The relentless revolution: a history of capitalism (56 page)

More important, the Korean War of 1950–1953 had introduced a big spender into the Pacific basin trade universe. The founder of Hyundai, Chung Ju-yung, for instance, found good customers in the American armed forces for his two lines of business, construction and car repair. Born into a poor peasant family in North Korea, Chung had already demonstrated his intrepid character and knack for business during the Japanese occupation. In the years that followed, Hyundai manufactured cars from Japanese components and moved onto the world construction stage, building expressways, ports, nuclear power plants, and shipyards.

At first the United States had supported democracy in these countries as well as Japan, but the invasion of South Korea led American policy makers to take a sharp turn to the right. They tolerated repressive regimes in Singapore, South Korea, and Taiwan in exchange for a firm anti-Communist stance. Still economic benefits followed. In 1960 Singapore became the principal host for the Seventh Fleet of the United States, providing a place of repair, rest, and recreation, rather than a base for its ships. More relevant, the United States never wavered in its support of economic development, sending money and experts to South Korea and Taiwan.
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The Four Little Tigers all had political cores made up of technocrats and market advocates who were able through pressure or repression to insulate their policy preferences from domestic critics. They also developed alongside hostile Communist neighbors, helping their leaders stifle dissent. Legislatures, where they operated, were kept weak, leaving the field of political action open to strong executives. Still, over time South Korea and Taiwan became more democratic.
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In their economic ascent, the Four Little Tigers rejected the policy of import substitution and decided to promote exports instead. “Decided” is the correct word because their political leaders did the thinking and planning. In no case was the domestic market of the NICs big enough to support the economies of size that would make them competitive in world markets. So, after some initial failures, they established free ports and became “superexporters,” starting with traditional clothes, textiles, and footwear, then moving to consumer electronics like calculators and color television sets. Korea even manufactured iron and steel items. In the 1960s the United States opened its market to such imports, as did Australia and New Zealand. By 1980 their exports represented more than 50 percent of their GNP, compared with 8 percent for the United States and 16 percent for Japan.
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This of course took money and workers. Here the population density of the NICs became an asset, as did their people’s commitment to acquiring the skills and learning for labor-intensive, complex production processes. All four countries maintained high levels of domestic savings—above 20 percent—so reliance upon foreign aid investment tapered off once they got started.
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Their particular mix of advantages is not easily duplicated, but the blueprint is pretty clear: export, educate, innovate, and find niches in the world economy.

Because Hong Kong, Taiwan, Singapore, and South Korea succeeded in the same area at the same time—Hong Kong and Taiwan in the 1950s, Singapore and South Korea in the 1960s—their similarities seem more important than their differences. Still, the differences are worth noting. Hong Kong was a British crown colony until 1997, when it was reincorporated into China. Singapore was a poor city when it was expelled from Malaysia in 1965. Commenting on its spectacular success, its founder, Lee Kua Yew, now calls it “a first world oasis in a 3rd world region.” The same could be said for Hong Kong. Korea shared the distinction with Vietnam and Germany of being divided between Communist and non-Communist parts, but unlike Germany, it is still so divided. Taiwan too has a perilous existence as a breakaway island province from China, run for a long time by the Chinese Nationalist Party which fled China when the Communists took power in 1949. Singapore, steadfastly authoritarian, has had to integrate the most diverse population, composed of Chinese, Malay, and Indians with a strong representation of Christians, Hindus, and Sikhs. The other three are more homogenous.

