Silicon Hutong

Funny, I thought it was a new kind of herb...

In the Hutong

One month to go

2039 hrs.

There are a lot of terms people use that they do not really understand, and I am as guilty of that as anyone out there. I didn't understand "soft power" until I read Joseph Nye's book. I had no clue about social networking until I actually started doing it.

And even though I deal very rarely with finance, there have been two occasions when I've used the phrase "Basel II requirements" in a conversation about Chinese banking when I realized I only understood a single specific piece (the minimum capital requirement) of the global standards by which banks are increasingly judged. I kept smiling, but I broke into a cold sweat.

You know that feeling, right? That feeling like you are walking happily across a frozen lake, and then you wake from your reverie to realize that you are on thin ice, that you have walked the conversation right up to - and sometimes beyond - your real level of knowledge. And you are about to be exposed for the pretentious idiot that you are for having had the conversation in the first place.

Okay, well, maybe you don't. But I've felt it, and I hate it. Once my internal baloney alarm kicks in, there are only two solutions: never, ever, go there again; or set about learning more.

So I went hunting, and I found this juicy little pdf at the Bank for International Settlements website - the full text of Basel II: International Convergence of Capital Measurement and Capital Standards Revised Framework - Comprehensive Version. At 347 pages of dry text, it was probably more than I needed, but being the finance tyro that I am I kind of get a kick out of reading it. I feel like I'm a fly on the wall at a meeting of central bankers. The wikipedia entry was a little too light on detail anyway.

Olympics: Whither the Great Venues?

In the Hutong

Productivity = no TV in office

1917 hrs

We are still over a month away from the opening ceremonies, and I am already hearing of reporters filing stories on the "Olympic Legacy." Yeah, I know, it seems a bit early for that kind of speculation, but especially for those of us who will remain behind when all of the athletes, officials, and visitors have left, it is a matter of real concern.

From the point of view of the people here in the Hutong, the infrastructure improvements alone are worth the hassle of the games coming to town. We are being left with: a beautiful (huge) new airport terminal with an extra runway on the side; the beginnings of a rapid transit system worthy of the name; a whole lot of new buildings; wider streets; and vast belts of green where once was concrete.

Quiet Giants

Oh, yes - we're also getting some brand new sports venues, and all the rest are getting facelifts.

It does not take a futurist to know what will happen to these magnificent venues after the Paralympics closes in September. Some, like the beach volleyball arena, will come down instantly. Others will see their seating removed. A few - most notably Arup's iconic National Aquatics Center, or The Water Cube (that's [H20]^3 for my fellow geeks) have been designed with a post-Games life in mind.

But many, I'm afraid, will stand silent for much of every year.

There are two issues, separate but somewhat related.

Promoters must Promote

First is the dismal state of the live events business here in China. I do not put myself out as an expert in this field, but I've been working along the edges of the business for long enough to know that the problem here is neither the number of people who would attend a concert, nor the cost of a ticket, nor of a lack of bands, symphonies, stage plays, artists and the like who would be willing to come to Beijing.

The problem is with the promotions side of the business. Live event promotion is for all intents and purposes a state monopoly. With all due respect to the hard-working people in that monopoly, it is too often fair to say that events are poorly promoted, badly managed, and sometimes not fun at all. And that's just from the consumer point of view. I can only imagine how it must drive sponsors and tour managers nuts to deal with promotors who do not appear to be interested in helping to put on a killer event.

Just to take promotions: I read the weekly entertainment giveaways as closely as the next guy, and I find myself learning about events, plays, concerts, and the like either the day of or a week after the fact so regularly that it is infuriating. I can more readily find out about who is playing the Greek Theatre in Los Angeles next season than I can find out about a concert in Beijing a month from now. Frankly, unless I see an ad two weeks in advance in The Beijinger or I'm regularly checking the Emma website, I may never find out.

