My final semester, in full quant gear. It’s time to man up and math up. If I have to get out of school, I’m going out with a bang, not a whimper.

Required:

POLS C3998x-C3999y Senior Honors Seminar. A two-term seminar for students writing the senior honors thesis.

The thing I worry about the most, all the time. I live in perpetual thesis anxiety. Chris Blattman was right, only commit yourself to writing a thesis if you truly must.

ECON W4921 Political Economy Seminar: The Non-Market Business Environment. The course will apply the lessons of political economy to study the non-market environment within which businesses operate. Topics include lobbying, regulation, media relations, and international trade.

My last required class for the joint major, and it looks like it’ll be fun. Maybe I can get a lobbyist job out of this.

HUMA W1123 Masterpieces of Western music. The course attempts to involve students actively in the process of critical listening, both in the classroom and in concerts that the students attend and write about. The extraordinary richness of musical life in New York is thus an integral part of the course. Although not a history of Western music, the course is taught in a chronological format and includes masterpieces by Josquin des Prez, Monteverdi, Bach, Handel, Mozart, Haydn, Beethoven, Verdi, Wagner, Schoenberg, Stravinsky, Louis Armstrong, and Duke Ellington, among others. Since 2004, the works of jazz composers and improvisers, such as Louis Armstrong, Duke Ellington, and Charlie Parker, have been added to the list of masterpieces to be studied in this class.

My last required class for the Columbia core. One of the fun parts of the class is attending an opera, which I almost always enjoy.

Electives:

POLS W4292 Advanced Topics in Quantitative Research: Models for Panel & Time-Series Cross-Section Data 3 pts. This course covers methods for models for repeated observations data. These kinds of data represent tremendous opportunities as well as formidable challenges for making inferences. The course will focus on how to estimate models for panel and time-series cross-section data. Topics covered include fixed effects, random effects, dynamic panel models, random coefficient models, and models for qualitative dependent variables.

With this, I will have completed the entire polisci graduate methods sequence, well, except the basic classes like the ‘math camp’. The equivalent class in the stat department does not seem to be as focused on social science applications, and I’m not sure if I would ever use Fourier transformations or spectral density estimation in my own research (or any finance quant job), so this one seems more appropriate.

MATH W4061 Introduction To Modern Analysis I 3 pts. Real numbers, metric spaces, elements of general topology. Continuous and differential functions. Implicit functions. Integration; change of variables. Function spaces.

MATH V2500x or y Analysis and Optimization 3 pts. Mathematical methods for economics. Quadratic forms, Hessian, implicit functions. Convex sets, convex functions. Optimization, constrained optimization, Kuhn-Tucker conditions. Elements of the calculus of variations and optimal control. (SC)

Last year’s valedictorian, the god of econ, advised me to take 4061 “and ace it”, if I ever wanted to go to econ grad school. Having given up on ever getting into a good econ program, I’m not sure if I really need to take this, especially since I don’t expect to do much formal modeling, though it seems like some people recommend real/functional analysis anyway, as a kind of mental abstraction jujitsu.

After attending the first class, seeing all the math and physics majors there, and struggling with the first ‘Baby Rudin’ homework, I despaired and dropped down to the easier ‘math for econ’ analysis class, that covers only the subset of real analysis most relevant to econ applications, which will probably help motivate me to stick with it.

Two years ago around this time, shortly after my stint at a DC think-tank and a public policy summer camp, I wrote my first op-ed on higher education subsidies in Singapore, and it got some attention from legislators and published in the state media.

The subsidy, the Tuition Grant Scheme administered by the education ministry, is not means-tested and subsidy amounts depend on the specific university and field of study, and is fairly substantial – as much as 75% of full tuition. It is also tied not to citizenship or residency (as is common elsewhere) but to attendance at certain schools in Singapore, namely the local public universities and the vocational and trade schools (the polytechnics and other diploma providers). I use the term public because all of them also receive operating subsidies via the education ministry. Anyone who attends these schools is eligible for the subsidy – rich or poor, citizen or foreign national – but these schools only. I am primarily concerned with its provision at the undergraduate level though in principle my arguments extend also to the vocational and trade schools.*

*While not too familiar with the vocational schools, I understand that the p.a. subsidy can be as much as 85% of full fees, though the shorter duration of vocational schooling means that the total subsidy per student is lower than in the universities. While the same arguments for means-testing apply, my guess is that with the income distribution in vocational schools almost all their students would be eligible for some level of means-tested subsidy.

What’s new?
Two years on, not much has changed. Subsidies have been extended to certain programs at one more school, UniSIM/SIM University, a continuing education provider, but the amounts are not as extensive (40%) and limited to the domestically accredited programs, arguably not their historical core competence.* More generally, residents and foreign nationals now receive a lower amount of subsidy though the amount is still fairly substantial.** While I am tempted to claim some credit for making this happen, subsidies are still not available for students who choose to study at any other university course in Singapore or elsewhere.

