Lessons to Be Learned from South Korea

I have been in the small southern city of Jinju in South Korea for a conference on entrepreneurship and wanted to send you the Declaration of Action.

I was a speaker, along with my Caux Round Table colleagues Lester Myers from Marymount University, Washington, D.C., Prae Piromya from the Sustainability and Entrepreneurship Center at Sasin School of Management, Chulalongkorn University, Bangkok and Claire van den Broek of True Price in The Netherlands.

I have learned much and will send you a longer report shortly.

The Economist: In Line with Moral Capitalism

I just read the current issue of The Economist while flying to Washington, D.C. to speak on a panel about Ukraine on ethics and economic development during a war.

I found it aligned with our thinking about moral capitalism in three articles.

First, about the virtue of capitalism in bringing forth innovation and new technologies:

Two years after ChatGPT took the world by storm, generative artificial intelligence seems to have hit a roadblock.  The energy costs of building and using bigger models are spiraling and breakthroughs are getting harder.  Fortunately, researchers and entrepreneurs are racing for ways around the constraints.  Their ingenuity will not just transform AI.  It will determine which firms prevail, whether investors win and which country holds sway over the technology.

Large language models have a keen appetite for electricity.  The energy used to train OpenAI’s GPT-4 model could have powered 50 American homes for a century.  And as models get bigger, costs rise rapidly.  By one estimate, today’s biggest models cost $100m to train; the next generation could cost $1bn and the following one $10bn.  On top of this, asking a model to answer a query comes at a computational cost—anything from $2,400 to $223,000 to summarize the financial reports of the world’s 58,000 public companies.  In time, such “inference” costs, when added up, can exceed the cost of training.  If so, it is hard to see how generative AI could ever become economically viable.

There is no need to panic.  Plenty of other technologies have faced limits and gone on to prosper, thanks to human ingenuity.  The difficulty of getting people into space led to innovations that are now used on Earth, too.  The oil-price shock in the 1970s encouraged energy efficiency and in some countries, alternative means of generation, including nuclear.  Three decades later, fracking made it possible to reach oil and gas reserves that had previously been uneconomical to extract.  As a consequence, America now produces more oil than any other country.

Already, developments in AI are showing how constraints can stimulate creativity.

Secondly, poverty needs good capitalism to put it out of its misery:

Since the Industrial Revolution, rich countries have mostly grown faster than poor ones.  The two decades after around 1995 were an astonishing exception.  During this period, gaps in GDP narrowed, extreme poverty plummeted and global public health and education improved vastly, with a big fall in malaria deaths and infant mortality and a rise in school enrolment.   Globalization’s critics will tell you that capitalism’s excesses and the global financial crisis should define this era.  They are wrong.  It was defined by its miracles.

Today, however, those miracles are a faint memory.  As we report this week, extreme poverty has barely fallen since 2015.  Measures of global public health improved only slowly in the late 2010s and then went into decline after the pandemic.  Malaria has killed more than 600,000 people a year in the 2020s, reverting to the level of 2012.  And since the mid-2010s, there has been no more catch-up economic growth.  Depending on where you draw the line between rich and poor countries, the worst-off have stopped growing faster than richer ones or are even falling further behind.  For the more than 700m people who are still in extreme poverty—and the 3bn who are merely poor—this is grim news. …

As the world has turned towards intervention, so the chosen instrument for poor countries has become trade restrictions, as IMF research shows.  This contains an uncomfortable echo of the failed development plans of the 1950s, built around freezing out imports rather than embracing global competition.  Fans of industrial policy will point to East Asia’s “tiger economies,” such as South Korea and Taiwan.  Yet, both embraced harsh global competition.  And several African countries that tried to copy their industrial policies in the 1970s failed miserably.

The world will pay for its failure to learn from history.  Rich countries will cope, as they usually do.  For the poorest people, however, growth can be the difference between a good life and penury.  It should not be a surprise that development has stalled as governments have increasingly rejected the principles that powered a golden era.  Nobody will suffer more as a result than the world’s poor.

