Financial Times Asia - 19.08.2019

18 ★ FINANCIAL TIMES Monday 19 August 2019

Every £1 Drake brought

homebecame £100, 000

To reinforce a point made by Alex

Pollock(Letters,August 15) on the

“golden 2 per cent”: it could be recalled

that in his essay “Economic

possibilities for our grandchildren”,

written in 1930, John Maynard Keynes

illustrated the power ofcompound

interest with reference to the long-term

economic returnsfrom the treasure

broughtbackto Englandby Sir Francis

Drakein TheGolden Hindin 1580.

In Keynes’s version Queen Elizabeth

I, a major shareholder in this voyage,

used her share topayoff the whole

nationalforeign debt and balance the

budget. The £40,000 remaining she

invested in the Levant Company,from

the profits ofwhich the East India

Company wasfounded.

Keynes pointed out that the original

£40,000, accumulating at 3.5 per cent

compoundinterest, would be

equivalent to the actual total volume of

the country’sforeign investments at

the time ofhis writing:“Every £ 1

which Drake brought home in 1580 has

now become £100,000. Such is the

power ofcompound interest.”Golden

indeed!

James Winpenny

Chipping Norton, Oxon, UK

Rwanda’s progress is real

andopen to scrutiny

TheIMF ArticleIVConsultationdated

July 3 2019 concludes that“Rwanda

has made considerableprogressin

sustaining high and inclusive growth

and reducing poverty’. This is

consistent withwhat weknow, as well

as the findings of all international

organisations.

The same IMF report states that“the

qualityof the national accounts data in

Rwanda is one ofthe highest in Sub-

Saharan Africa”. Indeed, the only

reason thisdebate can takeplace,

whether in good faith or bad, is

because ofRwanda’srobust and

publicly accessibledata systems.

I was therefore profoundly surprised

by your BigRead article“Even poverty

data must toe Kagame’s line”(August

14 ). The National Institute ofStatistics

ofRwanda respondedfullytothe

Financial Times’s questions, but the

author ignoredthose responses, as well

as datafromglobal institutions,

includingtheWorldBank, IMF, S&P,

the UnitedNations, andtheWorld

EconomicForum.

More seriously, the alacrity with

whichyour reportersdraggedthe

president’s name into a debate

ostensiblyabout statistical

methodology is astonishing, to say the

least.Yourreadershavenot been

exposed to an honest debate on

poverty data, but rather to a series of

anonymous andbaseless claims.

Beyond statistics, Rwanda’s progress

is plainfor anyone to see. Rwanda is

open to scrutiny andconversation with

all who are interested in our journey of

socio-economic transformation.

UzzielNdagijimana

Minister of Finance and Economic

Planning, Rwanda

PMJohnson faces a far

more difficultproblem

The opening paragraph of theletter

from DR Myddelton(August 15)and

its reference to an“unelected prime

minister” surelycontainsa

misunderstanding ofthe point in the

last paragraph ofyoureditorial.None

ofthe prime ministers he mentions was

confronted by such a devastatingly

awful and difficultproblem as that

which now confronts BorisJohnson

(except Churchill, who wasfaced with

atotally different task), and which

currently risks notbeingsolvedin

accordancewiththewishes of the

electorate, and ofnot“givingthe public

asecondchance to weighthemultiple

benefits ofremainingin the 28-nation

bloc on the UK’s existing,highly

advantageous terms”.

Malcolm Spence

London WC1, UK

The university application

process is compromised

Youreditorial“Universityoffers should

be based on real results”(August 15)

raises someconcerns aboutfairness

and the universityapplicationprocess.

You could have gonefurther.

First, personalstatements play an

importantpartinuniversity

applications and better-offpupils

receive a disproportionate amount of

external support with these to the

extent that at times one would require

amicroscope to detect the applicant’s

owninput.

Second, pupils(especially in the

more“consumer-led”private schools),

often withparental support, twist

teachers’arms to provide the

predictions they seek.Undertakings to

work harder are promised, including to

get a tutor over the holidays, along with

acommitment to spendless time on

video games. Teachers confronted with

such determined“good intentions”are

inclined, often against their better

judgment, to give way. This is an

asymmetric tusslebetween teachers

andfamilies where thepushyrather

than thebrightest usuallyget their way.