*UnISIM was previously the Singapore Institute of Management, primarily a local distributor of distance courses, first from the Open University and later a number of distance programs from the US/UK/AUS. The rebranded name reflects the wider breadth of programs on offer and also distinguishes the (now subsidized) domestic-accredited programs from the foreign-accredited distance courses. More about this later.

**Excluding residents and foreign nationals from subsidies was never my intent! My original op-ed makes that clear. Pointing out that they received subsidies too was merely to demonstrate how unfair the (not means-tested) policy was then, and still is now. I hope that the subsidies withdrawn from foreign nationals will be replaced with an equivalent amount of merit-based scholarships for them.

I proposed two changes in subsidy policy. First, to means-test the subsidy. Second, to make Singapore citizens eligible wherever they choose to enroll and whatever they choose to study. The two are closely related, because (I suspect) lower SES students are more likely to enroll in the less competitive local private schools and thus miss out on subsidies altogether.* But I will discuss the first component of my proposal, because it is the less contested one.

*My guess here is that lower SES students tend to pursue vocational schooling instead of the academic track (A-levels, then university), not because they don’t make the grade for the academic track (at least not only because), but as a choice to enter the workforce faster and with lower fees paid up front. Case 1: They then hit some kind of glass ceiling (real or perceived) on diploma holders sometime after entering the workforce, perhaps in the transition to managerial roles or in the kinds of professions and industries available. For example, the ceiling between paralegal and barrister/solicitor for those who took a legal studies diploma course. To attempt to break through the ceiling they opt for part-time continuing education, which until now wasn’t subsidized. Even now that it is (at UniSIM), the total costs incurred of vocational schooling and continuing education will be greater relative to the academic track. Case 2: If they anticipate this problem, vocational students will then opt to attend (the subsidized) local universities instead of entering the workforce directly, where they will enjoy advanced standing, but I haven’t seen detailed data on how many actually do so. My impression is that a good proportion of those who opt for this circuitous route will get crowded out by the academic track cohort, and go elsewhere (i.e. AUS) paying full fees. If either case is true, then our current subsidy policy is regressive.

Means-testing
A means-tested undergraduate tuition subsidy would give eligible students a subsidy whose amount would depend only on the individual’s financial need. It could range from a small discount to a full ride plus stipend. Let’s assume away the second part of my proposal, ie. assume that the status quo of preferential treatment for the local public universities prevails.

Apart from the local public universities, those whose interests are harmed by a means-tested tuition subsidy are those students with the means to pay. This is the Singapore upper-middle class and above. The median household earned income was 46320 SGD per annum in 2005. (Mean is 65400 SGD but median is more appropriate because of the fat tails in the distribution). I will demonstrate below that the full p.a. cost of undergraduate tuition is about 75% of this annual median income, so only upper-middle class and above households should be means-tested out.

How much does it cost to attend a local public university?
Let us first consider the cost to Singapore citizens, since they make up the majority of students at the local universities. Residents and foreign nationals pay 10% and 50% more respectively, and those of you interested can mentally adjust accordingly. I will focus on tuition fees at Singapore National. Comparable tuition fees at Nanyang Tech and Singapore Management are about the same.

The heavily subsidized tuition fees for most disciplines at NUS are fairly similar, the major outliers being medicine and dentistry*. It’s about 7K SGD p.a. or 15% of the median household income . But if we look at the full unsubsidized amounts, we see that engineering/science is more expensive, and so is music. There’s a lot of variation in the current subsidy amount based on discipline. For example, some taxpayers may wish to know why music is subsidized twice as much as law. But those questions are beyond the scope of my present inquiry.

*The unsubsidized fees for medicine and dentistry are 100K SGD p.a., for six and four years respectively, which probably reflect the cost of education and the earnings potential afterwards. Whether these fields deserve an additional subsidy over and above the means-tested grant is also beyond the scope of my present inquiry. It would depend on many things including labor force requirements in the healthcare sector, etc.

Excluding the outliers music, medicine and dentistry, we see that the unsubsidized tuition fees at NUS range from 26-33K SGD p.a.. There are some additional university-specific fees (NUS ‘modules’?) and I welcome comments on how much these amount to. Living expenses are harder to compute an average for since most Singapore citizens who attend local schools live at home, and this varies a lot from household to household.

How much does it cost to go elsewhere?
The appropriate comparison of costs when deciding whether or not to go overseas, is to compare total costs of attendance. However, since I can’t readily compute university-specific averages and living expenses when student live at home, here I compare tuition fees alone. Readers can make the mental adjustment to factor in other expenses, cost of living etc.