Unfortunately, I doubt major improvement - a stage where tour organizers and event sponsors are all talking about how easy and enjoyable it is to take a show through China - is in the offing anytime soon. That would require genuine competition in the live events promotion space, maybe opening it up to other state-owned media organizations like China International Television Corporation, Shanghai Media Group, China Radio International, or even the Phoenix Satellite folks. That is just not in the cards right now.

We need a new ball game

The second issue is the state of professional sports in China. There is more to creating a successful (dare I say "world-class") sports league that slapping some spiffy kit on a bunch of healthy young males.

If you want an idea of how far professional sports have progressed in China, take a look at professional soccer. There is a league. It has its hard-core of followers. But it is by no means the popular sensation here that it is even in Japan, much less anywhere in Europe.

I once had a long, drink-sodden discussion in a karaoke bar with one of China's senior soccer coaches. He blamed China's lack of soccer prowess on a whole range of issues: lack of endurance, lack of speed, inadequate diets as children, whatever. And he may have been right.

When you look around the world at some of the leading sports leagues, though, you start to see a pattern emerge. When a country is a global leader in a given sport - any sport - it is because of a system.

Take English soccer. Sure, there are plenty of foreign players in the Premier League. But English soccer got where it was because of the Football Association. With clubs in nearly every city, suburb, village, and hamlet across England, all ranked in over a dozen tiered leagues based on performance, you have a system designed to screen, identify, and develop talent from the largest possible pool over the longest possible time.

Take American baseball. The kids start with t-ball, then move on to little league, then high school, then college. At each level, only the best stay with it as they grow. Then there are seven levels of professional minor-leagues as development programs for the major leagues - last time I counted, there were over 329 teams in five countries all developing professional baseball players for the 30 major league teams.

American basketball and football rely much more heavily on high schools and universities to develop players, but given that these two sports are arguably the most successful and lucrative sports at the collegiate level, they do a fine job screening, recruiting, training, and preparing athletes. (I'm not in favor of this approach, personally. The Village Grouch and I both advocate either a minor-league system like baseball or an association system like English soccer. But that's not happening anytime soon.)

Japanese baseball, Canadian hockey, and Australian rugby all follow similar systems.

The formula for developing exciting professional team sports, therefore, is simple: create a system that by enabling broad participation at the earliest practical age ends up casting the widest possible net talent, opening the door for each player to get the the best opportunity for development, and you wind up with a huge pool of talented team players rather than a few stars surrounded by second- and third-rate players who are just no fun to watch.

China needs to find a way to duplicate the essence of systems like those of the Football Association and Major League Baseball in a way that is locally appropriate. Of course, the scale of such an undertaking means that it will take at least a generation to produce professional sports of a high caliber. But now is as good a time as any to start.

Wanted: motivated bureaucrats

If any of the above is to change, it will require some severe motivation from someplace very high in the government. More than just about creating sports leagues, holding concerts, or filling expensive venues, this is about creating industries of entertainment, ways to identify, nurture, showcase, and reward talented Chinese people as well as bring them the greatest talent from around the world.

If the hearts of the nation's policymakers are not stirred into passionate pursuit of robust live entertainment and sports industries by the prospect of the economic development and opportunities they would bring, perhaps the sight of these giant venues - national treasures - sitting empty and quiet will do the trick.

I think it will happen. China's leaders detest waste and love an opportunity.

Now if someone would just make the suggestion.

Cross-post: Taking the high (rail) road

ARTICLE: "Last Stop: Lhasa: Rail Link Ties Remote T1bet to China," by Joseph Kahn, The New York Times, July 2, 2006

BOOK: Nothing Like It In The World: The Men Who Built the Transcontinental Railroad 1863-1869 by Stephen E. Ambrose, New York, Simon & Schuster, August 29, 2000.