Timing, location, and luck played their parts in the phenomenal success of Hong Kong, Singapore, Taiwan, and Korea. Two industrial giants, Japan and the United States, had a positive impact on their growth, which averaged 7 to 9 percent in GNP annually during the 1960s and 1970s. Both “sugar daddies” offered a big market for the NICs’ products along with an infusion of investment capital. The Four Tigers caught the wave of explosive growth in consumer electronics and computers in part because Japan was challenging American dominance. The American firm Texas Instruments set up overseas assembly plants for semiconductors in Taiwan. Soon American firms were buying smaller peripherals and components from Taiwan. Taiwan also produced motherboards, monitors, keyboards, scanners, and mice leading to a major production of notebook computers. Hong Kong and South Korea got into these productive lines as well, especially semiconductors in Korea. Singapore too developed a strong manufacturing preference in the American-led PC industry, becoming the source of most American PC disk drives. Korea and Taiwan could shift their exports toward more skill-intensive products, such as consumer electronics, in the 1960s and 1970s because it already had a proficient work force.
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They made long-range plans and were lucky enough, despite some turmoil, to enjoy the order and peace that ripened their plans into mature performance. Their governments invested enough in utilities and communications systems to prevent the bottlenecks that have plagued other developing countries where poor transportation has delayed the flow of goods between production and shipping sites. The courts have worked well and fairly, though the draconian laws of Singapore still appall. In a unique mix of government direction and free market dynamics, these countries have confounded many an economic prediction, none more hallowed than the idea that inequality accompanies economic development.
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They have benefited enormously from fitting themselves into the niches created by each new technological breakthrough. Korea, with a current population of forty-eight million, has a GDP ranking of eleventh in the world. Even their neighbors Malaysia, Thailand, and Indonesia are developing in promising ways.

Economic development transformed women’s lives in these traditionally patriarchal societies. A measure of the preference of Asian families for boys can be demonstrated by their skewed sex ratio. Once ultrasound permitted a pregnant woman to learn the sex of her fetus, abortions of females began to climb. The normal ratio of the births of boys to girls is 105:100. In recent years it has reached the high of 120:100 in China, with other Asian countries close behind. Officials in most countries have soundly condemned the practice. In India a doctor or nurse telling a woman the sex of the child she is carrying violates the law that was passed to stem this practice. Yet it is widely violated. Estimates put the number of female fetuses aborted annually in India at ten million.
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This hardly sounds like a benefit to women, but something is happening today in South Korea that suggests a turnaround as its sex ratio has dropped from 116 to 107.

A new appreciation for girls has emerged in this once deeply traditional society.
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Good schooling has brought more and more women into jobs in business and the professions. At a practical level, parents no longer depend upon their sons to support them in retirement, for they are retiring with benefits. Their daughters, working outside the home, are no longer near servants to their husbands’ families. They earn their own support and maintain the family’s emotional ties better than their brothers do.

During the 1970s experts considered everything Japan did as optimal. But even the best of times must come to an end, as the saying goes, or maybe “what goes up must come down” is more apropos. After astounding the world by becoming its second-largest economy, Japan slid into a prolonged recession in the 1990s. The quality of its cars and stereo equipment continued to impress; its lean production put to shame American and European factory management, but these strengths couldn’t prevent a downward spiral of prices. Stock market and real estate values dropped, leading to an accumulation of bad debts. To boost the economy, the government finally poured trillions of yen into public spending that pushed up the value of the yen and an unintended but consequent fall in exports. Nature kicked in with a major earthquake.

These problems proved intractable, and they exposed some of the structural weaknesses in the Japanese economy, the most prominent being the cozy relationship between its leadings banks and corporations and the government. This revelation garnered some important support around the world for America’s strong antitrust policies. The Japanese had had antimonopoly legislation since 1945, but these laws were weakly enforced. When the economy took a dive in the 1990s, the government put some teeth into their enforcement. Japan broke up its telecommunications monopoly, as the United States had done in 1982.
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Although there was a modest recovery in Japan in 1997, prices declined again, and nothing seemed to relieve this deflationary pressure. When Thailand, Indonesia, Korea, and Singapore experienced a financial crisis that year, Japanese firms and households became more anxious, further deflating the economy.

