On PhD Degrees and Honesty in Business

I found in my emails this morning, an occasional email from David Webb, self-appointed guardian of corporate governance in Hong Kong. As some may know, Mr. Webb, formerly a member of the board of the HK Stock Exchange runs his eponymous webb-site.com which exists to point out shortcomings in HK corporate governance.

His email this morning announced that the newly-appointed CEO of HK-listed Neo-Neon Holdings Ltd, Mr. Tseng Jinsui, had, at best, misrepresented his educational qualifications. Mr. Tseng claims to have earned a doctorate at Edendale University in the UK. The only problem is that no one, not even the South China Morning Post, seems able to find proof that Edendale University exists, or if it does, that it offers an accredited degree.

Based my own very unscientific survey, I have learned that in China there are doctorates, and then there are Doctorates. Some are real, and some are not, and this fact is pretty much an open secret.

Many high level political and business officials in China claim to have doctorates, and indeed, some of them do. But many others somehow managed to obtain doctorates with only a six-month gap on their CVs during which the doctorate was supposedly earned. They must either be super-brilliant, or their education was somehow lacking.

As a real PhD candidate from a Chinese university put it to me: "Some of these doctorates held by senior officials are earned by attending a few seminars and writing a paper. Everyone knows they aren't real. But there is pressure for leaders to have an advanced degree, so those who hope for promotion have to attend one of these programs."

None of this is to say that Mr. Tseng of Neo-Neon is an incapable leader. He appears to have been promoted from within the organization, so one could reasonably assume that he knows the business well.

Why the fake degree then?

This is something that baffles me. Why, in an age in which pretty much any "fact" can be quickly researched on anyone's mobile phone, would people risk damaging their credibility by making false claims, or paying for degrees without having to do any actual learning?

On the mainland, there seems to be a pretty good explanation.

One of my interviewees in Shanghai, talking about a completely different subject, explained this phenomenon. "Many of you foreigners think of China as the model Confucian society full of humble, hard-working people. What you don't know is that the Mao years instilled in many Chinese this need to brag and exaggerate -- to convince people they have achieved something that they have not really achieved. This tendency is hard for people to change, and we still see it often among the auto companies (when talking of their achievements in electric vehicle technology)".

Though the context was electric vehicles, I wonder if this explains the tendency of some to put degrees on their CVs that were either never earned, or earned over only a few months.

As to why this happens so frequently in Hong Kong, I am still at a loss.

Having a PhD does not make one smart. All it means is that you have the tenacity to stick out a long program of learning and research that offers little hope of a financial payoff. Surely a long history of successes in industry are worth more than that when it comes to demonstrating one's ability to run a company.

Nissan's Global EV Infrastructure Partnerships (and a cool website!)

In my quest to understand the nature of business-government relationships in China's auto industry, I talk to a lot of people, rack up a fair amount of frequent flyer miles, and visit a lot of websites. Today I had the occasion to visit Nissan's zero-emission website to learn more about their new "Leaf" electric vehicle.




Nissan has an important joint venture with Dongfeng, one of China's larger manufacturers of passenger cars, and I wanted to know what Nissan is doing to bring their zero-emission technology to China.

Because I visit dozens, perhaps hundreds, of websites weekly, I've suffered through a lot of poorly designed sites and very unnecessary eye-candy in an effort to find the information I seek. This Nissan-global zero-emission website, however, is not only impressive for its sleek and intuitive design, but its content as well. (And, no, Nissan is not paying me to plug their site; I am honestly that impressed with what I have seen.)

First, on the content side, I am interested by the fact that Nissan is touting its partnerships with governments, not other companies as I had expected. While I know they have some corporate partners as well, this interactive map shows the governments that Nissan is working with to roll out technology infrastructure to support zero-emission vehicles.

Also of interest is the fact that Nissan is working with different levels of governments. In some countries such as Portugal and Ireland, their partnership is with a central government, and covers an entire country. In other countries, such as the United States, their partnerships are with various state and local governments: the State of Oregon, Sonoma County, CA, San Diego, Phoenix-Tucson, the State of Tennessee, etc.