Australia. Undergraduate tuition fees at UNSW Sydney for foreign students in comparable disciplines range from 20-26k AUD = 23-30K SGD. Note that UNSW Asia charged 26-29K SGD p.a.
UK. Tuition fees at Cambridge for non-EU/UK nationals for non-clinical studies range from £10-13k = 23-30K SGD.
US. Undergraduate tuition at Harvard is $33,696 USD p.a. = 48546 SGD. (I assume that upper-middle class Singapore citizens will generally not qualify for financial aid).

Do note that living expenses can vary substantially, and that cost is not the only criteria relevant to decision-making (value is). I welcome comments from readers about whether the fees listed above are representative. Now that we know the cost of going elsewhere, what can we expect to happen if subsidies are means-tested?

Expected Effects
First consider those excluded by means-testing, the students who can afford to pay full fees. There are 3 possible categories thereof:

1. Those who choose to attend local universities. The money saved on subsidizing them goes to other uses, like improving our universities teaching, no-strings merit scholarships etc.
2. Those who choose to go elsewhere, because they do not consider local universities worth the full cost relative to alternative options.
3. Those who forego university altogether and opt for vocational education, direct entry to workforce, or NEET status.

Since I believe the 3rd group to be a null set, the 2nd group will determine the changes caused in enrolment in the local universities. How large it is will depend on the current income distribution in the local universities, and the perceived relative value of a local university education.

I welcome readers’ comments on the former. I suspect the majority of students at our local universities can afford full fees, since SES strongly correlates with academic achievement, but I haven’t found a breakdown of students at NUS/NTU/SMU by household income. That would be pretty interesting to see, especially a year-by-year breakdown by discipline. It would be really useful for estimating the causal impact of particular majors.

As for the latter, I can’t comment on since I don’t attend a local university, except to note that they will have to compete harder to attract and retain the 2nd group under means-testing, and that the incentive structure under competition tends to raise quality and customer satisfaction for everyone. With the caveat in the picture above.

As Charles Murray notes, assessing the value of a bachelor’s degree is pretty difficult. I would also like to see a greater focus on objective measures of quality of education (such as detailed career placement statistics) rather than the usual methodologically-murky international rankings. For example, Singapore Management could import another practice from their model school, the on-campus recruitment survey. We can’t improve quality without measuring it, and we need to measure the right thing. Competition only improves quality if customers can measure quality effectively, and fact is, a lot of parents and students out there are pretty clueless about the value of degrees. These academic ‘rankings’ are so irrelevant, whereas I think students will care more about future earnings projections. This is where the state can come in, in requiring all the schools that receive operating and tuition subsidies through the education ministry to comply with a simple transparency initiative to publish their placement records.

Why don’t we have a means-tested system yet?
Entrenched interests, policy inertia and upper-middle class sense of entitlement aside, means-testing is difficult to implement. As my friend Ringisei notes:

Household income. I suppose this will be income tax data but this is notoriously inaccurate as IRAS does not tax income accruing from foreign sources. This has applied very much to the business community here – those whose businesses extend beyond Singapore. And increasingly applies to many professionals who get posted to KL, Beijing/Shanghai, Jakarta, Bangkok etc and have their salaries paid out of there instead of Singapore. Which is why the government tends to prefer using the annual value of a person/household’s primary residence as the proxy measure of income/wealth – but that, as you well know, presents its own set of problems.

Difficult but not impossible. We already means-test healthcare, housing, and various cash handouts. No reason why we can’t means-test university tuition either.

Extending Subsidies
Let’s now consider the second component of my proposal, making the means-tested subsidy available to Singapore citizens wherever they choose to enroll and whatever they choose to study.

From the list of education providers in Singapore, you can tell that the vast majority ineligible for the subsidy are local distributors of foreign-accredited distance courses, much like UniSIM’s parent business model. Many of these programs tend to be in continuing education. There are also the local satellites of foreign universities, though they tend to be smaller in scale unlike the late UNSW Asia.

Recall subsidies are limited to UniSIM’s domestic-accredited programs, but not its foreign-accredited ones. This recent policy suggests the reason why subsidies are limited to local public schools. My interpretation is this: It is the industrial policy of the state to support domestic brands, and not domestic firms per se. The firm itself (UniSIM) may be based locally, owned by locals, fully staffed by locals, and the services provided primarily to locals, but because the product on offer is essentially foreign (accreditation from Open University et al) it is therefore not in the interest of the state to promote it.

I don’t agree with this because I do believe it is in the interest of the state to make the playing field level, so that new entrants have a fair chance against incumbents, who have to compete harder for customers. A lot of you have told me that you have no desire to subsidize degree mills and predators on less-savvy paper-hungry students. Neither do I. But the current population of private providers in the education market isn’t representative of what we would expect in a competitive one. The state has crowded out everyone who isn’t low-cost. How could UNSW Asia compete for students who can go to NUS for a quarter of the price? It couldn’t.

