Of all the many quotable things Winston Churchill said or wrote, one of the most enigmatic was his comment on buildings: “We shape our buildings, and then they shape us.” One can only imagine how he would have interpreted the blades of steel and glass cutting across skylines in Asia and the Middle East today. Never before have so many less affluent and technologically adept societies been so conscious of modernity, or at least what modernity looks like from the outside as displayed by the powerful communications images of globalization. And never have so many focused their aspirations to become modern on the appearance of being so via prestige architecture. Just as a fabled group of ancients thought they could become like God by building a great tower in Babel, ambitious groups of would-be third-world moderns seem to think they can become powerful by building what amount to towers of globabel.
The prestige architecture of the un-West has become a source of pride and hope, symbols of national emergence and global integration. Perhaps in that way they contribute to helping millions to escape premodern conditions. But for the most part, the locals who behold such grand structures see them not as vehicles to achieve modernity; they see them as modernity itself. So do plenty of first-time visitors. Here in Kuala Lumpur, with its space-age airport and sleek high-rises, Americans and Europeans can be counted on to exclaim that they had no idea Malaysia was so “modern.” The shimmering new skylines in China and the United Arab Emirates speak of a “new” Asia and Middle East, and there is something almost miraculous about the speed with which they have eclipsed the recent past: Cranes seem to outnumber bicycles in Shanghai these days; the glittery desert oasis of Dubai didn’t have a single concrete building before 1956.
When you get right down to it, however, there is a difference between investing in modernity and being deeply invested in the appearance of modernity. Prestige architecture bears more than an accidental resemblance to the psychology of celebrity culture—the idea, basically, that one can create an aura of desirability without the attributes deserving of it. All the better to draw in the money, including the money of those who “get” the ploy but who hope subsequently to draw in the money of those who don’t. Thus, visitors from Kuala Lumpur’s airport are shuttled on an express train past a planned cyber city and Putrajaya, one of the world’s most expensive administrative capitals (replete with a cable-stayed bridge shaped like a sailboat and a “floating” mosque). Then they’re let off at the shiny central train station located a stone’s throw from the world’s tallest twins, the iconic Petronas Towers. Malaysian officials have admitted that this stretch, known as the Multimedia Super Corridor, was designed in no small part to wow tourists and woo investors.
In China’s case, the handling of the 2008 Beijing Olympics is illustrative. The central government unceremoniously bulldozed entire neighborhoods of urban “slums” to make way for glamorous new shopping venues. It also sent paramilitary forces to roust the city’s 170,000 rubbish collectors before the opening ceremonies. The stunning national stadium, the Bird’s Nest, was apparently not stunning enough on its own, so the opening ceremonies were digitally enhanced to play down the city’s smoggy skies. Advertisers did not mind.
Dubai’s “10-star” hotels and man-made, palm-tree-shaped islands are intended to stake a claim on the future in no uncertain terms. Not to be outdone, Qatar is constructing 13 islands that, when completed, will represent a seaborne string of pearls. Saudi Arabia boasts that its planned $80 billion King Abdullah Economic City will be four times the size of Manhattan when completed in 2020, while countries throughout the East slug it out to lay claim to the world’s tallest building. In our celebrity-obsessed age, these extravagancies have not failed to impress. Dubai is expecting ten million tourists next year—as many visitors as the whole of India will welcome. Collectively these visual feasts are contributing to the growing perception that the world’s center is shifting East: Not one but two New York Times columnists recently compared JFK Airport unfavorably with Hong Kong’s airport, suggesting that New York is looking rather third worldish.1
In key respects these robust exteriors are as misleading as they are instructive. As Malaysia’s Prime Minister Abdullah Badawi noted, Malaysia has “first world infrastructure and third world mentality” and “is in danger of possessing the hardware but little software.” Anyone who sticks around Malaysia long enough soon discovers that socially, institutionally, politically, educationally it remains an undisputed member of the underdeveloped world it appears to have left behind.
Malaysia is hardly alone. But Middle Eastern countries, plush once more with petro-dollars, say they’ve learned a thing or two from the first oil boom in the 1970s. They claim to be seriously diversifying their economies this time around, and a few are. Most, however, are still wasting their wealth on quick-profit projects and ignoring those with a potential for longer-term political and economic benefit. A good case in point is the miles of unoccupied high-rises in Dubai—a ghost town in the heavens, as well as a safe haven for money launderers. It is fitting that the world’s tallest building, the Burj Dubai, is being constructed by migrant laborers mostly from the Indian Subcontinent and island Southeast Asia (Philippines and Indonesia) who live in shacks, earn $4 a day (if they’re lucky) and rate next to nothing in terms of basic rights.
