Western Banks Lending to Asia's Expanding Middle Class: Profit vs. Planet

In April 2013, debt levels in Asia were reaching record levels as international lenders were extending short-term loans to a growing middle class. Non-mortgage consumer credit in Asia outside of Japan had increased 67% from 2007 to reach $1.66 trillion by the end of 2012. This credit included credit cards and loans for cars, electronic products, and appliances. Outside of Japan, Asian car and motorcycle loans nearly doubled from 2007 to 2012, to reach a record $219.7 billion. Appliance and electronics loans also more than doubled, reaching a high of $10.9 billion. Meanwhile, credit-card loans grew by 90% to reach a record $234.1 billion, according to Euromonitor. The incentive for the banks is not difficult to fathom. At the time, more than half of the world’s middle class was expected to be in Asia by the end of the decade. That translates yearly into more than 100 million additional people per year. For the banks, this was an opportunity since at least the beginning of the decade because growth was not possible in the European Union and the United States on account of the financial crisis of 2008 and the ensuing European debt-crisis that extended well into 2013. The European Commission of the E.U. was also working on regulatory proposals that would limit the incentives of mortgage servicers to produce too many “bubble-creating” mortgages. 
So Western banks had an incentive to look east for fruitful markets. Interesting, government regulators in China, Malaysia, and Indonesia had began reining in mortgage, credit-card and auto/motorcycle lending, perhaps in fear of an Asian financial crisis. Had Western bankers learned their lesson, or were they unwittingly bringing their reckless mentality to Asia? Two levels of concerns can be extracted from this case. I contend that the more immediate concerns were crowding out attention that ought to have been paid to the larger, but longer-term, problems.
One sort of concern suggests that the international banks may have been providing too much credit to people entering the middle class. Such borrowers, similar to the sub-prime mortgage borrowers in California, Arizona and Florida, may not be able to handle their new debt-loads. At the beginning of 2013, debt levels relative to individual income in many Asian economies, including Malaysia, China, South Korea, Thailand, Indonesia and India, were already up to 30% higher than in the United States. This would suggest that the Western bankers were again poised to be reckless. Citigroup’s claim that it was expanding its lending to the middle class in Asia in a “disciplined manner” can thus be challenged. More particularly, the financial-growth incentives facing the bank, given the continued weak economies in Europe and North America, can be critically analyzed. Did Citigroup's bankers accurately anticipate whether another debt melt-down might have resulted from the trend in debt-loads, or was this low-probability, high-risk scenario too long-term oriented to be factored in sufficiently? I don't know the answer to this, but I submit that baleful consequences that are larger and presumably further off tend to get pushed aside by the human mind, given the preoccupation with today, hard-wired by natural selection.
Even if we take Citigroup at its word that it was lending in Asia in a “disciplined manner” in spite of the rather unique opportunity for bank profit there, we can ask whether international banks have a responsibility to society, and even the species itself by resisting the temptation to immediately extend the rising middle class higher in spite of "growth pains" that could be anticipated. To a banker, this might have seemed like muzzling the golden goose, particularly given the soft economies in North America and Europe at the time.  What if his or her competitors would have stepped in anyway? Responsibility involves some voluntary restriction on a company’s financial self-interest that may require industry-wide commitment.  What are the chances that no one would cheat? Very low, I submit. Nevertheless, duty, a word mostly lost to today's short-sighted narcissism, is not meant to be convenient; otherwise, it would not operate as a tug on a banker’s conscience.
The upsurge in auto loans in Asia is a case in point. That is, is is responsible to facilitate an expansive auto market especially in China's major cities, which had already been known to be notable polluters. After 2000, the number of cars in use in China was doubling every year. Meanwhile, the Chinese were building an “interstate" highway-system that would dwarf the network of highways in the contiguous United States. Loans enabling an exploding middle class to buy cars increased the global demand for oil, resulting, other things equal, in a higher price at the gas pump. Would the magnitude of the surge in projected fossil-fuel use in China drain the Earth’s oil reserves before alternative sources of energy could pick up the slack, or should the Chinese too be able to enjoy a car economy like those in the West? It would be too easy for the Western bankers to resound with the latter at the expense of the former due to the allure of greater profits over duty to the species.