BOOK: Empire Express: Building the First Transcontinental Railroad by David Haward Bain, New York, Viking, November 1, 1999

With no other intention than pure escapism, about six weeks ago I finally pulled off of my shelves two unread books about the building of the first transcontinental railroad across the United States. I've finished Stephen Ambrose's highly readable work, and I'm now deep into David Haward Bain's well-written, far more scholarly tome on the subject. In retrospect, the timing could not have been better, as global coverage begins on the opening of the final 712 mile section of the Beijing-Lhasa railroad.

The parallels are compelling:

• The Pacific Railroad (as the transcontinental railway was called in the 1860s) was a dream almost as old as the American Republic, having been a matter of discussion for nearly 50 years before it was realized. Similarly, the Lhasa railway has been on and off of the national agenda in China for over 50 years.

• The political reasons given to justify the expenditure in both cases was "to tie the nation together" by linking a remote region with the rest of the country.

• The Pacific Railroad could never have been completed without Chinese help (in particular, the effort to get through the Sierra Nevada mountains of California.) Similarly, the Lhasa railway relied on western help to address some critical challenges.

I could go on, but you get the point.

More important, perhaps, is contrasting foreign coverage of the Lhasa link with the coverage given the Pacific Railway some 140 years ago.

Perhaps in the age of air travel we've all grown a bit bored by railroads, but I think that's because in an age of air travel and truck transport, railroads seem a bit quaint. In regions like North America and Europe, with their wealthy economies and dense populations, freeways, autobahns, and discount airlines railroads seem relegated to hauling coal or commuters. (They aren't, but that's the subject of another post.)

What we lack, therefore, is an appreciation of two things: how hard this was to do, and what effect this will have on Xizang.

A Engineering Feat and a Human Achievement

Ambrose and Bain both make visceral the science, craft, and sheer physical effort it takes to build a railroad across a mountain range. You need to find an "alignment," a course for the road that does not rise more than about 100 feet every mile, but that is as straight as possible because every foot of railroad in terrain like this costs a small fortune.

You then need to dig, chip, and blast the grade through cuts and tunnels through mountains of solid granite. You need to fill or bridge rivers, canyons, gulches, and even little dips and do it in a way that won't be washed out by floods, avalanches, or made impassible by high mountain winds.

And if you think that's easy in the 21st century, remember that you need to do all of this in some of the most remote territory on earth, hauling men, machines, material, and the food, energy, and fuel to keep all of them working up a narrow artery of steel.

Oh, yeah, and one other thing. You've got to do all of this at an altitude considered too uncomfortable or indeed unhealthy for a sleeping airline passenger, much less a manual laborer.

But with few exceptions (notably Rui Xia's superb late-2005 Asia Times article) you'll see very little credit given to China's engineers and workers for accomplishing this task in the international media. That's a shame, not only because these hardy souls deserve it, but because the failure to give such credit causes the Chinese and foreign engineers who know how tough it was to build the Lhasa road causes all of them to question the balance of the international media on Chinese topics. In addition, it allows observers to underestimate the innate capabilities of Chinese engineering in spite of the kind of big-ticket-project related shenanigans we're used to hearing about in China.

The Great Wall Builders are back. All of us should be contemplating the implications.

Linking Lhasa

Joseph Kahn has put forth a yeoman's effort covering the story from his chair in Beijing, as much as I'm sure he'd have rather been covering it from the train itself. It's left him taking a more political take on the road, which is a shame. I won't go into what he wrote - you should give him a read yourself.

Given the sheer volume of hyperbole from both proponents and opponents of the line, it is impossible to capture with any justice the essence of either position, much less debate it. But a few thoughts to contemplate as you weather the barrage of coverage.

Expecting a single rail line passing through a small part of a province larger (and less accessible) than Alaska to bring fundamental economic change to the region stretches the bounds of credulity. Certainly, those living it Lhasa and its environs will experience some quality of life improvements based solely on the fall in the cost to schlep goods up the hill. It also opens the region up to a class of tourist or traveler who cannot afford an air ticket.

