Understanding the Chinese mind

BROWSING through my library during the holidays, I came across a book on comparative Western and Chinese philosophy that had an old saying: “Every Chinese person is a Confucian when everything is going well; he is a Taoist when things are falling apart; and he is a Buddhist as he approaches death.”

 Chinese culture is like ancient pyramids of different worldviews built over one another. The earliest was animism, where one believed different gods; the Book of Changes taught two sides to every story; Confucianism was about knowledge of self; Taoism about following the natural Way; Legalism about ruthless pragmatism and order; Buddhism about letting it go. In the 20th century, China imported Western influences from Marxism to science and technology.

It is commonly believed that the Chinese think very differently from Westerners. Western minds are considered logical and scientific, whereas the Chinese mind is supposed to be elliptical, contextual and therefore relational. One possible reason is the ideogramatic nature of the Chinese language, based on pictures rather than alphabets, which positions everything in relation to everything else.

The Chinese word for crisis is both risk and opportunity; for contradiction an impenetrable shield facing an unstoppable spear. Chinese thinking tends to sees things within systemic context and history, probably because the fount of Chinese philosophy is the I Ching or the Book of Changes, circa 1049 BC, which is essentially dialectic in tradition, seeing the world as emerging from the conflict, synthesis and evolution from contradictory opposites.

Western science and intellectual tradition stems primarily from Greek Aristotlean logic, which is reductionist and linear, reducing complex ideas into simple theories and principles that could deduce, explain and predict the future. Aristotlean logic prevailed in the West, until the German philosopher Hegel (1770-1831) developed dialectics based upon the concept that everything is composed of contradictions, with gradual changes becoming crises. Karl Marx (1818-1883) built on Hegelian dialectics into historical change through class struggle and dialectic materialism, whereas Mao Zedong fused Marxism into Chinese agrarian reality to form a theory of revolutionary knowledge through practice.

In the 20th century, natural science, such as physics, mathematics and biology began to evolve away from the social sciences, particularly economics. The Anglo-Saxon tradition of linear, logical thinking continued to dominate in social science, through philosophers such as Karl Popper, who rejected the vagueness of dialectics. On the other hand, quantum physics, quantum mathematics, biology and information theory began to evolve into binary worldviews whereby change in nature evolved through the synthesis or erosion of opposites. This is much closer to ancient Chinese and Indian views that saw the world in constant change.

What has been missing so far has been a synthesis of the two divergent worldviews.

In his new book Antifragility: How to live in a world we do not understand, Black Swan author Nassim Taleb introduced option theory as a general tool to bridge dialectic thinking with mainstream bell curve statistics. The normal “bell curve” distribution is a widely used statistical tool for decision making in mainstream social science. Social scientists look for statistical significance in the high probability (95%) or “robust” zone of the bell curve, tending to ignore low probability events (2.5% each) in the long tails.

By ignoring the long tail events that occur rarely but have large impact when they occur, mainstream thinking like the economic profession missed systemic events like that 2008 financial crisis. There are of course two long tails, one being the “bad” Black Swan events that create systemic damage when they occur.

The other is the upside or “good” long tail events. Nassim calls “anti-fragility” as good actions that compensate for “fragility”, the bad events.

Intuitively, Taleb has reframed Chinese philosophy in modern mathematics with a scientific explanation. What he calls the central Triad of exposures Fragile, Robustness and Antifragile has the analogy in the Chinese trinity of female (ying), Golden Mean and male (yang).

The Confucian concept of Golden Mean seeks to avoid extremes and take the safe middle path. But Taleb's insight shows why the Golden Mean gets into trouble, because playing safe and mainstream ignores the uncertainty of Black Swan events that could eventually damage the system as a whole. Prudence and conservatism through adopting the Golden Mean prevents the practitioner from adopting “antifragile or (good) high risk-high payoff” strategies that would compensate for the uncertain unknown bad Black Swan events.

A Buddhist would immediately recognise the need to build up good deeds to compensate for the bad deeds that may befall oneself.