Third, many independent schools

are increasinglyrelyingondonations to

help develop theirfacilities. For

reasons that should beobvious, such

donations canbe compromisingand

pose an issue where predictedgrades

areconcerned.

ThomasFMaher

Director,

BritishHome Tutors,

London SW6, UK

In his overview of the impact of real

time payment and settlement

technology John Gapperhas,asalways,

unearthed the core issues (“Apple Card

is an expensivewaytopay”, August

15 ). I wish to expand on one ofhis

themes.

The US Federal Reserve has stated

its intention that the proposedFedNow

service“will require participating

banks to make thefunds associated

withindividualpayments availableto

their end-user customers immediately

after receiving notification of

settlement from the service”. This

will have a revolutionary impact on

thebanking industry andmonetary

policy.

When depositors are able to move

funds costlessly and instantaneously

between accounts, it will become

feasible to arbitrage between banks in

real time. The resultant intensification

ofretail competition between banks

will erode profits. For example, since

2 014 the spread the interest banks earn

ontheir reserve assets comparedwith

theirjumbo deposit liabilities has

increasedfrom 0.2 per cent to 2.2 per

cent. That widening of profit margin

would be arbitraged away if FedNow

were currently operative.

It is impossibletoknowhowbanks

will react to FedNow. Some may

develop profitable new services that

build on the base of a fast payment

infrastructure. Some may engagein

riskier lending to try and offset the

competition for deposits and some

(perhaps many) will be forced out of

businessbyrivals — including non-

bank technology companies — who

successfully adapt to the new

environment.

Monetary policy willalsobe

affected. The evaporation of sticky

“core”deposits will make thefinancial

systemless stable; abankrumouredto

have problems could lose most of its

non-insured deposit base in seconds.

On the other hand, the arbitraging of

deposits means that changes in the Fed

Funds rate or interest paid on reserves

will be reflected in deposit rates and

thereby transmitted to the economy

muchfaster and more powerfully than

is currentlythe case.

The only certainty is thata

revolutioninfinancialservices and

monetary policy is at hand.

DanielAronoff

PhD Candidate in Economics,

Massachusetts Institute ofTechnology, US

A financial revolution is almost upon us

Letters

MONDAY 1 9 AUGUST 2019

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When lookingfor unvarnished

analysis ofChinese policy, it helps to

ask:what do theMaoists think?

In June, days after millions shut

down centralHongKongto protest

against an extraditionbillthat would

allowresidents to be triedin mainland

China, Maoist website Utopia saw in

the demonstrations a“political

struggle”againstforces backed by the

US.“We must recognise the

seriousnessofthesituation.Must see

that we are on the vergeofa‘colour

revolution’eruptingin HongKong,”

onecommenter wrote, referringto

uprisingsintheformer Soviet Union

in the early 2000s. By earlyAugust,

the samelanguagehadbeen adopted

by Chinese officials and state media,

which claimedforeign“black hands”

wereguidingthe protests.

ForJudeBlanchette, the Freeman

chair inChina studies at theCenterfor

Strategic andInternationalStudies,a

think-tankin Washington,Maoists,a

loose coalitionof cantankerous

bloggers and academics on China’s

conservative left, are a true political

movement, notdissimilar to theTea

Party in theUS,whose rise shows the

lastingsway ofMao Zedong’slegacy

over modern Chinese politics.

Fewnowdoubt theilliberal turn

China has takenunderPresidentXi

Jinping. The severity ofthe

authoritarian shift was, however,a

surprise to many who assumedthat a

rapidlymodernisingChina, embedded

in theglobaleconomic system, would

naturally become politically liberal, if

not everfully democratic.

Such hopesfailed tograsp how

China’s leaders,from DengXiaoping

throughto Mr Xi,have usedsocialist

ideologyandrevolutionaryhistory,

includingMao’slegacy, to bolster

Communist party rule, an approach

theleadershipstillconsiders critical

today, Blanchette argues. The party

neverabandonedMao afterhediedin

197 6. UnlikeNikitaKhrushchev’s 1956

speechdenouncingJosephStalin,

Dengringfenced Maofrom the

harshest criticismbydeclaringthat

his“grave errors”were outweighed by

“hiscontributionstotherevolution”.

