Nanyang 1931: From piglets to giants

Chapter 244: Only by concentrating power can domestic demand be expanded
Zheng Yi certainly had certain expectations for the economic situation of the South Asian Association for Regional Cooperation (SAARC), but in fact, he was at least quite confident that he could make Singapore relatively developed. It might be slightly worse than Penang, but it shouldn't be too much worse.

In fact, he is not a qualified politician at heart, and his understanding of economics is purely like a blind man touching an elephant. But as a time traveler, at least his vision is definitely correct, and he knows very well that everything will be popular in the next few decades.

In a sense, he is actually still a great entrepreneur who is confident that he can continue to ride on the trend in the next few decades, and then make money and live a good life with his partners.

But that's all there is to it. In essence, this is still the way chaebols play. Zheng Yi is quite confident that he can be an excellent chaebol. He is indeed a chaebol in his current identity, but if the Southern Alliance is regarded as a chaebol, then he has indeed gone a bit too far.

Of course, the real situation is definitely not as serious as what Shimomura Osamu said. Zheng Yi himself is very clear about the situation of the SAARC. There are indeed some problems in the operating model, but it is better to say that the SAARC is running on the motor of Penang, because the motor of Penang will break down sooner or later.

It would be better to say that the entire South Asian Alliance, including Penang, is running on his shoulders.

He did a good job as a pilot, but to be honest, the self-sustaining capacity within the SAARC is indeed a bit weak. As the SAARC grows bigger and the population attached to it increases, it will indeed feel more and more tired.

The success of SAARC has never been an institutional success, but the success of Zheng Yi himself.

And if the Southern Association for Regional Cooperation can have a set of institutional structures that can operate on its own without requiring him to work too hard, be endogenous, and move towards prosperity, and complement his own far-sighted vision, then the road ahead will undoubtedly be much easier, and he, as the leader, will be able to relax a lot.

He doesn't understand economics, and Zheng Yi doesn't believe in Western economists at all. It's easy to go astray if you believe in them, and he might even think that anyone who believes in them is a fool.

If this Xiacunzhi in front of him can prescribe a prescription for the Southern Alliance, Zheng Yi is willing to give him a chance to try. It depends on whether the prescription he prescribes can satisfy Zheng Yi.

Upon hearing this, Shimomura Osamu licked his lips, which were a little cracked due to excitement and nervousness, and unconsciously straightened his back a little.

He analyzed seriously, "Mr. Zheng, I don't have detailed economic data for the South Asian Association for Regional Cooperation, so I dare not rashly offer specific economic policies. But if you believe me, Mr. Zheng, there are two problems that I think are very obvious, even for an outsider like me."

"You say."

"First, the core population of the SAARC is too small. When I was working at the Ministry of Finance, I heard some general information about the SAARC. The real core population was only the approximately five million Chinese people in Penang."

"Aside from these five million people, the rest of the people in the entire region aren't part of the Southern Alliance's core population. Mr. Zheng seems to have always just... hoped they wouldn't cause trouble."

"Across the entire SAARC region, there are still at least 20 to 30 million people whose participation in the overall economic system is very low. Moreover, they are so poor that it is difficult for them to have any positive impact on the economic development of SAARC."

"Secondly, SAARC lacks a strong central body capable of macroeconomic regulation of the economy. It also lacks a clear economic goal, let alone economic policies. Simply put, each organization operates independently."

"The secret societies and guilds in SAARC are simply too powerful and have too much autonomy. This has led to, firstly, a large amount of redundant construction during economic development, and secondly, it has caused competitive industries to slack off, lacking real competition and even... self-corruption."

Zheng Yi asked curiously, "Self-corruption?"

Shimomura nodded. "Village associations, guilds, and secret societies often overlap. For example, could a high-profit, profitable industry be controlled by a single group, such as the Fuqing Chamber of Commerce?"

Zheng Yi smiled bitterly. "How can you say that? The entire Nanyang economy is in this state almost everywhere. Aside from the petrochemical plants and their surrounding areas, where everyone's investing, there's a flourishing economy. Most of the rest, at least the manufacturing companies, have some degree of monopoly."

"For example, in the financial industry, most of the practitioners are from Xiamen. In the mechanical processing business, almost all those who can do it are from Xinyi, steel, Panyu, navigation, and Qiongzhou."

Shimomura Osamu: "This is a lack of basic competition. Who can do better in the same industry doesn't depend on who is more creative or innovative, or even more hardworking. The first comers can completely monopolize limited resources and make more money, while the latecomers can only operate according to the rules of their respective chambers of commerce."

"As for the guilds themselves, they are only responsible to their township party. As a social organization, the township party occupies one or several of the most profitable industries in the Southern Alliance, but they are only responsible to the fellow villagers in a township. Naturally, they lack pressure and ambition."

"Even as a township party association, the overall interests of SAARC and its associations are not necessarily aligned. Strictly speaking... the poorer the rest of SAARC is, the more advantageous it is for my chamber of commerce. This is what I call corruption."