More people=More cars=More pollution    source: Businessweek

The viability of the species enters the equation of course because of the scientifically-proven link between carbon emissions by humans and climate change in which both the atmosphere and oceans of the planet have been warming since well before 2013. To be sure, it could indeed have been argued that the Asian middle-class deserved the same freedom and ease provided by owning a car in the twenty-first century that the American and European middle-classes enjoyed in the twentieth century. Fair is fair, right? However, the global climatic threat to the species had not been pressing during the industrial revolution and through the ensuing shizogenic (i.e., a maximizing variable) consumerism of the twentieth century. By  analogy, even though a person starting to smoke at 50 can point to a person starting at 20 and say, “I should be able to have my years of smoking too,” the person who smokes at an older age faces more health risks than the person who smokes when young. Is it worth a heart attack to a 50 year-old to insist on having years of smoking too?  Similarly, the question of the additional oil for more cars, as well as more coal-sourced electricity powering electronics and appliances—all being facilitated by the upsurge in loans—can legitimately be answered differently when it is accurately (and thus justly) feared that unless the carbon-use trends reversed themselves everywhere, the species would likely face dramatic negative effects all too soon, with the very survival of the species itself perhaps hanging in the balance further out.

As these diverging patterns demonstrate, the threat of over-population is not uniform across the globe.   source: fashionzombie.net

In terms of public policy, if corporate social responsibility is not strong enough given the addictive allure of profit-seeking to ward off even current use that could result in a very different climate, perhaps resulting in a new equilibrium beyond the bounds of human habitation, then government regulation may be humanity's only option to pick up the slack. Because the problem is global in nature, this option is also problematic. 
Because the interests of the government of China and other countries do not take kindly to economic costs inflicted on their respective peoples for fear of political unrest and economic recession,  the absolutist interpretation of national sovereignty might finally have to be compromised in order, ultimately, for the species to survive or at least not be inundated even in the twenty-first century with climatic havoc. To the extent that the explosion of the human population is the root cause of the increase in carbon (and methane) in the atmosphere and oceans, even government regulation enforced at the global level would be difficult, even ethically, especially as countries fear an older demographic in a declining base. It would be a lot to ask bankers to take this on. Nevertheless, societies and governments can legitimately ask banks not to exacerbate global warming by acting so as to dramatically increase human consumption too much given the business environment. As the managerial role is profit-seeking by design and incentive, however, it is not likely that bankers would agree. Hence I have viewed corporate social responsibility as a creature more of marketing than duty, especially in societies in which the honor of duty is not valued. 

Source:

Kathy Chu, “Consumer Loans Surge Across Asia,” The Wall Street Journal, April 22, 2013. 

The Fiat 500: The American Taste for Convenience Revealed

One means of doing cross-cultural comparison is by contrasting consumer tastes; such proclivities tend to evince societal mores by which societies can be perceived to be distinctive. In the case of the E.U. and U.S., Fiat, a European auto company that controls Chrysler, an American company, is discovering some societal differences as it refashions the Fiat 500 for American customers.

For example, the pod of drink holders had to be enlarged to hold American-size “supersize” drinks. According to Fabio DiMuro, chief engineer of the 500, the in-car beverage concept is so foreign to Europeans that the workers didn’t understand his exhortations for more and bigger holders. The American taste for larger portions is known to restaurant owners and managers in the United States, but what does the preference say about the society and its people? Is it as simple as greed—a desire for more and to excess? Or is it simply a preference for convenience—filling up more so the next meal can be pushed back to make room for other activities? 

In terms of convenience, “Americans consider all-season tires a must,” whereas Europeans keep two sets (which must be changed with the advent of the snow season). Of course, this comparison over-generalizes, for we are talking about the Northern states in the E.U. and U.S. Even so, the northerners in America tend to be willing to sacrifice some traction in the snow for the convenience of not having to take the car to the garage to have the tires changed.

Furthermore, the fuel tank of the 500 was enlarged from 10.6 to 14.5 gallons “for longer distances typical in the U.S.”  The larger tank also enables American in-town drivers to drive more before having to fill up. The interstate highway system sports enough gas stations that the longer-distances rationale is perhaps specious; it probably comes from the European misconception of the U.S. being like one of the E.U.’s countries but with a larger territory. The U.S., an empire-level union of republics, is qualitatively as well as quantitatively distinct from a large state like Texas or France.

Returning to the matter of convenience, the comfort-factor may be a relevant difference. The U.S., having excelled in terms of material goods in the decades after World War II, may in the twenty-first century be more accustomed to comfort. Hence, the American 500 is to have an armrest added to the driver’s seat.

A stress on comfort may also explain why “lots more” insulation is needed in the American 500, “to keep it quiet enough for Americans.” This is a rather odd phrase, considering the growth of the car stereo industry in the 1970s and 1980s. Nevertheless, the notion of one’s car as a personal cocoon of sorts resonates. Might this be a manifestation of the individualism for which Americans are so well known? 

If one’s home is one’s castle, one’s car might be one’s bubble through which one passes through public space. Considering the “road rage” phenomenon and general impoliteness, the greater insulation might suggest that Americans are in general rather unfriendly when we are out and about. Hence there are “screening” devices such as fraternities and sororities, as well as country clubs and other private associations. The general American public may contain too many loud, pushing or boorish people to be palatable to the elite.