Singapore Management is a good example of why it makes sense to welcome foreign competition. SMU is basically a Wharton replicate, from the curriculum to the joint programs to the scholarship modeled on IS&B to the pervasive investment banking / management consulting culture. That was its main selling point back when it first got started – a brand-name foreign-style education available locally. SMU students were eligible for subsidies from the beginning. But nobody thinks that subsidizing SMU diluted the Singapore brand. If anything, it made Singapore a more attractive place to go to school, and gave students more choices. It might’ve also motivated NUS and NTU’s business programs to improve.

However, the degree of competition unleashed by extending subsidies to all undergraduate programs in Singapore will always be limited by the fact that starting a new (comprehensive) university in Singapore, even with subsidies from the state, is a massive endeavor fraught with risk, and the market cannot support an infinite number of players. It also takes years to establish one – the fourth public university is now under construction, and nobody knows if it will succeed or not. Competitive forces will have a glacial pace. But there are hundreds of universities abroad that our local players might compete with, and if citizens eligible for the means-tested subsidy could take it anywhere they chose to go, competition will be that much more perfect.

Before going to China, I had considered acquiring RMB from the banks in New York, but decided that the exchange rate would have been poorer since the supply of RMB here would have been very limited. So I brought a stack of US dollars to China with the expectation that I would exchange it there. But when I arrived at Beijing’s terminal 3, I found that the moneychangers there were offering a terrible rate, so I resolved to go out into the city and find a better one.

I found a BOC branch downtown and asked the teller about the rate, and suitably satisfied, I handed by stack of bills over. The teller proceeded to scrutinize each and every bill from all angles, holding it up to the light, feeling every part of it. After intense scrutiny, he rejected the more worn bills and told me he would only exchange the ‘good’ ones. I thought, they probably don’t see too many hundred dollar bills around here, and left it at that. After that, I went to Citibank and got it done.

It was only later that I realized what the teller was doing to my money. We (Wokai interns and officemates) were out for lunch, and walking around the hutong looking for a new place to try. We ended up in a noodle restaurant, and on the wall I saw the above notice. I pulled out my own 100 RMB note to try to compare it to the counterfeit bills, but couldn’t see the difference. A local colleague explained that the way to tell was to ‘feel Chairman Mao’s hair’, as the texture of the bill was finer there. I hadn’t realized counterfeiting was so pervasive in China.

Now I knew why the bank teller was stroking Ben Franklin’s wizened face.

Despite the frequent exhortations of station attendants to “先下后上” (let passengers get off before you board) and to respect “中华人民传统美德” (traditional Chinese values), taking the Beijing subway at peak hours is like an epic battle.

The battle begins from the moment you enter the station and navigate the flows of human traffic to reach the turnstile. Once past the turnstile, you wait along the platform. And when the subway train rolls into the station, everyone rushes to crowd around the doors before they open – even if there is a mass of people inside the train waiting to get off. Both sides try to squeeze by to secure a strategic location in the subway car. If you dally, you risk being stuck close to the doors (which is inconvenient since you would be in the way of those getting off at the next stop), or worse, not even being able to board at all. Even if you can board, while you wait patiently for the passengers to get off, the remaining passengers move right up to the doors to get more breathing space, and so you have to push through people anyway in order to get on. As a result, trains are sometimes delayed due to the boarding process, and everyone is later than they would be.

This is the classic prisoner’s dilemma. Rational actors choosing what is individually optimal, end up with a collectively suboptimal outcome. It’s not simply a question of norms, though norms certainly matter. To rush onboard is a rational choice in light of the incredible level of competition in the Beijing subway.

But once within the train, there is a kind of cooperative barter system at work, where people signal to each other that they are getting off at the next stop. Those nearer the door trade places with those further in, to facilitate an easier commute for both parties. However, this trading can only take place between adjacent people, so the market doesn’t always clear efficiently.

Here are my strategies for a person new to Beijing: If possible, try to avoid peak hours by negotiating a different schedule with your employer. It can save you a lot of stress. If you can’t, then you can follow Sun Tzu’s advice and choose favorable terrain: Counterintuitively, although subway station entrances are at the far ends of the platforms, it is the middle of the platform that is the most crowded – usually because the connections from other lines are there. Finally, changing lines can be insane, especially between lines 13 and 2 at rush hour (i.e. trying to get from Wudaokou to the CBD).

I had a conversation with an entrepreneur friend who told me he had hired a Beida grad to join his AI-development team, and I jested that his Mandarin must be much better than mine to have cross-lingual collaboration, to which he replied that he was also learning Spanish. When I asked him why Spanish, he proceeded to list languages in order of the number of speakers worldwide.

Certainly this is a correct way to judge the practical value of learning a particular language. Languages are like telephones in that there is a ‘network externality’ where the value of the language increases with the number of people who possess it. The more people speak a language, the more people you can communicate with if you know it. In this perspective, Mandarin is the most important language to master, followed by Hindustani and Spanish. English comes fourth.