This isn’t to suggest that these modern-looking undertakings are devoid of all merit. People generally prefer to live, work and invest in ambitious, efficient and attractive places. A strong case could be made that glossy infrastructure not only spurs growth but provides the means to nurture other facets of development. Singapore, for instance, looks clean and orderly, and that no doubt has helped it become clean and orderly. But if we understand modernity to be not just economic progress but social and cultural gain, then clearly the trappings of modernity are outpacing its substance.
One reason for the disjunction between modernity and its mere appearance is that we are living in a time of extraordinary access. It is easier than ever to transfer the technology and expertise—and to hire star architects and cheap labor—to replicate the symbols of modernity. In a world of mass production, the symbols of modernity are being mass produced, too.
Another reason is that these countries are seeking not just to develop in an old-fashioned way, but to gain prestige in a self-conscious visual age in which satellite television and the Internet have turned once-distant shores into fishbowls. It used to be that only the hard work of growing an economy allowed surplus to be displayed as spectacle. Now the spectacle can be built without the hard work, and signifies not the surplus of real success but the obsession of jet-setting elites to attract ever-greater capital just to get and stay noticed. Asked on 60 Minutes, “Why do you want everything to be the biggest, the tallest?” Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum answered, “Why not? If you can have it in your country, why not have it here?”
This reactive cart-before-camel approach to development associates Western culture with what is modern, and one’s own culture with what is premodern. It seeks to obliterate the distinction between the two in the simplest possible way, without asking whether modernity is a process rather than a set of artifacts. It intends to express confidence and economic might; a deeper look reveals it as a status-grab rooted in impatience and insecurity. It thus counts as both resistance and emulation, resentment and admiration. Autocrats like Singapore’s Lee Kuan Yew and Malaysia’s Mahathir Mohamad peddled “Asian values” only to dress their fiefdoms in very Western attire. Somehow they were too preoccupied with the “depraved” West to escape its humiliating shadow. The tragedy is that in their open embrace of Western-style materialism they have rejected some of Western civilization’s most empowering qualities. They rationalize this neglect by claiming they intend to modernize on their own terms. But as Adam Smith warned, materialism distracts us from “humanity, justice, generosity and public spirit”—the very virtues that genuine development depends on.
Alas, spectacles mislead. When I arrived in Malaysia six years ago, it was not uncommon for Malaysians to cite the country’s dramatic physical transformation as proof that the nation was well on its way to achieving Mahathir’s stated aim of becoming a fully developed country by 2020. Today, however, national competitiveness and the quality of higher education are slipping, race relations are worsening, and corruption is arguably worse than it was before the boom began. Indeed, Malaysia’s boom has diverted attention from less flattering realities, producing a complacency that is stunting rather than stimulating development.
The grand architects of these globabel building booms often wrongly assume that socio-political and cultural handicaps can quite literally be paved over. Saudi Arabia’s Economic City intends to create millions of jobs for young Saudis and, in the words of a promotional video, be “vibrantly alive” with medical research and high-tech centers. It remains unclear how those centers will thrive when women, half the Kingdom’s potential labor force, are disempowered, and when most of the other half of the population lack education sufficient for the promising careers that supposedly await them.
One gets the impression that the impresarios of the globabel trend actually believe that development follows a standard, one-size-fits-all trajectory. If we build it, modernity will come. But as the Asian Development Bank has noted, some “old metropolises” like Tokyo and Paris have remained leading centers of innovation while many expensive new clusters of high-tech industry intended to create “technopoles” have failed. The Bank has urged developing countries to look beyond the facilities and systems of “ephemeral international trends.”
Sometimes they do so, but more often they only pretend to. Nods to a more holistic approach to development often seem feigned, more like attempts to conceal naked capitalist ambitions. Museums and concert halls are the new symbols of the holistic approach. King Abdullah’s Economic City will have a cultural museum, as will South Korea’s planned international business hub, New Songdo City. Establishing these places is not without benefit, to be sure, but given that political correctness and commercial considerations often inspire their construction, it is little wonder that they rarely become vibrant artistic centers, any more than public financing of art centers in mid-sized American towns have created real artists to fill them. Artists need angst, not architecture.
Investments in local culture often feel just as feeble. The Petronas Towers were designed to resemble Islamic motifs, though little about them looks particularly “Islamic”, let alone Malaysian. A plaque in the lookout tower of Taipei 101 informs visitors that the pagoda-shaped skyscraper is a symbol of the new Asia—though in the mega-mall taking up the ground floors it can be a struggle to find a single Chinese character, let alone a storefront advertising a non-Western brand. The most prominent buildings in Shanghai look Western and were designed by Westerners. One hardly needs to set foot in these countries to sense the loss of identity; it greets you at the nearly indistinguishable airports of Bangkok, Kuala Lumpur, Dubai, Hong Kong, Singapore and Shanghai—all designed by non-local architects. Dubai’s uniqueness, if it can be called that, is in having taken pre-existing ideas—build fast and tall, with lots of green glass set off by silver or white columns—to an extreme. But emulation on this scale neither communicates nor encourages innovation; it merely expresses dependence.