In general, James Healey’s article on the American Fiat 500 is not flattering to Americans, but perhaps Healey is pointing to indications of undesirable traits that we (for I am an American) should face about ourselves and our society. I for one have noticed that where strangers communicate without any purpose, such as in a store, politeness is the norm. However, as soon as a purpose is added, such as buying and selling a car, renting an apartment or room, or resolving a bill at a restaurant, presumptuous tends to raise its ugly head.

I don’t know if it is arrogance or a presumption that the worst is apt to be in others, but I would not disagree with a European assessment of American society in general as anti-social or antagonistic. It is perhaps no wonder that houses are castles and cars are insulated bubbles. Of course, I am over-generalizing, as the U.S. is composed of various cultures. Once flying from New York to Seattle, I was struck by the difference in how strangers treated each other; then I realized (aided by a few anti-New Yorker comments from Seattle airport employees) I had just flown over a continent! To render a continent as akin to a European state writ large is to miss the vital distinction between an empire and a kingdom politically and geographically.

Another possible source of my over-generalizing may be that modern society itself could be too much inclined to the road of most convenience.  Europeans may have their rankles as well, even as they differ from those of Americans. For example, the whole “peers/commoners” thing can be read as a matter of convenience by some at the expense of others. Such a matter of convenience is not apt to show up in an analysis of the Fiat 500. In general, we moderns may be too spoiled and too presumptuous when it comes to dealing with strangers. Humility, it seems, is out of fashion in modernity, at least in the public square. If so, my cultural critique goes well beyond the American shores. Although war and poverty are not to be wished for, it would be nice if greater human solidarity could be realized amid our lattes and 500s.

Source:

James Healey, “Fiat 500: Little Car Shoulders Huge Responsibility in U.S.,” USA Today, June 1, 2011, p. 5B.

An Ethical Dilemma for Cell-Phone Companies? Drivers Who Text & Talk

Long before cellphones became ubiquitous, industry pioneers were aware of the risks of multitasking behind the wheel. Their hunches have been validated by many scientific studies showing the dangers of talking while driving and, in 2009, of texting. Despite the mounting evidence, the industry built itself into a $150 billion business in the United States largely by winning over a crucial customer: the driver. For years, it marketed the virtues of cellphones to drivers. Indeed, the industry originally called them car phones and extolled them as useful status symbols in ads, like one from 1984 showing an executive behind the wheel that asked: Can your secretary take dictation at 55 MPH? “That was the business,” said Kevin Roe, a telecommunications industry analyst since 1993. Wireless companies “designed everything to keep people talking in their cars.” The CTIA, the industry’s trade group, supported legislation banning texting while driving. It has also changed its stance on legislation to ban talking on phones while driving — for years, it opposed such laws; then it became neutral. “This was never something we anticipated,” Mr. Largent, head of the CTIA, said in 2009.  However, Bob Lucky, an executive director at Bell Labs from 1982-92, said he knew that drivers talking on cellphones were not focused fully on the road. But he did not think much about it or discuss it and supposed others did not, either, given the industry’s booming fortunes. “If you’re an engineer, you don’t want to outlaw the great technology you’ve been working on,” said Mr. Lucky, now 73. “If you’re a marketing person, you don’t want to outlaw the thing you’ve been trying to sell. If you’re a C.E.O., you don’t want to outlaw the thing that’s been making a lot of money.” One researcher who spoke up about his concerns was quickly shut down. In 1990, David Strayer, a junior researcher at GTE, which later became part of Verizon, noticed more drivers who seemed to be distracted by their phones, and it scared him. He asked a supervisor if the company should research the risks. “Why would we want to know that?” Mr. Strayer recalled being told. He said the message was clear: “Learning about distraction would not be very helpful to the overall business model.” So why did the industry lobby turn to neutral in 2009, when it had for years resisted any governmental regulation on cell phones? 

It is important to remember the rationale of the “overall business model” so we don’t project some sort of fuzzy corporate social responsibility motive.   The industry’s shift to neutral matches a trend in its bottom line:  in the 1980s and early ’90s, wireless companies got 75 percent or more of their revenue from drivers, a figure that fell below 50 percent by the mid-’90s and is by 2009 below 25 percent.  The negative publicity on cellphones from distracted drivers killing people could cost the industry more (in dollars and cents) than what it could otherwise make by selling phones to more drivers.     Public affairs offices and industry lobby groups are simply reflections of the financial interest of the “business model.”   We ought not be fooled, as if an industry suddenly sees the light and does what is right.  Of course, it is in the financial interest of an industry to have us view it as such, but this is of course just more of the same.   Remember that the cell phone industry had reason to know of the problem of distracted drivers but ignored it in following a single-minded profit trajectory.

Source: http://www.nytimes.com/2009/12/07/technology/07distracted.html?ref=business