World on Fire World on Fire World on Fire

by Amy Chua

  A good portion of this 70 percent figure is attributable to Robert Kuok, who started off selling palm oil but now commands a sprawling business empire that includes everything from manufacturing to real estate (including hotels in Burma) to media. Kuok is “the quintessential Asian tycoon,” The Economist wrote recently, “amassing wealth, spreading it across countries and industries to reduce risk, and above all keeping quiet about it.” “Gregarious and chatty, Mr. Kuok nevertheless ensures that virtually nothing of substance is known about him.” When an international investigative agency probed into Kuok’s empire a few years ago, this is the profile they came up with: “Name—Robert Kuok; political affiliation—unknown; adversaries—none identified; litigation—nothing known; ambitions—not known.” According to Forbes in 2002, the Kuok group’s net worth is around $4 billion.27

  Chinese market dominance in the Philippines is equally striking, if slightly more complex. Filipino Chinese range widely in cultural identity: from highly assimilated, fourth-generation Chinese mestizo families, like the Cojuangcos; to relatively recent immigrants like my own family, who retain more of their Chinese culture and insularity; to the latest arrivals from mainland China, who are widely disliked—even by other Chinese Filipinos—because they are “loud and pushy” and “spit everywhere.” Further, unlike in other Southeast Asian countries, the Chinese in the Philippines share their economic dominance with a powerful and glamorous “Spanish-blooded” gentry class. Today these hacienderos still live like feudal lords and control almost all of the land in the countryside.

  Although the hacienderos also have extensive businesses, it was the country’s tiny Chinese minority whose economic power exploded with the pro-market reforms of the late-1980s and 1990s. Today, Filipino Chinese, just 1 to 2 percent of the population, control all of the Philippines’ largest and most lucrative department store chains, major supermarkets, and fast-food restaurants, including the McDonald’s franchise and the Jollibee chain, which makes “Filipino-style” burgers with soy sauce. With one exception, all of the Philippines’ principal banks are now Chinese-controlled, including George Ty’s Metrobank Group, the country’s largest and most aggressive financial conglomerate.

  The Manila Stock Exchange, located near Chinatown, is dominated by Filipino Chinese stockbrokerage firms. Ethnic Chinese also dominate the shipping, textiles, construction, real estate, pharmaceutical, manufacturing, and personal computer industries as well as the country’s wholesale distribution networks. Outside of commerce and finance, Chinese Filipinos control six out of the ten English-language newspapers in Manila, including the one with the largest daily circulation. Apart from the aristocratic Zobel de Ayala family and possibly the Marcos family (Ferdinand and Imelda’s son Bong Bong and daughter Imee are currently both elected officials in the Philippines), all of “the top billionaires in the Philippines” are Filipino Chinese or Chinese-descended, at least according to a recent report in the (Chinese-owned) Philippine Star.28

  Even the relatively unmarketized economies of Cambodia and Laos are showing signs of Chinese market dominance. Cambodia’s capital city Phnom Penh is now teeming with thousands of prospering Chinese businesses. In Laos, which has almost no indigenous commercial culture, the 1 percent Chinese minority more or less constitute the country’s entire business community, profiting eagerly from every grudging inch of globalization-induced market opening.29

  Globalization has unquestionably had some positive effects even for Southeast Asia’s poor indigenous majorities. According to a recent World Bank report, global integration and market policies since 1980 have reduced absolute poverty in a number of Southeast Asian countries, including Thailand, Malaysia, and the Philippines, raising average incomes in these countries at all levels.30 Unfortunately, this kind of statistic hides a number of troubling facts.

  First, even with these income improvements, the indigenous majorities in these countries remain unmistakably, often shockingly poor. Impoverished Filipinos do not rejoice in World Bank empirical studies showing that their per capita income has increased by a few cents per day. Second, more fundamentally, globalization and free markets since 1980 have aggravated, in appearance and almost certainly in reality, the grotesque ethnic wealth disparities in the region. In the eyes of Southeast Asia’s indigenous majorities, global markets have produced multimillionaires, billionaires, and multibillionaires—but only among members of another ethnic group. As a result, despite marginal increases in their income, indigenous Southeast Asians often feel that free markets benefit only “outsiders”—ethnic Chinese and foreign investors—along with a handful of corrupt indigenous politicians in their pockets.

