Adjusting to Beijing
I have now been in Beijing 11 days. After delivering six lecture-discussions and making several factory visits, my important observation: Thank heavens for Adam Smith. I will never again take his “invisible hand” for granted.
I frequently use my column to rant and rave about the need for improvement, and even wholesale change, in American management practice. I have not changed my view about that, given new competitive realities and a true revolution in technology. But in light of my first extensive visit to a so-called “controlled [state-planned] economy,” I have never been so aware of the hidden assumptions that underlie our market-based economy.
Our big firms are far too sluggish, even such venerated institutions as Sears, General Motors, Kodak and IBM. The nice thing is that we don’t have to depend on Washington to fix the problem. Instead, a host of entrepreneurs—Seymour Cray (Cray Research), Kenneth Olsen (Digital Equipment), Steve Jobs (Apple Computer), et al., in computers; and Les Wexner (The Limited), Sam Walton (Walmart) and friends in retailing—are ready to sling shots at any Goliath who is not eternally vigilant.
A national ethic, perhaps related to our original frontier spirit, induces this behavior, as well as our commitment to capitalism and private ownership. Those traits are essential. At least as important, though, is our rich infrastructure that supports commerce.
Thanks goes to Alexander Hamilton, who prevailed in a tenacious political struggle against Thomas Jefferson (I was a staunch Jeffersonian before this trip) to create our national banking system. Today our multi-tiered, wide-open financial markets may be our greatest asset as we hastily restructure the economy. While money doesn’t grow on trees in the U.S., people with good ideas (and a decent track record) usually can find initial financing, and more financing as their ideas prove out, with an ease known nowhere else on the globe.
But there’s much more to infrastructure than that. When a 23-year-old American without formal business schooling gets it in his head to start a firm—a sandwich shop, let’s say—he can travel 10 miles or less to a bookstore and readily find 100 books on starting a business or fill-in-the-blanks accounting. Our restless labor market will make available numerous, competing temporary-service accountants who will do his books and provide general guidance. He can rent a truck or personal computer of any sort for just a few hours, pick among thousands of business correspondence courses, and choose among scores of suppliers in any sizeable town, who offer pots, pans, and food ingredients for all combinations of price, quality, and service.
But that’s still far from the whole picture. Our rail, highway, and air transport infrastructure is ubiquitous, as are our electric, electronic, and telecommunications networks. We take Federal Express, DHL, UPS, and a dozen commercial airlines with hourly flights to almost anywhere for granted. We lose our temper if even a second-rank hotel at which we are staying in a small city doesn’t have a fax machine available 24 hours a day.
Little of the above is even comprehensible to my Chinese friends. A discussion on just-in-time inventory management came to a grinding halt when I was informed that it ordinarily takes a factory in Beijing 40 days to get a component from a supplier in Shanghai, if lucky (and the factory manager would be so delighted it arrived at all, that he wouldn’t dare send it back if the quality was off key). And I am mailing this column to my office in Palo Alto with fear that it will not arrive at all, because my 2,600-room hotel has no copy machine.
The joy of lecturing here is that one can’t be superficial. Every un-examined assumption must be exhumed and deliberately considered. I have not thought so deeply or been pressed so hard in years. I know little more about China than I did 10 days ago (here the “inscrutable East” is just that), but I have learned—relearned, I suppose—immense amounts about America and other developed countries.
One of the oddest parts of my voyage has been my exchanges with government planners, economists and management professors. They are desperately searching for exact rules, principles, and mathematical models to understand (so as to govern) this 1.1-billion-person economy as they attempt to execute an encompassing program of decentralization. Part of it is an age-old Chinese penchant for administrative precision. But another part is that those who believe in planned economies are forced, by definition, to believe that precise rules to govern can be found. I keep telling my eager friends that capitalism is a joy precisely because planners don’t have to get it right—the market will crucify firms that choose the wrong rules and strategies.
The above problems, such as a huge infrastructure deficit and the absence of entrepreneurial spirit and systems, are daunting hurdles for the Chinese. And, of course, no one can predict whether or not the political volatility has ended. The spring of 1988 is said to be very “open,” much like the spring of 1986, but not like the spring of 1987 (the latest crackdown on free-market thinking, which lasted for a few months).
Despite all this, the Chinese have made astonishing progress in the decade since the end of the Cultural Revolution. Street entrepreneurs flourish everywhere. Overall GNP growth is high. The coastal provinces are booming. And Beijing looks like Dallas did six years ago. There are many construction cranes dotting the skyline, overseeing mammoth construction projects. But will China, as some have projected, become a premier economic power in 25 years? I wouldn’t bet on it.
(c) 1988 TPG Communications.
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