Shock Therapy in continental Euro-Asia would topple a subsidy bill on cities such as Rome, Vienna, Bonn

SATURDAY’S MIRACLE

By Wendell W. Solomons

From 3,000 word alert of July 28th, 1992 to ‘Moscow News’ and World Bank Chief Economist

These jointly owned public assets hold, for example, the lifetime savings of engineers, doctors, teachers, technicians and other workers. In the particular case of divesting these assets into private ownership, careful costing is also required so as to minimise the loss of the savings of working men and women. Causing group insolvency and ethnic breakdown has to be avoided.

Alienation of jointly owned public assets to legal persons also requires the development of civil and company law, which includes development of courts and the training of lawyers.

If a Hey-Presto approach failed, someone else would have to subsidise the earnings and pensions of above 300 million people, young and old, while courses in auditing, accountancy and finance, marketing, management, business economics, banking, insurance, and commercial law are taught… 

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This account begins near the Church of Nicholas the Miracle-Worker in Leo Tolstoi Street. Near it, at a parking lot where foreigners park their cars, men were trying to achieve their miracle.

Somewhat rare even for Moscow, the temperature had dropped overnight to 38 degrees below freezing. Dramatically, brightly coloured American, British, French and German-owned Citroens, Fords, Peugeots, Volkswagens, and Volvos, refused to start. Winter had turned the foreign cars into disheartening heaps of metal.

Few of the foreigners that first morning noticed one man at work. He had placed a tray of glowing coals, a saving from a summer picnic, under the engine of his maroon Volvo ... He knew he could warm the engine oil slightly to help the pistons slide in the cylinders. A Britisher, the expertise for his miracle had come from working as a serviceman in Norway.

Many people search for a miracle to avoid further shortages, price rises, and turmoil in Eastern Europe and the Commonwealth of Independent States. Thinking about figures he had seen in July 1992 U.S. President George Bush had expressed it in his way, “I don’t know if there is enough money in the world to solve Russia’s economy.”

Every miracle worker has his expertise. Matthew XV-14 cautions-

“And if the blind lead the blind, both shall fall into the ditch.”

To make a larger social miracle possible, what expertise could be used? May we have a look at Asia? The spirituality of modern Europe originated in Asia’s Nazareth ...
 

STAR TO THE EAST

ASIAWEEK magazine’s editors saw and took up our large socio-economic problem on July 24th, 1992. They had an observation to make on available expertise in the East

“China’s leaders know what can happen if prices rise too fast. They wrote the book on creating special economic zones as laboratories for free-market reforms, which can then be applied to the rest of the country.”

And to the East of China is Japan - whose star experiences even American companies study. There, a century ago Japan had began the intensive search for expertise. In the inceptional promise of office in 1868, the Japanese ruler who began uniting several Japanese territories declared -

“Knowledge shall be sought for throughout the world, so that the welfare of the Empire may be promoted.”

With a need to take over from several provincial Shoguns and unite Japan, the 16-year old Emperor Meiji led the rapid study and emulation of the practices of Europe.

Between the epochs of Pythagoras and Newton, although many people had been blocked in the hinterland, Europe served as a testing ground for an Asian ethos. It happened to be one that challenged detachment and was cosmopolitan. As this ethos established itself, Western Europe no longer saw Saturn’s day and Thor’s day in the week nor glorified the wisdom of the Stoic recluse who detached himself from the world. The enlightenment of the solitary recluse was replaced by the ‘folly’ foretold in 1st Corinthians I/17-29, exemplified for instance by a prayer called OUR FATHER which contains neither solitary “I” nor “Me.”

In East Asia, Japan had arisen to the popular transition to the European Age of Enlightenment. And in 1890, universal primary school education was adopted as Japan’s goal. Thanks to the study of Europe’s success in education, Japan had begun to think of life in terms of the advances of community centred and community involved Europe. Notably, the Emperor tried to prepare the Japanese for using not only the perimeter of the storm and typhoon-ridden volcanic islands, but also the whole world as a treasury of cosmopolitan expertise from which to select and better slough off national handicaps.

What was the result of this experiment?