The global economic slowdown is laying bare some of the illusions created by the building frenzy. Cities that just months ago appeared to be zooming inexorably toward developed status have crashed back down to earth. China is undergoing a steep fall in growth that no one thought possible a year ago. Dubai is grappling with a budget deficit. Its population including expat workers is expected to shrink by 8 percent this year, and 30–40 percent of its new infrastructure projects have been either delayed or canceled, including parts of the palm-tree-shaped islands.
Perhaps governments will learn from this experience that there are no shortcuts to development, and that, in the end, spectacle doesn’t count for much. It may to a degree reflect and promote growth, but it can’t sustain it. China appears to be catching on. Since the crisis began, the government has invested more in rail- and road-building projects. This may not get it the quick respect it yearns for, but it will likely boost its long-term competitiveness.
Besides, displays of extravagance don’t quite communicate what they did before the meltdown, having been shown to be more drags on progress than reflections of it. This doesn’t mean developing countries will stop obsessing over their appearances any more than developed countries will. Image is a human obsession, and pride mankind’s eternal snare. But if a more organic approach to development does not win pride of place in the world’s wannabe societies, the future will certainly be a lot less modern than it looks.
Limited-Purpose Banking
Christophe Chamley’s and Laurence J. Kotlikoff’s “Limited-Purpose Banking” (May/June 2009) is an excellent example of “fishbowl” analysis. The financial system is flawed, but it certainly does not provide support for a rebuttal of the market system. The writers seem to have forgotten that from 1933 until 1999, the Glass-Steagall Act kept bankers and brokers apart. Banks hated the Act because it restrained their ability to grow and compete in the international banking arena. With the era of deregulation, the remaining provisions of the Act were repealed. Perhaps it is time to re-examine and reinstate some aspects of Glass-Steagall.
To declare that there is a lack of trust in the banking sector and a need to prevent all risk-taking by banks is to leave out some critical elements of the story. Because commercial banks have various revenue-generating sources, they have been able to make deposit accounts universally available at little or no charge. This increases the velocity of money in the economy. It also works to reduce the underground economy. To suddenly require banks to maintain 100 percent reserves would only raise the costs of maintaining a deposit account and encourage greater use of cash. It might also lead to the development of a totally new structure that would not be subject to current regulations. More transactions would occur outside the normal banking structure and would be much harder to track, thus opening the doors to a larger underground economy. From a policy perspective, the Federal Reserve would have less control of the money supply.
It is difficult to understand how replacing the market system with a bureaucracy can improve the efficiency of the financial markets. At a time when many are concerned about rising unemployment, instituting a credit rating bureaucracy would slow the wheels of the economy even more and contribute to the problem. There would be little motivation for responsiveness and increased efficiency.
Slapping a “lack of trust” label on banking is another false generalization. Have customers been closing their accounts and fleeing banks? Is there a greater demand for currency? At this point, the answer is “no.” The public is upset with financial institutions with regard to mortgages and the derivatives market, but not all banks engaged in such aggressive lending and hedging activities. It isn’t necessary to try to reduce all risk; just make banks fully accountable for the risks they take. When a bank has to keep a loan on the books until paid off or written off, it will take much greater care when deciding whether to lend. Greater limits on the use of derivatives and hedging activities will go a long way toward cleaning up the current crisis and preventing a relapse. Economics is a science, but it is a social science. It is about people. Even small adjustments can have multiple effects.
It is a fantasy to think that we can dispense with all risk. Part of the reason for this is that financial managers are like squirrels. They gnaw away at any system, looking for new ways to make money. It makes more sense to respect the power of the market system and adopt carefully considered regulatory adjustments. Small adjustments can go far to help rebuild and reinvigorate the system.
Rebecca Holland
Tulsa, Oklahoma
Christoph Chamley & Laurence J. Kotlikoff reply: What we find most interesting about these comments is that we agree with them. We don’t mean to rebut the market system. But let’s be clear, our financial system is not a “market system.” It’s replete with market failure everywhere you look. Limited-purpose banking is designed to fix the market defects so we can have highly competitive financial market trading in products that everyone understands and trusts.
