CHAPTER 1
Concept and Methodology
Out of the Rabble is the title of this book. The thesaurus describes"rabble" as "a mob, crowd, throng, horde, swarm, gang, masses, hoipolloi, common herd, and commoners." The title therefore describesan economy that can surprise everyone by emerging out of ordinary,underrated, and deplorable circumstances. This is the example shownby the new miracle economies of China and India. Yet, in addressingthis topic, I also want to convey the meaning of "rubble," as in "debris,ruins, or wreckage." That is what the emerging economies looked likejust a few years ago. Indeed, their rise would not have been described asa miracle without a dramatic transformation from chaotic conditions.
Why some nations are thriving at a time that others are in crises is amatter of interest, but much more important is how a primitive-lookingnation can rise to overtake those in the first world. In coming up withthis understanding, I used a number of approaches.
First, as a habitual thinker, I often look for empirical evidence tosupport my views. Many researchers set up a hypothesis and conductextensive research in a scientifically organised way. I do my researchdifferently.
While I worked as a defence attaché in China from 1988 to 1992,I developed interest in Chinese economic development. I experienced,first-hand, the economic policies of China and how they affected ordinaryChinese in a negative way. At the time I did not appreciate what theywere doing, but with hindsight, what I learned was a revelation. Whatwas of particular interest was the vast difference between their policiesand my country's policies. Chinese policies stabilised the economy.Although there were various social ills, they were making astonishingprogress.
The skyline of Beijing looked like a forest of construction cranes.Skyscrapers were emerging from squalor. People lived in slums alongpathways that only bicycles could navigate. They were so involved inproductive and creative activities that they would approach you in thestreet with their inventions. I got into the habit of collecting interestinginnovations.
However, the quality of Chinese products was evidently poor. Whoin the world could buy these products except the Chinese themselves,courtesy of an autocratic government that banned foreign productsfrom the domestic market? The pressure for reform was gatheringmomentum both from within and outside. It was not a surprise thatthe June 4, 1989 Tiananmen Square Clashes became a watershed inChinese economic history. On that night, more than two politicalforces stood opposed to each other. Rather, the force for economicchange was opposing China's economic programme. The latter forcestriumphed, but one wonders: What would have happened had Chinaabandoned its programme?
The year 1992 is a significant one for my thesis. The Americanpresidential elections were playing out. In an interview with the press,President George H. W. Bush defended his record by saying that he haddone a lot for America by liberating Eastern Europe and Africa, and heurged American companies to go and conquer those markets.
This was an awakening for me. A new thesis was emerging: marketswere important! That same year, after listening to the American debateand armed with the Chinese experience, I returned to find Zimbabwein the middle of a similar debate. Which economic direction should thenation take? Our people had spent more than a decade in a Chinese-styleclosed economy, from 1980 to 1992. Like in China, the reformmovement was gathering momentum, driven by American influence.I immediately registered that economic liberalisation would not begood for us because we were not strong enough to compete. Unlikethe Chinese situation, in Zimbabwe the forces of change triumphedover gradual reforms.
Therefore, my next preoccupation was in observing the future,given my hypothesis that there would be disadvantages and that thestrong would benefit. True to form, my hypothesis was confirmedover the next eight years. America, basking from African and EasternEuropean markets, enjoyed unprecedented growth, while littleZimbabwe allowed all of the world's best products to enter its market,destroying its industrial and creative base in the process. The nationmoved from a policy of "make it" to "buy it," and as unused skills die,it lost most of its skilled labour. I was convinced of what the power ofmarkets can do. As many groped in the dark for explanations, I felt itwas time to use my understanding to predict what would happen inthe future; this led to my prediction of the global crisis.
In this book, I hold out the theory that markets played a significantrole in the economic fortunes of the countries under the spotlight:China and Zimbabwe. Markets similarly continue to influence thefortunes of the United States and Europe. While it is clear that marketsplayed a dominant role in the case of China–US economic fortunes,there is uncertainty over their role in Zimbabwe during the period1980–1990, where, in spite of a captive domestic market, industry hadnot grown. During this period, industry leaders actually advocatedthat imports fill up the market gap. If the hypothesis was going to holdout, there had to be another explanation for the stagnation. For thisreason, my research expanded the hypothesis to examine all the factorsof production. For production to occur, the factors of production mustbe deployed. But since other nations like the United States appeared tobe endowed with the four factors of production, an additional factorof production must have been omitted. I therefore added "market" asa fifth factor and sought to test this against different industrial andeconomic development periods.
