Friday, October 24, 1997

Planting an Economy in Silicon Valley

What makes an economy grow? It must create or increase value. From a bare piece of ground, one can add value by planting seeds and reap the resulting crop. Through mechanization, the farmer can till more land for the same effort. By using fertilizer, the yield is increased from the same amount of land.

How else can one increase value beside planting, that is, besides being a farmer? One can dig up the minerals from the ground. Or one can build machinery and manufacture goods out of the natural resources from earth. With technology, one can build smarter machines to make more and higher value goods with greater efficiency.

As one produces high demand goods, one can expand the operation and hire more people, i.e., create jobs. Others may seize the opportunity to build factories to make and supply intermediate materials and thus create a secondary industry. Perhaps a proliferation of tertiary markets is then created by such things as retail outlets, service and repair centers, and second hand stores.

For example, sand is the starting material for semiconductors. Intel and many other companies in the valley have done wonders making integrated circuits out of this humble and readily available material. Other companies follow suit by manufacturing production equipment needed to run the factories. The finished semiconductor chips are shipped to distributors and dealers; they in turn sell to the personal computer makers.

The PC industry grows by leaps and bounds with new products built around new generations of chips from Intel and its competitors and complementary chips from others. The industry growth include not just those assemblying computers, but all the makers of computer peripherals that attach to the PC, the software houses, the publishers of PC related books and magazines, and of course, training firms that teaches increasing number of new users. These products and services are sold in increasing number of department stores, warehouse stores, chains of computer stores, hotel meeting rooms and through the mail. More new jobs are thus created.

Since each generation of personal computers offers more performance for less money, more and more are sold. And that, in a nutshell, is how an economy can grow.

So what is the one essential element that is absolutely necessary in order for a technology-based economy to grow? Isn't it obvious that it would take people? Not any people but people trained to use the technology, develop new applications and further its advances. As the rate of change in technology accelerates, the more critical is the training of the people.

California and especially Silicon Valley revolves around technology. The irony and contradiction is that this is a state that no longer seems to believe in the value of a sound education system. This is a state that cares more about illegal immigrants taking advantage of our education system, a system, mind you, whose elementary schools rank No. 49 out of 50 states, and more about "wasting" tax money on schools and teachers.

If the voters of California do not wake up soon, we will not have the needed trained people to staff the high tech industry. The high tech companies would have to relocate to where such skilled people are available. Then Silicon Valley can go back to being fruit orchards. Jobs will be so hard to come by that we will have to pick our own fruits and vegetables. We wouldn't have to worry about the illigal immigrants because there wouldn't be any vacancies for them.

Wednesday, October 8, 1997

Hong Kong SAR after 100 Days

Before the handover of Hong Kong, the West, ranging from such prestigious publications as The Economist and Fortune to tenuous sources not qualified to make predictions but did anyway, was uniformly certain about Hong Kong's dismal future. The economy would collapse, dissidents arrested, printing press shutdown were among the dire predictions. Now that Hong Kong has reverted to China for more than 100 days, it's time to review and see if there are any changes and telltale signs of doom.

Since the handover, the new Chief Executive, C.H. Tung, has visited the heads of state of Malaysia, Singapore and the U.S. He was not accompanied by the respective ambassador from China to those countries. He acted alone. In the old days when the British appointed governor made similar calls, he was always accompanied by the respective British ambassador. This is one clearly visible change.

Li Peng, Prime Minister of China, visits Hong Kong in September to attend the World Bank/IMF conference. He is loudly booed by demonstrators whose sympathy lies with the Tiananmen protest and dissidents. The Hong Kong police makes no move to quell the protest.

Wei Yung has been invited to serve as adviser to a newly formed think tank, Hong Kong Policy Research Institute. Wei is a former member of Kuomingtang's Central Committee, former cabinet official, and former chancellor of KMT party school, Sun Yat Sen Institute. KMT, in case anybody doesn't know, is the ruling political party in Taiwan and no friend of Beijing.

So far no press in Hong Kong has been closed by authorities. That's a fact. Critics have resorted to accusing the press of "self-censorship" in order to stay on good terms with Beijing. The accusation of self censorship is rather subjective and difficult to quantify. However, one Hong Kong official recently points out to me that the Basic Law guarantees freedom of information. If the government should step in and tell the press to stop practicing self censorship, whatever that means, then in effect the government will be telling the press what to say and thus taking away thatfreedom.

Hong Kong's foreign exchange reserves reached $85.3 billion by end of August and represents the fourth largest holding in the world, after Japan, China and Taiwan, in that order. The government is sufficiently confident of its financial strength to contribute $1 billion to the loan package extended to Thailand to help bolster the strickened baht. In summary, I can find no signs of impending economic collapse.

According to the latest survey of Hong Kong people, 82% believe the situation in Hong Kong will improve or remain unchanged. This is an increase of 8% from the survey taken two months earlier, shortly after the handover.

The western media, not for lack trying, have not been able to find circumstances where Tung is acting at the behest of Beijing rather in the interest of Hong Kong. In interviews during her visit to the U.S., well known activist, Emily Lau, has had to resort to a kind of no-win logic. Namely, if Mr. Tung is not obviously doing Beijing's bidding, it is because he is getting his marching orders secretly.

One hundred days admittedly is not a long time in the context of 50 years of the one-country, two-system experiement launched by Deng Xiaoping. At least for now, critics prone to demonize China at the slightest provocation are maginalized and subdued.