Thirdly, woke antiracism and DEI programs are losing their welcomed seat at the table for discussions of what Americans must rightly do.  I argued 2 years ago that DEI, in particular, did not fit with the universalistic and humanistic ethics of moral capitalism:

The simplest way to measure the spread of woke views is through polling.  We examined responses over the past 25 years to polls conducted by Gallup, the General Social Survey (GSS), Pew and YouGov.  Woke opinions on racial discrimination began to grow around 2015 and peaked around 2021.  In the most recent Gallup data, from earlier this year, 35% of people said they worried “a great deal” about race relations, down from a peak of 48% in 2021, but up from 17% in 2014.  According to Pew, the share of Americans who agree that white people enjoy advantages in life that black people do not (“white privilege” in the jargon) peaked in 2020.  In GSS’s data, the view that discrimination is the main reason for differences in outcomes between races peaked in 2021 and fell in the most recent version of the survey, in 2022.  Some of the biggest leaps and subsequent declines in woke thinking have been among young people and those on the left.

The columnist, Lexington, ended that weekly commentary with these thoughts on white supremacy:

The left is due for a reckoning over the reckoning on race.  The protesters have moved on, the book sales have dried up, the DEI departments are emptying and the elite white groveling and self-flagellation … have been, on the left, politely memory holed.  Yet, a movement concerned with structural injustice has achieved little structural change, whether to policing or the black-white wealth gap.  Was it all, in the end, just a performance?

Video of Dayton Award Presentation

These are not the happiest of times for the United States of America or for our world, for that matter.  There are two wars underway between rival peoples with unhappy historic memories of each other.  Many say that the post-World War II international order is not what it once was.

Already several years ago now, a friend of the Caux Round Table said to me: “Everyone knows that we are living at the end of an age.  They don’t know what the next age will bring or how they will need to adjust.  So, everyone just does today what they did yesterday.”

In such circumstances, as the tides of time shift their flow, discernment is needed more than ever – discernment of what is happening, discernment of what is fundamental, discernment of what is eternal and discernment of the truth.

As important as discernment is having the courage to act on the truth.

With these moral parameters in mind, our board selected reporter Liz Collin of Alpha News to receive the 2023 Dayton Award for her documentary, The Fall of Minneapolis.

Her work in that documentary provides discernment of disturbing facts and conditions in our new America.  Bringing before the public a different perspective on a tragic event was an act of civic courage.

You may watch the event here.

Many thanks to Loren Swanson, one of our regular participants, for recording it.

Pope Francis in Indonesia Speaks in Alignment with the Ethics of Prophet Muhammad in His Covenants to Respect Christians

Last week, Pope Francis visited Indonesia, home to the world’s largest community of Muslim faithful.  There, the Istiqlal Mosque is connected by a tunnel to the Catholic Cathedral of Our Lady of the Assumption – a marvelously apt metaphor for the respect shown to Christians by the Prophet Muhammad in his covenants and the respect for Muslims shown by Pope Francis in the “Document on Human Fraternity for World Peace and Living Together” and his encyclical, Fratelli Tutti.

I attach here a copy of the Pope’s remarks on his visit to the Mosque and the Cathedral.

At this time of war in Gaza and Ukraine and with dark clouds of aggrandizement gathering over the South China Sea, may we all learn to open our hearts and minds to others, as the Pope and the Prophet have requested of us.

Moral Capitalism in 16th Century Korea!

I have been invited to speak on moral capitalism at a conference in Jinju, Korea.  The organizers sent to me a short paper on the important role of Jinju and its cultural heritage in leading the remarkable economic development of the South Korean people over the last 60 years.  Something was different in the regional culture of Jinju, related, as you can learn, to the thinking of Jo Shik, who lived and taught in the 1500s.

Now, a very important lesson taught us by the Korean peoples, north and south, needs to be taken to heart: why has South Korea been so successful and the North not at all?

One answer is governance.  Capitalism can’t work its benefits under political conditions of rent extraction (government as landlord) and moral, political and cultural oppressions.