Furthermore, we’re not sitting here with a competitive private financial system. Our financial system has been nationalized. Uncle Sam is writing nine out of ten mortgages; he’s operating the world’s largest insurance company; he owns the largest stake of several of the country’s biggest banks; and he’s gearing up to micro-manage every remaining private financial institution before they too put him over the barrel.
Trusting a financial product doesn’t mean the product is going to yield a sure return. It means knowing what risks the product entails. And yes, it is a fantasy that we can dispel all risk. But it’s not our fantasy. Instead, it’s precisely the fantasy our current system is perpetuating and our government is underwriting. The government is pretending it can guarantee, in real terms, all manner of irresponsible private financial commitments, when it can do nothing of the kind. And had the government not gone to unprecedented lengths to make the pledges it’s made—by extending deposit insurance, insuring money market accounts, and nationalizing Fannie, Freddie, AIG, etc.—we would have seen runs on the banks and insurance companies as sure as day follows night. Those runs are still waiting to happen because the government cannot, in fact, deliver on its implicit real promises.
Finally, we agree that replacing the financial system with a bureaucracy would be a terrible mistake. LPB does nothing of the kind. It eliminates more than 115 bureaucratic regulatory agencies and replaces them with one—the Federal Financial Authority, which will have a limited set of tasks. The FFA would not rate our credit or loans. It would verify the accuracy of our credit rating and hire private, independent companies to rate our loans. And because of this, parties other than Uncle Sam will again be willing to lend to us.
MBAs Gone Wild
I found myself nodding in agreement with much of Rakesh Khurana’s essay, “MBAs Gone Wild” (July/August 2009). As an MBA candidate and Wall Street veteran, I winced at the unpleasant accuracy in Khurana’s invocation of Nisbet’s term “loose individual” to describe a rise of personalities in finance who “eschew allegiance to social institutions” and “play fast and loose . . . in relationships of trust and responsibility.”
I am skeptical, however, of Khurana’s claim that the MBA education and business schools are a primary driver of, or exert a strong influence on, these loose individuals, whom I consider a significant minority in finance. Both loose and “attached” individuals tend to value their MBAs for the networks they help build rather than the “narrowly conceived model of neo-classical economics” or agency theory taught in the classroom. My more experienced colleagues view their business school experience as an aside in their career and intellectual development rather than a philosophical foundation for it.
I also wonder whether Khurana assigns outsized influence to the MBA and the institutions that grant them. The main contributors to our Great Recession include individuals and governments spending beyond their means, years of easy money from the Fed, policies (many misguided) to increase homeownership (at any cost) in America, and weakly enforced regulatory regimes. To be sure, Wall Street’s recklessness made things much worse, but the bonus-chasing, freewheeling culture that has plagued us did not spring up mainly from the business schools; most traders, especially the younger ones, have BAs only.
I suspect, too, that certain economics, mathematics and physics Ph.D.s bear as much blame for the current mess as MBAs. Their rise on Wall Street led to a proliferation of mathematical models since turned to jelly, perhaps most famously in 1998, in the case of Long Term Capital Management, and more recently in 2007 and 2008, when many of the breathtaking market movements and losses we witnessed were the direct result of algorithmic trading desperately trying to make sense of new, unpredicted events. Recall David Viniar’s now famous quote in the Financial Times that Goldman Sachs was witnessing “25-standard deviation moves [in the markets], several days in a row.” To the statistically savvy, this meant either that we were being visited, in effect, by pink dragons in the sky transmuting clouds to gold, or that Viniar was referencing models that wildly underestimated the likelihood of low-probability events.
All of this is not to say that Khurana’s suggestions for how to reform business school goals and curricula are neither insightful nor needed. As he says, a desire to “simply to get rich” should never be the overriding motive to attend business school, nor is it acceptable for business schools to ignore the social impact of its graduates’ behavior. But even successful institutional reforms will probably have a negligible impact on those who go through the schools and the financial world, those engaged in the eternal tug-of-war between fear and greed.
If the modern business school is, as I suspect, more a symptom of our society’s current norms than a source for them, it follows that it will take fundamental shifts in society itself before we can expect most managers to favor “excellence or quality” disproportionately to “pay and threats”, and to see attached individuals dominate “loose” ones. I see some of those shifts happening: I and my closest colleagues are expected to be community-oriented. We devote time and resources to organizations that move foster children into permanent homes, raise awareness for chronic illnesses and tutor youth at underperforming schools. Still, however long it may take for Wall Street and MBAs to find their intrinsic motivators, we’re wise in the meantime to pursue more efficient regulation, lower leverage, more transparent markets and financial compensation that’s linked to long-term performance. I’m sure Professor Khurana would not object to that.
Sing Su
Illiquid Credit
Global Markets Solutions Group
Credit Suisse Securities (USA) LLC