How easy it is for us to jump a century forward . . . We hear a news report that says Japan’s trade surplus with the rest of the world increased by 50% during the first six months of 1992 as compared with the previous year. More than one-third of the same trade surplus was gained at the expense of another country that directly inherited the European Age of Enlightenment - the United States.

Yet, we know that the surface area of the Japanese archipelago of four hilly main islands and several thousand others, adds up to less the area of the single U.S. state of California.

While the small David grew, what had the larger nation been doing?

STAR TO THE WEST

U.S. Soldier-President Dwight D. Eisenhower knew of the need for advance. He had this to say, “Our real problem, then, is not our strength today; it is rather the vital necessity of action today to ensure our strength tomorrow.”

Previously, as a Commander of Allied Forces during the war Eisenhower had answered to President Franklin D. Roosevelt who knew the challenge of leadership in the broad spectrum of national and international. He had said, “We defend and we build a way of life, not for America alone, but for all mankind.”

It says still more of his vision when we learn that Roosevelt resounded to the aspiration, so different from what the Mercantilists believed -

“The money-changers have fled from their high seats in the temple of our civilisation. We may now restore that temple to the ancient truths.”

And even on the other side of the U.S. political divide, Roosevelt’s Republican counterpart exhibited a kindred stand on leadership when he agreed to visit Moscow during the war as Presidential emissary. He, Wendell L. Willkie, in addition brings out the link of strength to productivity in this paradoxical way

“It is from weakness that people reach for dictators and concentrated government power. Only the strong can be free. And only the productive can be strong.”

Although “money-changers” contrasted with “the productive” for the generation of these two leaders, different events were to follow. America - privileged child of the Age of Enlightenment - had become Japan’s occupying power and had broken down Japan’s leading business holdings. At the same time, counterpart U.S. holdings remained full and rich.

What more than a chance to enjoy this good fortune?

Influential American households had inherited the sort of money fortunes that many an old European princedom would have envied. The heads of these American households were now able to invest in the acclaim of muses and sages and evade a new problem - the headache of leadership.

Among the sages who relieved them of that headache was Milton Friedman. His Monetarism, if we consult an encyclopaedia entry for brevity, concentrated on boosting economic growth through the regulation of the money supply in a country’s economy. Innovation, productivity, and economic strength were to follow automatically - they were not to bother America’s new leadership.

What entered official thinking was in a sense a throwback to the 17th and 18th-Century Mercantilists of France and England. These publicists offered support to mercenaries, merchant houses and colonial despots by seeing economic growth solely at the interface of the exchange of merchants’ goods, and most particularly in the negotiation of the money of the day, gold coin and bullion. English playwright Thomas Dekker (1572-1632) had explained in hyperbole -

“A mask of gold hides all deformities.”

Both Mercantilists and Monetarists gave comfort and reassurance to the wielders of money wealth by saying that the attributes they used were the fundamental levers of life. When this fetish was projected far and wide by TV in modern times, it grasped the United States with a fever remarkably like that of King Midas who coveted the golden touch until it began to turn his food and his loved ones into frigid gold.

Spellbound by the projection of glitter such as that of Monetarism, U.S. productivity began to drop after the war. The families that had developed into inheritors of U.S. wealth had reached those circumstances in life when they detached themselves from America’s innovators. To illustrate the gap between the planners of U.S. business strategy and innovators let us take just one example.

SONY bought rights to the use of the transistor from a U.S. concern for just $25,000. Innovation after innovation was used by the Japanese consumer electronics industry, which took over from American firms in America’s own market in radios, tape recorders, TV sets, high quality stereo, and video.

In two rather famous articles published in 1983 in THE ATLANTIC REVIEW, Harvard University’s Robert B. Reich noticed the trend and said

“More than 65 percent of all seats on the boards of Japanese manufacturing companies are occupied by people who are trained as engineers; roughly the same percentage of seats on American boards are taken by people trained in law, finance or accountancy. Thus, in Japan, many problems that arise in business are viewed as problems of engineering or science, for which technical solutions can be found...’

“Paper entrepreneuralism is both cause and consequence of America’s faltering economy. Paper profits are the only ones available to professional managers who sit isolated atop organisations designed for a form of production that is no longer appropriate to America’s place in the world economy...’

