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The New Face of Capitalism
“The Washington Consensus is dead, says Laurence Brahm. It’s time for a new paradigm for Development.”
There is a bit of delicious irony in interviewing Laurence Brahm at the Palace of Golden Horses in Kuala Lumpur. The author of the recently published book, The Anti-Globalization Breakfast Club: Manifesto for a Peaceful Revolution, was a Beijing-based lawyer and investment adviser who gave up his suits and his practice to go in search of Shangri-la, and who espouses a form of capitalism very different from that represented by icons like the palatial hotel where the interview took place about two months ago.
According to Brahm, there is an even greater irony – and that is that the publisher, John Wiley & Sons, initially didn’t want to publish the book. It was, he says, “too radical for John Wiley”, which had published his two previous books – China’s Century and Zhu Rongji: The Transformation of Modern China. Brahm, who was in town at the end of May to promote his book, says it was only when the global financial crisis occurred and Barack Obama got elected as president of the US that John Wiley changed its mind.
Brahm is no stranger to controversy. As an adviser to central banks of Vietnam, Laos and Camodia on financial reforms in their transition from socialism to a market economy and to Mongolia on enterprise restricting, he infuriated World Bank and International Monetary Fund officials with his opposition to the cookie-cutter solution to development based on the conviction the “the market knows best”, and the market fundamentals would always be corrected and made perfect by the so-called “invisible hand”. But the events of 2008 and the ensuing global financial meltdown called into question these theories of the Washington Consensus.
Says Brahm in his book, “In the end, the events of 2008 are not the death knell of capitalism and do not herald an era of socialism. Such debates simply miss the point. But these events have jolted people’s assumptions and a readjustment will begin to take place, probably seeking a balance between extremes. Our global financial, economic and even political systems must change to reflect this realignment.
This book, says Brahm, is about the search for an alternative, “if not better, then at least more relevant, set of economic developmental paradigms and accompanying values” like respect for the environment and human dignity. In effect, it’s about the search for a compassionate capitalism.
Brahm, who divides his time between his homes in Lhasa and Beijing, is drawing on his 25 years of experience in Asia and putting theory into practice through his Shambahala Foundation, an NGO that is involved in rural medical and educational programmes, micro equity projects, as well as cultural and ecotourism development in Tibet.
Manager@Work: What has the reaction been to the book, especially from the proponents of the Washington Consensus?
Brahm: So far, generally speaking, the reaction to the book has been positive, not only among people who are part of what we would call the anti-globalization movement or NGOs but actually many people from within…the corporate world. Because of the corporate world, I think, is asking for solutions. One of the things that has happened is that a lot of the NGOs or the radical groups that have been at the WTO meetings, protests, at the IMF, World Bank meetings, have been discredited by the media because the media says they’re anti-globalization.
But this book is not about anti-globaliztion, it’s about looking at solutions and alternatives to the dark side of globalization…at alternatives that are sensible for business. Because at the end of the day, while on one hand you need to have the effect of protests and dissidents to attract global attention to issues, to make that issue work or to actually provide the solution, you need to bring in the institution as well. So, in the book, we’re calling for a rational set of solutions that is laid out in the ‘Manifesto for a Peaceful Revolution’ in 10 points, and proposing an alternative to the Washington Consensus that I call the Himalayan Consensus.
The march of globalization seems inexorable even if it has hit a bum because of the global financial crisis. So what do you hope your book will achieve?
Well, there are three pillars of Himalayan Consensus. First, is that the theory doesn’t work, throw it out. So much of the Washington Consensus is built around the idea of what they call neo-liberal capitalism or fundamentalist capitalism, which is a kind of extreme approach to development and no managing markets.
First of all, the development side of the Washington Consensus calls for immediate liberalization of capital markets and opening up of foreign exchange, privatization, and the sudden removal of subsidies on agricultural products. This is very often what people are protesting against, what they are angry about. In a developing society, this approach ‘shocks’ the society. It doesn’t help it to grow. In a transitional society going from socialism to market economy, it’s so much of a shock and means are not in place for people to be able to adjust.