The Asian crisis highlighted the need for more transparency in government programs, less rigid exchange ratios, and stronger, better-regulated financial systems. The International Monetary Fund shored up Japanese markets with large infusions of cash, much of which went to buy food, fuel, and medicine for those most distressed by the unexpected downturn. Other problems, like the absence of bankruptcy in Korea, came to light. As one expert noted, “capitalism without bankruptcy is like Christianity without hell. There is no systematic means of controlling sinful excesses.”
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Walmart Retailing Wizardry

Microprocessing was by no means the only engine of capitalism in the last decades of the twentieth century, though it was integral to one of the most astounding successes of the century, Walmart. Sam Walton started a chain of discount stores in Arkansas, Missouri, and Oklahoma in 1962. He began an astounding ascent to the position of the world’s number one retailer by figuring out how he could buy directly from manufacturers and bypass the wholesalers, who added 4 to 5 percent to prices. Walton turned his Bentonville headquarters in Arkansas into a distribution center that could receive bulk orders from suppliers and send them to particular stores through a fleet of Walmart trucks. Being able to buy big-city items at low prices made a big hit with customers in the small towns where Walton placed the stores in his expanding empire. Reminiscent of Tom Watson, Sr., at IBM, Walton became a bigger than life figure for his employees. His style was simple, direct, and a bit intrusive. Everyone was on a first-name basis; he drove around his vast empire in a pickup truck. He hired young men, often the sons of farmers, and instilled them with a spirit of company loyalty that merged into a shared evangelical piety.

Like Ford and Carnegie, Walton didn’t know how to think small. When he wanted to start a new store, he’d fly over the chosen area, mark the spot most easily reached by a cluster of towns, land his plane, and buy up a piece of farm property.
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And then another and another until some seven thousand Walmart stores sprang up, many outside the United States. Even though Walton was born in 1918, he became the retailing maven of the information technology revolution. First he networked his stores with computer connections. He installed the most advanced inventory control. Whenever a cash register rings up a Walmart sale, a message goes to company purchasing agents, the manager of the store, and the vendor saying that another Hewlett-Packard printer or Disney DVD should be sent to Bentonville.

This just-in-time restocking systems helped both Walmart and its suppliers. It also enabled Walmart executives to analyze what its customers wanted in winter or summer, flush times or lean ones, when celebrating an anniversary or anticipating bad weather. Walmart truck drivers keep in constant radio or satellite contact with headquarters to learn where to pick up items so that they can return from making deliveries with full loads. Expanding size and scope made this system more and more efficient. Computers track the pallets moving endlessly through the vast Walmart loading area. When its managers discovered that bar codes on items could be mutilated or unreadable, they switched to radio frequency identification tags that convey all the necessary inventory information through antennas and radio waves into computers.
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Everyone who works for Walmart is kept on a tight electronic leash. Critics say Walmart became the behemoth of world retailing by driving down wages and scaling back benefits for its own employees and those of their suppliers. Its vendors claim that its ruthless bargaining has reduced everyone’s profit margin, sometimes to the point of vanishing. Admirers point to the boon of low prices for low-income families. Less entranced observers focus on Walmart’s arrogance in insisting that all business with it be done in Bentonville, Arkansas. Sam Walton liked flying around rural America, but he didn’t want to do business in Chicago, Los Angeles, or New York. Vendors have to travel to Walmart headquarters, and many keep offices there. A Disney executive wryly noted that when his company, not known as a pushover, had disputes with Walmart, it always lost and had to go to Bentonville to do so.

The Walt Disney Company has been selling its DVDs, toys, interactive games, and apparel in Walmart’s seven thousand–plus stores. With Disney parks in Japan, France, and Hong Kong, in addition to the United States, the company has developed a large customer base for the consumer products that Walmart distributes. Of course maintaining a record of high-quality entertainment, especially for children, since 1929, Disney was already doing well. It had long been the largest publisher of children’s books and magazines that go into the homes of one hundred million customers in seventy-five countries. Mickey Mouse, who turned eighty in 2008, is the most recognizable icon in the world. More Americans (95 percent) recognize him than they do Santa Claus. Movies made in the 1930s and reissued regularly have introduced Disney characters around the world. When rivals to Spain’s president José Luis Rodríguez Zapatero wanted to blast his gentleness, they called him Bambi.