But there is another perspective to measure the value of a language: access. Consider that access to a linguistic group is a scarce resource, where learning the language is a barrier to entry into that community. The more people speak that language, the more accessible the community, the less scarce the resource, the less valuable it is for an individual to learn it. Interpreters for a scarce language can command a higher price, though there may be correspondingly less demand. The isolation of a language group can be a way for them to identify and exclude/sanction those outside the community, but this mechanism only works if the language is not widely spoken beyond the group. Recently I was ordering at a food court in Mandarin, and the old lady at the register gave me a little discount.

Access value also depends on the access of your competitors. It is not such a big deal to be fluent in Mandarin if you live in Singapore, or if you are ethnic Chinese. It is pretty much expected for most. I remember hearing from a friend in the civil service (not foreign service) who studied in Seoul that when the powers were looking for an employee who spoke Korean to manage a project, only a few names came up and it landed on her plate. It may be that certain firms will prefer to develop the language competence of expatriate staff than hire local native speakers even if the latter are much more plentiful, perhaps due to security concerns.

And then there are primary and secondary languages. English may be fourth in native-speaking population, but it is a primary international language, which makes it more valuable. There may be many millions of Cantonese, Teochew and Hokkien speakers within those provinces and around the world in diaspora communities, but they are secondary languages to the ones those communities adopt. That said, I’ve heard stories of some Teochew diaspora communities that never really assimilated into their local environments, and how knowing Teochew can open up prospects for ethnographic research there, but those seem to be outliers.

(Beijing subway) Practicality in the extreme. Implicit subtext: Learn English = get hitched to a foreigner = green card!

Finally, practical significance isn’t always the first consideration for most people learning languages. I have so many friends learning Japanese because they love anime and manga (and don’t want to rely on fansubs/scanslations), and not because they want to work for a PE shop in Roppongi Hills. I have friends who learn ancient Latin and Greek for religious/literary purposes. Practical significance isn’t the (only) reason why Geoffrey learns Korean.

Speaking of learning Korean, here’s a guide to learning it DPRK-style.

I hate how people assume that I’m going to be an investment banker when I tell them I’m an economics major, so I’ve started to introduce myself as ‘majoring in saving the world’. I considered having that on my business cards: ‘Bachelor of Arts, Saving the World’. I even asked the dean of the college about whether I could do that officially. He asked me “do you think the world can be saved?” I couldn’t give a definite answer, so I guess I’m stuck with my current major.

With the market the way it is, I’ve been looking into grad school options. I attended an info session about the Earth Institute’s PhD program in sustainable development by one of the doctoral students.

I guess what interested me in the EI program is that it’s essentially an applied economics program with masters-level science. Because it’s an economics program, it just so happens that I have most of the required quantitative courses to be considered, so it’s within the arc of possibility. However, considering there are some 400 applicants for six spots, the level of quantitative mastery to be competitive is far beyond what I already have – think about all the econ grad school applicants applying for this.

The other skill set to be competitive is science, but since the EI program is so interdisciplinary there isn’t any science in particular. The ideal candidate would have both, but the point I got from the session was that these skill sets are usually mutually exclusive for most applicants. That is, quant-socsci-types like me typically have no science background, whereas science-types have no econ background, but as long as you have one set its fine. However, the majority of accepted candidates are quant types. Whether that means it’s more or less competitive for quant types is hard to discern without knowledge of the distribution of the applicant pool. My feeling is that it’s relatively more competitive for quants, more than it already is.

The other point I got from the session was that fieldwork, languages and experience is secondary to technical prowess, unlike say the MPA/ID and similar programs where the point is to save the world hands-on. The EI program is primarily academic and theoretical, though the jury is still out on what the real placement record for the first graduating batch is going to be i.e. are they going to be hired on the academic job market or move to the World Bank, development consultancies etc.*

Thus, it is not taken into consideration for application to the EI program. It may be that a certain level of experience in the field is required to know for sure that the EI program is for you, but it does not come into play other than to demonstrate commitment to the field and possibly some relevant skills (particularly for other doctoral programs). But at least for the EI program, some candidates are taken straight out of undergrad. The ideal candidate would have both field experience and advanced quant skills, but I hardly see anyone like that in Columbia undergrad.

The corollary to this is that many applicants aren’t actually suited for the EI program since their career goal is to do fieldwork. His words were to “get a masters, finish in two years, go save the world” instead of delaying it for five to six years.

I think that was the most important point from the session, knowing exactly what your career goals are and whether the EI program is appropriate to that. This is true for any doctoral program. He said that he was much more satisfied than his friends in traditional economics doctoral programs, but it’s still not for everyone. I found Chris Blattman’s comparison of the MPA/ID and PhD programs particularly useful, though I have my own thoughts on the tradeoff. For example, the requirements are very different, so its not really an apples to apples comparison.