What we’re looking at the more pragmatic approach. In the Asian financial crisis, the IMF prescribed things which actually made the Indonesian economy much worse; created social instability. So the first pillar of the Himalayan Consensus is you cannot apply isolated classroom theories to the realities of a developed country.
No dogma?
No dogma. It doesn’t matter if it’s a market tool, it doesn’t matter if it’s a social tool; if it makes the economy work, you should use it. This is the first approach; it doesn’t have to be top-down infrastructure investment, it can also be coming up from the grassroots and this is the approach that we’re talking. As I often say, how can an adviser from the IMF or World Bank go to a village and tell a country how to manage its people, village economics, when that adviser has never slept in a village his whole life? It’s theoretical. So what we’re looking at is looking to local people, local cultures, for local solutions, and this is the first pillar.
The second pillar is in terms of value. So much of the West is built upon a sort of western work ethic, this comes from Christian, Calvinist, puritanical thinking that goes ‘If I work hard, I will make money, I will become rich, this is something that due to me because of a manifest destiny.’ This is a kind of thinking which has permeated the entire western approach and has also led to the dogma of the Washington Consensus. And in Asia, we have rich powerful philosophies of Asian Countries. I call it the Himalayan Consensus because the Himalayan chain is where all this comes together, not only in the mountains of the Himalayas, the rivers of the Himalayas which include Southeast Asia, the Mekong source, the Irrawaddy source. And here you have Islam, you have Buddhism, you have Hinduism, Taoism and these philosophies. I won’t call them religion because people get very, ‘This is my religion’. I want to be broader and call them philosophical bases; all these,,, call for community… In these philosophies we have a value outlook.
In Bhutan, they adopted the GNH (Gross National Happiness). Quantity of growth does not necessarily mean quality of growth, and materialism is not the only basis upon which people are driven. I go back to the Washington Consensus, it’s based on Adam Smith’s theory of the invisible hand being driven by greed. I don’t believe that every single person is motivated by greed alone. They are motivated by many factors, and these factors include compassion. So in the concept of the second pillar, we want to introduce a concept called compassionate capitalism.
As I said to John Wiley, books should be on recycled paper. You can charge 10% more, people want to know that it’s recycled paper. What you do is, once you change the values of the consumer, the corporations will change as well. The consumer has to demand it.
There is a concept called stakeholder’s value. In the 1980s we had P&L value of the corporation. In the 1990s it became shareholder’s value. And now it’s stakeholder’s value. If I buy that corpoarte share, is that corporation doing something for the environment? Is it taking care of water resources? Is it taking care of the society? That has to be ingredient in our value for the corporation. This is the second value of the Himalayan Consensus, compassionate capitalism.
And in the third pillar of the Himalayan Consensus, I’m calling not for the radical approach or overthrow of the WTO or the IMF, no. I’m saying let’s try and restructure these organisations. These organisations exist, they are part of the evolution of the global economic financial sustem. I’m not calling for the revolution of these organisations as much as the evolution in a logical sense. WTO has a purpose. It is the last arbitrator of trade disputes, it needs to get back to its original function of trying to promote access for developing countries into the global market. It has lost its direction. There are 130 countries who are members of the WTO, only 20 get into the meetings. This is not fair, this is not democratic, not fulfilling the original goals of the GATT from which WTO evolved.
Likewise, the IMF and the World Bank can also be reformed, can also be restructured. More over, in areas where they are not addressing the problems, we can have other regional solutions, we can have a regional Asian Monetary Fund, we can actually have different types of organisations and associations to address the local needs as needed.
And again, local people know best what is good for them. They don’t necessarily need outside advice, don’t necessarily need the Washington Consensus to come in and tell them what to do. This is the third principle of the Himalayan Consensus.
You are not calling for a return to GATT, are you?