“Paper entrepreneuralism thus has a self-perpetuating quality that, if left unchecked, will drive the nation to further decline.”

Just before Robert Reich sounded this alarm, Thomas Peters and Robert Waterman had put out a book, “In Search of Excellence”, which focused on better organisation. Their book was widely read in U.S. industry and acclaimed. Some companies strode out to focus on more rational organisation, MOTOROLA and IBM being cases in point. Yet, the general pattern remained unchanged. American wealth had fallen into a leadership position, but its leadership was abdicating it.

Finally, due to the Mercantilism, which took over everyday U.S. trade policy, to reduce friction SONY, HONDA, SANYO, YKK and other Japanese corporations began the transport of factories to the United States and learned to manage a U.S. workforce.

1. Thus, evasion had begun again. Famed writer H. G. Wells had once noted, “Every time Europe looks across the Atlantic to see the American Eagle, it observes only the rear end of an ostrich.”   
    

EXPERTISE FOR MIRACLES

If we try to measure Gross National Product (GNP) in current US dollars, we find Japan increased its per capita GNP from some $50 for year 1945 to the figure of $27,000 for year 1992. Japan has overtaken the United States ($ 22,000), Canada ($21,000), Germany ($21,000), France ($ 21,000). If you try to work it out, you find that on the average Japan increased its GNP at current prices during the last 47 years at 14.3% every year (try this figure as a constant on your calculator if you don’t have a computer handy). Who else has such development expertise?

Philip Kotler, a noted U.S. marketeer, provided a useful analysis. Not for him paper or peddlers’ capitalism. He analyses marketing-oriented, modern industrial production. His own words follow next.

TARGET INDUSTRIES

Japan’s need to rebuild the nation, to control its balance of payments, to create exports, and to manage its economy back to health, led Japan to consider selecting certain industries for targeted growth ... a target industry is simply an industry that Japan identifies as being worthy of whatever support is deemed necessary to make it a strong industry domestically and to help it become and remain competitive in the international arena.
 

THE PROPELLER-THE JAPANESE GOVERNMENT

During 1949-55, Japan put together the institutional instruments that were to catapult it into the economic big league. Unquestionably, the pivotal entity in this institutional structure was MITI (Ministry of International Trade and Industry) which came into being in 1949. Even its title is significant. The inclusion of international trade is indicative of Japanese intent to guide resources toward the exploitation of international markets.

MITI worked very closely with many other governmental agencies, particularly the Ministry of Finance and the Japan Development Bank.

At the core of MITI’s roles lie separate though related elements

1. Establishing objectives and priorities for the Japanese economy

2. Developing the economic (physical) and institutional (commercial) infrastructure

3. Selecting target industries

4. Funnelling the necessary capital to target industries and specific firms

5. Nurturing target industries toward maturity

6. Developing the means to regulate all forms of competition within the Japanese economy

7. Controlling the flow of foreign investment into Japan

8. Managing the institutional environment.

Primarily through the auspices of MITI, Japan has designated a series of industries for development and nurturing. These industries were aided through financial, tax, and technology supports and were sheltered from foreign competition in the domestic market ... (Philip Kotler’s writes with co-authors in full in WORLD EXECUTIVE’S DIGEST, September, 1985.)

MARKETING-DRIVEN INDUSTRY AND FOREIGN SUBSIDIES

As compared with Japan, South Korea, and Taiwan, if marketing-driven industry is developed, Eastern Europe and the Commonwealth of Independent States have certain advantages - and certain disadvantages. Let us take the advantages first -

(a) These states already posses a developed science-teaching potential more than that which Japan, South Korea or Taiwan had. Some states also have more scientists, engineers, technicians and skilled workers;

(b) Some states have far more foreign language and country specialists than Japanese or other foreign trade concerns started with; most countries also have common geographic and cultural borders with many others for fast, cross-border trade.

(c) Most countries have more mineral resources.