  In all the countries of Southeast Asia, free markets have produced countless rags-to-riches success stories among the ethnic Chinese, but remarkably few among the region’s indigenous majorities. As an informal illustration of globalization’s disproportionate ethnic effects, consider two roughly contemporaneous vignettes of Southeast Asian economic history.

  Bean Curd or Chicken Feed?

  Between bean curd and chicken feed, which would have been the better business bet in 1920s Southeast Asia? It’s hard to imagine two humbler products. As it happens, a bean curd industry in Java and a chicken feed industry in Bangkok emerged around the same time. The first, operated by indigenous Javanese, has remained virtually unchanged for eighty years and today is suffering badly from globalization and market competition. The second, founded by two Chinese brothers, is now a $9 billion global agro-industrial conglomerate.

  In 1920, in the east Javanese town of Mojokerto, a local Javanese woman started manufacturing bean curd in a bamboo shack. Soon afterward, four similar bean curd factories appeared. This part of town became known as the “Bean Curd Neighborhood,” because almost all of its inhabitants over the age of ten were involved in producing bean curd in one way or another. In his 1963 book Peddlers and Princes: Social Change and Economic Modernization in Two Indonesian Towns, anthropologist Clifford Geertz describes the production process:

  Bean-curd, a small piece of which most Javanese eat with every meal, and which is probably their major source of protetin, is made from soya bean. . . . The beans are soaked in water for about six hours until they become mushy. They are then ground between one fixed stone and one movable one, the movable one being rotated by hand through an ingenious spindle-and-pulley arrangement suspended from the ceiling. The result of this operation, which may take a half-hour or so, is a semiliquid pulp which is then screened for major impurities and cooked in a large vat for several hours. This cooking is an attention-demanding job because the pulp must be added gradually, can by can, and must be stirred continually. While still boiling, the cooked product is now screened again, this time through a piece of cheesecloth stretched over a vat, and vinegar is added to cause the by now milk-like substance to curdle. The separated liquid is siphoned off, and the curds are placed in a bamboo tray to dry in the sun, this whole straining, siphoning, and curdling process taking perhaps ten or fifteen minutes. When, in about an hour, the curds are dry, or reasonably so, they are carefully molded into squares through a process of enclosing them in a small piece of cloth and dextrously folding the cloth into a flattened cube. Next, the little patties thus formed are pressed even dryer with a flat board, and then they are fried in deep fat for about a half-hour. Finally, they are wrapped separately in paper for sale; and this, as bean curd does not keep, must take place within a day or two of manufacture.31

  These details of bean curd making are worth noting not just for the craft, but because they have remained essentially unchanged for eighty years. Today, tofu manufacturing in Indonesia is still a cottage industry, in the hands of small indigenous producers, many of whom cater to street vendors. In Jakarta’s smog-filled streets, hundreds of these vendors peddle their ta-fu and tempeh (fermented tofu cakes) in pushcarts known as kaki lima, or “five-legs,” for the two legs of the peddler, the two wheels of the cart, and the post it rests on. According to a 2001 Javanese
bean curd industry website, the equipment used to make tofu still consists of the “rolling machine, wok, boiler, soaking basin, and boiling basin.” Of the thousands of Javanese families that have engaged in this business since it began, none has introduced major technological innovations or become dominant through greater efficiencies. Nor has there been any product diversification or vertical integration to speak of.

