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Podcast episode

Is the American Dream a Broken Promise for Latinos? w/ Dr Paul Rivera – EP213

Dr Paul Rivera provides insights into the $3 trillion Latino economy in the United States and questions whether the American dream is a broken promise for Latinos. Dr. Paul Rivera is co-founder of BeActChange, a former senior economist at USAID, and lecturer at California State University Channel Islands. Dr Rivera and show host Gene Tunny also discuss the challenges of delivering foreign aid and the importance of understanding local communities. Rivera shares a compelling example to illustrate this point.

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. 

You can listen to the episode via the embedded player below or via podcasting apps including Google Podcasts, Apple Podcasts and Spotify.

What’s covered in EP213

  • The American Dream and Latino economy with Paul Rivera. (0:03)
  • International development, strategic planning, and community engagement. (4:41)
  • Inadequate consultation in international development projects. (10:23)
  • Latino population’s role in US economy and American dream. (14:07)
  • Latino mental health and the American Dream. (20:13)
  • The economic power of the Latino community in the US. (25:45)
  • Latino homeownership, education, and mental health. (29:12)
  • The American Dream and its accessibility. (34:46)
  • Immigrant experiences and the American dream. (40:06)
  • Latino population growth in the US and its impact. (43:48)
  • Marketing to the Latino community in the US. (47:26)

Links relevant to the conversation

About Dr Paul Rivera on his BeActChange website:

https://beactchange.com/about-paul/

Paul’s LinkedIn page:

https://www.linkedin.com/in/drpaulrivera/

Paul’s book Creating Your Limitless Life co-authored with  Dr. Esther Zeledón:

https://www.amazon.com.au/CREATING-YOUR-LIMITLESS-LIFE-Terms-ebook/dp/B0CFZN3FCS

Latino GDP report 2023:

https://lattitude.net/wp-content/uploads/2023/09/LDC%20GDP%20REPORT%202023.pdf

Transcript: Is the American Dream a Broken Promise for Latinos? w/ Dr Paul Rivera – EP213

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Paul Rivera  00:03

Part of the problem with the American Dream is how we’ve translated it, how we’ve measured it. You know, if you look in the Oxford Dictionary, the definition of the American Dream is basically that this idea that the situation in America offers those who work hard, the equal opportunity to achieve and the dictionary says their highest aspirations. And that highest aspirations piece is something really important that I think people don’t hang on to enough.

Gene Tunny  00:35

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. In this episode, we explore the Latino economy in the United States. And we consider whether the American Dream is a broken promise for Latinos. My guest is Dr. Paul Rivera. He’s the co founder of be act change. He’s a former senior economist at USA ID. And he’s a former academic at CSU Channel Islands, which is part of the California State University system. Given his background, as well as asking Paul about Latino economy asked him about the challenges of delivering foreign aid. Paul gave some great advice about the need for donors to really understand the local communities they’re providing aid to. And he illustrates that point with a vivid example, which is worth listening to the episode for. Right, so let’s get into it. I hope you enjoy my conversation with Dr. Paul Rivera. Dr. Paul Rivera, welcome to the programme.

Paul Rivera  02:03

Thanks so much for having me. Gene. It’s so great to be here.

Gene Tunny  02:05

It’s good to have you on Paul, you’re really interested in the conversation, you’ve got a background in economic development, which is something I’m very, very much interested in. And also well, at the moment, you are the VP and co founder of the Act change. Could you tell us a bit about big change? Please, before we get into the conversation, absolutely.

Paul Rivera  02:27

No, that would be my pleasure. It’s basically my spouse, and I who’ve co founded this company, it’s a consultancy, where at the end of the day, our job, our mission is really to impact lives. And it really comes from from our background, you know, it’s both of us have lived to the immigrant experience in the United States, we’ve both have careers in academia, and international development, you know, I come from, I come very much from the lens of critical thinking, that’s, that’s the most important thing for me is sort of attacking, looking for solutions from the lens of critical thinking. And I know that that’s, for example, what led me to economics as a field, you know, and that’s one of the reasons why I love it, the whole idea of of optimization and having a goal, and having an understanding of what are the constraints there? And what are the resources? And what are they efficient ways to get there is something that really, really sort of warms my soul a little bit in a strange way. I don’t know that. I don’t know that anybody ever talks about economics that way, but, but it’s really very much that my, you know, that, that for me, you know, because that approach to problem solving. I think that there’s a lot of, you know, as I look around the world, and I, you know, you see, you know, the world’s kind of a mess right now, and you see how much bias there is and prejudice and all of these things. And I think that if people really went out of their way to approach things from a critical thinking lens, that that there would be much less of that, you know, people, if people took the time to read the data to do the analysis to ask the questions, you know, to what are the questioning the assumptions, I think is huge. So, I started out actually, after I finished my PhD in academia, I spent I spent about 15 years as a as a professor at an at a university that was brand new, it actually opened the year that I arrived. And so I got to be founding faculty at a brand new University, which is an incredible experience just to see the level of impact that you can have, you know, on the formation of that university and, and the direction that it takes and this particular university was, was set in a heavily Hispanic Latino Area in California, in the US where there was no public university at the time. So it was a very underserved market. And so just just to be able to create that impact and bring that access into of university education there was was tremendous, you know, and I saw so much of what people struggled with, you know, this whole concept of of the American Dream, which I know we’re gonna get into a little bit later. Yeah, but you know, folks who who really did everything they could, they left their homelands, you know, to come to this land of opportunity and, and to see their kids getting into that university collegiate sphere was really, really impactful, you know, and I get emotional about it sometimes when I talk about it, because you see the transformation in these kids and these families and that sort of thing. And, you know, my, my whole thing has always been critical thinking, and so bringing that to the, to the youth. But as you mentioned, in my intro, my field is development economics. Yeah. And that’s always, that’s always what I studied. That comes a lot from my background to my parents, my mom was from Mexico, my dad is from El Salvador. And so I come very much from from that perspective and understanding not only the economic forces that are there, but really the cultural things, and, and understanding how those things mesh together to, to sort of create a reality both back in the home country, and in and in the the sort of immigrant receiving countries, you know, and so my, my push was always to go into that international development field, because I saw that there was so much opportunity there, I’ve travelled to 112 countries in the world at this point. And, you know, you go and you see that these countries have so much potential, there’s so much that can be done there to really improve quality of life. For for folks there, you know, and so I moved, I left academia after a while, and moved into this international development realm. Because I saw that opportunity, I wanted to have a greater impact in the world, you know. And as we sort of went into this, it was, it was really interesting, because the way in which development is carried out by a lot of these large organisations, you know, whether it’s bilateral governments or these international financial institutions, the World Bank, the IMF, there’s, there’s a changing of the tide a little bit, but it’s very paternalistic. Very, very, you know, it’s, it’s very prescriptive, that we are the experts, we come in to these countries, we assess the problem, and we fund the solution. If we happen to ask the local communities what it is that that they want, it’s just to say that we consulted them oftentimes, but that genuine integration with the community and what they need, and what’s really going to be sustainable, in terms of an intervention for them is, is really rare. You know, and it’s one of the biggest problems in international development, that that sustainability of impact is, is really difficult. And I’m 100% convinced that a large portion of that comes from failure to secure that buy in to actually listen to those communities. So from all of that, from all of that experience, really came this motivation to create the change, where it’s something that so we work with individuals, and we work with teams and organisations to really help them think of themselves as not just high achievers, and you know, and we’re high achiever, you and I sitting here, we’re definitely high achievers, you know, we have people who’ve achieved a certain success academically, professionally, and that sort of thing. But it’s folks who really want to take that and, and move to what we call trailblazers. So not just necessarily following the prescription that they’ve been given, but really digging deep, finding their purpose, and creating the the real action plan that moves them ahead in a way that fulfils them. So and so it’s something that’s been really, really rewarding for us at this point, you know, in terms of the business, because we’ve really been able to see tremendous transformation in how people, people in organisations perceive themselves, how they understand their mission, and how that impacts how they carry on their day to day, how they think about their future, how they talk about themselves. So it’s something that that it’s, we’re just really excited about it, it’s something that’s going gangbusters at this point. And, and we’re happy to, to be sort of spreading that message of, of self empowerment, and how that dovetails with, with with especially for a lot of these Latino communities that we work with, you know, how that dovetails with not only greater satisfaction, but also improvements in their economic standing and their ability to help themselves, their family, their community. Rod, okay,

Gene Tunny  09:19

so just specifically, are you doing, you’re doing consulting work for the communities? Are you are you engaged by aid organisations to to work with communities, how does it work?

Paul Rivera  09:31

So we’re sort of two parts, right? So I’m a specialist in strategic planning. So when one of our arms is still actually doing strategic planning with some of these larger aid organisations, they have a country strategy that they need to develop and how it is that they’re going to carry out the depending on the country, you know, so um, sometimes hundreds of millions of dollars that are going to go towards that country. And so when some of the contracting that we do is basically helping the As aid organisations create strategic plans, and then action plans, and then monitoring and evaluation plans that are going to push them towards their objectives in that sense, you know, and my push always is really to make sure that that’s, you know, founded at the grassroots that that’s something that’s been vetted and not just vetted, but really engaged and bought into by those local communities.