By not taking risks, Chinese dynasties that adopted Golden Mean strategies became closed societies that eventually imploded when disaster struck. On the other hand, in the run up to the Industrial Revolution, Western societies took large risks with high payoffs, in science, technology and even colonialism. Western society compensated for fragility by taking anti-fragile measures. No risk, no gain.

The easiest way to think about options and antifragile strategies is in stock market investment. Suppose you adopt a conservative strategy that follows what the market does on average (follow the index). If however the market suddenly drops by 30%, and your portfolio declines by 30%, you will never recover your capital if you continue to adopt market following Golden Mean strategy. To recover or do better, you have to take small bets on risky shares that are “anti-fragile”, meaning that if they win, they win big.

Antifragility loves volatility. Making small mistakes will avoid large mistakes. The more you try to be stable, the more unstable you become, which Keynesian disciple Hyman Minsky rediscovered as “stability creating instability.”。

Taking non-linear options on high risk-high return ventures was exactly what Deng Xiaoping did in his opening up strategy. He knew that the risks of failure were high (and unknown) but taking options by opening up new development zones and new policies created new payoffs and growth areas that were not imagined by the critics.

In 2013, Deng's successors may be making new, anti-fragile options.

THINK ASIAN By ANDREW SHENG

Andrew Sheng is president of the Fung Global Institute.

May 2013 be a year of productivity?

We must make sure Malaysia and the rest of the world keep going forward this new year.

WISHING people a “Happy New Year” or “Kong Xi Fa Cai” or “Selamat Hari Raya” or “Happy Deepavali” and “Merry Christmas” is something I enjoy doing very much.

The invention of e-mail, SMS and other more recent phone applications have made me a serial “wisher” and if you are on my contact list, you should have got a message from me.

For the coming 2013, I wrote a little ditty and it reads:
“Every New Year brings new hope,
Every New Year brings new joy,
Let’s make sure 2013 will bring more,
Let’s make 2013 a GREAT year”

Ninety per cent of those who got my message replied politely but most of them just treated it as another “wish”.

I would like to stress that my wish for everyone is a deep-felt one and it’s one that I mean with all sincerity – 2013 is an important year not only for us in Malaysia but also the world.

As this article is being written, the TV and wires are reporting that the Republicans and the White House have just made a last-minute deal to avoid the US economy from going over the “fiscal cliff” which would drive the US and possibly the Western world into a recession immediately.

There can be many criticisms levied against President Barack Obama and the other US politicians of leaving it until so late to come to a compromise on a very important matter with global impact.

But the successful conclusion just before midnight of New Year’s Eve augurs well for everyone. At least we started 2013 on a positive footing.

The stock markets in Asia reopened on the first day of trading of the New Year in positive territory. That’s a good start.

Avoiding the fiscal cliff is just one of many global issues that the world inherited from 2012 and needs to be overcome in 2013.

Among the more urgent ones are:

> The Euro Zone financial crisis. Nothing done seems to have had any effect and even the mighty German economy is beginning to waver under the weight of the problem. Other big economies like Spain, Portugal, Italy and France all seem to be resigned to the fact of a prolonged downturn.

The world needs to start treating economic ailments the way it treats terrorism and war – by doing it with an all-out effort.

I accept that there is no single cure for a downturn because most are caused by different situations.

However, the urgency in treating and handling economic issues is downright embarrassing.

An example is the World Trade Organisation that was set up more than 20 years ago and until today has hardly made any significant headway except to be a very expensive talk shop.

> The horrifying disintegration of Syria. The way the world has allowed this nightmare to carry on is unbelievable.

All they have done is pay lip service at best or at worst, send one side or the other more weapons that will only prolong the suffering.

The problem of the wide media publicity given to this civil war is that it has made people immune to the violence and abuses that is going on there.

Each time we see a new video coming out of that country that shows death and destruction, all we tend to do is shrug our shoulders and remark “another day in paradise”.

This has to stop. We have to care and, in 2013, we should all act as one to prevent such carnage from continuing.