  Globalization and economic liberalization, moreover, thus far have brought only pain for Indonesia’s tofu producers. Whereas soybeans were locally grown when Geertz described Mojokerto’s tofu industry, Indonesia today imports most of its soybeans from the United States. When the rupiah crashed in 1998, the price of soybeans soared—a disaster for Indonesia’s tofu producers, whose monthly income is only around twenty-seven dollars and who are unable to pass higher costs along to their even poorer vendors and customers. Some eighty-four hundred tofu producers in East Java went out of business in 1998. Meanwhile, to control a ballooning budget deficit, the IMF and the World Bank are urging Indonesia to do away with government subsidies for fuel oil, which currently sells for only about a quarter of its world market price. Fuel prices have already increased significantly. For family-based tofu businesses, which typically buy one hundred liters of fuel a day to fire the ancient pressure cookers that turn their soybeans into slurry, free market policies have made Indonesians choose between starvation and removing their children from school—both to put them to work and to eliminate the cost of tuition.32

  Also around 1920, two young immigrant brothers—who had left China virtually penniless just a few years earlier—scraped together enough capital to open their tiny Chia Tai seed shop in Bangkok. Over the next few decades the brothers, Chia Ek Chor and Chia Siew Whooy, struggled, importing seeds and vegetables from China, exporting pigs and eggs to Hong Kong, experimenting incessantly while living on next to nothing. In the 1950s the brothers began specializing in animal feed, especially for chickens, establishing the Charoen Pokphand Feedmill in 1953. Through the 1950s and 1960s the Chia family—now surnamed Chiaravanont—vertically integrated, combining their feedmilling operations with chicken breeding. By 1969 the Charoen Pokphand (CP) Group had an annual turnover of between $1 and $2 million.

  As Thailand opened up its economy in the 1970s, embracing globally-oriented market policies, the CP Group took off, entering into various business arrangements with major Thai banks, the Thai government, and foreign companies. The core of the CP Group’s agribusiness was contract farming: The company supplied Thai farmers with chicks and feed and taught them how to raise chickens. In turn, the farmers sold the grown chickens back to the CP Group, which processed the chickens and then marketed them to high-volume buyers such as grocery stores, restaurants, and fast-food franchises. At the same time, the CP Group expanded internationally, exporting their contract farming formula first to neighboring Indonesia and Malaysia, then to the rest of Asia, and eventually all over the world, from Mexico to Turkey to Alabama.

  In the 1980s, with Thailand now aggressively privatizing and in full free market mode, the CP Group moved into aquaculture, applying their contract farming formula to raising and marketing shrimp. In 1987 the group acquired the 7-Eleven and Kentucky Fried Chicken franchises for Thailand. It also moved into Shanghai, manufacturing motorcycles with a license from Honda and brewing beer with a license from Heineken. In 1989 the CP Group entered the petrochemical business through a joint venture with Solvay, one of Belgium’s largest firms. In 1992 the group signed a contract to rebuild Thailand’s telecommunications system, a $3 billion project. In 1994 it signed a joint venture agreement with Wal-Mart to establish super-retail stores throughout Asia. Today the CP Group claims $9 billion in assets and is among the most powerful business conglomerates anywhere in the world.33

  Needless to say, these two stories do not amount to a scientific sample; they are intended only to be suggestive. And they do suggest a number of points. For one thing, the key to success doesn’t turn on what product you start with, whether bean curd or chicken feed. My own family in the Philippines started off manufacturing fish paste, another humble product best thought of as mashed anchovies. To save on costs, my family members decided to produce their own containers. They eventually dropped the fish paste to focus exclusively on plastics.

  Nor does the existence of “social networks” explain economic success. Both the Javanese bean curd industry and the CP Group operate substantially through kinship networks. In Mojokerto, tofu production was essentially communal, involving about fifty close-knit families. The CP Group is now headed by Dhanin Chiaravanont, the youngest son of the elder Chia brother, and the founders’ other twelve sons are all on the board of directors.

  What distinguishes the CP Group from the Javanese tofu industry is not social networks or the nature of its products, but rather its breathtaking dynamism. Moreover, while the Chiaravanont family’s economic success is extreme in magnitude, it is representative of Chinese success stories at all levels of Southeast Asian society.