For the line to deliver any significant economic benefit (or harm, depending on your point-of-view,) its Lhasa terminus must become the hub of a transportation and communications infrastructure that links all of the cities and villages of the region. That's the sort of nitty-gritty investment that is difficult to justify when sitting in Beijing, but that will become necessary if the nation is truly serious about including the Xizang province on the benefits of the China's economic development.

As to whether the road will Sinicize the local culture, that is a far trickier question that in the end is determined more by one's political and ideological viewpoints than on anthropology. There are some who see Xizang as the Shangri-la of James Hilton's novel Lost Horizon and thus see any intrusion of modernity as the functional equivalent of genocide. Fair enough.

Yet in no small part, the matter remains in the hands of the locals themsleves. It is instructive to note that in the face of globalization we live in a world where a wide range of distinct cultures and ethnicities have survived or even flourished.

For what destroys cultures is not the coming of railroads, but the departure of relevance. History demonstrates that a culture that is deeply relevant to those who treasure it will survive. As long as a culture remains meaningful, assimilation will be held at bay.

(None of this, of course, is likely to mollify someone (like that deep political thinker Richard Gere) who maintains a canonical belief in the value of turning the Xizang province into an isolated mountain theocracy. For those folks, I'd suggest that a review of the histories and status of Nepal and Bhutan serve as good examples of the direction such an experiment might take. They invite pondering.)

On to India

One last thought about the railroad. Throughout history, railroads have also served to pierce and bridge borders between nations. In my view, the High Road to Lhasa is half a road that will accomplish its greatest historic purpose when it can form the bridge between Delhi and Beijing.

Contemplate that.

Originally posted 2 July 2006

Figuring out sustainable development

In the Hutong

Waiting for the rain

1212 hrs.

The phrase "sustainable development" has become a buzzword, which means that a lot of people are talking about it without being quite sure what it means.

That is starting to change. The prestigious Commission on Growth and Development (chaired by Stanford's Michael Spence and including such luminaries as Governor Zhou Xiaochuan of the People's Bank of China, Singapore's Senior Minister Goh Chok Tong, former Mexican president Ernesto Zedillo, Citigroup chairman and former U.S. SecTreas Robert Rubin, and Nobel economics laureate Robert Solow,) last month released a report titled Strategies for Sustained Growth and Inclusive Development. 

It's fairly readable as these things go, but it points out very early on that there are no pat answers - only some lessons learned and a framework for asking the right questions. It is nice to see such a report deviate from the kind of preachy prescriptions we tend to hear from the IMF, World Bank, and other big international non-governmental organizations (BINGOs). 

Download the PDF here.

Cable TV in China: Invest Elsewhere

In the Hutong
Yes, dear, toast is dinner
1938 hrs.

Earlier this month, I was honored to sit on a panel on the future of China's cable television industry sponsored by the American Chamber of Commerce, joined by my friend Kris Kender from CMM Intelligence (the guys who publish the China Media Yearbook & Directory), Leo Austin of Augus Partners, and Tao Libao of China Multimedia Networks. The panel was expertly guided by Jeremy Goldkorn of Danwei.org.

139 Million What? I'd Like Some of That...

On the minds of many of the people in our audience was when and how it would be possible for foreign companies to make some money on the 139 million cable TV subscribers (that's households, not people) in China.

The hopes of the industry are pinned upon some valid commercial and economic truths:

- After nearly two decades of development, cable TV in China is little more than basic cable, a depressing collection of 40 or so look-alike channels with content that is occasionally superb but more commonly mediocre;

- Cable operators make a pittance - maybe RMB 14 per month per subscriber on average;

- Getting cable operators out of this low-end rut means adding more and better programs, new channels, more services, and putting in the systems that will allow operators to charge for them;

- The country (i.e., the nation's cable operators, taken collectively) has invested billions of dollars on fiber-optic and cable networks, and would clearly want to get the most economic value out of all of that wiring;

- Chinese people love home entertainment.