For China’sleft, that statement

sealed their distastefor Dengand his

policies ofreform and opening.Inthe

decades since, variousgroups of

conservatives — Leftists, statists, neo-

authoritariansandMaoists—have

pushedbackagainst every suggestion

ofliberal economic, legal or political

reforms in China. Manyofthese are

tub-thumpingnationalists, whopedal

paranoia about“hostileforces”—

often the US — seekingto overthrow

the Communistparty. But their

strident speeches regularly strikea

chordwithdisaffected sectionsof

Chinese societywho rememberfondly

the earlydaysofthe People’sRepublic.

Today,“neo-Maoists”, the latest

bannermen ofconservative ideals,

take an active interest in China’smajor

policydebates,from relations with

NorthKorea andtheUStoreformof

propertylaws andstate-owned

enterprises. These writers havefound

commoncausewithMr Xi.

MrXihasrolled backanumberof

Deng’ssignature policy initiatives and

hasjoined the Maoists in efforts to

enforce“correct”interpretations of

revolutionaryhistory.The authorities

have stifled think-tanks thatpromote

liberaleconomic policy,historians

who attempt to revisepartyaccounts

andyoungMarxistactivistswho

promote workers rights.

Blanchette’s work lacks aprecise

estimate of theMaoists’ scaleand

politicalbacking, raisingthe question

ofjust how much influence thegroup

actually has.Itleaves open the

question ofwhether neo-Maoism is

more a reaction todevelopments in

China than a cause. Therelationship

betweentheMaoists andChina’s

politicalelitehas at times been

antagonistic. ManyMaoist websites

are selectively blocked by China’s

censorsandthemovement’s one-time

hero,former Chongqingparty chiefBo

Xilai,isservingalife sentencefor

corruption.

To make his case, Blanchette offers a

stringoflively anecdotes that piece

together the party’s unwillingness to

abandonMao’s talismanicinfluencein

the 1980s with today’s surprising

overlapbetweenMrXi’spolicies and

the bugbears ofthe Maoists. For many

Maoists, these signs ofapparent

supportfrom the topleadershiphave

instilled a sense ofvictory.

“We won,”one neo-Maoist writer

told Blanchette.“Maybe I didn’twin

personally, but our ideas won.”

The reviewer is the FT’sBeijing

correspondent

Alivelyaccount

oftheriseof

theneo-Maoists

Bookreview

ChristianShepherd

China’sNewRedGuards:China’sNewRed

TheReturnofRadicalism

andtheRebirthofMao

Zedong

byJude Blanchette

Oxford UniversityPress, £18.9 9

Clarification

cDeepBlue Technology has clarified

that its deal to supply self-driving buses

to Bangkok, reportedin an articleon

August 15, is worth an initial$10m. It

says thefigure of$566m stated in the

article was the estimatedpotentiallong-

term value ofsupplyingthe complete

Bangkok busfleet.

OPINIONONFT.COM

Nick Butler

Fallingprices have a silver liningfor the

bigoil companies

http://www.ft.com/nick-butler

A leaked Cabinet Office report haslaid
outinchillingdetailthelikely conse-
quences ofa no-deal Brexit. Fuel and
medicine shortages. Months ofchaos at
ports. A return to ahardborder with
Ireland. Clashes between British and
EUfishingboats. Civil servants are
clear this is not a repeat ofwhat Leave
supporters in 2016dismissed as
“Project Fear”; these aregovernment
planningassumptions ofa realistic, not
even a worst-case, scenario. Thedocu-
menthighlights thehardships that
prime minister Boris Johnson is ready
toinflict onBritain in pursuit ofan
extreme optionfavoured by a minority
andunsupportedbyanelectoralman-
date.This isfolly on a monumental
scale.
The assumptions in the so-called
Project Yellowhammer report, pre-
sentedto cabinet earlier this month,
are not surprising.What is new is that
thepublicnowhasan opportunity to
read a detailed Whitehall document
reflectingthe no-deal alarms that min-
isters have been privately hearingfrom
civilservants.
Disruption at portsmaylast three
months beforetrafficflowsrecover 50
per cent to 70 per cent ofcurrent levels.
Shortages offresh produce and vital
drugs couldresult,hittingthe poorest
andmostvulnerable. Government
plans to set petrol import tariffsatzero
couldmeantwoofBritain’s six main
refineries would close, with 2,000job
losses.Planstoavoidborderchecksin
Northern Irelandare probably unsus-
tainable, leadingto reimposition ofa
hardborder andresultingprotests.
Contrary to assertionsby Toryhard
Brexiters thatEU stateswould do bilat-
eraldeals withBritain to mitigate no-
dealdamage, nonehasbeen concluded
bar one on socialsecurity withDublin.
DowningStreethasblamedadis-
gruntled ex-ministerfor leakingwhat
it says is an outdateddocument. Plan-