  It seems safe to say that this entrepreneurial dynamism—together with frugality, hard work, willingness to delay gratification, and intense desire to accumulate wealth almost as an end in itself—cannot be traced to any single cultural, much less genetic source. (There are plenty of individual Chinese in Southeast Asia who do not exemplify these qualities. My own maternal grandfather was a poor schoolteacher who had an aversion to commerce.) A given ethnic group can be entrepreneurial and market-dominant in one setting, but not in another. The Chinese in China were market-dormant, so to speak, for centuries.

  Why some groups prosper disproportionately over others has been the subject of a long and fascinating debate ever since Max Weber described the Protestant work ethic and desire to accumulate wealth as “the spirit of capitalism” itself.34 Explaining the market dominance of various ethnic groups is not the focus of this book. I leave this debate to others more qualified to resolve it.35

  The critical point, however, is that today the “spirit of capitalism” may no longer be enough. What economists call “path-dependence” now plays a tremendous, unavoidable role in group economic success. Access to capital is so important to economic success in a modernized global economy that already-prosperous ethnic groups have an enormous market advantage. The Chinese minorities have a worldwide head start advantage of roughly $2 trillion in assets, not to mention their famous “social networks” of business connections, which are not merely intra-ethnic but include Western and Japanese foreign investors as well. In much of the world, history may have moved beyond the point where a poor ethnic group could, fortuitously or otherwise, develop the “spirit of capitalism” and thereby attain market dominance.

  Jakarta Burning

  Although Americans prefer to forget this, Indonesia’s General Suharto was a longtime darling of the United States government and business community because of his rejection of populist redistribution in favor of liberal markets and foreign investment. Starting as early as the 1970s, and in exchange for the support of the United States, the World Bank, and the IMF, Suharto pursued raw, globally-oriented free market policies.36

  As in all the Southeast Asian countries, the result was an influx of foreign capital, unprecedented levels of growth, and spectacular Chinese economic success. By 1998, Sino-Indonesians occupied a position of economic dominance wildly disproportionate to their numbers. Just 3 percent of the population, the Chinese controlled approximately 70 percent of the private economy. All of Indonesia’s billionaires were ethnically Chinese, and almost all of the country’s largest conglomerates were owned by Sino-Indonesian families. The major exceptions to this rule were companies owned by the children of Suharto, which themselves depended on state favors and Chinese entrepreneurialism. More generally, although Chinese Indonesians were certainly not all well-off, they were economically dominant at every level of society. Ethnic Chinese dominated petty trading occupations in rural areas. They also dominated both retail and wholesale trade in urban areas a
s well as the country’s informal credit sector. Indeed, almost every tiny town had a Chinese-run general store that was the center of local economic life.37

  The extraordinary market-generated economic growth of the 1980s and 1990s almost certainly left Indonesia’s roughly 200-million-strong indigenous (or pribumi, “of the soil”) majority better off, at least in terms of average income. But that was not their perception. On the contrary, there was a pervasive belief among the pribumi that Suharto’s market liberalization favored the “already rich” Sino-Indonesians at the expense of indigenous Indonesians. Even though most Chinese Indonesians are struggling and hardworking members of the middle class, with no political connections whatsoever, all the pribumi majority seemed to see in the years leading up to 1998 was a handful of brazen Chinese plutocrats accumulating immense wealth by exploiting their corrupt ties with the increasingly hated Suharto.

  One of Suharto’s most prominent Chinese cronies was Liem Sioe Liong, who emigrated to Indonesia from Fujian Province, China in 1938 at the age of twenty-one. Liem started off in his uncle’s peanut oil shop in a backwater Javanese town, eventually scraping together enough savings to start his own business. Along the way he adopted the Indonesian-sounding name Sudono Salim and won the favor of an ambitious army officer named Suharto. After Suharto became president in 1966, he granted Salim lucrative franchises in banking, flour milling, and telecommunications. In return, Salim financed Suharto’s pet projects, both private and public—developing Indonesia’s steel sector, for example—while adding enormously to the personal wealth of the Suharto family. Meanwhile, by forming alliances with foreign industrial and commercial enterprises, Salim aggressively acquired technology, information, and market expertise. By 1997 the Salim Group was reportedly the world’s largest Chinese-owned conglomerate, with $20 billion in assets and some five hundred companies.38