I’m not calling for a return to GATT, I’m calling for a return to the principles of WTO that are relevant and those principles evolved from GATT. (For) so long the protestotes have been on the street proteting against WTO, against IMF, against the World Bank. We should have listened to these voices much earlier. These are not radical voices, they are logical voices, they are there for a reason. People are crying out because their needs are not being fulfilled, because the marginalised are increasing. You say, ‘Oh, I have great growth throughout the world for the past two decades.’ Yes, but 40% of the world’s population are in poverty. One sixth, according to Joseph Stiglitz, are in extreme poverty.
So the fundamentals of the Washington Consensus have not worked and today, with the financial crisis in America, people in the US are also realising that these principles, or the fundamentals of their financial system, have not worked.
So it took the global financial crisis to actually drive the point home?
It took the global financial crisis also to get this book published.
You said in the book that the events of 2008 are not the death knell of capitalism and so not herald an era of socialism.
Correct, because I believe that both are extremes. We get locked into tis terminology: anti-globalisation, globalisation, capitalism and socialism. You know, one of the things I admire about the reforms under Zhu Rongji, the former prime minister of china while Iw as an adviser, was his ability to pick and choose: ‘This is a mechanism of the social system, I need to use both. I need to solve problems. We have high inflation, I need to cut money supply, I need to cut loans, I need to have administrative means to do this, not just reply on the market.’ We get locked into idealogy of economics. Economics is not a science; economics is a means of measuring and projection based on assumptions. And therefore, there should be no fundamentalism. I call for a middle way.
Ian Baker was a National Geographic explorer. I quote him in the book as saying ‘Buddha stepped out of politics to meditate under the tree. Now it’s time for him to step back into politics.’ I also say it’s time for him to step back in economics as well. We need to have compassion in capitalism.
How much do you think the global financial crisis will change the face of capitalism, and what will be the nature of that change?
It’s already changing. Wall Street has been an infallible notion, that what the titans of Wall Street do, everybody in the world community has to follow. This is already changing. The whole aura of investment bankers, of hedge fund managers, has been discredited. And moreover, fundamentalist capitalist formulas of the Washington Consensus and the political formulas of the Bush adminsitration are all discredited.
For 40 years, the economic system has been driven by the decision-making of small ellite based on their view that the market will always find equilibrium if left alone. But that is the assumption that information is complete in the market; market is eprfect, information is perfect,. Information is never perfect. In a developing country, it is so far from perfect. It is very imperfect.
You also say (in your book) that the challenge for Obama is not to ‘band-aid’ the economy by issuing more Fed bonds or adjust interest rates on home loans. ‘The hard question is how to tell Americans that their way of life is no longer sustainable given the accelerated pace of global warming, the cost of the American lifestyle, which is being passed on to the developing worls, and endemic poverty in the developng world.’ But the rest of the world depends on American consumers to keep buying to fuel their economies. So are you saying we should be prepared to accept lower rates of growth?
This is the reality of what we’re about to face. You know, obama has a stimulus package and it is supposed to increase American consumption. I’m sorry, the problem with American is over-consumption. Because of globalisation, our planet has become smaller. We are a global village. We have finite resources now; those resources are strained and under demand. It is not a question of how much we can consume, it’s the question of the quality of the consumption. We need to change our habits, we need to change our lifestyles, we need to change our values. This is not a question of socialist ideology, it’s a question of the survival of the planet, survival of the human species. I often say we can give our children money but can we give them water? I don’t know.
China has been growing at double digits for many years so what would be the implications of lower growth rates be for political and social stability?
It’s a concern of China right now. They’ve gone from a 9% to 10% growth rate for the past decade and it’s probably going to be 4.5% this year. So they have a stimulus package also focusing on infrastructure but this is not solving the problem. This is repeating probably unnecessary infrastructure development. This has already been done. Actually, probably what needs to be done is go from hardware into software, to shift the funds more into medical and education, into development of skills for a new generation.
I have concerns that at the current point, policy spending by China and America will draw funds back into the country. It will draw funds into both the US and China as there are speculative new investment instruments. But is it good for the long-term sustainability of both? I question that.
So this crunch is actually an opportunity for governments to review the policies at a very fundamental level?