All of this would seem to spell endless opportunity for companies, both foreign and domestic, seeking to make fortunes selling networking equipment, head-ends, set-top boxes, software, expertise, and even programming to China's cable industry.

Funny, It Didn't LOOK Like a Mirage

There is only one problem:

Cable TV in China is not an industry.

At best, it is a highly regulated utility.

At worst, it is a technological laboratory for engineers.

Chinese law and policy state emphatically that foreigners cannot own or control cable TV stations or channels - that is reserved of Chinese organizations, and only those so authorized by the State Administration for Radio, Film, and Television (SARFT).

Some of the world's largest media organizations - News Corp. and Viacom not least among them - have repeatedly attempted to work around the letter of the law, only to find themselves each time face-to-face with the law's intent in the form of agitated, vengeful aparatchiks.

The vast majority of the air time and cable bandwidth available to the operators remains unfilled, hampered by party-enforced restrictions on the local creation of programs and import of content. And value-added services? Cable is rapidly losing out to the Internet and mobile.

Indeed, with operators eking out an operational living from the narrow, shallow stream of subscription revenues and their shares of advertising, they can barely contemplate investing in the network upgrades that would enable them to provide the premium content and value-added services that not only don't exist, but are unlikely to leap into existence as long as the industry is constrained from taking outside investment.

Are there experiments taking place in high-definition television, IPTV, digital, and premium channels? Sure. But these experiments and others like them have been going on for over a decade. And the government seems content to allow experiments to continue, but commercial rollouts have yet to happen.

There is more to it, of course, but that's the gist.

The painful consensus of the panel was that among the multitude of Chinese national treasures we evil foreigners want to get our claws into, the cable TV business is not only among the least accessible, it is also among the least appealing.

Jeremy Goldkorn asked me if I had money to invest in cable television in China, what would I invest in. I wasn't much of a sport. I told the truth: if I had money to invest, the last place in China I would invest it is cable TV.

The End of Cable

Cable television will continue to lumber along for some time in the future, for a couple of reasons. First, the growing appetite for television advertising time - ANY television advertising time - will ensure that revenues continue to pace economic growth. Second, China's urbanization plays right into the hands of cable operators, although returns will decline as they make investments to service the growing urban working class.

But unless something significant changes about the way the sector is regulated, at some point in the future, things are going to turn ugly for the operators. With no means at their disposal of significantly improving revenue streams or financing the hardware that would enable new revenues, cable will become what radio and terrestrial television are today - lowest common denominator entertainment. It's what everyone will have, but everyone will want more.

From a macro-policy level, the course of action that makes the most sense, that will allow the country to get the most out of its cable networks and to use them the way they are most needed, is a radical one:

• Set a basis for fairly valuing the networks.

• Have the local municipalities and the provinces sell them to the telcos after the anticipated round of telecommunications industry restructuring is complete.

• Separate out the channel production and advertising sales functions, spinning them into independent entities that will continue to be regulated by SARFT and the Party.

• Lay out must-carry regulations that ensure that current channels have grandfathered carriage.

• Let the telcos invest in the networks as both programming delivery and service delivery systems, parallel with other broadband but aimed at consumers who want alacarte services, not raw Internet coming into their TVs.

Is this a radical solution? You betcha.

Will it happen tomorrow? No.

Is this the likely eventual fate of the cable networks? Absolutely.

Cross-post: Whither to stash the great haul of China

Sunflower Tower, Beijing 
Grokking wind chill 
1320 hrs.

China has financed a huge part of the American consumer's borrow-and-spend spree of the last two decades, to the point where the doomsayers are suggesting that the U.S. has in effect mortgaged its future - both economic and political - in return for a few shiny trinkets.

At the same time, of course, the Chinese look at the Blackstone fiasco and the sub-prime meltdown and wonder if they are the ones being played for suckers, watching their invested dollars disappear as the dollar plunges and the American financial system looks a lot less stable than it once did.