ningandfundingfor a no-deal exit has

sincebeen rampedup.MrJohnson

insists hishardballstancewillforce the

EU to improve the UK’s withdrawal

agreement. Yet even more thanhis

predecessor TheresaMay,when she

brieflyflirted with a no-deal exit earlier

this year, the prime minister is playing

chicken, riskingthenation’s future.

TheEU hassaiditwillnot blink.No

amount ofJohnsonianboosterismand

invocations ofthe Blitz spirit will miti-

gate the consequences ofa no-deal

Brexit. While evenWinstonChurchill

made somedisastrously poordeci-

sions, thegreat wartimeleader on

whom Mr Johnsonhas the temerity to

style himselfwould surely not have

inflicted suchasenseless act of self-

harm onhis country.

Rather than settingundeliverable

preconditions, Mr Johnson should

seek, in meetings with France’s

Emmanuel Macron and Germany’s

AngelaMerkelthis week,modifica-

tions to the withdrawalagreement that

couldmake it acceptabletoaparlia-

mentary majority. Ifhe is not prepared

to do so, parliament mustforce hisgov-

ernment to act responsibly. Anti-no

dealparties seem unable to unite

around a no-confidence vote, due to

justified mistrust ofLabour’s Jeremy

Corbyn as even a caretaker prime min-

ister.Thefirst priorityfffor MPs should

therefore be to pass a law obligingthe

prime minister to seekanother Brexit

extensionfromOctober 31.

Since MrJohnsonishintinghemay

rideroughshodover parliamentary

democracy, there can, sadly,beno

guarantee MPs will beabletoblocka

no-deal. Companies must therefore

preparefor the worst.AsarecentCBI

reportunderlined,they are not taking

thethreat seriously enough.Ahard

Brexitisundesirable.Butitisfool-

hardytoignore that itmightbecome

reality in little over 10 weeksfrom now.

Business needs to preparefor the real possibility ofa no-deal exit

Leaked Brexit report

should focus MPs’ minds

WeWork,whichpublisheditslisting
documentlast week,has taken some
justifiable flak for its mission to “ele-
vate the world’s consciousness”. It is an
exaggerated claim for a provider of
office space,no matter how funky.
WeWorkhas,however, already
raised awareness of the dangers of
dependency on one individual.Adam
Neumann, co-founder and chief execu-
tive, is — in the words ofthe document
—a“unique leader who hasproven he
can simultaneouslywear the hats of
visionary, operator and innovator,
whilethriving as a community andcul-
turecreator”.WeWork’s“future suc-
cess depends in large part on [his] con-
tinued service”.
Butwhilehisdevotioncannot be
“ensured or guaranteed”,ifMr Neu-
mann staysfaithful to his creation, he
willbehardtoevict.Supervoting
shares, carrying 20 times the votes of
ordinary stock, and afarfrom inde-
pendent board helpsecure control. Mr
Neumann will choose who inherits his
super stock. Ifhe dies or is perma-
nentlydisabled in the next 10years, his
wife and“strategic thought partner”
Rebekah will help decide succession.
We wish Mr Neumann a long and
happylife and rewards consistent with
the risks he has taken. Investors’cur-
rent willingness to sacrifice voting
rights for a stake in fast-growing, newly
listed companies will help him realise
these goals. Lyft and Pinterest
enshrined supervoting shares for their
founders in their initial public offering.
Mark Zuckerberg retains control of
Facebookwith super shares, though in
2017 the companydroppedacontro-
versial planfor new non-voting shares.
WhatneitherWeWork’s outside
shareholders nor itsfounder can pre-
dict ishowlong Mr Neumann willsus-
tain his valuable visionary,operational
and innovative power.
Entrenchedfounders are hard to dig

out if their genius fades or the market

moves against them. Plenty of entre-

preneurs with a longrecord of success

— Steve Jobs, Larry Ellison andBill

Gates among them — saw no needto

ringfence control of the companies

they created,let alonelay adeadhand

on future strategy.