I believe it’s also an opportunity for business to adjust and shift into new industriues and to follow what will be the change in consumer mentality and changing consumer values.
Because people are going to demand for value rather than quantity. That is an opportunity for corporations, an aopportunity for business.
So I don’t take the approach of down with the multinational corporations. No, no, no, you need multinational corporations, you need capital investment, you need institutions. But we have to evolve to the changing climate. That climate has been caused by us. Every effect has a cause. We are the cause. Now we have to get to the root of the cause. Trying to band-aid the effect is not enough.
Talking of business, what do you think business leaders and CEOs should do as they juggle the demands of ensuring the profitability of their businesses on the one hand, and equality and environmental concerns on the other?
Well, they can’t be simply focused on one thing, which is profitability at the cost of environment, at the cost of health. So this is where I call for compassionate capitalism, this is where I call for stakeholder value rather than just shareholder value. These are points which I believe will change the consymer behaviour. The consumer has to say ‘I’m not going to buy that share just because that company is grabbing market share aggressively.’
Person on the street says ‘I’m going to buy that share because that company, yes it’s profitable, and it’s doing something for the environment. Yes, that company is an energy corporation, it has a polluting energy but they are very rapidly developing new technology to shift over into an environmentally green technology.’
And so consumer patterns will force corporations to react. We need to have you thinking this way. If the media is on our side, then the consumer behaviour will change, then the corporate behaviour will change and the government will have to be responsible for both.
But at the moment, there are a lot of consumers, especially in the developing world, even in Malaysia which is fairly affluent, who would not be prepared to pay much more for an environmentally sustainable product.
I don’t believe that. I believe that the consumers will do that when they understand the effect of their consumer behaviour upon the environment and upon the next generation. As any consumer, what do you want to be able to do? Do you want to buy a product or have an education for your children, give something for the next generation? You want to take care of your children more than you. Ultimately, your action in purchasing shares of corporations who may be pollutiong the environment has a direct effect n your life and the next generation. Once people begin to think this way and the behavioural pattern changes, then the corporations will change very fast.
Because, yes, we are driven by greed, (but) we are (also) driven by other factors, by compassion, by spirituality. Once you change the consumer behaviour, the corporate greed factor will go in, they will adjust, they will be forced to adjust to the changing market.
So is sustainable profitability the way to go then and how would you define it?
You need to have businesses that are sustainable, that are profitable… If you give aid it disappears, aid is often misused. Aid programmes are foten not effective, it is more important to empower people with businesses. Culture can evolve, culture can be sustainable. If you do not have a fundamental economis base underwriting that culture, it goes into a museum. People buy a ticket, they gawk and they say. ‘That’s the way I used to be. See, we used to look like that.’ That is not sustainable, that is preserving artefacts.
Culture always evolves but we have to have a fundamental economic base to do that. So I support business leaders in doing this – it’s not enough to have NGOs in the street protesting. You actually have to have businesses which are stakeholders in the change of our environment, the change of our value system. Otherwise you will not have a sustainable planet.
In your book, you talked about the Wal-Mart CEO and how Wal-Mart is talking about what is carrying forward their employees, the environment. Do you know any other CEOs or individuals who are doing it right?
I just had a meeting yesterday morning in Singapore and there were CEOs of many of the big corporations in Singapore attending. Once focus of the morning topics that was repeated over and over again was ‘How can I do something with my company?’ Some had actually stepped out of their corporate life, and they were doing special programmes themselves. You know, doing all kinds of outreach programmes for the poor. Somebody had a programme – simply putting toilets in poor areas. Other people were doing it with their company.
Tembusu Partners organised a breakfast meeting yesterday and I was really overwhelmed because tembusus is a tree, it’s a local tree in Singapore. So there’s a culture identity and much of the work focused on water. There are at least two companies in China focusing on renewable water resources. And so this tells me, what I’m talking about now is just an idea. We’re trying to lay out a pragmatic blueprint of something which is already becoming or will become a trend. Once it becomes a trend, it becomes a global movement. Once it becomes a global movement, the culture changes.