Gene Tunny  10:23

Gotcha. And I thought that was interesting. That comment you made about historically the, say, the World Bank and other big, big lenders for development, Asian development, bank, etc. Were you suggesting that? Yeah, they weren’t. They didn’t think enough about what the communities needed? Do you have any examples? Was it too much of a focus on big ticket or big, you know, flashy or fashionable projects or big infrastructure, projects, dams, etc? Is that part of the problem?

Paul Rivera  11:00

I would say there’s, there’s a couple levels I’ll give you. I’ll give you an example. That’s my anecdote. Okay. One of my first consulting jobs that I ever that I ever took was with one of these large international financial institutions, which shall remain nameless. But they had a they had been working in Western Africa somewhere with these with these fishery fisherman communities. Somebody had the idea that, you know, in my last situation, they said, they had worked somewhere in East Asia, I think, I believe it was in Thailand. And they had worked with Fisher communities, and they had created this project through which they purchased sort of these long boats with motor but with motors, that would help the fishermen they said, basically, that the problem in that situation was that there was a sort of a low level capital investment. And so they just infused this capital. And that’s what was needed to bring our productivity. And so they said, copy paste, it worked in East Asia, so it’s going to work in West Africa. And they they did absolutely no consultation. Okay. So I came in actually, as an ex post evaluator, about three years after the project had been completed. And so I go in to this community where I know they had worked. And I started asking about the boats and the fishermen and how things are going and people are looking at me with blank stares, like, What are you talking? I’m like, I’m like, a few years ago, there was this project and this organisation came, and they’re like, Oh, you have to talk to the chief. And so this particular country still had sort of a chief says, Chief type chiefdom society organisation, right? So they take me to the chief, and the chief walks me down to the beach, and I see 10 of these boats upside down, sitting on the beach completely rotted out, and there’s no motors. Okay. And so what they, when I started asking about it, he said, Well, what if what essentially they didn’t understand was that their society is a very highly structured society. And the fishermen, they were considered to be sort of not high loss, high status, folks. And so this organisation had come in, and given a very high status gift, in effect, to a relatively not high status person. And so the natural thing for them to do was to say, I can’t accept this gift. So they gifted all of the boats to the chief, the chief is the chief. So the chief doesn’t fish. He doesn’t, he’s not a fisherman. So the chief basically sold the boats, sold all the motors, he used the income to buy himself a new house in Switzerland. And that was it. Right? So what happened, right, and I can, I can give you five other similar examples, there was there was basically they external parties came in, they gave some sort of analysis of what they perceive to be the problem, they copy pasted a solution. And they put in millions of dollars for it. And at the end of the day, there was no real impact from that, because they failed to secure the buy in from the community, they failed to do the basic consultation that would show you know, what it is that was actually needed in those communities. So you know, that’s our, that’s our big thing is really, really engaging in listening. You know, before, you know, when we talk about wasting taxpayer dollars, and that sort of thing, it’s our responsibility to make sure that that’s that that’s going to be used in a proper fashion, you know, yeah,

Gene Tunny  14:23

yeah, that’s a that’s a really good example. I didn’t bring you on to chat about foreign aid or development assistance, but we might have to have another session on it. Because it’s it’s a big area and I know that there have been a voice I’ve read Billy’s delete stuff. I think there’s some good stuff there. I mean, he’s doing some great analysis that that that is a really good example Paul. So yeah, really, really thankful that You sure that Yeah, but we’ll have to we’ll have to have another conversation otherwise, we’re going to use the whole hour on, on on talking about those issues. Okay, so let’s go Miko back to Through the question of Latinos and the American dream, because that’s what, yeah, what got my interest? When when I learned about you, there’s this idea that you have of the broken promise or the what is it the fallacy of the American Dream for Latinos, and you mentioned this university, this new university was this in California is this part of the University of California system,

Paul Rivera  15:26

it’s actually part of the California State University system. So So California has, has multiple tiers, the, you know, the University of California has, you know, it’s the UCLA, it’s the UC Berkeley, which are the high level, what they call the, you know, the r1 institutions and that sort of thing. And then there’s the California State University system, which I believe has 23 campuses across the state, and they’re really the ones that are designed. So most teachers in California have gone through the California State University system, and it’s, you know, it’s, it’s, it’s a, it’s a huge amount of, of students, and it’s really the most is the entry point, it’s the access point for for, for collegiate education there. And it’s, it’s a wonderful, wonderful kind of institution, that that, you know, has, it has helped so many but, you know, the Latino thing, especially in the United States, and in California is really fascinating, there are close to 63 million Latinos in the United States, which is not quite 20% of the population. So it you know, if you, if you kind of separate them out, they’re kind of a country all all in themselves. And if they were a country in and of themselves, that that $3.2 trillion, Latino GDP. So that’s, that’s the latest calculation that Latinos in the United States generate 3.2 dollars $3.2 trillion dollars in GDP, which would make them the fifth largest economy in the world, right? It’s a massive amount of, of money, that that is generated through that. Yeah. And, you know, and and if you look at at that figure in terms of growth rates, for example, over the last 1012 years, it’s been almost a 4% annual growth rate, which is pretty much double what the US GDP growth rate has been in this in the comparable period, right? So it’s really, as a as a whole at a macro lens, it’s really something that has grown substantially, right. And then there has to be, though, the, the flip side, the micro side, that has to be looked at a little bit, right. And so when, when you start to dig into it a little bit, you start to see that, so much of that of that macro level of growth for one is coming from population growth. Yeah, it’s the it’s the largest, you know, it’s the most, it’s the fastest growing population demographic in the US, Latinos work like crazy. It’s the it’s the, it’s the population group with the highest labour force participation rate. And the estimate is that over the next 10 years from now, 78% of the net growth in the in the labour force will come from Latinos in the United States. So you know, that those numbers are really accelerating. So when you think about it, when you start, when you start thinking about that, that calculation, the per capita figures are not doing great, right? That the macro figures are doing, you know, are significant. But as you start to look at that per capita scenario, it’s not something that’s super robust, you know, and, and so, Latinos are really very much invested in this idea of the American dream. And, you know, I’ve been to just about every country in Latin America, and all my family’s in the United States. And these are the folks that I talked to, and, and that’s my community. And as you talk to as you talk to Latinos, the statistics and the statistics bear it out, it’s the population group that most believes in the American dream, right, this idea that, that in a land of equal opportunity, hard work is going to get you to success, you know, and that’s, that’s really the core of the American dream as, as, as immigrants see them, and it’s, you know, it’s worth saying that having having been all over the place, the American dream, it’s what we call it, but it’s something that’s, that’s really universal, right? I know, like, I know that Australia has a tremendous amount of, of immigration, and I know that basically, they’re all going there looking for some whatever it it is, but it’s some version of the American dream, you know, and so it’s it’s, it’s a it’s an aspiration that you see worldwide, but at least in the US, at least looking at the at this Latino population. Their their progress on it is stumbling in a lot of ways. You know, the, the there’s a wage gap of about 23% compared to non Latino white population. More significantly, is Is this wealth gap. So the average Latino household has about $36,000 in wealth measured as compared to about 190,000. For non Hispanic white population. So it’s, that’s more than a five fold difference. And you know that difference, that gap is really something that drives so many of the decisions that Latinos are making, right, so they don’t have that wealth base, which means they don’t have the investment base, they don’t necessarily they don’t have the same levels of financial security, they don’t invest as much in health, and certainly not mental health, which is one of the places where you really see these impacts play out, you know, we start looking at, at at the Latino populations, and how it is that they see themselves in their situation, and they’re so deeply invested in this idea that all I need to do is work hard and work hard and work hard and work hard. And that’s what they’re doing and still struggling, you know, so the statistic that always pops out to me is that of these 63 million, Latinos, 4 million of them every year suffer what what is termed a major depressive episode. So to the point where they are basically unable to function in some way that that others start to notice their, their depression and become worried for them. You know, and that’s part and parcel from, you know, the, the the sort of regular levels of depression that you see, these are people who are just down for the count in some way, you know, and when you ask them, What is it, you know, when they, when you ask them about the source of it, it’s exactly these things, you know, it’s this struggle, this chase toward the things of the American Dream towards that financial security towards the homeownership towards, towards the stability, that were there, they’re stumbling, and, and it’s stressful, you know, and they’re less likely Latinos are also less likely to seek help for it. So they’re sort of, they’re not making it, they’re not feeling good about it. And now they’re trying to make it while they’re, you know, their, their brains and their their emotions are not are not helping them either, you know, so,