In China, they have both a central government partner, the Ministry of Industry and Information Technology, and a local government partner, the City of Wuhan (which also happens to be the headquarters city of Nissan's JV partner, Dongfeng).

I know that some commentators have been critical of Renalt-Nissan's leader Carlos Ghosn for leapfrogging the hybrid stage and aiming straight for zero-emission vehicles, but I am impressed with the way in which Nissan has been charging forward on this. Rather than taking an interim, incremental step with hybrids, Nissan is partnering with governments to confront directly the chicken-and-egg issue of electric cars and charging infrastructure.

I cannot opine as to whether this makes business sense, but, as someone who would like to breathe cleaner air now, not 20 years from now, I wish Nissan well. As a political scientist, I agree with Nissan that governments are really the only likely partners for building out infrastructure. Bound as they are not to achieve a short-term return on their investments, governments lack the disincentives that would prevent most private sector businesses from taking such a bold move.

Why is Nissan taking this risk? My guess is that it has something to do with the guy at the top. Carlos Ghosn is no shrinking violet, and my sense is that, having fallen a little behind on hybrid development, Mr. Ghosn sees the only wise move as making a giant leap forward rather than running to catch up with pretty much everyone else on the hybrid bandwagon.

As for Nissan's zero-emission website, all I can say is that it's pretty cool. In about five minutes, I was able to get a pretty good idea of the projects Nissan has cooking. I also learned enough about the new Leaf electric vehicle to know that I want one. (Okay, to be honest, I'd rather have a Tesla, but the Leaf would probably be a more practical option for my bank account.) Check out the Leaf's gallery.

Shopping bags: China's sticks or Ralph's carrots?

During the several months I recently spent in China, I occasionally found myself feeling a little miffed that I was charged for the privilege of carrying away food items I had purchased in plastic bags. In Shanghai, I was charged five mao per bag (roughly 7 US cents). The longer I was there, the more I found myself making a conscious decision to take used plastic bags with me to the store.

Over the past five years that I have lived in LA, I have noticed that supermarkets have begun their own attempts to discourage the use of plastic bags -- or rather, to encourage their non-use. The Ralph's in Westwood, where I have been shopping lately, gives you back five cents for any reusable bag you bring in.

So where am I going with this? I think there are a few lessons here about both political systems and human motivation. (Think of this as a hodge-podge post if you want.)

In China's case, it was the central government in Beijing, not local governments, that made the decision to charge for plastic bags. Regardless of how business owners feel about this issue, they have no choice but to charge for bags. (I will make no assumptions about where all of this money ends up.)

Due to the federal system in the United States, issues like this typically fall to state and local governments, and sometimes, directly to the voters. Unfortunately (from the point-of-view of someone who wants to see less usage of plastic bags) the closer such decisions get to voters, the greater the likelihood that taxes of this nature will not be passed -- unless, of course, one lives in San Francisco, whose relatively wealthy voters often happily tax themselves for green causes. Seattle's voters, given an opportunity to vote for a bag tax a couple of years ago, chose to vote it down. When Seattle later passed an ordinance, the plastic bag business lobby (who knew there was such a lobby?) successfully batted it down.

In New York City, bag taxes or bans have been discussed in the past, and, as far as I know, have still not been passed. In Los Angeles, the City Council has passed an outright ban on plastic bags to go into effect in July 2010 unless the State of California passes a statewide bag tax in the interim. The latest information I have been able to find is that California's legislature has still not been able to pass a bag tax. The plastic bag business lobby in California has also successfully sued cities that have banned plastic bags.

In doing a little Googling for this post, I have discovered that there is a lot of activity in the US surrounding plastic bags, but apparently none of the action is happening at the federal level. And, aside from Washington D.C. and North Carolina's Outer Banks, no local community has been able to pass bag taxes and make them stick. (If my facts on your particular community are out-of-date, please feel free to set me straight via the comments section below.)

