At lunch today there was only one thing Simon Ogus wouldnt discuss. The former star Warburg analyst who now runs Dismal Science is contracted to DLJ to provide macroeconomic research. The only thing he wouldnt talk about was how the merger between DLJ and CSFB would affect this arrangement.
Otherwise he was remarkably chatty and produced some interesting views on how Asia will adapt to the new economy.
He began by talking about how Asia has been a production centre for the tech sector, but how this was an increasingly volatile situation thanks to the way tech products such as chips were being commoditized.
He then added that in the past, Asia had succeeded with a model that moved people from the farm to the factory, in the process educating people just enough to be effective in their new role. The new economy posed fresh challenges because a whole new style of learning would be required. Rote learning is okay for manufacturing but not for software.
You can build all the cyberports you want, he commented. But that doesnt mean youll have the people to sit in them.
He pointed out that service industries are incredibly inefficient in Asia. For example, in the US, for every dollar of labour cost incurred in services industries $3.31 is produced. In Korea, on the other hand, $1 is returned for the same $1 of labour. In the manufacturing sector, however, Korea returns $1.94 on the same ratio and Taiwan $2.22. Based on the latter, he said. Manufacturing is reasonably efficient, which suggests B2B exchanges are not going to lead to massive savings.
On the other hand, there is enormous scope for improvements in the service sector and that is where the new economy is going to have its greatest impact in Asia. The difficulty here is that this will lead to unemployment. In most Asian economies the service sector is overstaffed and a hollowing-out will occur.
Cartels will lose out and consumers will reap the benefits in terms of lower cost services. He mentioned the example of ekong in Hong Kong which has a service called zone 1511 that allows consumers to find the cheapest IDD rate at any one time. This service has cut my phone bills by 90%.
But his central argument was education. Ogus spent several years teaching at a Hong Kong University as well as doing his job as an analyst (Warburg obviously wasnt paying him enough). He noted that his teaching style created some strong divisions in the student body. He would go in and say I expect youre hoping for a bunch of notes that you can memorize for the exam. Im not going to give them to you. Instead were going to talk about things.
This led to 40% of students giving him a zero rating in class rankings. Clearly this sort of approach was not what they wanted at all.
This, he notes, is something that must change. Indeed he noted wryly how he read a headline in a Singapore newspaper recently that said: Be spontaneous: here are five ways how.
Below is Ogus's rankings of which Asian countries will do best in the new economy (compared to the US). The scoring is all Ogus's own. The only point of contention is his giving Hong Kong 3 out of 5 for its English language ability. This may be several points too high.