will not be able to maintain the rapid economic development China has been experiencing lately. With their eyes currently hazed by consumption, more and more Chinese people might start voicing their discontent with the government in the future. Let’s see what will happen.

I can highly recommend reading the book Red Dust to get a vivid picture of what China used to be like in the early 1990′s, with poverty and widespread political persecution still looming. You can buy it here.

Bellow you can see a wordle, graphical representation of most common words, generated from all my blog posts. The bigger font, the more frequent the word – a great way to represent data in a graphical way! I will let you draw your own conclusions on what it says about my blog posts.

You can create your own wordles easily here.

An insightful book by Tarun Khanna, an Indian born HBS professor, comparing the development of India and China from their early histories to their current emerging superpower statuses. It covers a wealth of issues but I am selecting here just a few of the most interesting ones and coupling them with my experiences of having lived in both countries.

Great leaps forward

I am now based in Suzhou Industrial Park, a brand new, super modern suburb of the city of Suzhou, housing some 1.2 mil people (the whole city has a population of over 10 mil). Where several years back were only farms and fields, the new Chinese middle class is now riding their new BMWs or Volkswagens to French bakeries for fresh croissants.  On the other hand when I was staying in South Mumbai with my Indian friends, I could see centuries old fishing village right next to some of the most expensive property in the world. How is that possible?

My Chinese host family took to visit their relatives living in dark winding streets of old Suzhou countryside and told me that in two years, everybody will be moved out and there will be factories standing here. When the Communist Party decides to do something, nothing can stop them from executing the idea. On the other hand my Indian friends told me that if the Indian government would try moving the fishing families against their consent, the government would fall the next day. So while China makes great leaps forward, Indian state muddles forward with little progress. The author notes that ‘China’s GDP per capita rose from $673 in 1978 to $5,878 in 2005. Further, the number of people living in absolute poverty dropped from roughly 250 million in 1978 to estimated 26 million in 2004.’ In India, ‘as many as 290 million people live in grinding poverty, a number that rises to 390 million if poverty is measured … as existing on less than $1 a day’. Is freedom of speech and free elections worth widespread extreme poverty and poorer living conditions? I am yet to make up my mind on that.

Soft vs. Hard power

India exerts its influence on the world mainly through soft power such as exporting Buddhism to China nearly two thousand years ago or yoga to the west over the last century. It has never attacked any other country and followed a policy on non-alignment during the cold war. On the other hand China was not reluctant to integrate Tibet by force or to attack India in the 1962 Indo Sino war. Nowadays, it is busy doing business with the world’s dodgy regimes such as Iran, Venezuela or several African dictatorships that other countries including India put sanctions on. To China’s merit, it also engages with many other mainly African countries where it trades natural resources for infrastructural development.

Long terms affairs

Almost all Western companies who have managed to succeed in China or India were in it for the long run. Especially in China, the Communist Party often expects the company to make contributions towards the development of Chinese society, be it through forming joint ventures with local companies to facilitate technology transfers, subcontracting to local companies in as far as possible (this often includes giving direct support to those companies to get quality of their production up to scratch as was the case for example with GE Medical and Bharat  Electronics Limited in India), supporting R&D activities of local universities or focusing on reaching out to the countryside. By engaging with local society, companies win over local politicians and regulators to their side, a crucial step towards company’s success in the country.

In India, businesses thrive mainly in industries untouched by the government where regulation is not so strict or where necessary infrastructure can be provided by private companies as opposed to the dysfunctional state. A prime example is India’s software industry. In China, the author points out that companies have three routes to success. Either they wear a ‘small hat’ and stay private, under the radar of the Party, or they wear a ‘red hat’, that is cooperating closely with the local party representatives mostly by letting government bodies have a stake in the company and its people on the board or thirdly, by wearing a ‘foreign hat’ and forming a partnership with a non-Chinese company.

Due to problems with getting my Chinese visa, I spent over three weeks in the Czech Republic around Easters. Coming back home after three months in Latin America and having stayed in India right before that, it was a bit of shock. While living in a relative luxury and having access to all amenities they need, the people were still grumpy, complaining about their lives. I wished I could send them all to live in an Indian city or a Colombian countryside for a while to see how happy people can be with the little they have. But is it really that simple?

