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Permanent
Stagnation or Reform? You Choose.
By Michael Alan Hamlin
March 25, 2002
Dr. Karl D. Jackson last week came
to town warning of permanent stagnation for countries that fail
to reform their financial systems and restructure their economies.
Jackson was an assistant to former U.S. vice president Dan Quayle
(not sure I'd put that in my resume) from 1991 to 1992, advising
his boss on national security matters "throughout the world."
He was also deputy assistant secretary of defense for East Asia
and the Pacific from 1986 to 1989. Presently he's director of Asian
Studies at the School of Advanced (advanced? Wonder what the beginning
class does?) International Studies of the John Hopkins University.
And he's also been at Berkeley, where he taught political science.
Jackson also has one, or rather three, feet in the
private sector. He's a senior advisor (what could that possibly
mean?) for Cerberus (I'm not kidding.) Capital Management, which
recently announced the creation of a US$500 million fund to invest
in distressed Philippine companies. Jackson is also managing director
of something called International Foreign Exchange Concepts and
president of the U.S.-Thailand Business Council. He's a busy guy,
for an academic.
The Carlos P. Romulo Foundation and the Asian Society
invited Jackson to speak to their members and friends last Friday
on the topic, "Can Asia Return to Sustained Economic Growth?
How and How Soon?" Obviously, he meant "yes." And
Jackson was ready to explain how, too: "Capital must flow out
of zombie companies and into companies that provide a return on
investment and not just market share."
That's true, but not exactly new insight. In fact,
I thought when I wrote The New Asian Corporation (2000) that the
restructuring of Asia would take place much more quickly than it
has. While reforms and restructuring have proceeded, there have
been huge hurdles to overcome that have proven to be much more difficult
than I thought they would be. One of the most curious has been the
sense of nationalism among the rank and file of some of Asia's zombie
companies. Curious because workers feel that they will be worse
off under management that prioritizes profit over market share.
However, surveys of workers in multinational firms consistently
show that workers are actually happier working for a firm with international
standards of labor practice and remuneration (see Asia's Best and
I apologize for the brazen plug). Those that get to keep their jobs,
anyway.
Nevertheless, worker resistance to sales to multinationals
has worked to empower founding dynasties of companies and Byzantine-like
conglomerates who can argue that their survival is in the national
interest. There's also the argument that selling assets at a fire
sale will accelerate the deflationary spiral that many economies
found themselves in after the financial crisis that began in 1997.
Jackson thinks that's all hogwash (and I agree).
He believes that fire sales create a buying frenzy.
And not only that, that most sales are made not to greedy international
investors, but to local buyers (although I have a pretty good idea
who snaps up the most attractive assets on the rare occasions in
which everybody bids on a level playing field). Of course, even
when buyers are local, someone has to go, and that's generally the
founding elites.
And so Jackson sees the elites - and their political
connections - as the ultimate hurdle to ridding Asia of its zombie
companies. He says, "Elites must decide if the transformation
of Asia will be short and painful, or long and painful." The
choice, Jackson argues, is growth or permanent stagnation. He doesn't
have far to look for a model. Japan has been stuck in recession
for virtually all of the past decade, and a bit more.
Jackson encourages Asia to get rid of zombie companies
by taking their non-performing loans and selling them, you guessed
it, to firms like Cerberus. The reasons are obvious, as GE Finance
has demonstrated so gloriously. Buying assets on the cheap is an
easy way to achieve stellar financial returns once they are cleaned
up and the economy once again starts chugging along as a result.
I guess Jackson and the group of investors he senior
advises will play this game pretty well. Not because they are well
connected to major players here and elsewhere, or have a new argument,
but because they can get someone like me to actually pay to come
and listen to the sales pitch. That's right, I actually paid for
lunch. Most companies wanting to come into a market and do some
networking generally consider it good manners to pay for lunch or
breakfast, and even pay firms like mine to organize these gatherings
for them.
Not Cerberus. These guys are as sneaky as their name implies (look
it up, for crying out loud). But that's fine. As long as the message
gets through, and we get rid of the zombie companies I'm happy to
buy the lunch.
(Michael Alan Hamlin is the managing director of consultancy
TeamAsia and the author of three books on Asian economies and companies.
His latest book is Marketing Asian Places, of which he is co-author.
His e-mail address is mahamlin@teamasia.com.ph.)
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