> Back home in Malaysia, our attention will be focused on the GE 13 which I will bravely say will take place before April 7.

Does this mean that all our energy and attention will be centred on the first quarter of the year?

I hope not. Our energy will be needed even more after that.

Yes, this general election will be the mother of all political battles – the kind where brothers take on brothers and husbands bravely challenge wives’ political ideology.

I will not be wrong to say that both sides on the political divide have already hardened their stand – all are prepared not only for the polls but also to up the ante to a feverish pitch.

Let’s hope the pitch just stays feverish and measurable by the thermometer. Yes, there is much at stake for both sides – it’s political survival for some of the key characters in our political theatre.

Because much of it is about personal survival, certain personalities may want to take the feverish pitch past the measurable level.

I do not want to dwell on who has what at stake but I would like to caution all politicians that the country needs to move on after the votes are counted.

They must not create a situation where the country cannot move forward or backwards.

Malaysia cannot afford to be stuck in another 60 months of political quagmire caused by turning everything into a political issue whether it’s a Olympic silver medal or how long before Selangor runs out of water.

I hope the whole country will wake up after polling day, take in the results and quickly get back to work because there will be more than 154 days to go before the end of 2013.

Malaysia has burst into a quick trot in its catch-up with the rest of the world in 2012, let’s not waste all that to tantrums thrown by sore losers in a political race.

A very down-to-earth colleague, in reply to my greetings, wrote: “It’s just another day. So think young, stay healthy and better be good.”

While she may have meant the New Year’s day – I think it is also apt for the day after election.

Happy New Year.

WHY NOT?
By WONG SAI WAN saiwan@thestar.com.my

Executive editor Wong Sai Wan spent his New Year’s eve at a friend’s place toasting to a bright future for everyone.

‘The year of shame 2012’ get any worse in 2013?

THE year 2012 has been labelled “the year of shame'' for the banking industry.

It doesn't matter that such nasty name-calling refers more to the problems at British banks.

Whatever happens in London is bound to attract world interest as it is a major financial centre vying for top spot with New York.

When scandals fall in thick, the tarnish on the banks there becomes even more significant.

To make matters worse, it is now apparent that the Libor interest rate rigging problem is more widespread than originally thought.



Source: Accounting Degree.net (click to link and enlarge)

It was not just a case of a few bad apples causing the rot, said The Guardian.

The problem was cultural, the report said, implying that it would require a wide spectrum of action to overhaul mindsets and unhealthy practices, possibly from ground level.

This requires much work on an international platform as there is no knowing how far and deep the rot has spread.

No doubt, banks in London and New York are the major players in the financial industry, and the other smaller players are feeling the heat as the ripple effect wears on.

As arrests related to the Libor rigging are ongoing, reports liken the revelations and subsequent documentation to a “blizzard.''

A blizzard is a severe snowstorm that often affects visibility, and points to very difficult weather conditions.

In banking and Libor rigging, in particular, this possibly refers to the layers of greed, conspiracy and corruption among the people responsible for conducting the trades.

Going into 2013, more arrests, fines and revelations are expected; the blizzard, therefore, is expected to be stronger.

In view of such a possible scenario, what are the central banks and other banks supposed to do to prevent any international backlash?

Not to underestimate the long-drawn effects of bank weakness, these external parties should quickly cooperate on an international basis to share information, iron out potential problems and try to prevent a big crisis from erupting.

With sound and consistent monitoring, a lot of negative effects can be pre-empted and, thus, avoided.

PLAIN SPEAKING By YAP LENG KUEN The Star

Associate editor Yap Leng Kuen wonders if it is too late to find a shield from blizzards.

Related posts:
The Libor fuss!
HSBC Bank fined $1.92 billion for money laundering

Created by www.accountingdegree.net

The new year 2013 will continue with the trends of of the passing year

The new year will start with two economic crisis events in the United States but otherwise, we can expect 2013 to continue with the trends of the passing year. 

IF 2012 is the year that did not bring about the end of the world, then 2013 should be the beginning of a new era, according to the Mayan prophecy.