Gene Tunny  22:12

yeah, it’s,

Paul Rivera  22:13

it’s a struggle, you know, it’s a, it’s a, it’s a tough place to be. And yet, you know, the, the Latino population continues to be so optimistic about immigration and the American dream and moving towards those things, you know, so a big part, I would say that a big part of our push, in our business and in our mentorship, and a lot of the work that we do, is really trying to shift that narrative, you know, to be to be a place where, where, for one, you know, I’m, I’m a micro economist, by, by training, by practice and by love. So for me, everything starts with the individual, you know, so so much of this work comes down to, I think helping people understand their, their why their purpose, like, like, I mentioned it earlier, but that sort of digging deep as to who you are, and why do you do what you do? And, and the how, you know, what, what’s your unique problem solving approach in this world? What’s the value that you bring, and having people understand their their own values and beliefs and how those things sort of come into play to create, really we work a lot on helping people create and organisations helping them create their brand? Yeah, you know, very good,

Gene Tunny  23:24

Paul. I’ve got about half a dozen questions after that, though. All right. That’s, that’s fascinating. First, what do we mean by Latina? And I don’t mean to sound dance, but because I understand Latin American, but predominantly, what what are we talking about now? Because I mean, like, I mean, I’m living in Australia. So I mean, my knowledge of America is limited by, you know, generally what I’m seeing in the media or in film and TV. And so I know, historically, you’ve had large, you have a large Puerto Rican population, and particularly in New York City, and and then you’ve got the Mexican immigrants and the, you know, lots in in oil and gas in Texas and California. And then there are the communities from Central and South America. What’s the Latino community look like in the US?

Paul Rivera  24:14

It’s extremely diverse, you know, as you look at as you look at the numbers, by far the largest Latino population is in California. And, and most of those are Mexican descent. But as you know, as you rightly point out there, there are basically pockets, pocket maybe to an understatement there. There’s there’s significant populations of Latinos in everything that is the southwest, so basically, California, Arizona, New Mexico, Texas. All in that path. I would say that most Latinos, by far are Mexican, Mexican American descent. And then you get to other other portions of the country, as you said, sort of New York, Atlanta, Miami, where you’re gonna get a lot more of the The Puerto Rican Dominican, especially as you get down in sort of that South Florida area, you’re gonna get the the mix of all all Latin Americans, you know, Cubans, Colombian, Salvadorans, Nicaraguans, and that sort of thing. So it’s that I’ve met Latinos of every variety at some point somewhere in the United States. But I would say that there’s definitely in terms of numbers, that concentration on the coasts. At the same time, 43% of people engaged in the farming industry, in the United States are Latinos. So there’s also a huge Latino population within sort of the mid sections of the country, but they don’t have that same density necessarily, that you find on the coasts.

Gene Tunny  25:45

Gotcha. And is there a recognition among Latinos of a, of a community of a broader Latino community for eternity, so to speak, I

Paul Rivera  25:54

would say that that’s something that that we, meaning I in this business, and the folks of us who work in similar things work really hard to create. I, you know, that there’s, there’s so much common history that that binds us, you know, I mean, I mean, for one, starting with, with language, you know, from South of Mexico, down to the tip, with, with a few exceptions, we all speak a common language. And, and obviously, it’s like, it’s like, it’s like the United States, you know, people in Texas don’t speak quite the same way that New Yorkers do or Californians do. And I think that those are differences that we need to celebrate. And I don’t think the Latino community does that enough. And then, the other side of it, though, is that everyone is very proud of their, their unique country heritage. You know, my family is very proud to be Mexican. My wife’s family’s very proud to be Nicaraguan. And so it is hard when you come to as an immigrant to the United States to suddenly you’re not Nicaraguan anymore, you’re not Colombian, you’re not Mexican, you are Latino, right, and you’re put under this general umbrella. And so it is, it is a bit of a mindset change to say, you know, I’m in a brotherhood with all of these people who don’t come from my country, you know, so it’s, I would say that it’s something that’s still evolving, and it’s something that that the Latino community would benefit tremendously from, by by having sort of that mindset shift that brings people closer together, I think, I think it would be revolutionary, you know, you would stop the just the ability to stop saying, you know, oh, you know, he’s, you know, whatever, he’s from x country, and you can’t trust those people kind of a thing, you know, to really say, you know, what, we have a common history of economic struggle, and, you know, it’s Latin America. So corrupt government is something that, you know, really binds Latin Americans together and, and the impacts of that. So, you know, I think you could be transformational in terms of how the Latino community would, would evolve as a as a group in the US if they were able to better come together those ways. Yeah.

Gene Tunny  27:58

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  28:03

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Gene Tunny  28:32

Now back to the show. Okay, so you mentioned a $3.2 trillion GDP. So yeah, that’s roughly that must be about twice the size of the Australian economy measured in Australia in US dollar terms. So maybe a bit under but now but yeah, it’s a it’s a substantial amount. What where does that figure come from? Pull? What does that estimate come from?

Paul Rivera  29:01

There’s a there’s a recent report that came out that’s called the Latino GDP report. They’ve published it every year, for the last six years or so. And they’ve seen it, you know, they’ve seen they’ve seen that growth, and it’s a group that their aim is really to see how it is, in particular that that sort of the three pillars of Latino homeownership and business ownership and asset ownership have increased or decreased over time. But you know, it’s it’s part it’s part of that that whole tracking and objective calculation there.

Gene Tunny  29:35

A lot link to that. In the show notes. Yep. You talked about a wage gap of 23%. Is that largely because Latinos are working in there are fewer Latinos working in professional occupations more so as labourers or in, in in service occupations? Would that be the I would say so

Paul Rivera  29:57

yeah, I would say so. You know, that the the If the educational attainment is not the same, and then you know, there’s, there’s a lot of things that that go that go with that, you know, we talk, as I said, I have a lot of experience at the university level, and one of the things that you see, for example, is that, you know, a lot of Latinos are scholarship kids, you know, they go to college under under these scholarships, because, you know, the parents don’t, we don’t have the wealth necessarily to, especially in the US to Shell out the money for their full collegiate education. So they have to take some sort of loans, and they have to take scholarships, and that sort of thing. And it’s fascinating, because the way that the system goes, it’s, it’s supposedly helping them out, you know, which it is, because otherwise they wouldn’t have access, but at the same time, it puts them behind the eight ball, you know, now, now you’re the kid whose parents didn’t go to college, so you didn’t grow up, talking about college, hearing about college or understanding what that culture is, like, suddenly, suddenly, you’re in this place where your school work is much tougher. And now you’re told oh, but to be here, you have to have a job. Now, right. And, and so there goes a big part of your time that should be devoted to studying and really dedicated to these other things. And now you have to know you have to have a job to pay for, for the privilege of being there, and that sort of thing. So you know, that all of these things, you know, they’re, it’s, it’s not that they’re, that they’re bad in any way, but that they, they’re there, they’re one more barrier, one more hurdle, that you have to jump, you know, and so once they get out to, for example, the workforce, a lot of them are not folks that have done, they’ve never done an internship, they can’t do an internship, they can’t afford an intern, and they can’t afford an unpaid internship, you know, so, you know, they get out into the working world, and you know, what the job that they’re going to apply for, is going to be, it’s good that the competition is tough, you know, they’re, they’re there, as I said, they’re behind the eight ball a little bit. And not, it’s not quite the same situation. So. So even those that are professionals have a wage gap, because they don’t necessarily see the same. They’re not perceived as being equivalently qualified. And the other thing is that, that goes sort of along with this as, as Latinos in our culture, as part of this whole American Dream thing, and believing that hard work is what matters, we’re really told, we’re really told that you just keep your head down, don’t make waves just work hard. And one of the consequences of that is that we’re not taught the value of networking, the importance, like the essential, the essential pneus, of, of networking, you know, and I know, it’s something that I’ve, I’ve had to learn the hard way over time, that, you know, if you really want to have that next level come to you, there has to be somebody at that level, who’s gonna vouch for you. And and we’re not we’re not taught that, you know, it’s something that that we’re told to be humble, we’re not we’re, that it’s, it’s rude, actually, to ask for some of those for that help for that push for that phone call? You know, so it’s, it’s something that, that we push for a lot. And as I said, you know, coming back to your question earlier, if there were a much stronger feeling of community among the Latino community, and I think that’s even something that that we could create for ourselves, and it’s slowly happening, but I think that pace needs to really accelerate.