* I also found Blattman’s advice on getting a PhD and saving the world really useful, he provides a lot of insight for people interested in development research. However, he (among others) notes that interdisciplinary doctoral programs (like the EI program) are disadvantaged in the academic job market. This isn’t necessarily a bad thing, but something to consider.

Some relevant comments from the recent Social Enterprise Conference at Columbia bschool, my emphasis added.

“If you turn in your salary to work 18 hours to do good for no money, you better have made a ton of money [before]. But can you do good every day until then? Yeah, absolutely. Get rid of the fine print. Stop making stuff out of garbage. Everybody in this room can do good starting one minute from now. Make a good decision so that the social change starts as you think about the rest of your life. Then, if you make a lot of money, maybe you want to donate some number of years to some crazy thing, but until then just be a nice guy.” Rob Wunder, Co-Founder, Yummy Earth

“I think you can start a company that makes money and does good. I am not sure if a model of social enterprise that is solely about doing good and that is not designed to make any money is scalable. It’s hard. Random, bad things happen and all of sudden you don’t have the capacity to respond. The design of the company, from the ground up, should be [geared to] doing something that makes the world better while still making money.” John Katzman, Founder and CEO, The Princeton Review and 2tor.

“A lot of people in business school ask if they should go and get skills at some consulting firm or investment bank first. I feel that at the end of the day, what’s important is that we all take a step closer to what we want to be doing. The secret is that it is much harder to find interesting work and a way to make a difference, and it takes time to get there. It’s not just in one day that you’re going to find the answer of what your social enterprise is going to be. What’s important is to take a step towards that path. And in the years when you’re just trying to make money or get skills, while those skills may help you, you should also be searching for ways to get you closer to what you want to be doing.” Jeremy Hockenstein, Founder and CEO, Digital Data Divide

I’ve received some e-mail (fewer than anticipated) asking whether I am still alive, so let this allay your concerns. Some of what has kept me busy since term started are my several writing commitments. One of which is for the Korea Times, in which my essay on globalization, trade and finance has been published in the Nov 1st edition. You can read it here.

Unfortunately, I suppose the ‘headline’ nature of newspaper publishing has truncated my original title: “The Open Door and the Even Hand: Leadership and Risk Management in the Global Economy”. Yeah, its pretty lengthy, but I needed it to make the logical link back to the given topic “Ways to Reduce Risk in the Globalized Financial Market”. Without the original title, I fear my metaphor-heavy concluding paragraph doesn’t make much sense. The organizers never consulted me about truncating the title, otherwise I would have changed it somewhat to retain the metaphor.

This is my second published op-ed, but not a significant improvement in terms of prestige of the newspaper or quality of writing. I am not particularly proud of this essay, the narrative lead-in is crude and the metaphors are forced, and the analysis isn’t particularly insightful. This reflects the amount of time I spent writing it: an all-nighter partly spent reading up on the Korean financial crisis, instead of the relaxed weeklong process I usually take. At its best, my prose is cold fire, as much an art as it is (social) science. At its worst, its a take-home midterm on a topic I care little about, policy wonk regurgitation.

My target is to publish an op-ed in a flagship newspaper: NYT, WSJ, WaPo. I’ll have to think up a strategy to reach that goal.

I’ve attached the article here in case the link to koreatimes.co.kr is down:

Korea Times: Biz/Finance 10-31-2008 20:56
Leadership Key for Risk Management

From the window on the Pyongui line, I caught my first glimpse of Pyongyang, and my first thought was how different this place was from Seoul. Even the train ride here was a far cry from the KTX I took from the APEC summit in Busan. I remember being struck by the sheer dynamism of the city as it celebrated, and was celebrated by, the global economy. The difference with Pyongyang could not be more apparent.

While North Korea chose to close its doors to the outside world, South Korea chose otherwise, and has become Asia’s fourth largest economy. Yet as the U.S. financial crisis sends shockwaves in international capital markets, Iceland and Pakistan near sovereign default, and a looming global recession, openness now seems a liability: Korea faces weakening external demand, rising inflation due to import prices, and a liquidity crunch from foreign capital flight.

This is not the first time Korea has faced global economic instability. Ten years of post-crisis reforms have prepared it to weather the storm ahead. But how well has it learned the lessons of 1997?

A fundamental principle of international economics is the “impossible trinity”: a country cannot have capital mobility, an independent monetary policy, and fixed exchange rates simultaneously. Many Asian countries learned this the hard way in 1997. Yet Korea is trying to have all three in 2008: the economy needs foreign investment, the central bank targets inflation, while the government has intervened in currency markets in both directions.