James Fallows, sophomore China-hand and probably one of the most astute observers of the American political system, has jumped on the issue in his piece in The Atlantic this month, "The $1.4 Trillion Question." Well worth the read, it provides grist for anyone who wants to understand why (although not "how") the nature of the Sino-American relationship must change (and soon) and what that is going to mean for American lifestyles and for the men responsible for a the world's largest hoard of cash.

Here's what gets me. Warren Buffett's company Berkshire-Hathaway piles up $1 billion a month in excess cash, and Warren says he has problems figuring out where to effectively invest that. And he's arguably the smartest guy in the game. The people at China Investment Corporation have a US$1.4 trillion pile of money that is growing at an estimated $1 billion a day.

Fallows makes the point that China's well educated, brilliant, and determined financial leaders want very much to do a great job with this cash. What is clear to us here in the Hutong is that they are going to be writing an entirely new chapter in the history of investing as they attempt to do so.

Cross-post: Confucian schools and the quest for values

Starbucks Guomao 2 
Turn the Music Down
1121 hrs.

Maureen Fan from the Post did a profile of Luo Yu, a Chinese entrepreneur who has set aside his businesses and is focusing on running courses designed to instill traditional Chinese values into the children of China's newly-prosperous entrepreneurs.

We are going to see more of this kind of thing in the coming years. The Chinese people have had their moral codes stripped from them twice in the past century - once when Confucianism was tossed out the door in 1949, and then again when Maoism gradually fell out of favor in the wake of the Cultural Revolution.

What this has left the Chinese people is a moral code based on two of Deng Xiaoping's most famous utterances:

1. To get rich is glorious.

2. It doesn't matter if the cat is black or white, as long as it catches mice.

In other words, do whatever it takes to get rich.

Even a hardcore secular humanist should agree that this is a horribly inadequate moral and ethical basis on which to build a "harmonious society."

I suspect many parents will head in the direction of neo-Confucian schools like Mr. Luo's, and still others will turn to Buddhism and even Christianity, and that the government will be happily complicit in this process. It may not be politically correct for a senior member of the Communist Party to say that China's people need to have a spiritual aspect to their lives, but you can bet they're thinking it.

Something else we can look forward to: a growing national debate on what constitutes "Chinese Values," and an effort to create a secular cannon of Chinese morality cobbled from Confucianism, Daoism, and the more enlightened aspects of Chinese revolutionary thought (from Sun Yat-Sen through Jiang Zemin.)

Cross-post: Causal Marketing

In the Hutong 
Would you like fries with that humbuger? 
1704 hrs.

I regularly get questions from companies, practitioners, and NGOs about best practices for corporate social responsibility in China, mostly because it's an area about which I harbor some fairly strong opinions.

One of my biggest is peeves is this: there is a thin but important line between true corporate social responsibility and community relations tied to marketing goals. There is nothing wrong with either CSR or what is known as "cause marketing;" the problem comes when the thin line disappears, and a company will try to categorize the latter as the former.

Self-serving behavior like that tends to ruin a company's credibility, and to add to the dormant cynicism the general public maintains about the very idea of a company doing anything socially responsible.

That said, I'm a big fan of cause marketing when appropriately labeled, and I think companies in China (both foreign and local) do far too little of it. Given the decline in the effectiveness of TV advertising, I suspect both marketers and agencies are going to do a lot more of it.

What companies should be doing is defining CSR and cause marketing very clearly clearly and handling them separately.

Jeremy Nedelka at 1:1 Magazine (registration required) did an excellent cause marketing case study, including five rules for successful cause marketing according to David Hessekiel at the Cause Marketing Forum. The two articles are a good introduction to the topic.