Gene Tunny  33:25

Yeah, yeah, absolutely. Okay. So one of the other things you mentioned, is depression rates of depression, is the incidence of depression in Latino communities higher than in non Latino or non Hispanic? Do you know, it is,

Paul Rivera  33:40

it is a little bit higher, you know, statistically, it’s a little bit higher than that there are two major differences. One is that the basically, Latinos don’t have don’t have the wherewithal the resources to seek help as much. So, you know, they the incidence happens a little bit more often. But it’s it, it’s going untreated, basically, in a lot of ways. And then the second piece is that the the incidence, as I said, is slightly higher similar, but the depth of the depression is also is also different. So one of the things that you see is that the they measure the incidence of suicidal ideation, so not just are you depressed, but do you get to the point of actually thinking about an ending, you know, the pain and and that rate among Latinos, and especially among younger working age, Latinos is significantly higher than then, you know, other comparable groups,

Gene Tunny  34:46

as the Latino community have been affected by the opioid epidemic, and you know, data on that, that

Paul Rivera  34:51

I’m sure there isn’t that’s that’s not something that I am super specialised in. So I I wouldn’t want to go. I wouldn’t want to speculate beyond my beyond my realm on that one.

Gene Tunny  35:06

That’s okay. I might look into it. I was just interested, then when you’re talking about depression in the depths of depression, just

Paul Rivera  35:14

I mean, I mean, what is what is the case is that there’s a tremendous, I would say, more sort of high functioning alcoholism, and that that would be a much more prominent thing. But you know, I don’t I don’t as I say, I don’t want to speculate too much on Yeah,

Gene Tunny  35:30

fair enough. Fair enough. I might, I might look into that myself. Getting to the just going to the American dream. So I was interested in how you, you phrased it, how you conceptualise it, or how people conceptualise it, there’s this idea that given that America has this equal opportunity that you’ve got this, you should be able to prosper? And then if you don’t prosper, if you don’t do well, then in a way, it’s your own fault, and you’re a loser? I mean, that’s the implicit message there isn’t. I mean, it’s quite right. It’s terrible psychologically. When you think about it, so I guess one of the issues is this, just how, you know, is there this equal opportunity, and one of the things I’ve been looking at lately, those his book that came out a few years ago, Dream hoarders, and there’s this growing literature on just the transmission of advantage or disadvantage across generations, and it looks like the US if you look at the data, there’s less intergenerational mobility in the US than in, in other countries such as Australia. I mean, we’re, we’re maybe not as good as we once were. But we’re still better than the US, it seems. So this this issue of the American dream, is this this part of a broader problem ball? It’s not just for, it’s not just a problem affecting Latinos?

Paul Rivera  36:51

I think it absolutely is a much broader problem, you know, and I speak to it from, from my perspective, and, and my, my knowledge, where, you know, I have that that intimate connection, but I mean, as you look at things, I mean, yeah, as you say, the you know, the, the first one, just from a, from a basic, big level perspective, as you look at sort of the the top developing developed countries in the world, and you look at life expectancy, that the US is, is close to the bottom, on some of those, you know, there, there’s actually quite a few sort of middle middle income and developing countries that are, that are surpassing, if not, at least dangerously close to life expectancy in the US. So, you know, at a fundamental level, the, the, the sort of American Dream is failing Americans too, in a lot of ways, you know, and I think that, that there’s that there’s some interesting, there’s a lot of interesting things there. You know, in a, in a past life, I was a consular officer working for the, for the US government in basically issuing visas overseas. And so I met 1000s 1000s and 1000s, of, you know, people in other countries who were literally in front of me requesting to come to the United States, you know, and so I had a lot of a lot of conversations with, with people about that, that subject, you know, and, and the ones who, it’s a really interesting thing, so most of them want to come as tourists, right? They want to come to the US for some period of time, just to see and then go back. And your current your job as a consular officer is a terrible job, because you’re judging people that you’ve never met before, based on, you know, some sort of not arbitrary, but but at least you know, not very in depth criteria necessarily. But the people who are most sincere and the most convincing are the ones who are who are able to tell you a story about their community and their connections and their rootedness in their home country. Right. So you know, as as an American consular officer, you want to give a visa to the person who’s going to come to the US and then go back home. Right? That’s the whole idea. Yeah. And and those these folks who, who, some of them speak so eloquently, so romantically about their, their connections at home and their and their family and their roots and their beliefs, and that sort of thing. And those are the many of the same people who for because their situation in their home countries is often so tough, they find themselves in the position of where they make the choice to come to the United States, you know, and this whole concept of the American dream of part of the problem with the American Dream is how we’ve translated it, how we’ve measured it, you know, as you if you look in the Oxford Dictionary, the definition of the American Dream is basically that, that this idea that the situation in America offers those who work hard, the equal opportunity to achieve and the dictionary says their highest aspirations, and that highest aspirations piece is something really important that I think people don’t hang on to enough because as as we see it, As we measure it as we watch it play out, the American dream, so often is measured by Do you own a house? Do you? Do you have a certain income? And then do you? Do you have a college education? Are you married? Have you had kids yet? You know, and the conversations that go that way? And in many ways, it’s a very individualistic type of pursuit. It’s about what have I done? What have I achieved? What have I acquired, and so much of the value in I think any community, the US included, Australia included, but certainly, as we’ve seen in Latin America, and lots of other countries, community is the core, you know, community is what is it’s, it’s the place that that helps form your values. It’s the place that’s that helps you with your resilience, when things get tough, there’s, there’s a core that you rely on. And when you as an immigrant, you are extracted from that core and dropped in a new situation, and told that the checkmarks that measure your success, are these individualistic things, it’s really, really tough. You know, so, you know, we’ve come back a couple of times to this idea of, of community. But, you know, as we think about how it is that, that, that we sort of build that, that I think that community pieces is essential not. And really, it’s kind of interesting, because our our model is really one of individual purpose, right? Our whole big change model is really one of building individual purpose, but at the same time, recognising that in others, and then building that community, that sort of network of strength that sort of holds everybody up together. That’s that’s sort of our vision for it. Yeah.

Gene Tunny  41:42

Yeah. Very good. I should, I should also not so just so we’re getting the right, or we’ve got the balanced picture of what’s going on. Sure. Because we’ve talked about a lot of the issues with the American dream and challenges and how it’s, it may not be playing out as, as Latinos expect. Is it generally the case, though, that I mean, immigrants from Latin American countries into the United States, they’re generally doing better than they were in their, in their, their source countries, and they’re not going back? There’s, there’s not much of a flow back. Is there? Do you have any observations on that?

Paul Rivera  42:23

Yeah, yeah. So I think I think there’s, there’s a few ways to see it, you know, if you look at their, their same thing, if you look at their financial positions, I would say that that is true. You know, if you look at sort of their their household, their household GDP, sort of scenarios, I would say that that’s absolutely true. However, you know, I’ve spending, having spent a lot of time in these immigrant Latino communities, both in the US and outside, I would say that there’s, you kind of have to temper that with, with the reality of the situations in some ways, you know, there are safety, for example, safety and security aspects to a lot of the communities where, where Latinos end up, end up in, that they don’t necessarily have in their home communities, they don’t have the same, the same support systems that are there, the implicit and explicit sort of biases against them that they see in the workplace are real, and those things, those things have an impact as well. So you know, I, I would say that many, many, many Latinos dream very, speak very romantically and longingly about where they came from. And the and the option of going back is a tough one. You know, my, my dad actually just re emigrated back to El Salvador, not not long ago, but it’s basically in his retirement and because he was able to go back, in a sense, in a triumphant way, right, that he’s the guy here, it might and, you know, I’m fortunate that my parents were, were did well have done well in the United States, you know, and he’s able to go back as someone who is triumphant in that situation, but a lot of Latinos who, who are struggling more in the US, there’s, I think that they struggle with the, the pressure of not wanting to go back, not triumphant, you know, the, with the idea that, you know, it’s not that easy just to just to say, You know what, it didn’t work over here. So we’re gonna go back, you know, the folks count on them, remittances are a massive thing. So even though they may be struggling in the US, the remittances that they send back home are often supporting an entire extended family and They can’t just, you know, walk away from that either, you know, so there’s there’s a lot riding on them and, and you know, those those stresses are real and they affect how they live out their lives.

Gene Tunny  45:09

Yeah, that’s a really good point, I’ll have to look for data on that, because those remittance flows are potentially very large. So they’re massive,

Paul Rivera  45:18

you know, you get countries like El Salvador, and remittances on any given year are somewhere between 17 and 20%, of of GDP, is coming in as remittances from primarily from the United States, you know, so it’s, it’s really some, it’s more than just something that’s, that’s giving that little extra boost to the economy. It’s what’s really driving the economy. And in a lot of these cases, you know, and, and as you see countries that are struggling, like like Haiti, or or Venezuela and that sort of thing, you know, a lot oftentimes these remittances are what’s what’s keeping food on people’s plates back at home?