I was lucky to be in India during Diwali (the festival of lights, something like our Christmas) last October and even more lucky to have been invited to a party along with one of my Indian friends from Warwick. In between firing crackers and drinking lots of whiskey I had great conversations with other people there, in particular with a son of one Indian MP. Having studied politics in London, he was very knowledgeable about functioning of European states and quick to compare them with India. His two favourite words to describe Europe were ennui (a feeling of utter weariness and discontent resulting from satiety or lack of interest) and effete (lacking in wholesome vigor; degenerate; decadent – both definitions from dictionary.com); I could not agree more with him.

The European society has made an enormous progress in increasing its living standards over the last 100 or so years, far beyond how have people ever lived before or how they live in other parts of the world. Free health care for everybody, maternity benefits and guaranteed pensions are a norm as is free or heavily subsidised education, unemployment benefits, housing benefits, agricultural production benefits and the list goes on.  Yet there are two crucial problems with this system. Firstly, it makes people lazy and secondly it creates an impression that this ever increasing trajectory can be sustained forever.

My flight to from Colombia to Spain a month ago was delayed because of a Spanish general strike against a new austere budget giving me an excuse to stay in Madrid overnight before catching another plane home. One of the first things that struck me when I landed was that apart from the odd immigrant, there were no people selling stuff on the streets, a common sight in Colombia where it was no problem to get chewing gums, cigarettes etc. anywhere and at any hour of a day from omnipresent vendors with small carts or simple paper boxes. In Spain, as in other countries of Europe, people can afford not to work and have all their basic needs catered for. The millions of street sellers and crafts men in India or Colombia do not run their businesses because they love entrepreneurship so much, but because if they want to feed their families and have somewhere to live, they simply have to. People in the developing world work much harder and face more serious problems than people in Europe with their 35-hour work week early pensions and social safety net but they still enjoy their life more.

The second problem is reconciling this lazy nature with an illusion that living standards have to increase every year, leading to sovereign debt crisis we are seeing in Europe right now. With the adoption of Euro, countries for the first time in decades had to start functioning like companies. If you borrow monies, you have to pay them back or default – you can no longer press the print button and supply more funds to the market. This is a shock mainly for the Mediterranean countries whose living standards are higher than they should be given their labour habits and policies, competition laws, education level or technological development. People will have to learn to accept that their comfort of living cannot be automatically increasing every year and that on contrary, it is perhaps a time for readjustment of living standards downwards to where they really should be.

This will be a bitter pill to digest for many in the West. When it comes to life satisfaction, people in developing countries have an advantage of living in an opposite form of ignorance. Unlike Europeans, who think that they can always get more and more, they are often unaware of what all they can achieve. Even the poorest people have TVs at home now and they see in them lifestyle very different to their own. But because they do not believe they can ever attain such standard of living they do not fall in depression and disillusion with their current state. In the absence of a critical amount of role models from their communities who have achieved such things, they accept they will never get there and find happiness in their daily lives.

One man in a Colombian countryside where I was staying for a weekend said that his biggest dream is to see an ocean at least once in his life. If he took a chiva (a local bus) to the nearest town, he was only six hour bus ride away from the ocean. Even though he could afford the ticket, he will probably never go there. Nobody from his village ever went there and he is not able to pluck up the courage, make the decision, and venture out into the unknown land beyond his village or a town. But this man did not live a sad life, worried that he has not seen the ocean yet, he was a happy man finding joys in and around his village.

Colombian people in general are a very happy lot. Despite having lived in a country torn by a bloody narco-war for decades, they think that Colombia is the best country in the world (and they are very close to being correct!). When I was in the city of Medellin, my local friends were telling me that Ron de Medellin is the best rum. After I moved to Manizales in the Caldas region, my friends there would argue to death that Ron de Caldas is best rum in the world. Whatever they had, it was the best for them! Can you imagine living in a country where all people have such an attitude?

On balance, I am not trying to argue in this blog post that people should start living in ignorance and be satisfied only with what they have at the moment; far from that. But they should learn to appreciate what they have now while setting up their society in a way that would motivate them to be in charge of their own lives and if they want to, to allow them to have better living conditions along with rise in their productivity.