Cops and Robbers (Again): Solving the South China Sea Dilemma
“They capitalized on the huge number and cheap labor of their people,” I explained. “But the key to their miracle is twofold. They were able to save extremely high portions of their income, which allowed them to invest at extremely high rates; and they were able to acquire technology at very cheap prices by leveraging their very large size to force others to transfer advanced technologies to them.”
“So their investment should be both huge and efficient,” commented my friend.
“Huge, but not very efficient,” I replied. “The downside of their growth model is the lack of investment discipline, which has accumulated a giant mountain of bad debts that cannot be repaid.”
“How did they survive under this mountain of debt?” my friend was eager to know.
“By growing quickly,” I responded. “Fast growth makes large bad debt manageable. But once the economy slows down, it will break down under the weight of the debt mountain.”
“When will their economy slow down?” inquired my friend.
“By my estimation, the long boom of their economy will come to an end sometime in the next five years,” I answered. “After that, their average growth rate will sink to about half that of the previous period. At the same time, they will have fewer working people to support more retired ones, and this will effectively reduce their ability to save.”
“So the mountain of bad debt will get out of control,” my friend noted.
“Yep,” I concurred. “And they will have a severe financial crisis, which may eventually usher in a lengthy period of stagnation.”
“So the big house will face a decline in the long run?” asked my friend.
“Not really,” I replied. “Because their growth rates will continue to be higher than those of the policeman’s house for about two more decades.”
At this point, my friend asked for another cup of coffee. After a few sips, he said musingly: “I think in the long term the policeman will have to resign from his current job. It’ll be increasingly both unfair and unsustainable for him to perform this job by himself. If resolve correlates negatively with distance, he alone will be unable to deter the robber.”
“So who will be protecting the law?” his conclusion made me worried.
“Those who want to protect the law,” said my friend matter-of-factly. “They’ll have to cling together and fight if they don’t want to live under the ‘historical rights’ of the uncle. Alone or timid, they will fail.” Then he added: “I suppose they aren’t confined to the neighborhood’s residents.”
“Correct,” I concurred. “Some of the frequent users of the main street live outside the neighborhood in the surrounding district or even farther. They don’t want to be subject to the uncle’s ‘historical rights.’ And some big houses outside the neighborhood don’t want the neighborhood’s residents to become nieces and nephews of the uncle.”
“But who will be the new policeman?” I wanted my friend to be more exact.
“Anybody who would volunteer to do the job,” my friend replied, then added immediately, “but it would be more effective if there would be a committee of law-protecting users of the street, who would make arrangements about how to keep the street free of robberies and other unlawful activities.”
“What if they don’t share the same interpretation of the law,” I raised my concern.
“They don’t need to agree on everything,” my friend retorted. “The main point is that they oppose the uncle’s ‘historical rights’ and endorse the law. As long as they are resolute to prevent the robber from becoming the neighborhood cop, they’ll be able to make their common denominator large enough to pose a clear alternative to the uncle’s ‘historical rights.’”
“Do you think the committee will be strong enough?” I pushed for more clarity.
“The committee’s strength comes from three major sources,” my friend elaborated. “The first is their combined capabilities; the second is the compensation for one’s disadvantages by another’s advantages; and the third is the rules-based and open nature of the committee.”
“Let me check.” I wanted to see if my friend’s theory could be supported by reality. After collecting some data and doing some math, I said, “The policeman’s participation is indispensable. Without him, any alliance of the rest of the district would be no match for the uncle. Suppose that we have a coalition that includes the policeman, the second- and third-largest households in the district, and some of the houses that are located strategically along the main street. If income were the indicator of capability and after discounted for distance and other concerns, the combined capabilities of this coalition would beat that of the uncle by a ratio of about 1.7 to 1. This ratio is likely to improve for the uncle in the next decade, as his income will grow faster than those of the two largest members of the coalition, but the third-largest member’s will grow faster than the uncle’s, and the overall ratio is unlikely to go lower than 1.1 to 1. This conservative estimate is very rough as an index of relative capabilities, but it shows that the coalition is not a hopeless enterprise.”
Then I turned to the second strength of the coalition: “The policeman has the advantage of finance and technology, but his greatest disadvantage is distance and location. Here comes the crucial role of the houses that occupy the strategic locations along the main street. If these residents and the policeman help each other, they can turn their shortcomings into blessings.”
“Tell me about the committee’s third strength.” Here I wanted my friend to join in.