Common Values Commons Valued Closing Keynote Address by Tan Sri - - PDF document

Khazanah Megatrends 2010

Common Values Commons Valued

Closing Keynote Address

by

Tan Sri Nor Mohamed Yakcop

Minister in the Prime Minister’s Department (Economic Planning Unit)

5 October 2010 Shangri-La Hotel Kuala Lumpur

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Tan Sri Azm an Mokhtar Managing Director, Khazanah Nasional Berhad Distinguished guests, Ladies & Gentlem en. 1 . I t gives m e great pleasure to deliver the concluding address for the Khazanah Megatrends Forum 2 0 1 0 . I m ust com m end Khazanah for feasting us over yesterday and today, w ith a distinguished and international m ix of speakers, w ho have provided diverse perspectives, provoked fresh ideas and shared inspiring experiences. The Megatrends Forum is increasingly establishing itself as a not to be m issed annual event for critically m inded Malaysians, and as part of the broader agenda to build up

• ur know ledge base, w hich unlike a physical resource, can

be used and shared w ithout dim inishing. 2 . The them e for Megatrends 2 0 1 0 , Reclaim ing the Com m ons: Collaborating and Com peting in the New Econom ic Order, is especially tim ely and relevant to consider, as the w orld m oves out of the recent global crisis to establish a new norm al. Earlier, during the depth of the crisis, it w as com m endable how nations across the w orld

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w ere able to join forces and respond decisively. Such united action undoubtedly helped avert a deep depression. How ever, as the w orst has passed, collective com m itm ents are w aning. Even before global recovery is firm ly rooted, m any developed nations face increasingly opposing view s

• n the m erits of continued stim ulus. Plans to dram atically

reform the global financial architecture have gone quieter. W e now have increased calls for protectionism . Nations, w hich w ere active collaborators not so long ago, are potentially descending into zero-sum -like com petitive behaviour. 3 . There has been increasing scientific evidence on global w arm ing, coupled w ith greater aw areness, in part, through docum entaries such as Al Gore’s I nconvenient Truth. Despite the fate

• f

the w orld at risk, the Copenhagen Sum m it did not inspire w ith the level of global cooperation displayed. Are w e destined to suffer a Tragedy

• f the Com m ons at a global scale through our inability to

w ork together to safeguard the earth’s environm ent? How do w e avoid our im pending self-m ade disaster? 4 . One could not be blam ed for despair or for having a bleak outlook. How ever, I w ish to offer hope. The reason

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for optim ism is because the solution for the challenges w e face is already w ith us. I t is not contingent on the discovery of any new groundbreaking technology or a com pletely new m ode of hum an interaction. I w ould contend that it is through values, not unfam iliar to us, that w e can safeguard our future. My speech today is titled, Com m on Values, Com m ons Valued. The values I w ish to focus on are:-

• first, valuing the long term ,
• second, cultivating a com m unity-based culture, and
• third, ensuring a sense of justice.

I f these values are collectively em braced and com m only practised, it w ould facilitate greater cooperation, especially in term s of safeguarding m ankind’s com m ons and its future.

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Tragedy of the Com m ons Ladies & Gentlem en, 5 . The definition of a com m on resource is that it is available to everyone, such as the fish in the sea. Aristotle had said, for that w hich is com m on to the greatest num ber has the least care bestow ed upon it. Basically, som ething

• w ned by everyone, is looked after by no one. I t w as

Garrett Hardin, an ecologist, w ho in 1 9 6 8 , clearly articulated The Tragedy of the Com m ons. Hardin presented the scenario of a com m unal pasture shared by a group of

• herders. Logic suggests that since no individual herder
• w ns the com m ons, none has the incentive to act

sustainably, resulting in overgrazing of the pasture and, ultim ately, the destruction of the com m ons, to the detrim ent of all the herders. 6 . I n the w ords of Hardin, Therein is the tragedy. Each m an is locked into a system that com pels him to increase his herd w ithout lim it -- in a w orld that is lim ited. Ruin is the destination tow ard w hich all m en rush, each pursuing his ow n best interest in a society that believes in the freedom of the com m ons. This is in stark contrast to Adam

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Sm ith’s invisible hand, w hereby those cham pioning laissez-faire econom ics w ould claim that individual self interest results in an optim al outcom e for all. Clearly in the context of the recent global financial crisis, unfettered greed pursued in global financial m arkets has not proven

• ptim al for everyone. Com petition m ust be tem pered.