1997 taught us that successful currency intervention is extremely difficult. The global financial system is too complex for anyone to foresee, let alone manipulate. Government intervention not only drains foreign reserves, it also risks overcorrecting, bad timing, and having unintended consequences. It often does more harm than good.

Given the complexity of the global economy, countries that benefit from international trade and finance must also accept some vulnerability to forces beyond their control. Risk and reward are part and parcel of capitalism. Though we cannot eliminate this risk without unacceptable costs, we can manage risk by strengthening the domestic economy and institutions, preparing it to stand against the tide of the global business cycle.

Korea has prepared well. Early warning systems keep an eye on economic conditions, and its financial institutions are far more robust today: Although some banks have U.S. exposure, their credit ratings are unchanged. Conglomerates have undergone painful restructuring and emerged stronger: for example, Hynix, formed from Hyundai and LG’s semiconductor businesses, was billions in debt after the dotcom crash. Now, it is the sixth largest semiconductor manufacturer.

Yet one variable has been neglected: Small and medium enterprises. 99 percent of businesses, 88 percent of employment and 50 percent of added value in Korea come from small and medium-sized enterprises (SMEs). But while conglomerates restructured, SMEs were protected by the government and never went through Schumpeter’s “creative destruction.” SME restructuring was merely delayed, and many, which should have adjusted long ago, now face bankruptcy.

The government should help SMEs weather the crisis, but it should not allow this support to be abused. In 1997, leverage and derivatives were the problems. Then, conglomerates over-leveraged with short-term foreign-denominated debt, precipitating the crisis when creditors called. Now SMEs are over-leveraged, with trillions in losses from debt financing through Knock-In Knock-Out (KIKO) derivatives.

Forex options are appropriate for exporters hedging against currency appreciation, or importers against depreciation, but that is not how KIKO options were structured. Instead of covering the downside from currency volatility, KIKO gave firms unlimited downside with limited upside from currency stability ― the opposite of a hedging strategy. Some subscribers were domestic-oriented firms with no direct exposure to currency risk in the first place. It is unclear whether they understood the risks involved or the instrument they bought. If they did, KIKO was a highly speculative bet that the government would intervene to stabilize exchange rates ― it did ― and that it would do so effectively ― it did not. But with the bailout of KIKO losses, they effectively won the bet.

SMEs were not solely responsible: Banks, which sold KIKO contracts, now face a class action lawsuit. There is a clear conflict of interest between their fiduciary duty and sales desk, and their corporate governance needs review. Yet as the government bailout proceeds, it should avoid distorting the market by rewarding misconduct and mismanagement. If good firms are to succeed, we must allow weak firms to fail, and taxpayers should not bear the burden of someone else’s bad decisions.

Risk management in the global economy requires leadership that knows its limitations, and can make the tough decisions to do what is necessary, even if it is politically costly. The open door needs an even hand that is fair to exporters, importers, consumers, investors, and taxpayers alike. Risk management is not easy, but there’s only one alternative to the open door: Just look north.

What prize did I win? A lifetime supply of kdramas, courtesy of mysoju.com. Yup.

It looks like I get to see the French-speaking side of Switzerland this time:

On behalf of Dr. Hans Blix, it is my great pleasure to thank you for participating in the Students for A Nuclear Weapons-Free World competition. The expert Panel of Judges, chaired by The Hon. Douglas Roche, was composed of people from all regions of the world. They assessed your contribution to be outstanding and to merit one of the 15 prizes. Please accept our wholehearted congratulations!

The prize is a trip to Geneva to meet Dr. Blix and, together with the other winners, to participate in a seminar. The preliminary program for the seminar is attached.

I didn’t get to travel around Switzerland or tour Europe after St. Gallen/Zurich like Geoffrey et al did, as I had to hurry to Hong Kong to settle the visa issues in order to get my internship going. Now it looks like I can see a little bit more, especially the headquarters of various international organizations, which I have dreamed of being able to see. Only then I can truly count myself a global citizen. Maybe someday I’ll get to work there too.

If you are wondering, my essay was on a demand-side approach to nonproliferation/disarmament. There’s a long tradition of the application of economics (game theory, von neumann) in nuclear weapons policy, but it focuses mostly on a narrow set of behaviors like deterrence. There are a lot more relevant areas for consideration where economic approaches can potentially help us understand phenomena. Now if only I were a real economist instead of just a wannabe.

James Zumwalt, Director of the Office of Japanese Affairs at the State Department came to Columbia to give us an update on US-Japan relations, hosted by Robert Immerman-sensei at the Weatherhead Institute. He was speaking on the record, so it wasn’t really all that exciting, but there were a few gems I took away.

Pessimism about the future of US-J relations and Zumwalt’s answers:

1) Domestic politics in what he terms the “revolving sushi government” – it is unclear that the current PM Fukuda will remain in power in the medium-term.