Gene Tunny  45:49

Yeah, absolutely. And it’s providing us dollars, but it’s providing foreign exchange that helps you there Exactly. Yep. By imports, for sure. That’s a very good point. Right. Oh, so just to just to finish off all and I’m wondering, do you have any reflections or thoughts on what this means the growing proportion of the growing role of Latinos in the US? I mean, you mentioned it’s got a 4% growth rate, which is higher than, I don’t know, off the top my head what the average US growth rate is, but I imagine it’s lower than that. So they’ve got the Higher, higher growth rate, and there’s going to be a growing proportion Latinos in the population, the economy, do you have any thoughts on what it means for the broader society? Or the or for? I don’t, I don’t want to get into politics, necessarily, but what does it mean for, you know, the social makeup where America is heading? Yeah,

Paul Rivera  46:45

you know, I mean, you know, the, it’s not a, it’s not a new, new thing at all, you know, between it, you know, there’s, there’s a large South Asian population in the United States, there’s, there’s a large African American population, you know, it’s been a long time that the US has been, has been becoming a brown replace, you know, for, for, for lack of a better term, at least in terms of the Latino population. One side of it is that, you know, if you’re a business person, and in the United States, and you’re not somehow targeting the Latino population, you’re missing out on a huge, huge market, you know, so that, that part is, that part is super clear. But you know, as, as a Latino, myself, and somebody who’s concerned about about my community, I really love to see, see it go past that, you know, because that’s, that’s the consumer side of it, right? That’s, you know, marketing to Latinos is, is really sort of targeting them from as consumers, and I would love to see, the Latino population become much stronger in terms of them as a core of investment. And that, and that’s really, where a lot of the stress comes down, a lot of the sort of the problematics come down in a lot of ways, you know, if we continue to see, for example, this population expanding without really closing off the not just the income gaps, but the wealth gap, that’s there, you know, you’re you’re creating systemically in some way and a sort of permanent underclass. And I don’t particularly want to go into politics, either. But history shows that when you create a, a, an underclass, that that isn’t that doesn’t have that, that mobility and doesn’t have the wherewithal to, to move up, it’s bound to cause instability, it’s, it’s bound to cause all sorts of problems, you know, so I would love to see the country as a whole, but certainly, certainly the Latino community come to, you know, be a little more cohesive, focus more, as you know, as just I know, I’ve said it a couple of times, but it’s, it’s really important to us, you know, this idea of focusing on not just the the check marks of the American dream as we see it, but but really something that focuses more on, on valuing individuals valuing their purpose and our work, it sounds, it sounds a little bit dreamy, sometimes, but you know, it, make no mistake, Mark, our entire concept is that based on your purpose, based on your unique value, whether you’re an individual, an NGO, a team, small business, that if if you start from that core, that your financial position can be much stronger, right, that your wealth position can be much stronger and much more sustainable. And that’s, that’s sort of really what we’re going for, you know, something that that helps turn that tide a little bit and start making those inroads and, and building some of that, that wealth that gives the financial stability and the and I think ultimately the the economic stability, the macro stability that and there and the and the growth that we would like to see. Yeah, yeah, absolutely.

Gene Tunny  49:53

Absolutely. Can I ask you about, you mentioned businesses in the US I mean, You’ve got to you should be, you should recognise you got this growing market there, there’s large market businesses in the US. Is there advertising? Or there is? In Spanish? I mean, the advertising? are they preparing advertising materials and informational materials in Spanish? Sure,

Paul Rivera  50:19

sure. Yeah, for sure that they’re, you know, it’s sort of they’re sort of a bipolar situation, you go to you go to places like Los Angeles, New York, Miami, there’s, there’s billboards in Spanish, you know, and there’s, and there’s, you know, plenty of radio stations, and, and, you know, television things in, in completely in Spanish, and those are there. And then you see, sort of this growing core of smaller businesses in the US that are that are just sort of niche marketing, targeting, specifically the Latino, the Latino markets. There, you know, and a lot of it is, is really trying to bring some of the more authentic, culturally appropriate sorts of goods and products into into the market, but they have, you know, they have the same problem that small businesses have everywhere, but even multiplied, you know, because they’re because they’re Latinos, which is the access to credit. So the, you know, the, the growth potential there for a lot of these small businesses is really, really tough. The statistic is that less slightly less than 2% of venture capital in the US, goes to Latino entrepreneurs, you know, so it’s, it’s, that growth is is is slow and tough. But, but definitely, you know, the, the Latino population is, as I said, we’re, we’re, we’re, we’re almost 19 20% of the population. So there’s definitely, you know, advertising in that direction and products that are that are definitely targeted to that market.

Gene Tunny  51:46

Yeah, just occurred to me then. And then I mean, it makes sense that they’ve got Spanish language radio stations. Yes. Yeah, that that makes perfect sense. Okay. Paul Rivera, that’s been terrific. Any final thoughts? And please tell us where we can find out more about the work you’re doing?

Paul Rivera  52:03

No, this is this has been incredible. Thanks so much for, for having this conversation with me. I truly, truly appreciate it. You can find us we have our website, be act changed.com, you can find us also on Instagram on be dot Act dot change, you can find me on LinkedIn. I’m Dr. Paul Rivera. And we have also as I mentioned, my my wife and I asked her I said Alana and I are, are being changed together, we have a book that’s just been released called Creating your limitless life. It’s available on on Amazon. And there’s a there’s an accompanying workbook, at least for now, the Kindle versions are extremely, extremely low priced, I think it’s about 125. Australian. So it’s, it’s a really, really great book, it’s something that that’s really written from the heart and talks a lot about the personal experiences, and then translating that a little bit into, into what i’ve what I’ve at least, hinted at here a little bit, which is sort of our approach that’s based on purpose. Looking for alignment in your actions, finding the resilience, when things get tough, and, and, and really creating a legacy for yourself and seeing seeing your life or your business, your organisation as something that seeks to leave a positive legacy in this world and, and creating the pathways towards that. And, you know, you know, we wrote this from, from our perspective, as I said, you know, as Latinos, as people who’ve lived the immigrant experience, we’ve had so much tremendous feedback from all sorts of folks saying, you know, I’m a white male, and I really, I really, you know, resonate with, with the message is there and I’ve felt, you know, the imposter syndrome and the people pleasing and, you know, all of these things that, that sort of people feel they hold back and hold them back and from, from really carrying their life forward in a different way. So it’s, we’ve been really happy with the, with the success we’ve had, and our ability to get that message out. So if you get a chance, I highly recommend picking up the book, leave a review if you if you enjoyed it. And and that’s where we’re at, you can always find us as I said on the website, big change.com Very

Gene Tunny  54:14

good, Paul, I’ll definitely have to get the Kindle edition. One of the this is this is not necessarily an ad for Kindle, but I would say that one of the things that’s changed my life the most in the last few years has been getting a Kindle. So I guess I was slow to get into the get into the Kindle. But since I’ve got out I mean, it’s you’re just able to, to get I just read so many more books or different books that I wouldn’t look as the price I was lower price and I’ll try it out. So I love the

Paul Rivera  54:43

I mean, the device itself has gotten so much better to Yes, you know, with the screen and the battery life and all of those things and now you can make notes on them and all of that they’re tremendous. Yeah, it’s, and we’ve, you know, we had the great fortune to work with with a really excellent Australian publisher and getting this book out. So we certainly feel like we’re we have a spiritual home in Australia to to thanks to them. So that’s been a great experience as well. Yeah. Excellent.

Gene Tunny  55:07

That’s what I want to hear for. Paul Rivera. Thanks so much for your time. It’s been a great conversation. Really enjoyed it.

Paul Rivera  55:14

Absolutely. Thanks so much Gene.

Gene Tunny  55:19

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

56:06

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Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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Podcast episode

Enterprise China: what western businesses need to know w/ Prof. Allen Morrison  – EP171

Professor Allen Morrison has been studying China for over three decades, and he’s an expert on the Enterprise China model, the close relationship between business and state in China. Chinese companies take the lead from Beijing to help meet state objectives, including reduced dependency on the west. In return, they get competitive advantages over western businesses trying to break into China. In this episode, Prof. Morrison, from the Thunderbird School of Global Management at Arizona State University, talks to show host Gene Tunny about his new book with INSEAD’s Prof. Stewart Black on Enterprise China. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. 

What we discuss with Prof. Morrison

  • How the business model in China differs from the model in the west [01:50]
  • How the Chinese Communist Party oversees businesses in China [10:20]
  • What western businesses need to know when doing business in China [12:40]
  • Does China have an imperial ambition? [17:28] 
  • Companies which have done well and those which have done badly in China [22:29]
  • Challenges to the Enterprise China model and the CCP [27:48]
  • Gene’s takeaways from the episode [39:30]

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google Podcasts, Apple Podcasts, Spotify, and Stitcher.

About this episode’s guest: Allen Morrison

Allen J. Morrison is professor in the Thunderbird School of Global Management. Morrison previously served as CEO and director-general, senior advisor for global management education and executive education initiatives at Arizona State University. Before joining ASU in 2014, Morrison was professor of global management and the holder of the Kristian Gerhard Jebsen Chair for Responsible Leadership in the Maritime Industry at IMD. Professor Morrison was also director of the IMD Global CEO Center, which focuses on the challenges CEOs face while leading their companies in the global economy.