7 . W hilst w e have alw ays had com m ons, the problem has becom e m ore acute today, principally due to technology and globalisation. Overgrazing of m edieval com m ons w as constrained by disease lim iting the size of herds and transportation costs lim iting the num ber

• f

people accessing the com m ons. Over tim e, technology has progressed and m ultiplied our capacity to plunder our

• resources. W hether it is global financial m arkets, fish in

the sea or forests, these have becom e global com m ons, now people from all over the w orld are able to access and

• verconsum e these resources. W ith globalisation, m ankind

has becom e m ore interdependent on each other and our fates are increasingly intertw ined. I f only w e could collaborate! 8 . The analysis of the tragedy of the com m ons offers a logical but bleak conclusion on m ankind. W e are not able

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to cooperate, even w hen it is in our collective interest to do so. The tragedy of the com m ons im plies that there is either a need to assign property rights or introduce regulations to enforce desired behaviour. How ever, there are lim itations to our ability to assign ow nership rights

• ver com m ons such as the air, in order to control pollution,
• r effect national regulations given the increasingly global

nature of com m ons. 9 . I n contrast to the pessim ism that com m ons are doom ed to tragedy, som e optim ism is offered through the w ork of Elinor Ostrom , w inner of the 2 0 0 9 Nobel Prize in Econom ics. I n her w ords, w e are not helpless individuals caught in an inexorable process of destroying our ow n

• resources. Her field w ork provides various real life

exam ples of com m unities, ranging from Nepal, Kenya and Guatem ala that self-m anage com m on resources through institutions that support cooperation. I n Malaysia, w e have

• ur ow n exam ple, being the Tagal system , a Dusun

tradition of river conservation practised in Sabah and Saraw ak, w hich involves the prohibition of fishing for one

• r tw o years, to help replenish the stock of fish.

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1 0 . Ostrom ’s w ork highlights the various factors in com m on am ong the com m unities able to collaborate to self-m anage their com m unal resources. Draw ing inspiration from these factors, m y proposition is that w e can achieve greater cooperation in addressing the m ajor global challenges w e face, through three core values, nam ely long term ism , a com m unity based culture and a sense of justice. Valuing Long Term Ladies & Gentlem en, 1 1 . Valuing the long term is the foundation for

• cooperation. I f individuals care little for the future, they

w ould not invest in cooperating today. Elinor Ostrom cites the exam ple of w hen local users of a forest have a long term perspective, they are m ore likely to m onitor each

• ther’s use of the land, developing rules for behaviour.

1 2 . Having a long term horizon prom otes success at all levels, w hether for individuals, com m unity or nation. The value

• f

long term ism at the individual level is dem onstrated in a study initiated at Stanford University during the early 1 9 7 0 s, know n as the Marshm allow Test.

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The study involved children aged 4 to 5 years old being

• ffered one m arshm allow and told that they could either

eat it im m ediately or if they w ere w illing to w ait for a few m inutes, they w ould instead get tw o m arshm allow s. The initial goal of the experim ent w as just to assess the process of self control by children. How ever, the test subjects from the initial experim ent w ere subsequently tracked to see how they perform ed later in life. Overw helm ingly, the children w ho w ere able to delay gratification and hold out for a longer period, w ere found to have been m ore successful as adults, in term s of higher school grades, success at w ork and even personal life. 1 3 . Traditionally, nurturing self control has taken the form , for instance, of getting children not to snack before dinner, study for exam inations and save up allow ances. Marshm allow Test researchers concluded that such nurturing can and should be reinforced to strengthen the ability of children to resist short term desires and focus on long term gains. The m essage basically is that learning to delay gratification helps prom ote future success and fulfilm ent. One can

• nly

w onder w hether the preoccupation on short term perform ance and rew ards, particularly in the financial sector, is the undoing of individuals and our financial system .