Everything has its price, of course. If

investors decide to impose a corporate

governance discount on WeWork’s

shares, so be it. Corporate reformer

Colin Mayerand others have argued

that the UK’s reluctance to tolerate

dual-class stocks openedfamily-owned

companies to dilution of control and, in

many cases, takeover. Shielded by sup-

ervoting stock, among otherdevices,

US counterparts were “better able to

protect idiosyncratic value”over the

same period.

US-listed companies with multiple

classes ofsharesdo outperforminthe

three years after their IPO. But that

advantage fades six to nine years after

listing, underlining the casefor safe-

guarding outside investors’rights.

One suchprotection is an independ-

ent board, with the admittedlyunenvi-

able task ofjudging when to dispense

withthefounder’sservices.Asecondis

aconstraint on voting rights:founders

now habitually demand 20 votes per

super share,doublethe recent norm

(Snap, the disappearing-message app,

grantedno votes at alltoordinary

shareholders).Afinal necessity isa

sunset clause that scraps controlling

mechanisms — or at least puts them to

avote—after a set period.

WeWork’sstructurefallsshortinall

these aspects. True, the succession

plan that RebekahNeumann will help

shape if her husband dies has a 10-year

limit. But within three years ofthe IPO,

anew plan needs to beframedfor what

happens after that. Who does WeWork

designate to make that proposal? The

multi-hatted Mr Neumann, ofcourse.

WeWork offers little protection for investors if its CEO’s genius fades

Beware the dead hand of

the controlling founder

Queen Elizabeth I was a major shareholder in the Golden Hind’s voyage

Erdogan’s hugegamble

has indeed ‘paid off

handsomely’ — for Putin

Your Big Read article“Erdogan

gambles on Russia pivot”(August 15)

quotes Asli Aydintasbas, a senior policy

fellow at the European Council on

Foreign Relations, stating that Recep

Tayyip Erdogan “took a hugegamble

and it paid off—for now”.

Paid off? The loss is immense.

Turkey lost its F-35jets and Turkish

companies developing and/or

producing the F-35/F-135 arekicked

out of the F-35 programme. Turkey

paid $2.5bn to Russiafor a weapons

system that cannotbe integratedinto

the Turkish Nato-compliant radar

work, and lost$12bn in export business

from its immensely valuable,

prestigious role in the maintenance

and production chain of the F-35.

Vladimir Putin’sgamble, however,

paid off handsomely. Moscow won big,

bothmilitarilyandeconomically,by

preventingits powerful immediate

neighbour from acquiring a state of the

art weapon, successfully exporting the

S-400 in exchange for hard currency,

andbydriving a wedge into Nato.

The S-4 00 vsF-35 crisisremindsme

whatJohnle Carréwrote in the Karla

trilogy: “There are moments which are

made up oftoo much stuff for them to

be lived at the time they occur.”

YorukIsik

Istanbul, Turkey

Overuse dulls the

impact of a vigorous

figure of speech

In 1976 the UK requested a loanfrom

the IMF. Ever since, this event has been

universally described by journalists as

the UK“going cap in hand”to the

International MonetaryFund. Perhaps

this was once an arresting metaphor.

But it soonbecame adrearily

predictable cliché, reduced to a string

ofmeaningless syllables. Thus does

journalistic laziness impoverish our

public conversation.

Something similar is now happening

with writing about a no-deal Brexit.

Nobody seems abletodescribethis

possibility without writing about

Britain“crashing out ofthe EU”.

Repetition serves only to dull the effect

of this originally vigorous figure of

speech. Philip Stephens is just the

latest to use it(“The post-Brexit price

ofaspecial relationship”, August 16).

I would also request that the FTcurb

the metaphorical use of“weaponise”,

another expression that has lost any

impact through overuse.

Dr Simon Taylor

Judge Business School,

University ofCambridge, UK