2) Sense that US attention in East Asia is shifting towards China relations – though Zumwalt assures us there is no ‘limited pool of attention’ (really? come on its a law of economics) Japanese are worried that Japan is not discussed at all on presidential campaign trails whereas China relations is a big issue, which is odd since it’s probably better that the candidates are not discussing them as it would probably be in a negative, nativist way.

3) US acceptance of India’s nuclear ambitions, which fuels Japanese fears that the US will accept nuclear weapons on the Korean peninsula – Zumwalt seems somewhat irritated by those who made that decision, noting that both parties have a shared goal of a nuclear-free peninsula.

4) Misalignment of priorities in the six-party process – the abductee issue is not a US priority, but it is for Japanese legislators.

5) Ceasing support for Op Enduring Freedom – though Zumwalt noted that they still support Op Iraqi Freedom and there are still significant mil-mil ties.

Japan on the Security Council
Zumwalt claims that it is ‘in our interest’ for Japan to get a permanent seat, and that they are the largest donor, but whether it actually happens has more to do with Japan than anything the US can do. He seemed a little irritated about what he called the “unequal alliance” as Japan has no corresponding defence obligation toward the US, but he gave the standard answer about constitutional change on Article 9: that it’s up for Japanese people to decide if they want to have a greater role in peacekeeping operations etc.

Economic cooperation
Zumwalt was highly critical of Japanese overregulation. He had an anecdote about how disagreements over an ‘open skies’ agreement meant the airline industry is still heavily protected in Japan, as aviation is outside WTO processes. The Japanese airlines opposed the agreement as they were afraid of competition, but now that new commercial jets like the 777 have better capabilities, it doesn’t necessary make sense anymore to have US airline hubs in Tokyo when customers prefer direct flights and travel is increasingly going to China. Another anecdote was about rejecting a Fedex processing center in the 80s which would now be pretty good, but the boat has left.

Cultural cooperation
Zumwalt notes that there are far more Japanese students in the US (at least at the graduate-level) than there are US students in Japan, so there’s asymmetry in understanding. JET is a key player in bringing US students over, and is the main source of direct hires for US agencies in Tokyo. Zumwalt doesn’t think too highly of state-to-state programs to improve this: His own first Japan experience was through a privately-run high school exchange, the most efficient programs are outside government and the new US-J cultural commission will probably not be the main driver of people-to-people relationships.

Domestic politics
The ‘twisted diet’ of an LDP-supermajority lower house and an opposition-held upper house means most legislation which gets passed in the lower house gets cut in the upper house and sent back to the lower house. The LDP needs to be able to compromise with the DPJ but hasn’t been as effective in doing so, especially on the central bank governorship, and the bill reconfirming host nation support for US troops. Zumwalt says that the opposition tells him these are just political footballs for electoral purposes and they will act responsibly when in power, but as it is unlikely that the LDP will recapture the upper house, the likely outcomes are 1) status quo of continued paralysis, 2) DPJ control of both houses or 3) some ‘grand realignment’ which he didn’t go into specifics about.

On behalf of the International Students’ Committee (ISC), we would like to cordially thank you for your excellent contribution to this year’s St. Gallen Wings of Excellence Award. We are very delighted about the challenge you have undertaken when working on the topic “Global Capitalism – Local Values”. In the past few weeks the jury has thoroughly evaluated the around 1,000 entries in order to choose those 200 students who will be invited to the 38th St. Gallen Symposium.

It is our great pleasure to inform you about your successful application for the 38th St. Gallen Symposium. You will get the unique chance to discuss important issues of our time during the “3 Days in May”, together with 600 outstanding personalities from business, politics, culture and society, 200 students from all over the world as well as 100 media representatives.

The only problem is that the symposium takes place the same week as finals – Columbia always has to make life difficult. I will have to do serious negotiation for several classes to be able to go, and they may fail. But damn, it feels good. I’ve always wanted to go to Europe, and now I can.

The abstract of my essay:

The Mountain is High and the Emperor Far Away: Glocal Solutions for Access to Capital among China’s Rural Poor

The rise of the Chinese economy as one of the most important emerging markets is hailed as the triumph of global capitalism: China’s growth is widely attributed to market reforms and integration into the world economy. But deep in the hinterlands, millions of the rural population have been left behind in desperate poverty. China’s rural poor face several challenges in access to capital and other resources, due to i) economic geography and infrastructural underinvestment, ii) historical legacies, and iii) the domestic political and regulatory environment, especially in iv) government microfinance programs Yet this global-local dynamic is highly asymmetric: If nothing is done to address rural poverty, these local problems threaten to destabilize the international order.

Drawing from my experience volunteering for a China-focused nonprofit, I discuss the challenges of access to capital in rural China, and ‘glocal’ approaches to integrate the poor into the global economy, through i) social enterprises and ii) peer-to-peer microfinance.