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1 4 . W hat is beneficial for an individual should also yield returns to the nation as a w hole. I n term s of thinking long term , there is a Greek saying that, a society grow s great w hen old m en plant trees w hose shade they know they shall never sit in. I recently had the pleasure of m eeting

• Dr. Montek Singh, Deputy Chairm an of I ndia’s Planning

Com m ission and also an im portant architect of I ndia’s econom ic reform s. More than tw o decades ago, the I ndian econom y w as view ed as a laggard and associated w ith the Hindu Rate of Grow th ( 3 percent or less) and license raj. Since the 1 9 9 0s, I ndia’s econom y has been revolutionised. The grow th rates enjoyed in recent years culm inated from the seeds of reform planted in the early 19 9 0 s. W hat is m ost im pressive about I ndia’s reform is that it w as undertaken in a context of a vibrant dem ocracy. 1 5 . The im portant lesson from I ndia is that first, one needs to have a long term horizon in driving a reform agenda and delivering results; and second, Governm ents have a duty to think and plan long term , even if subject to short term electoral cycles. A responsible Governm ent is

• ne that leads the country forw ard, by taking a long term

view beyond just the interests of current voters, by also taking into account future generations.

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Com m unity Linkages Ladies & Gentlem en, 1 6 . I f valuing the long term is the foundation to achieve cooperation, developing a com m unity based culture is the glue for cooperative behaviour. W e need a sense of com m unity that extends beyond sm all local com m unities and able to transcend national boundaries, if w e are to address global com m ons. The exam ple of the haw ala system of m oney changers is instructive. Haw ala m oney changers have effectively established an international com m unity netw ork, w hich has 3 im portant features,

• First, im portance is placed on being part of the

com m unity or netw ork,

• Second, transactions are undertaken based on trust,

and

• Third, social sanctions are in place to discourage

undesirable behaviour. 1 7 . The Haw ala System is believed to date back to the Middle Ages and supported trade betw een the Muslim w orld and Europe. Basically, the system w ould involve a custom er approaching a haw ala m oney changer in one city to transfer m oney through to another haw ala broker in

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another city. The transaction is effected typically through just a call betw een the brokers w ithout having to be preceded by an actual cash transfer. The haw ala in the recipient city paying out the m oney does so, on trust that the broker from the source country w ill settle the debt. The trust is based on being part of the com m unity of haw alas. Failure to honour the debt is subject to potentially punitive com m unity sanction, typically involving being rem oved from the netw ork. 1 8 . Having a sense of com m unity has potentially large benefits, not just in term s of social cohesion but also to reduce cost of doing business. A sense of being part of a com m unity and feeling a link of brotherhood w ith the people w e com e in contact w ith changes the w ay w e

• interact. W hy is it that back in our villages and sm all

hom etow ns, there is a m uch greater sense

• f

neighbourliness, close interaction and the w illingness to help each other? 1 9 . I n stark contrast, large urban cities globally have w itnessed instances of the bystander effect, w hereby crim es are com m itted in front of large num bers, but no

• ne com es forw ard to assist the assaulted. There is

perhaps room for Governm ents to engage w ith civil society

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to revisit urban design, particular high density residential spaces to enable institutional structures that support com m unity linkages. 2 0 . More im portantly, building com m unities m ust be accom panied w ith building trust. At a very basic level, do w e feel com fortable leaving our bicycle or shoes outside the door of our flats? Can a business transaction be sealed w ith just a phonecall or handshake? Trust is ultim ately the basis to support greater econom ic specialisation and productivity, as w e can then rely on each other to play our respective roles, w ithout having to incur too m uch in term s

• f transaction costs to be m ore secure. A leading

econom ist, Kenneth Arrow , once noted that, Alm ost every com m ercial transaction has w ithin itself an elem ent of trust, certainly any transaction conducted over a period of tim e. I t can be plausibly argued that m uch of econom ic backw ardness in the w orld can be explained by the lack of m utual confidence. 2 1 . Social sanctions can

• nly

be pow erful as an instrum ent to m aintain the norm of cooperative behaviour, if com m unity linkages are strong. Governm ents can, of course, establish legal institutions of courts, but social sanction can potentially be m ore effective in term s of

