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Search for the Dynamic Driving Force of the Next Wave of Economic Growth

Paul S. P. Hsu Chairman & CEO, PHYCOS International Co., Ltd. President, Epoch Foundation Adjunct Professor of National Chengchi University Presented to Global Business Outlook for 2010 Conference December 1-2, 2009

The global economic crisis has caused some serious impacts on the global economic structure which affected not only global and national economies but also individual’s wealth. When we look into the post-crisis era, the role of sovereign wealth fund from Asian and Middle Eastern countries has become increasingly important in the western world; many companies, especially in the developed world, are seeking investment fund from the former developing world; governments in both developed and developing worlds began to play far more important role over private sector companies through different stimulus plans.

Therefore, concerns have been raised about the future growth model during the post-crisis era. One of the big concerns is following the governments’ stimulus plans in many countries, would it bring about a new trend for state-controlled corporations?

If we all play historian for a moment, going through the global economic history in the past one hundred years, World War I, the 1930’s Great Depression, World War II, plus the October Revolution in Russia and the Civil War in China have all resulted in the redistribution of wealth in different scales. Until recently, we are all witnessing the rising of emerging market economies such as China, India, Brazil, Russia and the Arab bloc. The boundary between socialism and capitalism is blurring; 1

and the relationship between government and the governed is constantly under test. From the micro perspective, new business model development equals the importance, if not more, of technology development; some long neglected traditional business sector is given increasing attention; and the change of life style generates new business opportunities. It is then evident that we are all facing a brand new brave world, regardless whether we like it or not.

The question facing us is: Would state-controlled corporations be capable of generating innovative ideas, developing new technologies, and bringing new products, services, and new business models into the market place? Or, such driving force must rely on the entrepreneurial spirit of a new generation of private sectors?

During the 1997 financial crisis in the Asia-Pacific region, the economies that suffered the least impact were those largely supported by small-medium size enterprises that received little or no help from large banks and government. The survival instinct enabled them to seek and secure resources through self-financing or from other private sector element such as venture capital. Many of them grew into large companies during the next decade. A good test for such dynamism is to examine the one hundred largest companies in each economy in the region on a yearly basis for the past ten years to see how many new players entered the list every year. Those economies presented a different listing with new players at different year then clearly demonstrated that they have an engine for sustaining economic growth.

To ensure private sector keeps pumping resources into the engine of economic growth, the government must incubate and encourage the growth of private sector. And the government sector in the emerging market economies bears the primary responsibility since most resources are still in the possession of government sector.

The type of private sector needs to be encouraged must be those contain the elements of helping sustained economic growth, enhancing social and economic stability, providing equal opportunities and, eventually, with an objective of reaching the goal of creating a harmonious society. Therefore, we must start from the grass root of 2

promoting start-up and small-medium size companies; we must promote all sizes of companies that possess the element of entrepreneurship that are innovative in technology and dynamic in business models; we must provide opportunities for start-up and small-medium size companies to grow into bigger enterprises; we must allow a capital and financial market with equal entrepreneurial spirit for innovation and creativity. At the same time, we must avoid social resources be monopolized by a few business conglomerates. We do have many examples that such economic structure became the direct cause of social unrest and economic down turn.

One of the great values generated by private sector throughout human history is innovation. What I would like to add is that, in recent years, innovation in developing new business models is also bringing tremendous amount of economic benefits to many economies. Once such value is recognized, cross boarder exchange of knowledge; commercialization of technology; protection of intellectual property rights; facilitation of joint research projects and new business model development will open up an unimaginable amount of opportunities for international cooperation at both regional and global level. A highly relevant issue in this regard is how governments should cooperate with each other to remove barriers of international cooperation and exchange of knowledge. To foster an environment to encourage entrepreneurship and start-up companies and small-medium size enterprises, some would argue that entrepreneurial spirit came with birth and can not be trained.

I may not agree with that biological analysis. Instead, I am of the opinion that both regulatory environment and social/cultural environment can be fostered through policy and legislative measures and social orientation. For instance, legal and tax incentives can be given to innovative research and development; corporate and bankruptcy law as well as administrative measure can facilitate easy entry and exist mechanism. At the social and cultural level, much more efforts are needed. For instance, how to introduce a social value to the society to tolerate failure and encourage those who failed to try again? How to introduce the concept of corporate governance to owners and management team of businesses, big or small?

Building an environment to steer the private sector to the right 3

direction to enhance sustainable economic growth requires close cooperation between and among the government sector, private sector, and educational institutions. Such cooperation should also be expanded into international level in order to cater to the trend of globalization of economy and cross-boarder venture of companies.

In this regard, I also wish to point out the importance of education, with special emphasis on the following: 9 Improve the quality of the educational institutions 9 Enhance international initiatives to train human talent needed in emerging markets 9 Encourage independent and creative thinking 9 Encourage private sectors to get involved in the educational system 9 To re-train the workforce: from manufacture sector to service sector 9 Cross-cultural learning 9 Life-long learning

Academic and government officials must realize that any economic or business activity will not be a success without the active participation of the private sector. A strong private sector emerged from an environment of equal opportunity will enhance an affluent middle class in any given community. We have indeed also witnessed from a global perspective that any economy requires an affluent middle class to enhance its social and economic stabilities.

We all need to depend on a new generation of talent to be the backbone of such an affluent middle class. The characteristics of such a generation are certainly knowledge-based, full of self-confidence to deal with global challenges, highly motivated with strong entrepreneurial spirit, and possessing of the knowledge and understanding of the history, culture, economy, as well as the different ways of conducting business.

The new generation of talent will be well-qualified to establish excellent personal and business connection all over the world without any narrow-minded nationalistic sentiment.

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Let us hope the post-crisis era will find a new balance between government and private sectors to jointly fight the challenges of global warming, health care, food shortage and food safety as well as to meet the challenge of redistribution of wealth for the benefits of all.

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