Would you be able to give three tips on what CEOs could do where they are now?
First of all, understand that consumer behaviour is about to change. Be part of that change and lead the change. Try to drive forward your own programmes within your company for your soial outreach and environmental protection through renewable energy, through package picking. There are many different ways.
Second of all, regardless of your own management style, reaching out to employees, reaching out to the company as a social unit, turning your company into a social community, will change the nature of employee/employer relations, ownership and management. Often, in the fundamentalist capitalist approach, these are all conflict. They should not be at conflict, they should be in unity. They should be in parallel; they should be working together. Build communication, not just companies.
And how can they do that?
Through internal management, through outreach, through respecting employees, through finding once again what is the psychology of the employees. What is it at the back of their minds? Try a reach-out programme. I’ll just use a very small, small example. In Lhasa, during the events of March last year, I knew that tourism would stop in a year. So I turned to all of my staff and said, ‘We are going to face a big problem. Tourism will be finished for a year.
However, (we told them) we’re going to cover their salaries for the next year, so please come to work every single day. After a month and a half, they felt bad because they were taking the salary but there was no work for them. The staff, the waitresses, the little girls, worked on the restoration of the new hotel. All the work was done by kids. They just decided to do it.
I went back to Lhasa after the Olympics, and saw that it (the hotel) was restored and it was done by individuals, they are stakeholders. They are stakeholders in a new venture. The new heritage hotel is theirs, not just mine. It’s theirs, they built it. And so this is where I woke up. I said, compassionate capitalism.
Compassionate capitalism also involves common sense. If you give to someone, they’ll give back. It’s not just doing good, it’s also common sense.
And the third tip?
The third tip is – have vision. Look beyond the daily focus of your P&L profitability. See where the trend is going, the trend has got to be to protect the planet. That involves three things. It involves reaching out socially to ptotect the local identity whatever that is. You have lots of local identities here, it should be protected, it should be evolved, it should be developed. Have vision, have a plan. Don’t react to the market; create the market.
In many ways you are the quintessential person to write a book liekt his. You’re American, you’ve worked as a lawyer and investment adviser, you’re familiar with and are now involved in grassroots initiatives in the Himalayan plateau. Was it a journey or was there a particular incident that made you decide to write this book?
I believe that it began in 2002 when I decided to close my investment advisory firm in Beijing. I went to Western China, to Tibet, I began to make a film series. The first was called Searching for Shangri-la (2004), the second was called Shambhala Sutra (2006) and along the way, I met NGOs, I met people who were doing grassroot work. I met a monk who set up cheese factory in the highlands, bought yak milk from farmers and in turn, he made very fancy European cheese, exported it and used the proceeds to develop rural education for nomads.
There was another monk who set up a factory where the handicapped would only make Tibetan products. They’ll make a Tibetan shirt, they won’t make Western shirts. So they’re preserving their crafts, and in turn they’re a community; they support about 100 handicapped orphans. These types of approaches stunned me. They opened up my mind because I had previosuly been working in monetary policy, financial policy, enterprise structuring and working with multinational corporations.
So I decided to be part of this by having my own programme, my won social enterprise. In turn, I was disturbed by the fact that the antiglobalisation groups which we actually call social justive movements – there are many diverse NGOs, farmers, people speaking on the street. The voices are different and are really calling out for participation democratically in the global financial system. And I thought that their voices were rational and they had been dismissed by the media, by politicans, and those voices need to have articulation. So the two thoughts brought together put me on the trajectory to write down these ideas.
Are you optimitistic about the future?
I believe in always being positive. Positive energy can overcome negative energy. If we allow ourselves to be driven by the factors of negativity, we cannot achieve anything. Consequently, every action, if positively motivated by positive intention, with compassion and common sense, many micro initiatives regardless how small, can become a global movement. This book is about starting a global movement.
What gvies you fears about the future?