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speed and also covering a broader scope in discouraging not just illegal actions but also anti-social behaviour. 2 2 . The tragedy of the com m ons is akin to the Prisoners’ Dilem m a problem . The scenario is one w here tw o suspects are arrested by police and interrogated separately. I deally, they w ould be better off to coordinate and deny any w rongdoing. How ever, not know ing how the other w ill act, Gam e Theory concludes that if the scenario is played out

• nly once, it is in each of their interest to betray and

testify on the other. The solution to this problem or how to enable cooperation, is to play the scenario repeatedly. By doing so, there is a stronger incentive to offer cooperation, as an investm ent for future m utual cooperation. Having a sense of com m unity is about repeated interactions. One is less likely to cheat a person that one w ill have to m eet again often in the future. Having a strong com m unity culture is about having institutions that support cooperation as a norm , w hich is w hy even crim inals are know n for having honour am ongst thieves as a m eans to indoctrinate cooperation and avoid real life betrayal.

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A Sense of Justice Ladies & Gentlem en, 2 3 . I f long term s horizons provide the foundation and com m unity linkages the glue to cooperative behaviour, a sense of justice is the anchor to ensure sustainability. Com m unity linkages often can provide a m om entum to practices, to ensure that they are practiced autom atically for a given tim e. How ever, if such practices continually lead to unfair outcom es, it w ill rapidly lead to a breakdow n

• f cooperation.

2 4 . I n term s of a sense of justice and fairness, econom ists had undertaken m any experim ents based

• n

the Ultim atum Gam e. Basically, it involves tw o players, w ho do not know each other. Player 1 , Jack is asked to propose a split of $ 1 0 betw een him and player 2 , John. I f John accepts the proposed split, the $1 0 is shared according to Jack’s offer. How ever, if John rejects, they both go hom e em pty handed. 2 5 . To an econom ist applying gam e theory, the strategy is

• bvious. Since $ 1 is better than nothing, it should m ake

sense for John to accept, even if Jack offers John only $ 1

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and keeps for him self $ 9 . W hen experim ented on norm al people, the results w ere not in line w ith the initial gam e theory analysis:-

• Most people in the role of Jack offered m ore than $ 3

to the player in John’s role, and

• I n the relatively rare occasions that offers of less than

$ 2 w as offered, it w ould typically be rejected. 2 6 . The results suggest that people are generally hardw ired tow ards justice. The pattern of offers m ade suggests that even w hen in a stronger position, it is natural for persons to be m agnanim ous and fair. The rejections of low offers also indicate that there is an expectation of justice and a w illingness to forego personal gain to protest against injustice. 2 7 . One anom aly to highlight w as that w hen experim ented on econom ics students just after being taught about the logic of m aking stingy $ 1 offers, those in the role of Jack offered far less to John and in turn, those in the John role accepted these low offers. At one level, this w ould appear a case of how a little know ledge can be a dangerous thing. At another level, it w ould appear that people can be sw ayed from doing w hat w ould otherw ise be natural and just. I t w ould be interesting to find out the

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results of the gam e if experim ented on the investm ent bankers w ho had traded in subprim e derivatives. 2 8 . W hilst having a sense of justice is natural, defining w hat is justice, isn’t altogether that straightforw ard. Last year, Am artya Sen published a book titled The I dea of

• Justice. An im portant insight w as that justice cannot

necessarily be universally defined. Sen sets out an interesting fable, w here there are three children and a

• flute. One of the three children, nam ed Ann claim s the

flute on the basis that she is the only one w ho can play it, Bob, the second child claim s it given he is poor and has no

• ther toys, w hilst, Clara, the third child claim s the flute

because she m ade the flute in the first place. Sen’s point is that there isn’t a unique solution to justice as one could construct a basis to justify giving the flute to any one of the three children. I n practical term s, decisions m ust be m ade and often com prom ises needs to be achieved. One potential com prom ise solution w ould be to m ake Ann pay Clara for the flute and have part of that incom e taxed to be redistributed to the poor, Bob in this case. Justice is often defined not in term s of absolutes but involves taking into consideration the relative position and endow m ents of the relevant stakeholders.

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Values and Know ledge Building Ladies & Gentlem en, 2 9 . The w ork of Ostrom only highlights the existence of cooperative behaviour to safeguard com m ons and com m on characteristics that these exam ples share. I n the absence

• f naturally occurring cooperation, w hat are w e to do?