What I love about the five rules is that all of them apply in China:

1. Set goals, knowing what you want to achieve going in;

2. Commit resources, because good intentions are no substitute for planning, budgets, and implementation;

3. Find a cause that has a clear, intuitive link to your core business or competency;

4. Search for models in what other companies have done before;

5. Expect results because solid cause marketing builds an emotional tie between customers

I have a few to add, though, because of a few issues I have seen crop up here in the PRC:

6. Cause marketing is no substitute for CSR. You need to do both. Make sure they are handled by separate teams and have clearly defined (and different) goals.

7. Don't be a cause-a-week company. Stick to one cause for a full marketing cycle of 12-18 months at least, and longer if possible.

8. Find a cause that is meaningful to people in China, not just to your CEO.

9. Cause marketing in China is virgin territory, so don't restrict yourself to what other companies in China have done.

10. Olympic sponsorships are not a great example of cause marketing, unless they are executed with a particular challenge in mind.

11. When your relationship with a cause wraps up, leave everyone smiling.

Shave a little of that TV budget, guys, and put it toward cause marketing. CCTV won't miss it, and you could put it to far better use than paying for fancy office towers for public broadcasters.

Cross-post: The Big Easy and Government Farkage

Starbucks China World 1 
Just anotha Maniq Mundeh 
1115 hrs.

Doing research for my book on innovation in China has really underscored what I call The Government Farkage Factor, or the extent to which government funding, direction, or primary role in any sizable development project is almost an a priori guarantee of graft, wastage, and failure. While I am no longer convinced that the private sector has an answer for every major problem, it is pretty clear that most serious development challenges demand an intelligent response from a balance of government, commercial, and non-governmental entities.

The New Orleans Example

The city of New Orleans continues in its role as the worlds preeminent development petri-dish because it is one of those places where all of the other factors have been eliminated and we can watch the various forces contend with each other in an effort to revive an entire political/economic entity. While most coverage has concentrated on the failures of various levels of government (municipal, parish, state, and national) first prepare for disaster, then to clean, repair, revitalize and fortify New Orleans in its wake, several reports have surfaced in the last month that point to the much-ignored but all critical role of other players in what is, basically, a problem of development.

The first I heard was a report on PBS's excellent NewsHour with Jim Lehrer about people who have moved to New Orleans on their own for whatever reason to start a new life. They're called "pioneers."

Second, while catching up on my NPR podcasts, this excellent report by Eve Abrams covers the beginnings of an effort of New Orleans residents to take on recovery tasks on their own.

The third was a speech at the University of Chicago Graduate School of Business by Jack McGuire, CEO of the American Red Cross, who talked with the frankness of a former corporate CEO of the ability of NGOs to respond to challenges more effectively than government. McGuire basically had to rapidly expand the Red Cross to help catch the ball fumbled so badly by the government. It wasn't pretty, but they did it.

Finally, there is an excellent article in BusinessWeek by John Tozzi who talks about the role entrepreneurs are playing to get the city back up on its feet again.

Takeaways

There are entire syllabi of lessons to be learned from New Orleans, but my take away vis-a-vis China is that it is not only more evidence of the very real limits of government in development, it is also (and more importantly) a lesson in the very wide range of forces that have to come into a situation - often of their own volition - in order to make it better.

Cross-post: China is going gray

Maya Alexandri has written a superb review of a recent government study on China's gray economy. The study claims that urban residents in China generate and earn an estimated RMB 4.4 trillion in grey income. Putting that number into perspective, that's about the size of the current defense budget of the United States.

Let's analyze those numbers for a moment. Figuring that China has approximately 300 million urban residents, that's RMB 14,667 in underground spending/earnings PER urban resident each year. While US$ 1920 per year may not sound like a lot, it represents a figure that is 25% larger than what the National Bureau of Statistics reported for per-capita urban income in 2006.

This means that urban income is at least understated by 25% in government statistics, and if the NBS is not taking into account the gray economy (which it doesn't look like they have,) urban incomes in China could well be underestimated by 50% or more.

In a day when there is a significant battle among economists as to exactly how much purchasing power China's urban residents have, this discrepancy could be pivotal in the debate.