For further information about Prof. Morrison, check out his ASU page:

https://search.asu.edu/profile/2551923

Links relevant to the conversation

Get a copy of Enterprise China: Adopting a Competitive Strategy for Business Success:

https://amzn.to/3YMb1aI

Prof. Morrison’s article “Competing with “Enterprise China” vs. Chinese Enterprises” on the Thunderbird School of Global Management website:

https://thunderbird.asu.edu/thought-leadership/insights/competing-enterprise-china-vs-chinese-enterprises

William Kirby’s HBR article “The real reason Uber is giving up in China”:

https://hbr.org/2016/08/the-real-reason-uber-is-giving-up-in-china

Transcript: Enterprise China: what western businesses need to know w/ Prof. Allen Morrison  – EP171

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:00

Coming up on Economics Explored.

Allen Morrison  00:03

The Chinese model is the enterprise China model. If you want to do business, you will wait for the signalling and the support of the government, the government or the there that like the puppeteer is controlling this.

Gene Tunny  00:16

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny, broadcasting from Brisbane, Australia. This is episode 171 on enterprise China. My guest is Professor Allen Morrison of the Thunderbird School of Global Management at Arizona State University. Allen is the co-author of the new book enterprise China, adopting a competitive strategy for business success. In this episode, I chat with Allen about the close relationship between Chinese companies and the Chinese government and what that means for businesses wanting to compete in China. I also ask Allen about just how worried we should be about China’s global ambitions. Please check out the shownotes relevant links and information and for details they can get in touch with any questions or comments. Let me know what you think about this episode. I’d love to hear from you. Right now in my conversation with Professor Allen Morrison on enterprise China. Stick around to the end of the conversation for what I think are the big takeaways. Thanks to my audio engineer, Josh Crotts visit assistance in producing this episode. I hope you enjoy it. Professor Alan Morrison, thanks for joining me on the programme. 

Allen Morrison  01:30

Great to be here. 

Gene Tunny  01:33

Excellent. Allen, I’m keen to chat with you about your new book, Enterprise China. Could you begin please, by explaining what motivated you to write this book? And then what do you mean by Enterprise China, please?

Allen Morrison  01:50

Right. Right. Well, thank you. It’s good to be here. Thanks for having me. So I’ve been working in and around China for my entire professional career, well over 30 years. In fact, I was in China in Beijing in Tiananmen Square when they declared martial law. I’ve been a visiting professor several times in China, I’ve spent well over a year living in hotel rooms in China, advising Western companies, Chinese companies, also state enterprises in China. So my interest in background in China goes back more than three decades. What has fascinated me about China is that the story about China is very different than anywhere else in the world. And the business model is very different, how the approach to business is very different. In the West, we have long held the belief that if we invest in China, China will grow and it has grown. If we help them with technology, China will grow, and it has grown. And we have believed based on our own experience and values that as China advances up the per capita income curve that the public would hunger for democracy, China would open up would befriend everyone in the West. We also believe that as capitalism flourished, the role of the state would diminish. China has flourished, the economy has prospered the people are richer, 800 million people have been taken out of poverty. But the system didn’t change. In fact, the state is doubling down. And what has emerged is a very successful model we call the enterprise China model, where the state and the enterprise in a free market environment, a free market background, if you will have come together to create a very different model of competing, the model has enabled China to prosper. And we in the West are a not we’re not accepting of the model. We just don’t understand it. We are convinced it’s going to fail. It hasn’t failed and may not fail, and we don’t have a good solution for it. So that really prompted us my clue my co author, Professor Steward Black, was affiliated with INSEAD great business school, that really prompted us to better understand how the Chinese model works with the state and companies working together and how we in the West can best respond.

Gene Tunny  04:40

Gotcha. What I think is great about the work you’ve done, Alan, is that you’ve highlighted just how extraordinary this change has been just what’s been happening with China and there was an article that you wrote a couple of years ago Competing with Enterprise China versus Chinese enterprises, which summarises this, and I might just read this out, because I think it’s fascinating. In 2020, China dethrone the US from the top of the Fortune Global 500. In 2021, China extended its lead with 13 more firms on the list than the US, 135 versus 122. And I think that would, that would surprise a lot of people. So could you tell us a bit more about this enterprise China model, please? How did you learn about it? What is there a framework? I mean, are they are these companies? Are they been directed by the administration? I mean, how does it work?

Allen Morrison  05:39

Yeah, so enterprise, China consists of three types of Chinese enterprises, which captures most of the economy. Okay. On the one hand, we have state owned enterprises owned by Beijing, we’ll just say 100 of these firms. Not many of them. Many of the biggest firms in the world on that Fortune list are these firms. They are owned by the state, they’re an appendage to the state. The second level of firms are also state owned enterprises. But they’re owned by provincial governments, municipal governments, there’s 150,000 of these firms. Some of the big firms on that list are also in this set. But there are a lot of these firms out there, the third set are privately owned enterprises. These are firms like Alibaba, Tencent, and so on. But these firms are also heavily influenced by the state. And that owner influence comes in two ways. One is the state typically owns a small piece of these enterprises. They own 4% or 8%, or 12%, either of the parent or subsidiary organisations. So you scratch the surface of we’ve been quite, quite rigorous and looking at a whole swath of mid sized and large Chinese firms. Every single one of them has some component of Chinese ownership, albeit 4% 6%. So the second way they influence these firms is simply by, you know, through regulation or through signalling. So for example, you know, we go back to 2020, when, when Alibaba Jack Ma, Alibaba has, you know, market cap was $665 billion. Jack Ma himself personally was worth about $50 billion. And part of Alibaba is ecosystem is this company called Ant Financial, Jack Ma wants Ant to go public, it would bring in about 300 would value at $315 billion and bring in about $35 billion from the IPO, that would value add at more than Deutsche Bank, Credit Suisse, Barclays, ING, Goldman Sachs, together, huge. But then Jack Ma makes a few comments that this state viewed as disrespectful, shall we say? The IPO is shut off. Jack Ma is basically exile, the stock plummets in value. And this is just a signal to other tech companies that who’s in charge. It’s the state. And so the state can influence these and they influence them directly and indirectly, that what is very typical with these firms, even the privately owned firms are those that are traded in Hong Kong or those that are traded in the NASDAQ. These firms will partner with a state enterprise or a municipality, and they’ll say look, you know, municipality will say here’s the deal, we’ll give you the factory, we’ll give you the land. We’ll provide infrastructure, we want 6% ownership of your company. And we’ll give you discounted finance. So the Chinese partner, the Chinese, privately owned enterprise, they work with the state, then the state will say we’d like you to work with another company, a sister company, and so they’re matchmakers that put it together. This is this kind of ecosystem. If you want to compete in China, you have to be part of that ecosystem. And that we kind of refer to as the enterprise China It ecosystem. Right. Okay.

Gene Tunny  10:03

Now, this is yeah, this is interesting. I think I understand how they’re getting a competitive advantage. It’s because they’re getting some support from the state. Is that right? You mentioned that they might get land for a factory or there could be some rights, some incentives.

Allen Morrison  10:20

Right, but it’s more than that. It’s the ability to play in it to be in the game. Okay. So if you want to compete in China, you will be part of this ecosystem. You know, the, the Japanese had their model, the Keiretsu Model, the Koreans had the Chaebol Model, the old Hong’s of Hong Kong, it’s these interlocking ownerships and so on, the Chinese model is the enterprise China model. If you want to do business, you will wait for the signalling and the support of the government, the government or the there, they’re like the puppeteers controlling this. So it’s not just that we’ll give you a little discount on the financing, it’s not just that we’ll give you an old factory, it’s that if you want to play the game, here, you will listen to take direction from the subordinate to the state. One other thing many in the West don’t recognise is that companies in China with 50 or more employees must have on site and office of the Chinese Communist Party. They have a representative on site, medium companies, well, any company over 50 employees. So they’re all listening waiting for the signalling of the state. So it’s a matter of, you know, come almost arranged marriages and partnerships, that, that and I don’t want to say that that government is always, you know, always has tremendous foresight, they don’t. But even if the initiative is taken at the company level approvals, and a wink and a nod from the government, at the state, municipal level, are, are essential. Now I have to say, that’s a Chinese from a Western perspective, you have to think so what are we as are, what do we do about that? We want to do business in China? How do we integrate ourselves with that model? And that’s what much of our book is focused on? What do we in the West do about this?

Gene Tunny  12:29

Okay, okay. Well, I might ask about that, then, Alan, what do we do about it? I mean, I guess when you’re in Rome, you have to do as the Romans do, is that what you’re arguing in your book.