But it is unlikely the new year will herald a brand new age for the world as a whole.

More probably, it will continue the trends in the old year but in more pronounced and deeply felt ways.

The year 2013 starts with the United States falling off the “fiscal cliff” or else escaping from that at the last moment.

If the fiscal cliff takes effect fully, up to four percentage points of GNP are expected to be sucked out of the US economy due to tax increases and government spending cuts combined, thus resulting in a new recession.

Another problem will soon reach crisis point.

The US government debt will reach its mandated limit around now, and President Barack Obama and Congress will have one to two months to negotiate an increase in that limit before the administration runs out of money to pay for its operations or service its debts.

Thus, we can expect the first two months of 2013 to be preoccupied with the drama of the US politics on debt, taxes and government spending.

It seems that the President-Congress and Democrat-Repub­li­can bitter battles of the last few years will return at the start of Obama’s second term.

If so, the United States’ political paralysis will be reflected in economic policy deadlocks.

The economic crises in the United States, and how they play out, will have a big impact on 2013 worldwide, especially since Europe is already in the midst of a recession.

With the uncertainties in the major developed economies, and the softening of the economies of China, India, Brazil, most developing countries will face economic difficulties this year but the extent of this is to be seen.

On the political front, the ongoing economic turmoil will lead to political changes in many European countries, and the future of the European Union and the Eurozone will themselves come under significant strains.

The next chapter of the Middle East drama is quite unpredictable. Israel, with its right-ward tilt, is expected to become even more aggressive, as its recent plan for more settlements in Jerusalem shows, and this may increase its isolation further.

But whether the Palestinian parties can unite and take advantage of its strong resistance in Gaza, its new UN-adopted status as a state, and the decline in Israel’s international support, is to be seen.

The Iran nuclear issue will continue to occupy news attention, with the Western countries having to decide whether to negotiate with Iran or intensify the sanctions (or both) or prepare for a military attack (thankfully, this does not seem likely).

The Syrian civil war will still dominate the TV channels as it enters another phase and perhaps an end-game, while the continued struggle for Egypt’s future political and social system will also have major effects on the region and the world.

In Asia, the world will watch closely whether the final stage of China’s leadership change-over to the new President Xi Jinping and Prime Minister Li Keqiang in March will begin a new era or continue the policies of the past decade.

Malaysia will have its place in the global spotlight with the general election, which will most likely take place in March.

Whatever the results, this closely contested election will be a watershed in the political life of the nation.

India, too, is in a state of significant political and economic flux, and 2013 will be used by the political parties and forces to prepare for the climax of the general election in 2014 and it is anybody’s guess who will come up on top.

Even as politics and economics continue to occupy the most attention, 2013 will remind us with greater force that Nature forms the bedrock of our societies and our civilisation.

The passing year brought its share of natural disasters to rival those of the previous recent years, and 2013 could even see worse extreme weather events around the world.

Global greenhouse gas emissions continue to increase despite greater awareness about the dangers of climate change.

Last week’s big floods in Malaysia’s east coast states could be a harbringer of worse to come in the country and the region.

The Philippines, having suffered a typhoon in its southern region in early December, had to cope with another big storm in its central region last week.

These are reminders that each country should improve its natural disaster preparedness as well as finalise its national strategy to address climate change.

And there are many other environmental issues to give high priority to, including water scarcity and quality, deforestation, biodiversity conservation, toxic chemicals and wastes and pollution of all types.

It will be an interesting year ahead.

Happy New Year to all readers of Global Trends!

Global Trends By MARTIN KHOR

 Related posts:
US Fiscal Cliff poses threat to economy worldwide! 
Cliff' worries may drive tax selling on Wall Street

Protecting your data

I REFER to the report “Personal Data Protection Act to come into force Jan 1” (The Star Dec 12 - reproduced below).

Symantec Corporation welcomes the enforcement of Malaysia’s Personal Data Protection Act.

In today’s digital economy, personal data of consumers has become a rich source of information and data for businesses seeking to address the needs of their customers better, whether this is in the form of better targeted advertising, or services tailored to the needs of particular customers.