I therefore held out this template of five factors–namely, land,capital, labour, entrepreneurship, and markets–to explain the economicpitfalls and fortunes that Zimbabwe found itself in throughout itshistory. Whilst other researchers previously set out to classify thecommon things pertaining to an economic environment, I actually setout to find evidence that supported the fact that the five factors werecritical ingredients to a successful economic climate, and that whereone or more of the factors were missing, there would be economicchallenges.
My approach is very similar to other authors, including DanKennedy, who wrote Ten Million Dollar Marketing Secrets. It is similarto what Andrew Carnegie did in 1917, when the first US billionairetold a young writer, Napoleon Hill, that there were set principles forbecoming wealthy and successful that could be catalogued, learned,and taught.
Carnegie had Hill interview everybody who was achievinggreat things in the United States in order to understand what thecommonalities were. Hill called them Laws of Success, which was laterwritten into the book Think and Grow Rich. Carnegie believed that thedifferences amongst successful individuals were unimportant. Whatactually mattered were the similarities of their actions and beliefs.
Tom Peters's In Search of Excellence essentially applied the "Thinkand Grow Rich" approach to companies instead of individuals. Itlooked at what great companies had in common. Peters listed eightcommon themes that dominated the business sector.
The relevance of these books to mine is the hypothesis and theframework that I use to explain a variety of economic crises. Usingwhat I call the "industronometer," I subjected each of the countries toan analysis of five economic factors in order to determine limitationsin productivity and economic progress. By raising the factors to criticalsuccess levels, I have been able to diagnose critical shortcomings of anyeconomy at a particular time.
The science of critical success factor analysis is commonly practicedin management circles. When these five factors are applied, they explainwhy some countries suffer periods of economic malaise. The UnitedStates, for example, has arguably had all four of the traditional factorsof production in abundance, yet without the fifth–markets–its wholesystem appears to have been thrown into confusion.
Through my lifelong experience and observations, I have picked outa consistent set of similarities in some of the BRICS countries, includingthe best periods of my nation's economic history, which explain theirgrowth (or lack of it). These similarities include the following:
• Each of the countries has had a market for the goodsproduced by its citizens regardless of their quality.
• Their citizens had access to the factors of production: land,capital, and labour.
• A significant majority of people were involved inproductivity.
• Markets were immune to foreign competition.
• The original performance environment was deplorable butquickly changed to excellent.
During my four years in China, I was also responsible for Pakistanand North Korea. I took many shopping trips to Hong Kong, whichwas then a spot of civilisation in the middle of rubble. Of those fourplaces, China, emerging from nearly half a century of self-imposedisolation, was worse off, followed by Pakistan. North Korea had its owncharacter but certainly showed more order than China. The rest of thecountries in the vicinity, such as Japan, Singapore, and Malaysia, weremuch more advanced.
I had the occasion to peep into India back in 1990, after landingat what used to be Bombay. Although India was already being tippedas a growing military power in the region, she was evidently backward.It was infamous for its slums and millions of poor. Just from televisionfootage of India, the chaotic conditions were unmistakably rubble.Its cars and products could not have appealed to any internationalmarkets. For decades the industry had served its own people withmediocre products. How the automaker Tata could emerge from thisbackwardness to become a global company is evidence of the roleplayed by the domestic markets to support the infant years.
Brazil was in serious economic difficulties from 1981 to 1993 ina crisis that is now referred to as "the lost decade." During this periodBrazil suffered a record 30,000 per cent inflation, and its crisis hoggedworld attention. For a country that experienced so many challenges, thetemptation was to write it off, as other economies were relatively stable.I had not visited Brazil before, but as I read its history, I could see thatit went through a period of isolation. Isolation becomes an importantcondition for explaining the concept of markets.
South Africa, which until 1994 was under crippling sanctions as aresult of its apartheid policies, is another dark horse that the world neverreally imagined could be counted among the BRICS countries. In thefifteen-year period from 1980 to 1995, South Africa registered GDPgrowth from USD80 Bn to USD151 Bn, an increase of USD71 Bn.However, when we compare with the fifteen years from independence in1994 to 2010, she choked up a whopping USD212 Bn GDP increase toUSD363 Bn. The economic projections for BRICS countries continueto increase, with South Africa projecting GDP of USD522 Bn in 2011.All this growth is happening in the middle of the global crisis.