After listening to this, Zheng Yi thought about it and nodded in agreement. Then he looked at Shimomura Zhi and felt that he liked him more and more.

Although he is an outsider, he can point out the problems of the Southern Alliance incisively and accurately. Even Zheng Yi has not thought deeply about some of them.

After all, the Southern Association for Regional Cooperation used to be based on Penang, and its rapid expansion occurred after the end of World War II. Also, because Zheng Yi was busy during this period, he did not even notice some hidden dangers.

"What do you think is the solution?"

Shimomura Osamu quickly said modestly, "I can't say I have a solution, but I do have a general way to deal with it. Um... I'm just imagining it, and I don't know if it's effective. If I'm wrong, do you think I'm talking nonsense?"

Zheng Yi: "Of course, sir, please feel free to speak your mind."

Shimomura Osamu: "Actually, the two are one and the same. The lack of necessary centralization has led to the prevalence of factionalism and cliques at the lower levels. These cliques, in turn, have affected the economic development of the SAARC. So, no matter what SAARC does next, it must break up the cliques."

Zheng Yi: "Won't this suppress economic vitality?"

Shimomura Osamu: "Based on my observations of the Japanese economy, the vitality of the economy often does not depend on whether it is regulated by the government. On the contrary, a little guidance can prevent disorderly competition, or even ineffective competition, among economies."

"Management doesn't mean implementing a planned economy like the Soviet Union, where everything was controlled. Instead, it only needs to grasp the key points in economic production, such as the flow of large amounts of capital. Good management will not suppress market vitality. Instead, it can promote more healthy competition by placing excellent companies on the right track."

"What truly stifles market vitality is never regulation, but the gap between the rich and the poor. If ordinary people have no money, or only very little, no matter how free competition is, it is just a way to survive in various ways."

"Based on my observations and understanding of Japanese society over the years, I know that most people actually have a desire to buy things. Even after society entered the industrial age, productivity wasn't low. It's just that even before the war, people didn't have much money, and all economic activities revolved around Tokyo.
Even when the vast majority of economic entities were actually located in the Edo area and the rest of Japan was effectively marginalized, any slight fluctuation in the external export market would inevitably lead to overcapacity in the Japanese economy, thus causing an economic crisis.

As he spoke, Shimomura Osamu couldn't help but lose consciousness for a while and sighed: "If it weren't for this, how could Japan embark on the path of militarism?"

Zheng Yi carefully took out his notebook and wrote it down. "So what should we do?"

"Centralization is the only way to naturalize industrial policies, expand domestic demand, and reduce external dependence. If you want to increase domestic demand, you must centralize power and formulate industrial economic policies that fundamentally benefit the people."

"Based on Japan's failed experience, industrial upgrading requires expanding the market players in economic activities. If a country relies solely on the aristocracy of Edo Castle as a consumer product, lacking a consumer market, then no matter how large its industry becomes, it will always be nothing more than a cheap substitute for European and American products." "A market without domestic demand will always be a distorted market. If a product cannot first gain recognition within its own country, how can it ever reach the world?"

"Only when the people of a country become prosperous and have the money to buy and support the country's own production of advanced industrial products can enterprises use them as a testing ground, constantly introducing new products and finally becoming competitive in international competition."

“Only industrial brands that are recognized by the people of their own country can become globally recognized brands and enjoy high premiums.”

"In a society where people have money, the government can manage businesses as it pleases. As long as there's even a little room for competition, they'll naturally find ways to satisfy the consumer demand of the people."

"On the contrary, in a society where citizens have no money to spend and only know how to sell cheap labor to serve white Europeans and Americans, even if the government does nothing, the entire national economy will still be stagnant."

Zheng Yi: "But I've heard that there's a popular view in Japanese economics circles right now that it's precisely because of Japan's 1940s system, with its excessive government intervention in the economy, that Japanese businesses lack vitality, and residents have no money to spend, all because of government corruption and the monopoly of social resources by conglomerates."

Shimomura Osamu: "I think this is all nonsense! Management, even corrupt management, and the allocation of economic indicators can actually make effective economic resources flow as efficiently as possible within society."

"Excessive laissez-faire competition essentially protects the interests of the conglomerates. Of course, there will be some corrupt officials in society, but as long as the upper echelons are determined to rectify the bureaucracy, under an orderly market economy, at most, there will be only a little corruption."

"On the other hand, if the government can't control key social resources, they will inevitably be controlled by financial groups. If government officials embezzle key social resources, as long as the government itself is not rotten to the core, it will always leave some resources for society. The act of corruption itself always carries certain risks."

"But if key social resources are controlled by conglomerates, they can devour them completely, claiming all their gains are legal and justifiable, allowing them to enjoy all the benefits of social development while also naturally evading all social responsibilities."

"I admit that most officials in the Japanese government are not good people, but even if they are bad, at least they still have concerns. They are corrupt and have to do something to give an explanation to the people."