With the introduction of the Act, Malaysia recognises that as the custodian of so much customer data, companies and organisations also have a responsibility to their customers to ensure that the information they hold is accurate, and adequately protected.

While global multinationals have had a lot of experience in this area, due to similar legislations in the United States and Europe, for many of the local smaller enterprises in Malaysia, this is a new frontier.

With the rapid adoption of IT technology to improve the customer experience, through web portals or affinity and membership programmes, these enterprises have also collected a lot of personal data of their customers, and today share similar responsibilities under the Act.

Small and Medium Businesses (SMBs) are an important part of Malaysia’s economy as they constitute 99.2% of the total business establishments, contribute about 32% of Gross Domestic Product (GDP) and 59% of total employment.

SMBs are also a crucial part of the ecosystems as partners of multi-national corporations (MNCs) as they do business in Malaysia.

However, it is also increasingly apparent that MNCs see a risk in doing business with partners who are not able to protect the sensitive data being shared with them.

In 2011, 18% of all targeted cyber attacks globally were on enterprises with 250 employees or less. In the first half of this year, Symantec saw this percentage double to 36%.

Cybercriminals recognise that because of the lower security posture of SMBs, they are much easier targets, who would also have information (their own or partners’ customer data, or Intellectual Property) which can be stolen and monetised.

In addition, compromised systems of SMBs are also used as stepping stones into the systems of their business partners.

It is thus important that SMBs recognise the exposure they have to cyber attacks, and the possible damage to their companies, through loss of reputation, business, and even legal censure, in the case where cybercriminals are able to steal data from inadequately protected systems.

In the more than two years since the enactment of the Act in Malaysia, the cybersecurity threat landscape has increased in complexity and scale. News of large scale breaches of companies database have been a constant and even the largest and best protected systems have not been spared.

It is thus timely for the Government to also consider the introduction of mandatory breach notification within the Act.

This would be in line with many other jurisdictions which have either implemented such legislations or are in the process of doing so.

Mandatory breach notification is an important part of any data protection legislation as it gives a definitive course of action to companies of what must be done in the case of a data breach.

By informing affected stakeholders, this also gives them the opportunity to take the required remedial actions (such as changing passwords, or having their financial institutions change their credit card numbers) to mitigate the consequences of the breach.

While it is recognised that this may increase the regulatory overheads of the Act, and represent an increased burden on companies, but the resulting improved consumer confidence in the data protection regime as well as e-commerce can only be helpful to Malaysia, as it moves towards developing its own digital economy.

NG KAI KOON Symantec Corporation Kuala Lumpur

Personal Data Protection Act to come into force Jan 12013

KUALA LUMPUR: The Personal Data Protection Act, aimed at preventing the abuse of citizens' personal data for commercial purposes, will come into force on Jan 1, said Deputy Information, Communications and Culture Minister Datuk Joseph Salang.

He said the Act, which was passed by Parliament in 2010, plays a crucial role in safeguarding the interest of individuals and makes it illegal for corporate entities or individuals to sell personal information or allow the use of data by third parties.

Many quarters, he said, felt that the enactment of the Act was timely as it would facilitate the transfer and transmitting of personal and often very important information seamlessly.

"It gives the public more control over their personal data. Whenever consent is required for data processing, it'll have to be given expressly rather than impliedly or be assumed," he said in his keynote address at the Second Annual Personal Data Protection Summit, here on Wednesday.

He said organisations would need to embark on continuous data privacy audit exercises to ensure compliance with the law as they now faced increased responsibility and accountability in processing personal data disclosed to them.

Salang said that to administer this piece of legislation, the Personal Data Protection Department was established on May 16, 2011.

Under the Act, offenderscan be jailed for up to two years or fined RM300,000, or both, if convicted.

Salang urged the public to be careful about information they shared online, especially in social media applications.

"Unfortunately, this is an 'open window' to our lives which makes it easier for those with nefarious intent to obtain information and use it for their own ends," he cautioned. - Bernama