Last but hardly least -

(d) In many of these countries, Marx, with several generations of Rabbis in his ancestry, helped create a strong congregational “We.” In modern times Japan fostered in the factory a community spirit to combat the alienation that plagues American industrial sociology. Thus Japan was able to turn every work day at the factory into a teach-in for increasing productivity and joint success. People who happened to play a major role in the development of Japanese participative management include Kaoru Ishikawa and several activists who link together in the Tokyo-based Japan Union of Scientists and Engineers. They acknowledge a debt to U.S. statistician W. Edwards Deming of New York University, who contributed in 1950 to Japan’s participative quality management system. In this connection and finally, the work of a host of North Americans such as William Ouchi (UCLA) and Olga Crocker (Windsor) who have studied Japan’s participative management at a technical level are available in current literature and would be valuable in the selection of expertise apt to the historical challenge.

The list of disadvantages of these nations is long. So as not to grow weary and put off the task, let us take a look at the solution of two items in their agenda.

(1) These nations have to develop marketing. For many shopfloor engineers, this requires going back to the class-room. The existing system in which these engineers worked was based on macro-planning of production and distribution. Yet, far more would be required than market training for in-plant personnel. For example, business development on a country-wide scale the founding of companies, partnerships and proprietorship for merchandising, retailing, wholesaling, warehousing, handling, and trucking both for home and export needs. Consider that such business development cannot occur without the costly injection of fixed and working capital after the development of credit banks due to missing venture capital, an operation well known at the World Bank.

(2) These nations have to make private property stand out. If a large volume of assets was divested in another country with a market economy, careful timing would be used by professional asset managers so as not to depress market values suddenly.

Although the term state capitalism does occur in academic discussion, assets in these countries do not belong to a giant business magnate. These jointly owned public assets hold, for example, the life-time savings of engineers, doctors, teachers, technicians and other workers. In the particular case of divesting these assets into private ownership, careful costing is also required so as to minimise the loss of the savings of working men and women. Causing group insolvency and ethnic breakdown has to be avoided. Alienation of jointly owned public assets (obshestvennaya sobstvennost’) to legal persons also requires the development of civil and company law, which includes development of courts and the training of lawyers. If a Hey-Presto approach failed, someone else would have to subsidise the earnings and pensions of above 300 million people, young and old, men and women, while courses in auditing, accountancy and finance, marketing, management, business economics, banking, insurance, and commercial law are taught; and while macro-planned factories, farms, land, apartments, hospitals, universities and schools are valued by auditors at market prices or by a method of re-allocation of the savings in these assets themselves, and divested to buyers.

Even if large capitalised foreign buyers of factories and farms materialise, would national output at least continue at the previous level so as not to leave others a bill for subsidies from outside? There have been guesses about the size of that annual subsidy bill and as we know of July 1992, U. S. President George Bush put in this way, “I don’t know if there is enough money in the world to solve Russia’s economy.”

In the event of failure, a big-bang operation in continental Euro-Asia would topple a subsidy bill on cities such as Rome, Vienna, Bonn, Paris, London, Dublin, Glasgow, Madrid, Lisbon, Brussels, The Hague, Copenhagen, Stockholm, Oslo. Now hardly noticed, land barriers have gradually faded. That has made several of these cities no more than one week’s journey by road from the Church of Nicholas the Miracle-Worker, patron saint of Moscow. It is Saint Nick, called Santa Claus in the West by children, who enters through the chimney making many a Christmas wish miraculously come true. Now, if you happen to be a Mummy or Daddy wishing for a miracle near this church, should you choose the star of the East or the star of the West for your route?

History of document

Edited in Colombo by Revd. Graeme W. M. Muckart of the Church of Scotland in July 1992.

Text sent by Wendell W. Solomons to Lawrence Summers, IBRD Chief Economist, from Colombo through Metalix private agency post office fax 580721 to Washington IBRD fax 202-4776391 on July 28th, 1992.

Telexes on the subject begun to TW 886-2-7761549 and faxes from May 1st.

Communications received from IBRD by Wendell W. Solomons

(a) Courier packet of documents, DHL, Forwarder Airbill No: 756176536 SPS 744556072, of Aug 7th, 1992, despatched by Etienne Pierart, Dept: 824, Div: 11, Room: 0-4137, The World Bank.
(b) Letter of same date under signature of Etienne Pierart.
(c) Letter of November 30th, 1992 reference No: D28811 (3); 10/19/92, from World Bank under signature of Julita R.S. Main.