The environment is my biggest fear. When I fly from Chengdu to Lhasa – only a few years ago, from late October up until April/May, all the mountains are covered with snow. This year, there was no snow until January. That is very serious – if we lose our snow cap, if the glaciers are in retreat, then the Yellow River, the Yangtze River, Mekong, Irrawaddy, the Ganges, the Brahmaputra, will have no water. Two-thirds of humanity will have no water. We are facing global catastrophe.
Do you think water is going to be the single most important issue?
It will become more expensive than the price of oil. We are heading in that direction. So we need action now. We need to change our values now, we need to change our economic systems now. We’re running out of time.
You went to China in 1981, inspired by the altruistiv idealism of Mao, as you put it. But you switched to become a China trade lawyer. How did you reconcile that?
Because it wasn’t practical, because Maoism was overwhelmed. I went to Nankai University, the buildings had been destroyed during the Cultural Revolution, the students – some were still walking around in Mao suites, others were already involveed in black market (activities). So things were changing. They were on the cusp of change so I became part of the change. I wanted to follow the changes – being a lawyer was the way to do it. A way to have that tool to be a part of the change.
When you closed your legal consulting business in China in 2002 and set off in search of Shangri-la, was it a return to that early altruism?
Oh, to a great extent it was. I was going back to the roots, I guess, the things that had brought me to China to begin with. There were two moticating factors. One was, after working a lot onr eform policy and working with multinationals, I felt particularly that the reform policies had already been complete. China had gone from planning to marketing and entered WTO. So the rest of the issues to discuss in China were interest rate (up or down), money supply (up or down), the currency evaluation. These were technical issues and China has a lot of economists, they don’t need more economists.
They don’t need an outsider telling them what to do. But I was concerned by the values, I thought that thoguth this enermous economic reform process, China had lost its core values. So I went in search of those values,, and those values were, I thought, with the ethnic minority regiosn of China. I went searching for Shangri-la and in turn, I found a whole other paradigm, a whole other set of approaches to develop it.
How hard was it to leave that world of wealth and privilege and influence?
Not hard at all.
Do you ever miss it?
No, I am sometimes forced into it. I had to put on a suit and tie for the first time in Singapore the other day.
You have incredible guanxi. The list of people you named in your book is impressive. Were you born with that networking skill, or is it something that you developed?
I think it’s karmic. If you have good intention and you have the same vision as people who are trying to achieve something, then like minds come together. What’s important about the Himalayan Consensus is that we bring together the voices and ideas of many people in the region – Muhammad Yunus (winner of the Nobel Peace prize in 2006), the Prime Minister of Bhutan, Mahinda Rajapaksa (president of Sri Lanka) – these are basically people who have vision and want to make change happen for the better.
So did those connections help open doors?
I don’t think it’s a question of opening doors, it’s a question of having like-mindedness. When people of a vision try to achieve something, they will come together with people who are trying to achieve similar things. Many parallel forces working together to bring about positive change, it’s not one person, it’s not one thing, it’s consensus. You have to build consensus, we have to build consensus in the Himalayas, we have to build consensus in the East (and) West.
After Red Capital Residence and Club, Red Capital ranch, Red Capital Studios, Shambhala Hotel, what next?
My focus is Shambhala. Shambhala is more than a hotel, it is a social enterprise, it is the foundation of consensus communities in the Himalayas, we would like to have recognised as an alternative approach to development. And we will, in turn, try to promote this and link it up with other consensus communities and other people who are doing similar things, first in the Himalayas, and then globally.
Second, we are developing a Himalayan Consensus online social network, and the Himalayan Consensus Community online will be launched very soon – Himalayanconsensus.org – and from this, we hope to work with like-minded NGOs, like-minded individuals or institutions in promoting these ideas and approach.
It’s been seven years since you set off for Shambhala, or Shangri-la. Have you found it or has the journey just begun?
The journey has just begun and now, it’s part of what we call the Himalayan Consensus. So actually, what I’ve been doing is building the Himalayan Consensus and now the journey has really just begun because we’re taking these ideas out of the Himalayas and going global. So it’s only the first step, we have a long way to go.
