The Four Pests

By TAN Kee Wee
(MediaCorp 938LIVE’s Money Talks, Monday, 6 September 2010, 7.20 am, 9.20 am, and 7.20 pm)

Some fifty years ago, between 1958 and 1962, China embarked on an economic policy which is better known as the Great Leap Forward.

The aim was to transform China from a backward agrarian economy into a modern industrial one through communal living and taking orders from the top.

This method has some advantages. But its chief drawback is the elimination of the profit motive and the absence of alternative voices to correct mistakes. Usually, the end result is wide-scale economic inefficiency. The Chinese experience was no different.

Today, the Great Leap Forward is seen as a major humanitarian and economic disaster. A new book about this dark period, when China descended into hell, will be launched today (6 September).

This book, entitled “Mao’s Great Famine”, shows how very different reality is from the rosy picture painted by Chinese officials then. It is written by China scholar Professor Frank Dikotter from the University of Hong Kong.

One of the first actions that contributed to the disastrous Great Leap Forward was the Four Pests Campaign. The campaign was initiated by Mao Zedong to rid the countryside of rats, flies, mosquitoes and sparrows.

Sparrows were considered pests because they ate the grain and seeds. The campaign was successful. Agricultural output rose. But two years later, it was realized that sparrows were useful as they ate insects more than they ate the grain.

In fact, sparrows are a vital link in the food chain. They are particularly fond of eating insects and locusts. Killing sparrows was immediately stopped. But it was too late.

With no sparrows left to eat the locusts, the locust population multiplied. Soon, swarms of locusts attacked the Chinese countryside. It led to the Great Chinese Famine in which some 45 million people died.

The lesson to draw from the Four Pests Campaign is that there is always a fine balance in Nature. Remove one critical player, and the whole system collapses.

Today, our global economy faces a similar fate. We also have our Four Pests.

They are; number one – a weak US economy. Number two – a weak European economy. Number three – a bubble in the US bond market. And number four – a bubble in the Chinese property market.

Like it or not, these four pests keep our global economy in a dangerous balance. All the world’s money, which should be circulating in the otherwise healthy US and European economies, has found shelter in the US bond market and the Chinese property market.

US Fed Chairman Ben Bernanke recently emphasized his intention to do what is necessary to revive the US economy. In other words, remove one of the four pests.

The danger is, if he is successful, and the US economy revives, it would lead to higher interest rates. This could burst the massive bubbles in the US bond market and the Chinese property market. Our dangerous balance would be upset.

If Bernanke is not successful, and continues with his cheap money policy, it should lead to a weaker US dollar. This could trigger a US bond market sell-off which means higher interest rates again. This is also bad for the Chinese property market.

It looks like if Ben Bernanke is successful, he will upset the dangerous balance. If he is not successful, the dangerous balance will be upset as well. Perhaps, it is better for us to put up with the four pests.