Allen Morrison  12:40

to some degree, it’s obviously not black and white. The first thing we look at in our book is, is we create a model or identify a model for strategy involving China. And on the one hand, one kind of strategy for China involves companies that are primarily focused on accessing China as the factory of the world. So I want to do business in China because I can buy, you know, my cheap couches or coffee pots, or whatever that is they become the factory that was so I’m interested in. That’s my, that’s my focus for China. There are other Western companies that are focused on the Chinese market. So I want to be in China because I want to access corporate or individual customer accounts. And in many industries, China is the second largest market in the world. And in many industries, it’s the biggest market in the world. So your approach to China depends in part on why you’re there. Most companies in the West there’s over a million companies in the West, doing business in and with China today, a million companies. Most of them are small, have a small, relatively inconsequential presence. They’re basically buying an option. They’re there, they don’t really understand why they’re there. They kind of burned the box checking business. Those companies are at risk. They’re at risk. So number one is understand why you’re there. Secondly, is to think very carefully about the industry you’re in because China has targeted 10 industries. Where if you’re a Westerner you’re going to be in deep, deep trouble. If you don’t think you know two or three steps ahead of the Chinese. These are the industries we typically think of associated with the Fourth Industrial Revolution, the kind of the industries of the future, robotics, pharmaceutical, aerospace, advanced materials. The Chinese have put a big umbrella up You know, and they keep reading, readjusting the definition. But these are the industries most in the West who would say, look, we’d really like to be there. In those industries, if you’re a Western company competing in those industries, the Chinese have been clear about this. They have identified market share levels, hurdles, and they go from 70, to 80, to 90%, domestic production domestic market share in these industries. So if you’re an aerospace, it’s going to be about 80% of the industry must be controlled by Chinese enterprises, period, doesn’t matter how good your technology is, doesn’t matter how good your service is, your market share it has been determined will be reduced to at most that 20%. But you’re gonna have to cut that up and share it with other Western firms. So be very cognizant of what the Chinese are after the Chinese are, after three things, they’ve been very clear about this, it’s been published, it’s not, you don’t have to be a spy and go in there and take pictures of their, you know, secret ID documents, their strategy is based on three steps. Number one, we want to become less dependent on the west, we want to reduce our dependency. Number two, they want to dominate domestically. And number three, they then want to go out into the world and lead the world to flip that dependency relationship. So we in the West are dependent on China. That’s that’s their approach. And they’ve been doing this for 30 years. And they have articulated it since the early 2000s. And so in the West, we need to be very aware of, of what we’re up against. That does not mean that China wants to decouple from the west. I think the worst thing that could happen to China is it would decouple from the west. And by the way, it would not be a good thing for the West to decouple from China. But they clearly have an engagement strategy and a strategy. That’s whose objective is to ultimately win and flip that dependency relationship.

Gene Tunny  17:28

So do you think that’s the main thing thereafter? It’s, it’s reducing that dependency, rather than? I mean, to what extent do they have imperial ambitions I suppose you could call it was one of the concerns we’ve had in or people in Australia have had is that there are concerns about espionage. And we blocked the telecommunications company, Huawei from being involved in our 5g rollout. So to what extent should we be concerned about that? It’s not just about them, wanting to become more independent. It’s a broader, it’s a bigger game.

Allen Morrison  18:08

You have a former, well, relative of mine, Morrison, who was the prime minister who lashed out on some of this. So yes, by the way, if we’re not closely related, okay. Don’t blame me. So look, I think that the Chinese to understand the Chinese you understand need to understand the history. Every country has its history. But China fresh in China’s memory is what happened in the 19th century when China was subjugated by the West by Britain, to a lesser degree, the US, but you know, that particular animosity visa vie, the Japanese, it was a last century is the century of embarrassment for them. A humiliation is what they refer to it, as they do not ever want to go back to that. They that is, even though it’s 150 years old, it is still part of the Chinese psyche. So they, rather than think of them as imperialist, I would think of them more than seeking respect and seeking a return to what they we all refer to as the Middle Kingdom of China. You know, for 900 years, China led the world as the world’s biggest, most influential, most prosperous economy. And they want to return to that. And so, you know, to the degree imperialism, you know, helps, sure, they’re not going to push back on that, but it’s not. They’re not culturally, an imperialist by mentality, as opposed to say the Russians. So it’s about respect. It’s about power. It’s about control. It’s about influence. More than I would think it’s about imperialism. Now, does that mean we shouldn’t be a lot smarter about it? We should be a lot smarter about how we think about China. And we’ve been, I think, pretty naive about the Chinese. And we’re starting to wake up in the West about what it means to contain the ambitions of China.

Gene Tunny  20:26

Right? And what does that mean for a company say that? I mean, there are plenty of Chinese companies that are operating in the West, does that mean we need to have closer there needs to be closer scrutiny? There’s a lot of talk about tick tock in the US, for example. Do you have any thoughts on that?

Allen Morrison  20:45

Yeah, I mean, that what you need, just think about the kind of mindset I hope we can communicate with with this book, is when you think about China do not think about it as Chinese enterprises, as individual entities, think of them as having an umbilical cord back to the state. So when you do business with Chinese enterprises, you are ultimately doing business with this whole ecosystem, and ultimately, with the state, so it doesn’t mean you can’t do business with them. But you have to recognise that whatever you share, whatever you give them will be absorbed and spread throughout the Chinese eco ecosystem. In terms of best practices. I think that one of the keys to the you know, for the West, is to understand how that model provides big advantages to China, but also provides some significant barriers and problems for the Chinese.

Gene Tunny  21:55

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  22:29

Now back to the show. Allen, do you have any examples of companies that are engaging with China? Well, and then perhaps some that have been burned or that are doing it badly?

Allen Morrison  22:42

Yeah, absolutely. So the companies easily that had been burned or doing it badly. I think they come in a couple of different categories. The first stars are many of these tech companies, which have been pushed out of China. These are companies like Amazon and Uber, typically tap tech companies that have through because they’re threatened because of their target industries, their initial investments have been wasted, and they’re out of the country. So it’s not difficult to find those examples. Companies that have done it well, in China. I think I would, first we and we do this in the book identify kind of a continuum of what that means and how they’ve done it. But on you have companies like for example, Honeywell, Honeywell is approach to China has to basically go in with the following premise. That is, they want to be in China, for China. They’re not in China, you know, to suck profits out to invest in another part of the world. They are in China to look after the Chinese to as best they can to become an insider in the Chinese market. And because of that they’ve had a CEO who has become fluent in Mandarin. He just recently retired. They’ve been fully engaged with Chinese partners, ingratiating themselves with the Chinese ecosystem. And so other companies like Coca Cola have done the same. They have a myriad of partnerships in China. They every one of these has some tie in, typically with a municipal government. Their approach to China is to be in China, for China. Then you have a company like Yum brands, these are the guys who are Kentucky Fried Chicken, Pizza Hut. They went so far as to say if we’re really going to be in China for China, we cannot have ties back to the corporate parent.  And there are some reasons for that because of public relations because of oversight. And so they have determined that for them, they need to create a separate publicly listed company, Yum China, which is only focused on China. And there are some good reasons for that. By the way, it does protect the parent company, from Chinese behaviours that many in the West will find embarrassing. So we’re seeing companies that are having problems in China, are the ones who, despite making lots of money in China, are compromising some of their values to be there. We’re seeing examples, left, right and centre, whether it’s Daimler Dolce and Gabbana, or the NBA National Basketball Association, whether it’s Apple, Apple, which has a heavy overhang in China, heavy exposure to China, they have made in many ways deals that would be unacceptable were they to be brought to full light in the West. One of those, for example is their iCloud, basically data farm, in that they’ve created with a Chinese partner, which they had to do to bring on a partner in order to do this. But they then stepped out to let the partner manage it gave them the encryption codes. And this partner has ties to the state. So if you are using Apple in China, the state can access all of your data. And by the way, that includes a data that could compromise potentially your identity and your and your personal security. In the West, Apple would never engage in this kind of behaviour. Nor if it was really made public. With China, would Apple be able to survive? I think the torrent of negative press that that would overwhelm it. So I think you’re seeing a lot of these deals going on, to make peace with China, through apology tours, that in the West, are going to cause some problems. So working in that, you know, that model of in China for China is going to require Western companies to rethink some of their global values and the degree to which they need to cut the umbilical cord, just like we’ve seen with young China.

Gene Tunny  27:48

Yeah. Okay. One last question, Allen. Can I ask you about how sustainable you think this enterprise China model is given that economists would argue that this is not the best way to run a company or that it’s going to you’d have less efficient corporations? I mean, how sustainable is this and also, there are the issues with the lack of democracy in China, just how sustainable is this whole model in the next, over the next decade, two decades, etc.