My point here is that, aside from the exceptions mentioned above, the only policies in the US on plastic bags that appear to be approaching success are those taken all the way down at the store level. Our central government is (thus far) taking a hands-off approach, and our local governments are not powerful enough to fight a nationwide plastic bag business lobby.

Yet, while China's central government has approached this issue with a stick, local stores in Los Angeles are voluntarily offering carrots.

Which method is more successful? While I am sure China's Statistics Bureau has come up with some numbers on this, our intuition should tell us that China's policy has been more successful -- if for no other reason than that it is a nationwide policy. However, even if you could compare the cities of Shanghai and Los Angeles, I am certain we would see that Shanghai's bag use has fallen further than has LA's.

My intuition tells me that people will respond more to a stick than a carrot on an issue such as this, even if the values of the sticks and carrots are negligible. People don't want to lose something they already have, even if it's small, but they will also not go out of their way just to get a few cents back -- especially if they feel stupid doing it, or if it creates a little inconvenience.

While my wife is keen to make use of reusable bags, and I go along with it when I'm with her, I will admit that I sometimes bring home plastic bags when I'm shopping by myself. China's sticks did more to change my behavior than have Ralph's carrots.

• Can you think of similar comparisons between how China and the US attempt to legislate human behavior?
• Do you agree that sticks can be more effective than carrots on issues of conservation, or can you think of examples in which carrots have been more effective than sticks?
• Does the federal nature of the US government place the US at a long-term disadvantage when it comes to changing destructive human behavior? Or is there a price to be paid for the heavy-hand of China's unitary system?
• What are the tradeoffs between these two styles of governing?
  

(Apologies to my readers who haven't been in school for awhile and find such academic questions to be a bit of a shock. ;-)

China Stakes on SOE Corporate Governance

ChinaStakes, a fantastic Shanghai-based political economy site that I follow daily, has posted a commentary on a recent People's Daily article that asserts the importance of Communist Party leadership in state-owned enterprises.

I somehow managed to miss this People's Daily commentary, so I am happy that ChinaStakes has highlighted it for us. If there has been any doubt as to the role of the Party in China's SOE, People's Daily makes it crystal clear: SOEs exist to serve the political aims of the party. Any economic goals are only secondary.

You can read the entire ChinaStakes post here.

China Gives the US a Way to Save Face

We often hear scholars and policy wonks ask the question of what kind of power China will be in terms of international relations. We attempt to put them into our Western-derived boxes such as realist, liberal, status quo, etc.

I think China is increasingly showing us that it will not fit into our traditional boxes. While it may at times exhibit realist or liberal behaviors, at its roots, China is what it has always been: a Chinese power.

Such Chineseness was on display today as China's Ministry of Defense summed up two days of maritime safety meetings with the US military:

The way to resolve China-US maritime incidents is for the US to change its surveillance and survey operations policies against China, decrease and eventually stop such operations. (See Financial Times story here.)

Notice what they did not say. They did not make demands for what we can be certain they really want, which is an immediate end to US surveillance. Rather, China is offering the US a face-saving way out of this. As China suggests, the US can begin to decrease such operations, then eventually end them.

This assumes, of course, that, at some point in the future, China will be in a position to force the US to stop such surveillance in its own backyard. China itself seems quite certain that, at some point, the US won't be there anymore. The only question, from their point of view, is whether the US gradually and voluntarily ends such surveillance in the near future, or China ends it in the longer term.

Public vs Private: Does this distinction "defy logic"?

I was honored to have one of my recent posts, "How do Australia's Foreign Investment Rules Apply to China?", cross-posted by the East Asia Forum where it received the following question/observation from Lincoln Fung:

What does the ownership in terms of public versus private make to owning some shares of a firm in an another country? All firms in a country are subject to the regulations of that country, whether they are owned domestically or by foreign investors. A country can always regulate the behaviour of the firms operate in its land. So what are the concerns or fears of a firm is owned by a public firm of another country? It defies logic to understand the reasons behind.

