One of the things that we have learnt from our guru Sir John Kay is that if we are to improve the quality of our thinking, we have to read about people and concepts that we disagree with. Hence whilst we are proud of India’s democracy, we have to read about countries and leaders who have shown that development can be attained through alternative models (especially since the Indian model is obviously challenged as evidenced the preceding article). In that context it is noteworthy that one of the leaders that Charlie Munger admires the most is Lee Kuan Yew, the man who created Singapore. This Farnam Street blog summarises the key learnings from a recently published book on Singapore’s founder, “Lee Kuan Yew: The Grand Master’s Insights on China, the United States, and the World”:
- Who will win the China vs America contest: “China will inevitably catch up to the U.S. in absolute GDP. But its creativity may never match America’s, because its culture does not permit a free exchange and contest of ideas… Technology is going to make (China’s) system of governance obsolete. By 2030, 70% or maybe 75% of their people will be in cities, small towns, big towns, mega big towns. They are going to have cell phones, Internet, satellite TV. They are going to be well-informed; they can organize themselves. You cannot govern them the way you are governing them now, where you just placate and monitor a few people, because the numbers will be so large.”
- Open societies have a powerful competitive advantage over closed societies: “Throughout history, all empires that succeeded have embraced and included in their midst people of other races, languages, religions, and cultures.”
- Democracy has an obvious in-built flaw: “When you have a popular democracy, to win voices you have to give more and more. And to beat your opponent in the next election, you have to promise to give more away. So it is a never-ending process of auctions—and the cost, the debt being paid for by the next generation. Presidents do not get reelected if they give a hard dose of medicine to their people. So, there is a tendency to procrastinate, to postpone unpopular policies in order to win elections. So problems such as budget deficits, debt, and high unmployment have been carried forward from one administration to the next…
American and European governments believed that they could always afford to support the poor and the needy: widows, orphans, the old and homeless, disadvantaged minorities, unwed mothers. Their sociologists expounded the theory that hardship and failure were due not to the individual person’s character, but to flaws in the economic system. So charity became “entitlement,” and the stigma of living on charity disappeared. Unfortunately, welfare costs grew faster than the government’s ability to raise taxes to pay for it. The political cost of tax increases is high. Governments took the easy way out by borrowing to give higher benefits to the current generation of voters and passing the costs on to the future generations who were not yet voters. This resulted in persistent government budget deficits and high public debt.”
- Nations that do not educate & train their people are nations that are destined to fail: “The quality of a nation’s manpower resources is the single most important factor determining national competitiveness. It is a people’s innovativeness, entrepreneurship, team work, and their work ethic that give them the sharp keen edge in competitiveness. Three attributes are vital in this competition—entrepreneurship to seek out new opportunities and to take calculated risks. Standing still is a sure way to extinction. . . . The second attribute, innovation, is what creates new products and processes that add value. . . . The third factor is good management. To grow, company managements have to open up new markets and create new distribution channels. The economy is driven by the new knowledge, new discoveries in science and technology, innovations that are taken to the market by entrepreneurs. So while the scholar is still the greatest factor in economic progress, he will be so only if he uses his brains—not in studying the great books, classical texts, and poetry, but in capturing and discovering new knowledge, applying himself in research and development, management and marketing, banking and finance, and the myriad of new subjects that need to be mastered.”
- Leaders who seek popularity are leaders who lose: “I have never been overconcerned or obsessed with opinion polls or popularity polls. I think a leader who is, is a weak leader. If you are concerned with whether your rating will go up or down, then you are not a leader. You are just catching the wind … you will go where the wind is blowing. . . . Between being loved and feared, I have always believed Machiavelli was right. If nobody is afraid of me, I am meaningless. When I say something … I have to be taken very seriously.”
One of Marcellus’ clients also emailed us some of the views Lee Kuan Yew has articulated on India (views which are also mentioned in this book): “India has poor infrastructure, high administrative and regulatory barriers to business, and large fiscal deficits, especially at the state level which are a drag on investment and job creation…The moment India has the infrastructure in place, investments will come in, and it will catch up very fast…India’s private sector is superior to China’s… Indian companies follow international rules of corporate governance and higher return on equity as against Chinese companies. And India has transparent and functioning capital markets…India’s system of democracy and rule of law gives it a long-term advantage over China, although in the early phases, China has the advantage of faster implementation of its reforms.”
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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