Growth5 Blog

Monday, October 26, 2009

Lee Kuan Yew: Due Diligence on America

I was catching up on Charlie Rose episodes this weekend. I recommend you watch this fascinating interview with the former Prime Minister of Singapore, Lee Kuan Yew. He served as Prime Minister from 1959-1990 and is now "Minister Mentor" to the current prime minister, his son. [Part 1 of the interview is embedded below].

Lee, 86, has no shortage of detractors and for good reason. However, what was refreshing about this interview was to hear the perspective of the global world order from a (non-US) Far East expert.

It was also a bit sobering to realize that part of Lee's trip to the US includes performing due diligence on the US economy to decide whether or not the Singapore Sovereign Wealth Fund should be investing more in the US or pulling assets out.

Here are some comments from Lee that caught my attention:

The competitive advantage of the US over other countries, specifically China:
"It’s not just American talent that gets you here. You’re just 300 million people and they have 1,300 million and very many more able people.

But you are attracting all the adventurous minds from all over the world and embracing them, and they become part of your team.

Now I don’t see two million Indians and half a million other peoples, Japanese, Koreans, and others, becoming part of China. I mean, first the language is so difficult. Secondly, the culture is not embracing. How do you fit in?"
China's growth vs. the US economy:
"Even in three decades it won’t reach its full strength. In three decades its per capita is still about one-third of America.

For it to reach America’s standard of living and standard of technology will take more than 100 years."
Due diligence on the US economy:
"...the United States at the moment is in somewhat of an unstable state. Is the dollar going to decline? Yes, it is cheap, but supposing you buy and the deficits grow and Ben Bernanke is unable, your federal chairman, is unable to draw enough liquidity out of the market and you have hyperinflation. Wow. You go down and you lost money...

But what the world wants to know, or what the thinking part of the banking and financial world wants to know, is that the Americans and administration and the Congress, both Republicans and Democrats, have the will to take tough measures to put this right, even if it’s not going to be done overnight but it’s moving in that direction and its going to put it right...

You take health care. It’s not going to be done at the same price, surely. You’re covering 40 million extra people. So where’s the money coming from? If the world sees you’re not making any provisions for that, you’re not letting it go. And the world says this looks as if the elected leaders have lost their will to confront the people with the truth."
The US changing their mindset about China:
"For the Americans, you have got to cease to think in terms of the Chinese as they are today. The Chinese as they are today are people who have been suffering for a very long time, especially under Mao, and who feel that the world is cruel to them. And therefore they’re very edgy.

They are -- if you talk to Chinese leaders now, those over 60, they are with Russian as their second language. In 20, 25 years time, they’re going to meet a generation who are now in the lower ranks who have been to America and Britain and Europe and will be English-speaking and have different models in their minds.

And they will know that they’re not going to be the sole power in the world. Not ever again, because this is a globalized world, and they know that they’re dependent on the world for their growth."
Why bringing China into the WTO was a good idea:
"...if you turn them down, all they will do is they’ll reverse engineer all your patents and you find generic products, imitations on the market.

If you bring them in, get them to observe the rules...they are going to have to observe the rules, and they will... because they’re making patents of their own now.

You have to make sure that they understand membership requires certainly obligations, and the obligations start with responsibility."
Afghanistan / Iraq:
"I think trying to make a country out of Afghanistan is a distraction. There was no country for the last 30, 40 years. There’s just been fighting each other since the last king was chased out... How on earth are you going to put these little bits together? It’s not possible.

"I’m not in expert, but in my simple mind it strikes me that you won in Iraq, you won in Afghanistan not because you fought the Taliban, but because you got the Northern Alliance to fight them, and you provided the Northern Alliance with intelligence and the capabilities to bomb them and target them. And they captured the south."

Charlie Rose: "Yes, but they have governance problems other there, too."

Lee: "That’s all right. But that’s their problem. Why do you want to make it your problem?"
Lee's most significant change in his way of thinking over the last 20 years:
"That the impossible can happen. I never thought the Soviet Union would implode so easily, and I never thought the Chinese would abandon the communist system and move into the free market so readily. It was unthinkable 20 years ago.

Both have happened. The world has changed."
Lee points out that China is enormously curious and ambitious. Rose asks him if the US needs to encourage them:
"No, you don’t have to encourage them. You just have to understand that they are -- look, they don’t want to be an honorary member of the west, unlike Russia. They’re quite happy to be Chinese and to remain as such.

So when you tell them you ought to do this or you ought to do that, they say yes, thank you. And in the back of their minds, we have lasted 5,000 years. Have you?"
Um, not quite that many, no.

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