The 2007 A.sian Financial Crisis
At the current moment, it is clear that property, production and capital investment are all on the upswing. Share prices appear to be rising (as usual) towards record-breaking levels. It is clear that no serious crash will come to those who hang on to their investments for the long term. Growth looks like a given, and in some areas, this growth has exceeded 67%.
However, it is equally clear that some of this local growth is based on heavy capital investment with no gain in total factor productivity. It is possible to keep building plant and so on without actually making significant value-added progress. This is akin to taking all your available land, hiring extra workers and planting it with crops, thus stopping crop rotation policies and using up all available nutrients for the next cycle. You will have a nett increase in production in the short term, and starvation in the long term.
When the land is exhausted and no new techniques or technologies intervene, a rapid downturn in effectiveness is inevitable. Where procrastination in acting suddenly seems like a good idea, we know that the situation is a bad one. It is far better to examine sub-sectors for areas which can be qualitatively improved, letting some other areas which are approaching minimal gain lie fallow.
Increased research expenditure can be a good idea, provided that the start-up cost is not prohibitive. In some extreme cases, however, institutions seeking to maximise control and standardisation at the expense of innovation have slashed R&D budgets, retrenched R&D personnel (or even outsourced R&D), and directed corporate policy away from both basic and applied research. This augurs badly for the long term.
The most important determinant of success is open education and relevant training, sprinkled with some dashes of structured memetic randomness (e.g. research programmes with broad mandates). The reason for this is that just as genetic diversity protects a species from dying out, so too does memetic diversity protect a society. It is possible to have a highly-educated population which is just undergoing repeated iterations of the same upgrade. This will eventually lead to minimal gains. What is needed is investment in structures that will research and implement new upgrades in many different directions, or make the possibility of such upgrades an acceptable option.
Frankly, institutions which have supported large capital investment should look carefully at how diversified their outputs, portfolios, and processes are. If there is no diversity, a sudden collapse of key markets can lead to total failure; if the market is guaranteed, it still means that profits may not be optimised. If there is diversity, but the diversity is artificially maintained and not synergistic, then whatever investment is being made is wasteful and suboptimal. The best case is diversity which produces synergistic effects frequently because of well-chosen overlaps, nexi, and key personnel.
This kind of diversity, with strong fundamentals and awareness of markets, technological and memetic horizons, and emergency outlets/alternatives, will produce superior performance even against strong competition. It is strongly advised that cash-rich investors seek out institutions capable of such diversification and shun their less-astute rivals.
However, it is equally clear that some of this local growth is based on heavy capital investment with no gain in total factor productivity. It is possible to keep building plant and so on without actually making significant value-added progress. This is akin to taking all your available land, hiring extra workers and planting it with crops, thus stopping crop rotation policies and using up all available nutrients for the next cycle. You will have a nett increase in production in the short term, and starvation in the long term.
When the land is exhausted and no new techniques or technologies intervene, a rapid downturn in effectiveness is inevitable. Where procrastination in acting suddenly seems like a good idea, we know that the situation is a bad one. It is far better to examine sub-sectors for areas which can be qualitatively improved, letting some other areas which are approaching minimal gain lie fallow.
Increased research expenditure can be a good idea, provided that the start-up cost is not prohibitive. In some extreme cases, however, institutions seeking to maximise control and standardisation at the expense of innovation have slashed R&D budgets, retrenched R&D personnel (or even outsourced R&D), and directed corporate policy away from both basic and applied research. This augurs badly for the long term.
The most important determinant of success is open education and relevant training, sprinkled with some dashes of structured memetic randomness (e.g. research programmes with broad mandates). The reason for this is that just as genetic diversity protects a species from dying out, so too does memetic diversity protect a society. It is possible to have a highly-educated population which is just undergoing repeated iterations of the same upgrade. This will eventually lead to minimal gains. What is needed is investment in structures that will research and implement new upgrades in many different directions, or make the possibility of such upgrades an acceptable option.
Frankly, institutions which have supported large capital investment should look carefully at how diversified their outputs, portfolios, and processes are. If there is no diversity, a sudden collapse of key markets can lead to total failure; if the market is guaranteed, it still means that profits may not be optimised. If there is diversity, but the diversity is artificially maintained and not synergistic, then whatever investment is being made is wasteful and suboptimal. The best case is diversity which produces synergistic effects frequently because of well-chosen overlaps, nexi, and key personnel.
This kind of diversity, with strong fundamentals and awareness of markets, technological and memetic horizons, and emergency outlets/alternatives, will produce superior performance even against strong competition. It is strongly advised that cash-rich investors seek out institutions capable of such diversification and shun their less-astute rivals.
etched with acid at 7:30:00 pm
1 Comments:
Reminds me much of what Joseph Stiglitz wrote in his book the roaring nineties.
I should comment more but that has to be placed on hold.
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