Mr. Fung's questions are very important. Indeed, this distinguishing between "public" and "private" drives much of my own research. And, in fact, I used Mr. Fung's very line of reasoning in an interview about the Rio Tinto case with a journalist from the Sydney Morning Herald earlier this year. As for defying logic, I understand that such a distinction may defy some people's logic; however, from other people's perspectives, such a distinction may seem perfectly logical.

For example, there is the populist logic that a "communist", authoritarian state lacking in transparency and rule of law is not to be trusted. While one may disagree with that premise, it is not difficult to understand why someone holding that premise would logically be wary of China's intentions.

There is also the logic of neoclassical economic theory which tells us that a government, conflicted as it is with various political objectives, cannot run a business as efficiently or effectively as the private sector. Again, someone from China who is accustomed to the government having a major role in just about everything may not understand this "logic".

Many people in the West have been influenced by the two "logics" I have mentioned above. These have become so ingrained in Western culture that few people even bother to question them. However, the recent economic upheavals have led many in the West outside of academia (economists and political scientists have been pondering such questions for quite awhile) to ask whether government can indeed have a positive role.

This is not to say that governments will most certainly have an increased economic role going forward. They may, but then again, there are plenty of reasons to question the sustainability of China's state-centric economy.

Increased Worker Activism: Symptom of a Central-Local Issue?

For the second time in a month, local Chinese officials have been forced by workers to call off privatization of steel mills.

The first incident occurred in Jilin Province on July 27 during which thousands of workers protested the proposed privatization of Tonghua Iron and Steel. The manager of the mill was beaten to death by disgruntled workers who felt their needs were being ignored.

The latest incident occurred on Sunday as Henan Provincial officials, again, pushed by protesting workers, called off the proposed privatization of Linzhou Iron and Steel.

In both cases, the SOEs being privatized are owned by local governments, not the central government. The workers, on the other hand, are officially represented by the All China Federation of Trade Unions (ACFTU), which is a centrally-managed organization affiliated with the Communist Party.

While no evidence suggesting any corruption has been presented as of yet, local government officials have profited quite handsomely in the past from privatizations of local SOEs.

The focus of the Hu-Wen government -- in stark contrast with that of the Jiang-Zhu government which pushed for increased privatization -- has ostensibly been less on privatization, less on growth at any cost, and more on ensuring that China's common people get a chance to benefit from economic reforms.

There are a couple of apparent conflicts between central and local governments that we may see playing out in the steel industry (among others) right now. First, the ACFTU, according to the Wall Street Journal, "has been taking a more active role in trying to represent workers' rights", and as a result, their organization may have taken a role in encouraging workers, if not to protest, at least to demand their voices be heard. This is in direct opposition to the incentives to local officials who are highly motivated to privatize locally-owned assets.

Second, the central government has been adamant that China's steel industry, in its present state, is far too fragmented for any one company to become a major global player, not only as a steel producer, but as a negotiator with iron ore suppliers. While the central government's power to force locally-owned SOEs into mergers is questionable, further privatization of these assets would even further dilute the central government's power over this pillar industry.

As an aside, I also find it interesting that, the richer China's people become, the more rights they seem to demand. This connection between wealth and demands for rights has been pretty much debunked by economists and political scientists over the past decade or so, mostly because no one has been able to identify the causal mechanism connecting wealth and democratization -- this despite abundant empirical evidence pointing to a relationship* -- with (until recently?) one glaring exception: China.

*Robert J. Barro has called this relationship "an empirical regularity".

This is not to say that China's workers suddenly have rights simply because they've demanded it, but, while the ACFTU (with its access to the resources of the central government) is clearly in a position to help stop worker unrest, one wonders whether they may have been encouraging their organization.

At a minimum, we can identify clear conflicts between central and local governments here, and the workers seem to be caught in the middle.