Here is stunning evidence of the difference made by political and cultural systems on the quality of human living:

The darkness in North Korea is more than not having electricity.

Learning about the philosophy of Jo Shik may give us a clue as to the origins of South Korean excellence.  Morality might, after all, make a difference in the quality of our living in community.

A Very, Very Important New Scholarly Article on the Foundational Vision and Mission of Islam

Halim Rane, our colleague in the study of the covenants given by the Prophet Muhammad to respect and protect Christians and Jews – examples of principled leadership for peaceful coexistence – has recently published a new article, “Human Security and Peaceful Coexistence in Islam: Analysis of Covenants in the Qur’an and Sunnah,” written with impressive scholarly precision and offering us unusual insights concerning the textual traditions of Islam.

I urge you to read Halim’s thoughts and conclusions at your earliest convenience.

This article, to me, is one of the most important contributions yet made by a member of our small study group of volunteers who have examined and discussed the covenants of the Prophet for 4 years now.

In particular, Halim points to less noticed textual interdependencies providing excellent guidance on how best to read Surah 9 of the Qur’an on management of inter-faith and inter-communal relations under conditions of tension and disagreement at the time of the Prophet and the revelations of the Qur’an.

To me, Halim’s scholarship provides good reasons to believe in the contemporary importance of the covenants of the Prophet and related texts in the Qur’an and the Hadith, not to mention the Sunnah of the Prophet himself, for making practical and effective peaceful co-existence within the Abrahamic traditions.

Moral Capitalism and Harley-Davidson

I recently shared with you a case study of the challenges of companies selling a “brand” linked to a cultural or political ideal favored by some, but not by others involving the Harley-Davidson company.

By coincidence, there was an editorial soon thereafter using Harley-Davidson as a case study in the efficacy and implicitly, the morality, of tariffs.

Tariffs are most closely associated, in my mind, with mercantilism, not an open system of moral capitalism.  When the first meeting of the Caux Round Table was convened at Mountain House in Caux, Switzerland, in 1986, the subject was, in effect, mercantilism and national industrial policies of the U.S., right or wrong, will raise barriers against importing goods from other countries.

The group resolved that, in the long run, competition was best for all, as markets expanded in size and the most innovation and efficient producers were to be rewarded, no matter their nationality.

Here is the editorial from the Wall Street Journal.

When Does Advocacy of Social Values Complicate Management of Stakeholder Relationships?

I ran across this article on Harley-Davidson, trending now due to the annual Sturgis motorcycle rally having taken place earlier this month.

Again, it speaks to a reality about consumers – different people have different values.  Is a company in the business of alignment with social values or product values?  How can a company learn what values drive purchases of its goods and services?  Does reticence in identifying a company or its products with non-commercial values make sense from time to time?  Or should a company position itself in the sweet spot of affinity for one, but not other consumers?

A Field Test of Capitalism

In the quest for practical wisdom, finding the intersection points where ideas are validated by worldly realities puts us on the course for knowing what is best to do.  Theories can help by presenting relationships between and among facts, but how many times have theories not aligned with practical realities in the long run?

There is a theory of capitalism and a theory of socialism.  Which is a better theory to guide our decision-making?  Which is more likely to bring about better outcomes?  There is a theory that democracy is the best form of government for people.  But how many successful democracies has humanity experienced?

The scientific method likes to look for facts and data and then examine them for patterns which repeat when the same facts and data are present and then propose a law of causation to explain why the pattern emerges.  The law of causation permits prediction of future outcomes.  So, if the law correctly correlates the necessary interdependence of some facts or data with other facts or data, then we can, with confidence, use the law to predict the future.

We can use the law to obtain desired results or use it to avoid outcomes we don’t want.  Thus, if we want to know what outcomes to expect from capitalism and from socialism, it is best if we find some facts in the real world which might lead to the discovery of patterns and then to predictions of what will happen if that pattern is followed in our behaviors.

Nigeria today presents us with such facts on systems of human governance and economics.  The conclusions we can draw from Nigeria, as a case study, are credible and revealing.