There are, however, some common characteristics that set apartthose nations that have now surged ahead of others even in the crisis.
1) Firstly, the isolation of domestic markets appears to have beencommon. China, India, South Africa, and Brazil have a history ofdomestic market isolation. With this isolation came market monopolyand all the growth payoffs that accrued to the people. Except for SouthAfrica, the rest deliberately self-isolated themselves by shutting outforeign imports.
2) Secondly, because of self-reliance, they had a high proportionof citizens involved in making things. Attendant to that policy was thevery absence of international production standards. The products, thehousing programmes, the factories, and anything they did representeda poor local standard.
Hence, it gave that appearance of chaos, yet beneath these activitieswas the development and experience of a local knowledge base. Thisknowledge and basic skills development would become the fuel fora miracle economy. It could be said that knowledge without skillsis redundant and knowledge with skills becomes explosive. This isimportant, as we will see that the first stage of isolation was often ignored,as people gave more value to the rapid development that became visibleonly at the time the economy was opened to international technologicalexchanges. However, if economic openness was the driving factor, itwould have been logical for the United States and Europe to stay aheadof others that way.
A look at the background of the United States and Japan, as theyrose to become world economic powers, reveals a familiar path: a periodof rabble, in-house isolation in which domestic markets are protected,and a period of outsider disdain, followed by mouth-gaping economicprogress. What then is the secret in the rabble, something that weoften want to ignore as we, instead, look at and imitate the glitter ofmodernised economies?
The secret is a climate where ordinary people can be involved increating products and be rewarded enough to reinvest in continuousimprovement. This is why markets assume the most dominant positionin creating these conditions. It is to be observed that these countries'economic conditions allowed Tata to grow into a global auto giant.While Proton, Malaysia's domestic car, has greater access to technologythan Tata had then, it is postulated that its growth has suffered fromimports that gave Malaysian domestic markets better world brands.
Countries in technology leadership positions are able to achieve acontinuous improvement status for as long as they are making a profit.An examination of emerging economies of the BRICS countries revealssimilarities in a pre-emergent inward-looking profile (either imposed orself-imposed), a greater degree of self-reliance, and people making theirown things without too much concern about what other nations weredoing. Ordinary people get involved in creative and economic activityon a wide scale. Product quality is low and the standards are mostly setby local best practice. The government seems overly tolerant and patientwith the poor quality and adopts the position "good or bad, it doesn'tmatter," so long as they are making products in the country.
The transformation from poor quality to state of the art followsa process that was aptly described by Singaporean Researchers, whocoined the five stages of development (coined the "Five Is") when theyobserved the path to Japanese industrial triumph.
The process follows these stages:
Imitation
Improvement
Improvisation
Innovation
Invention
Imitation is a period of copying other nations' products. This is theperiod where products are of poor and deplorable quality. They wouldnot find markets anywhere except at home. In the process of imitation,vital learning and knowledge takes place.
This leads naturally to a stage of improvement, where each successivesale leads to a profit that is reinvested into improvement.
The third stage is improvisation, a situation where societalchallenges and problems are resolved through a combination of multipletechnologies that lead to useful products. For example, a wheelbarrowcombines a wheel, tube extrusion, and pan-forging technologies.
The process leads to innovation, a period of improving mastery ofdoing things marked by notable quality improvements, localisation ofidentity, and originality to existing products.
Finally, the development process rises to the invention stage, whereknowledge has been so fully mastered that the creative genius of thepeople begins to make its own discoveries.
In an environment where there is mass participation by people,the rate of development begins to take on a multiplier factor thatcannot be quantified. Where the reputation of the nation's productsabroad used to be deplorable, a decade or so later, the miracle beginsand beautiful products start being exported from these once backwardeconomies. Their image changes so much that we forget that they usedto be in the rabble. Interestingly, in 2006, I visited the Canton Fair; itwas the first time I had been to China since 1992. There I was offeredseveral distributorships of Chinese auto companies. I did not takethem because they looked just too amateurish to be bought by anyonein my country. Now, just six years down the line, I am kicking myselfbecause there are no less than five brands that have made inroads intothe South African and Zimbabwean markets, with acceptance levelsgrowing rapidly.