"Any free competition is essentially a game of big fish eating small fish, and small fish eating shrimp. Small and medium-sized enterprises will inevitably be eaten up by large enterprises in free competition. However, small and medium-sized enterprises are the ones who truly provide employment for the country and create the cornerstone of social stability!"

"So I believe that if the economy is to be sustainable, we must comprehensively improve people's income levels and expand domestic demand. This is the prerequisite for everything."

“And to expand domestic demand, you need a strong, interventionist government.”

"The government has two responsibilities. The first is to allocate social resources, prioritize and support those companies that need to compete in international competition and perform well, so that they can become the engine of economic development.
Even if it means sacrificing other domestic companies, we will do it. Only when we clench our five fingers into a fist and hit someone will it hurt."

"Secondly, we will suppress large companies, especially those in non-high-tech sectors that do not need to compete abroad, and especially those in areas related to people's livelihoods. Through taxation and legislation, we will suppress and bully these large companies and support small and medium-sized enterprises that can create a large number of jobs for society."

"In addition, a minimum wage standard must be established. At the same time, the maximum wage gap within a company cannot exceed six times. That is, including for company managers, the highest wage cannot exceed six times the internal minimum wage, to ensure the basic income level of the most basic grassroots employees."

"Limiting the high, expanding the middle, and supplementing the low is the fundamental purpose of income distribution."

"Simply put, in external competition, the state must reduce its deficit and increase its surplus, but in domestic economic activities, it must reduce its surplus and increase its deficit. These are problems that cannot be solved through free market competition and can only be solved through government power."

"Finally, we will provide a safety net for the national economy through welfare systems such as social security."

"If, ah~, if the country had adopted this approach to solve its economic problems during the national economic crisis in the 30s, perhaps it wouldn't have developed to the point of foreign war and ended up in the situation it is today."

Hearing this, Zheng Yi burst into laughter, closed his notebook, and praised repeatedly: "Good, good, good! Mr. Shimomura, you really didn't disappoint me. You are the economic expert I'm looking for!"

In fact, the overall idea is the same as the "National Income Doubling Plan" in the 60s. Some places need to support large enterprises to suppress small and medium-sized enterprises, while some places need to support small and medium-sized enterprises to crack down on and split large enterprises, increase national income, and promote social equity.

Use the domestic demand that is fed by breaking up some large enterprises to support some Japanese brands that have been developed by squeezing out small and medium-sized enterprises.

It was by this trick that Japan broke the so-called middle-income trap, got rid of the label of cheap labor in one fell swoop, and successfully became a developed country.

This set of economic policies was used until the 1980s, that is, until the Four Islands Plan in the Tanaka era. He unfortunately stepped down before completing the plan because of the collusion between internal consortiums and external American forces, which also marked the end of Japan's Shimomura economics.

In fact, the Japanese economy had already failed from that time on. In the remaining 1980s and 1990s, the growth of national income was not based on wages, but on financial assets such as the real estate and stock markets.

In fact, it was precisely because Tanaka stepped down due to the intervention of the "mysterious forces" that Japan's national income doubled, and the plan to narrow the income gap between urban and rural residents could no longer be implemented. Japan had to start looking for economic growth points in the stock and real estate markets.

Most Chinese people know what happened after that.

Japan's post-war economic model has only a few key points: it began to recover in the 50s, tightened its belt for ten years to develop industry, and in the 60s, the phenomenon of a strong country but poor people emerged. Ikeda began to use Shimomura Osamu's Shimomura Economics and launched the "National Income Doubling Plan". After the development in the 60s and 70s, Japan became a developed country.

When the plan was implemented during Tanaka's time, Tanaka planned to demolish buildings and relocate businesses, narrowing the income gap between residents of large cities like Tokyo and ordinary cities, and thoroughly implement the policy of increasing national income to further expand domestic demand. However, mysterious foreign forces could no longer sit still, and colluded with Tokyo-based financial groups that did not want to leave Tokyo to force Tanaka to step down and join the banner of neoliberalism.

Shimomura economics has ended, and Japan's rapid growth in the real economy has ended.

In the 80s and 90s, the real estate and stock markets, the opening up of finance, and other methods of making money from money led to rapid growth, and then the bubble burst, ushering in the "lost three decades."

The most important one here is the period of rural economy from the 60s to the 80s.

To be honest, Zheng Yi is sometimes really curious. If Tanaka had not been forced to step down by a mysterious force, and Shimomura's economics had continued to develop in Japan, and the Japanese had not followed the United States in developing the neoliberal economy and engaging in money-making games like the real estate and stock markets, what would Japan, this country, have developed into?
Unfortunately, he definitely won’t be able to see it.

Obviously, although it is not the 60s yet, Shimomura Osamu already has a relatively mature framework in his mind and just needs to fill it with things.

In this time and space, Japan certainly won't have the so-called doubling of its national income. Let their own Southern Association for Regional Cooperation do it for them.

"Mr. Shimomura, I strongly agree with your economic ideas. I hope to formally hire you as the director of our SAARC Economic Research Institute and as our chief economics expert."

"please!"

(End of this chapter)