It’s All about Business Model but Few Left to Follow
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It’s All about Business Model but Few Left to Follow

Success in business is all about the business model. If you have the right one, you may win the game. If you don’t, you will most likely fall. Countries also need business model. Each country has a limited amount of resources (natural, financial, and demographical). Leaders have to decide carefully how to allocate the country’s resources in order to prosper. We definitely need good one in this global economic downturn.

The problem is that all once successful business models turned out to fake. Needless to say, the Anglo American casino model of leveraged economy ended in once-in-a-century catastrophe. This model does not require any MBA, CFA, or PHD. The point is (was) to lend money to those not supposed to borrow, and sell your claims quickly to others. It worked very well because shady borrowers first spent money (buying houses, cars, or just shop-till-drop) and boosted demand in the economy. The problem began when the time to pay the bills came. The rest of the story does not require much explaining.

Until about nine months ago, we believed the China model would survive. Because there are 1.3 billion people! In 2007, 8.8 million cars were sold in China, up 20% from the previous year. Still only 11 out of 1,000 people own cars. That is the rate the US saw in 1911. In most developed countries, 500 out of 1,000 people own cars. Imagine how many cars would be sold in China when that happens. Same can be said to consumer durables and services. China’s domestic demand is big enough to keep its party going. Well, the tiny problem is that the country has to feed 1.3 billion people first, and foreigners were the ones writing checks. With cash-strapped American people cannot afford shopping anymore, factories in China are forced to shut down. Unemployment soars and social unrest increases. Forget about cars and TVs.

The Iceland model crashed. This model looked perfect for a small country with limited resources. Iceland’s population is about 300,000. It was the poorest (western/northern) European nation until 1990s. Early 1990s, the country’s leader had a brilliant idea. Why don’t we become Monaco or Switzerland by deregulating financial industry? It chose to be a global financial center. Later in the internet era, Icelandic banks came up with an even greater idea; gathering deposits from foreigners by internet banking. They collected huge amount of deposits at high interest rates, and invested globally. Loan assets by the country’s three big banks eventually reached 900% of GDP. Iceland became one of the richest countries and its model was praised by financial pundits. Unfortunately, once their investment turned sour, the model instantly collapsed. The problem of Iceland is that the size of financial industry grew way too big. We hear the phrase “too big to fail”, but Iceland’s financial industry grew “too big for anyone to save”.

Japan is not an exception. During the lost decade after the bubble collapsed in early 1990s, the country struggled to find new business model. When former Prime Minister Junichiro Koizumi called for deregulation, fiscal retrenchment, and small government in 2001, we thought we finally found new model. Stock markets turned around and the unemployment rate declined in 2003. Japan cannot compete with China for low price products, but we are still good at value added ones. Plus we have a very unique culture of Manga and Otaku. We thought Japan can survive with the ability of making things small (camera, phone, etc.) and Akihabara. However, Japan is the worst performing country in the current global downturn. This is because when things are tight, latest electronic gadgets and Manga are not the priority items for people to buy.

Leaders of top 20 countries gathered in London the other day, but no new business model has emerged yet. Maybe it was not the model, but the goal was wrong. The models mentioned above are to be rich and richer than others. We probably should form a model to increase GNH (gross national happiness), rather than GNP (gross national products). The concept of GNH was launched by the Kingdom of Bhutan, a small country located at the eastern of the Himalaya Mountains. Instead of pursuing rampant industrial developments, the country chose modernization in harmony with nature and Buddhist tradition. According to the Happy Planet Index by the New Economics Foundation, Bhutan is ranked as Asia’s second happiest nation after Vietnam and the 13th globally (the happiest country is Vanuatu, and Japan is ranked 95th out of 178 countries).

Ok, ok, I understand that readers of 6street may not be the type of people who enjoy simple life of getting up at 5 am with birds singing and going to bed at 8 pm when sun sets. I am not the type of person finding inner peace in gardening and herbal tea. Then why don’t we create our own business model of GNF, gross national fun? I am sure that 6street can do a lot to improve our GNF!


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