Allen Morrison  28:23

You know, we have been more than happy to interpret China through the prism or the lens of the West, which may not be the most effective lens out there. And let me add the other caveat, we’ve been wrong about China too many times to to do predict with any accuracy, what’s going to happen. So here’s a couple of things that the Chinese have to deal with, which are significant problems. Problem number one is the shift from what we call vertical China to horizontal China. Vertical China’s a command and control going back to Mao the state controls everything, you know, why did your factory makes shoes you know, pairs of shoes because we’re only told to make the left shoe and not the right shoe. Just stupid things that come when the state controls everything. That’s traditionally been the model, horizontal China’s where we have empowered consumers educated informed with resources with money, the ability to travel, the ability to think for themselves. And horizontal China also includes municipal you know, mayors and governors, which are pulling and tugging, you know, and trying to fight the horizontal model of Xi Jingping. So there is that pressure out there. And that pressure is not going away. If anything, it’s going to get worse. Number two, despite China’s efforts to break the dependency curve, the dependency cycle, they have not been able to do that in the areas of highest technology, which, you know, I’m thinking semiconductors microprocessors, for their most advanced three nanometre chips. They are wholly dependent on Western technology, including Taiwan Semiconductor, which is, you know, across the straits. They don’t have the capability to do they barely have, they certainly don’t have enough capacity by indigenous Chinese firms even handle five nanometer technology at a level that would satisfy demand. They have not been able to do this. They’re several generations behind. They have committed $250 billion to kick starting this. But there are some reasons why I’d be concerned that they’ll be able to do this, I’m not sure they will be able to do this, because we in the West have increasingly stopped allowing the shipping of tools, foundry tools and so on for these plants. Number three, there are some phenomena in China called a byline, which translates to let it rot. That’s it. That’s this kind of younger millennials, the Gen Z age who are, you know, 28 years old, who are because of the clamp down on technology in particular, finding themselves unemployed, underemployed, and spend their days playing video games, and fighting and chafing against the state, the state with the motto in the West, translated, let it rot, we hope the whole system burns down. So there’s this anger palatable. I would also argue demographics are, are probably China’s worst enemy. We saw this exact model play out in Japan, where we saw the Chinese population peak in the 90s, has been on a steep decline. It’s paralleling that in China, Chinese population reached its peak in about 2007. Between now and 2050, China’s slated to lose about 230 million people, 230 million people, when the economy shrinks by that amount, the only way the economy can keep its own, if you will, is by dramatically increasing its productivity levels to offset declining population, or they can open the door and have all kinds of immigrants coming in. There’s not a chance of the second happening. And, so can they increase productivity? Not like they have in the past. They have many internal problems, those agrarian farmworkers who left to come to the cities, that’s all played out the ability tp increasingly used capital, that’s to drug jackup product that is decreased, particularly as the economy gets so big, this issue of the challenge of numbers. So China is facing some serious headwinds. And we haven’t even talked about the political blowback from the west restrictions increasingly blocking the transfer of technology. Huawei, you mentioned earlier, Huawei is in many ways, yes, absolutely world class company. But pretty much every major technology advanced made by China made by Huawei, was made outside of China at Huawei facilities outside of China. So China’s seem very adept at importing expropriating technology from the West, not the greatest at doing it in house. They are facing a lot of headwinds, China.

Gene Tunny  33:52

Right. Okay. So I mean, are you saying that we’ll look at there are a lot of challenges. So look, I mean, who knows what could happen? I mean, there is there is this growing dissatisfaction. That we’ve got the demographic issues. So yeah, the whole, so the legitimacy of that administration. Am I right, that it was based on strong economic growth since the 80s. Since the liberalisation and bringing hundreds of millions of people out of poverty that underpins the legitimacy of the administration. Right.

Allen Morrison  34:30

right. Yeah, it does. And, of course, COVID crackdown hasn’t helped. Yeah, I’ll just share one story with you. And maybe the the audience would be interested in this in the late 1980s, when I was in in Beijing, and we had all those demonstrations and martial law. I had dinner with a very senior university administrator, very senior, I don’t want to embarrass him or implicate him. And we were talking about These demonstrations and the tanks rolling and so on, I asked his opinion, his opinion it kind of shocked me, very informed guy. He said, first off, I doubt that the demonstrations really took place the way they’re portrayed in the West. Like, really? Secondly, he said, but even if you’re accurate, he said, What you fail to understand in the West is that in China, we don’t care particularly about democracy. I said, Really, that’s shocking to me. He said, Here’s the reason what I am one vote. In a country with over 1.2 billion people. My vote has no impact on anything. What I care about, is economic prosperity. That’s what I care about. And so when you look at this, from that perspective, where that stability and prosperity, what will propel the regime forward is prosperity, economic growth, and so on, when you start to make compromises, and when you start to say, no politics trumps prosperity, politics trumps economic growth, then you’re going to see this, you know, empowered middle class and upper class begin to change more and more and more, I’m by no means predicting that, you know, that we’re going to see a change in regimes in Beijing, what I am predicting is that tensions within China are going to continue to rise. And either the government will clamp down on that, or we’ll have to become more open. And I’ve taken great, you know, satisfaction and seeing Xi Jinping relaxed, some of those COVID restrictions, based a week or 10 days ago on kind of this groundswell of, of opposition. So I think the Chinese are in for a very interesting 5,10, 15 years going forward. I’m not predicting that, you know, we’ll see a groundswell of change. But I do think that the Chinese model will evolve. One final thing I will say about this is that, it would be a mistake to think that Western companies, by in large, are losing money are getting somehow hammered in China. Some of Western companies, most profitable businesses, one of the kind of ugly secrets out there, they’re coming out of China. There many companies are making embarrassing amounts of money in China. And the Chinese are fine with that. The Western companies are kind of hiding that obfuscating that through transfers, through creating, you know, trading centres in Malta or something, and funnelling money, very smart about this. Where the Chinese will get very upset is if you’re in one of these targets, very upset, and focus is your one of these target industries. And if you refuse to play in their sandbox in their ecosystem, you can figure out how to do that. And you can get out of the way of these strategic industries, China can and will remain or can be and will remain a very viable market for Western firms into the decades ahead.

Gene Tunny  38:37

Okay. Oh, that’s, that’s been great. I think it’s a well researched book, published by Wiley. Is that right? So very reputable.

Allen Morrison  38:46

Wiley and yeah, thank you. We love the book.

Gene Tunny  38:50

Yes, absolutely. So I’ll put a link in the show notes to it. So people who can get a copy. Any final thoughts before we wrap up?

Allen Morrison  38:58

No, I’m delighted you’re you’re talking about this. China’s a huge issue of the day. I will only say that our book steers clear of politics, and focuses on what’s happening with business and what business leaders can do to prepare their companies better in a world where China is not going away.

Gene Tunny  39:19

Okay, gotcha. Righto. Well, Professor Allen Morrison, thanks so much for appearing on the show. I really enjoyed the conversation.

Allen Morrison  39:27

Thank you so much.

Gene Tunny  39:30

Okay, so what am I big takeaways from my conversation with Allen? My first takeaway is that enterprise China, this close relationship between business and government has a wide reach, and it has huge implications for companies wanting to do business in China. In the words of Allen and his co author, enterprise, China extends far beyond this core cluster of state owned enterprises and includes virtually all privately owned enterprises of any significant size or importance. That’s pretty concerning if you’re trying to compete in China. This leads into my second takeaway, but it is very challenging for Western businesses to do business in China. Various Western companies such as Uber have lost a lot of money trying to break into the Chinese market. It couldn’t compete against enterprise China. I found a great quote from Harvard Business School professor William Kirby in 2016, about what happened with Uber. Uber is leaving China, not because of interference from its rivals, but because of interference from the state. It was worried about the prospect of unfavourable national regulations that would damage its business in China. Disney is another prominent example of a company which has had difficulties in China. As Allen and his co-author noted the book Disney’s 2020 Milan film was not only bad for Disney’s reputation in the West, because it was filmed in a region where Uighurs are oppressed. But the Chinese government shut down coverage of the film in China, so very few Chinese people ended up seeing it. The government apparently was concerned that a lot of the media coverage drew attention to China’s human rights abuses. Reflecting on what happened with Disney, Allen and his co author write in the book, beyond appeasing the Chinese state with carefully chosen words and at the ready heartfelt apologies. Western companies face an even larger challenge, responding to rules and regulations that are inconsistent with their home country values. Many of these rules govern the collection and sharing of sensitive data with the Chinese state. As an example, many Western executives in China report being pressured to facilitate China’s social credit system that uses data on such things as credit scores and parking tickets to determine social benefits, and even employment opportunities for Chinese citizens. Okay, that’s very concerning for sure. My third takeaway is that China faces some big headwinds, which will challenge the enterprise China model and the regime in the coming decades. These include China’s ageing and declining population, demographic changes will reduce the rate of economic growth. As I discussed with Allen, economic growth in recent decades has helped the regime stay in power. And I expect that as growth slows, the regime will become even more unpopular as an economist to expect that the enterprise China model will ultimately deliver inferior results to our more free market style of capitalism in western economies. Okay, those are my big takeaways from my discussion with Professor Allen Morrison on enterprise China. Do you think I pick the most important ones? Do you agree or disagree with my takes? If you’re willing to share your own takeaways from the episode, please send them to me via contact@economicsexplored.com or send me a voice message via SpeakPipe. You can find the link in the show notes. Thanks for listening. Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplored.com and we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye

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