3 0 . There is clearly a role for the Governm ent, as there are instances, com ing back to the Hardin’s analysis, w here property rights can be assigned in a judicious m anner and also w here effective regulations and enforcem ents can help protect the com m ons. How ever, the challenges that the w orld faces today, w hether in term s of safeguarding the environm ent and the integrity of the global financial system , are problem s w hich require all stakeholders to play their respective roles and institutions to support cooperation as a norm . 3 1 . I n the context of the values w hich I discussed earlier, there are som e w hich seem natural, like the sense of justice, but at risk of being unlearned depending on environm ent. Valuing the long term perhaps needs reinforcing and nurturing. Fam ilies, com m unities and

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businesses contribute to advancing good values and putting it into practice. 3 2 . There is a story of a Red I ndian father telling his son that in everyone’s soul there are tw o w olves: a good w olf and a bad w olf. W hen the son asked w hether he w ould grow up good or bad, his father replied: son, it depends on w hich w olf, you feed m ore. Education and know ledge building is part of feeding the good w olf. I t w as intentional that I had started m y speech by m entioning that Khazanah had feasted us w ith good speakers. Know ledge is particularly im portant to guide values, given that deeply entrenched values can be a double edged sw ord. 3 3 . I n the late 1 9 6 0 s, a tim e w hen perhaps anim al testing w as m ore lax, there w as an experim ent involving five m onkeys in a cage, w ith a ladder leading to bananas. W hen one of the m onkeys attem pted to clim b up the ladder to get the bananas, before he could get to it, he w ould be pushed back by a spray of icy cold w ater and the rem aining 4 m onkeys w ould also be sprayed on. After repeated attem pts and repeated sprayings, none of the

• riginal 5 m onkeys tried for the bananas. Subsequently,

the m onkeys w ere replaced, one by one, w ith new m onkeys, w ho w ere not in the w ater spraying event. Each

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tim e a new m onkey is brought in, the new ly introduced m onkey w ould attem pt to go for the bananas, but ends up getting held back by the rem aining four m onkeys, even before the spray is applied. This continued to happen, even w hen all five m onkeys in the cage had not actually seen the w ater spraying, yet they w ere conditioned by the earlier m onkeys not to let anyone attem pt to get the bananas. 3 4 . Values that are fully em braced transform into autom atic responses to situations. I t w ould not be acceptable if w e em braced values w ithout understanding the significance of the values. Therefore, it is vital that values that are developed are based on know ledge and long term considerations of w hat is good and just for the com m unity. The Malaysian Prim e Minister, in his recent address at the United Nations General Assem bly, called for m oderation, because if w e are not careful, our values w ill becom e unduly influenced by those w ho shout the loudest, w ithout being based on know ledge or reason. I n the Malaysian context, inter-racial relations and the econom ic pie are akin to a com m ons. I f w e unw ittingly take a zero sum approach, driven by self interest, w e m ay end up like Hardin’s herders causing irreparable dam age to the com m ons. Grow th w ith equity is about letting the pie

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grow , so that all of us can continue to benefit from a bigger pie over tim e. Conclusion Ladies & Gentlem en, 3 5 . The w orld is facing num erous challenges, particularly

• n the global econom ic and environm ent front. W ill w e,

driven by self interest, unable to collaborate, act out the inevitable, predicted by the tragedy of the com m ons? I rem ain optim istic. 3 6 . Thus far, w e have perhaps been overly inculcated w ith the m arket econom y ethos of com peting to create value

• ut of private ow nership. This needs to be tem pered and

com plem ented by values to prom ote collaboration, in order to preserve the value of our com m ons. 3 7 . Com m on values, com m ons valued. Valuing the long term , building strong com m unity linkages and pursuing justice are com m on values for all of us. The key, how ever, is to m ake them com m on in term s of adoption and practise by all of us. W e needto institutionalise our values to safeguard our valuable com m ons. W e m ust continually

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build know ledge and have clear objectives, to ensure w e collectively rem ain on the right path. Thank you. ( Econom ic Planning Unit ) 5 October 2 0 1 0