First, the July 13 issue of The Economist reported that “soaring food-price inflation is hurting Nigeria’s poor.”

Tomato prices that fluctuate with the seasons are normal in Nigeria, but the record annual pace of food inflation, which hit 41% in May, is not.  Most pinched are the poor.  Staples, such as beans and maize, cost 400% more than they did a year ago, while a 100kg bag of sorghum has more than tripled in price.  Since wages have barely moved, the result is a deepening food crisis.  Whereas hunger was once concentrated in conflict-ridden areas in northern Nigeria, now it affects poorer households nationwide (see map).  Of the 44 million people in west Africa and the Sahel who do not get enough to eat, more than half are Nigerian.

We may ask if the inflation is the result of free market capitalism?

The Economist reports:

Much of the blame should be heaped on the government.  A haphazard introduction of new banknotes under the previous administration led to a shortage of legal tender. This caused most hardship in the countryside, where penetration of bank or mobile-money accounts is lowest.  With cash scarce, farmers charged middlemen a premium if they used electronic payments, pushing up prices in the markets.

A weakening naira dealt another blow – its 40% fall against the dollar made it the worst-performing currency in the world in the first half of this year.  That has pushed up the cost not only of imported foods, but also of seeds and fertilizer.  The government’s removal of fuel subsidies, though necessary, further raised the cost of running farming machinery and taking harvests to markets. …

A year ago, Bola Tinubu, the president, declared a state of emergency for food insecurity.  Yet, promises that savings from the fuel-subsidy removal would be reinvested into farming have not materialized.  A program to give free fertilizer to farmers to boost production was subverted by politicians, who put their faces on the sacks and gave them to loyal voters.

This week, the government announced plans to waive import duties on maize and wheat and to set a recommended retail price.  The government itself also plans to import 500,000 tons of grain.  But so far, Mr. Tinubu’s administration has been unable to stop prices from soaring.  Last year, Nigerians were already spending 59% of household incomes on food, a higher share than in any other country.  How much harder can they be squeezed?

In the July 26 issue of Newsweek, it was reported that Nigeria is at a cross-roads, quoting former U.S. Ambassador John Campbell saying, “I would suggest that Nigeria, at present, is not holding together.  What you have is a government whose writ runs in only certain parts of the country and there are alternative power centers all over the country.”

Nigeria is beset by the lack of governance and the rule of the gun – a Hobbesian condition, where the life of people can easily be “solitary, nasty, brutish and short.”  The country, reports Newsweek, is beset by Islamist insurgents, separatist movements, kidnapping and robbery.  This year, through May, saw 7,519 incidents of violence, 9,892 killed and 6,292 abducted.

One woman said, “You can see people going crazy.  They are not crazy, they are hungry.  They are frustrated, they don’t have work to do, they don’t have anywhere to go.  That is why you see them walking about stealing, doing armed robbery, kidnapping.”  This would not be expected in a successful capitalist society, where wealth is created through enterprise and shared with stakeholders.

Nigeria sits near the bottom of rankings for corruption and still has a reputation after decades of being home to scammers who operate globally to strip the innocently trusting and the naïve of their savings.  Long has Nigeria been under the thumb of military rulers.  Tinubu won election as president in 2023, when less than 10% of registered voters bothered to vote.

Hard to have capitalist wealth creation where there is no morally responsible government.

The new government took steps to move towards more market rationality – ending subsidies for fuel and letting the currency float to a market value.  But the initial consequences of those steps towards market efficiency is seriously higher inflation.  A critic commented that the reforms were not part of any larger, broader program to boost the economy, again a shortfall on the part of government and the culture to value enterprise.

Nigeria’s government and economy run mostly on the proceeds of selling oil, not producing goods and services.  This is the curse of dependence on rent extraction from natural resources. The cash flow does not come from workers earning wages through capitalist wealth creation.  Nigeria ranks 127 out of 133 countries for diversifying its economy.  It gained independence from Great Britain in 1960 – 64 years ago.