The C-A-P model discussed in the previous section can be used in several ways:

1. 1. Given adequate data availability it can be used to analyse the size and durability of excess returns associated with individual segments of domestic and international financial markets by applying conventional market-structure analysis. In the case of imperfect competition, it can be used to identify the importance of scale economies in the financial services industry.

2. 2. It can aid understanding of the linkages that exist between different types of financial services, and help to identify the importance of economies of scope in this industry.

3. 3. It can be used to explain industry internationalization both through the value coefficients embedded in individual C-A-P cells and by superimposing on the basic structure economies of both scale and scope.

4. 4. It can be used to identify appropriate public policies towards the financial services industry in a competitive structure-conduct-performance context.

5. 5. It can serve a normative function by identifying coherent firm strategies that combine correctly-identified market characteristics and firm-specific advantages.

In the latter context, a firm in the financial services industry faces a given C-A-P cell configuration and linkages at a point in time, alongside a particular institutional capability profile. Some of the cells have already been accessed, and some form a feasibility-set for possible further development. The firm's expansion path—and the desired cell-configuration of its business—depends on the level of perceived risk-adjusted economic returns associated with the feasibility-set of cells, resistance lines impeding access to those cells, and the assessed value of inter-cell linkages. Successful players must therefore identify (1) the specific sources of their competitive advantage; (2) those cells where this competitive advantage can be applied, adds value, and is sustainable; and (3) the competitive potential inherent in the cell-linkages. Application of a competitivestructure framework, such as the one presented here, will help identify the cells and cell-clusters where significant returns based on market power are likely to exist, and (equally important) where they are likely to be durable.

In recent years Islamic internationalism (Schulze 1983, Siddique 1985) has become a subject for analysis. There has also been much discussion about how Islam has been reshaped by local culture. In fact, it is generally understood that the elements of unity in Islam have come to be mediated by the differences and controversies between regions and various ethnic and cultural entities. Indeed, within the framework of homogeneity in orthodoxy, one is tempted to forget that there exist variations in Muslim social life which are experienced alongside regional, cultural and linguistic differences. The tendency to view homogeneity in terms of Islamic orthodoxy, and variety in terms of geographical differences leads us to forget that there have always been generational differences in the nature or character of ideal scholars and types of Islamic intellectualism. Such variations, one might argue, perhaps have denominators which lie beyond the rigid borderlines of religious beliefs and scholarly learning in Islam. We will argue here, however, that these variations result from broader societal change. Colonial rule and the introduction of capitalist relations in the late nineteenth and early twentieth centuries, the bureaucratic rule of new nation-states and their ideologies in the 1950s and 1960s, and access to the global media and information networks from the 1980s might also be considered as factors influencing the physical, psychological and spiritual attitudes of religious scholars and intellectuals. This study explores how these societal factors have shaped the variations in Islamic ideals which are to be found at the generational level.

The focus will be on three different generations of Indonesian scholars and ‘Ulama who have studied in Cairo, and in al-Azhar in particular. This form of religious exchange no doubt has been established through the cross-regional networks of “high culture” in Islam, implying an element of unity in this educational pursuit across generations. A closer look at these different generations would reveal, however, that although an ‘Atim from Morocco can understand his Indonesian colleague perfectly, ideological differences can be observed between various generations of ‘Ulama from the same country.

Global Overview

The global economy continued to be anaemic in 1992, with a flagging recovery in the United States and Japan slipping into a recession in the first quarter of the year. Other major industrial economies are in no better shape, but economic reforms for market-led growth are occurring speedily, from the former Soviet Union and Eastern Europe to China and Mexico. The world has also seen much economic pluralism with the loss of political and economic hegemony of the United States, leading to the emergence of a multipolar global trading system.

The new paradigm in international trade looks at shifts in the composition and direction of direct foreign investment in tandem with new patterns of locations of multinational corporations (MNCs). This has been prompted by industrial restructuring, changes in technology, and supply and demand in an increasingly borderless world There is also a decline in effectiveness of the traditional gatekeepers of international trade (General Agreement on Tariffs and Trade, GATT) and the international financial system (International Monetary Fund, IMF).

Regionalism has grown apace, coexisting under a framework of globalism. Whether in response to moves in Western Europe and North America or out of its own accord, the Asia-Pacific region has also embarked on various concepts and configurations of an economic community. Fifteen economies in the Asia-Pacific Economic Co-operation (APEC) forum and twenty in the Pacific Economic Co-operation Council (PECC) currently constitute the more active Asian-Pacific groupings, apart from other efforts.

Within the Association of Southeast Asian Nations (ASEAN), more innovative ideas have emerged, based on private initiative as the locomotive of growth. An APEC-like proposal for the East Asian Economic Caucus (EAEC), including the six ASEAN states, Japan, South Korea, Taiwan, Hong Kong, China and even the Indochinese states, was mooted by Malaysia.

Few issues are more important in setting the agenda for economic growth than the structure, conduct and performance of a nation's financial system. Standing at the centre of the transactions and resource allocation process, high performance financial systems are increasingly important as determinants of sustainable economic progress and stability. This is as true domestically as it is internationally. National financial systems require an efficient “window” on global sources and uses of capital, as well as market developments and financial technologies that change in substance and form at a rapid pace. Few countries can afford to be isolated from these developments—especially as they develop mature industrial structures and rapidly evolving services sectors—or fail to create and maintain domestic financial systems that can eventually meet world performance standards.

This study outlines the framework of high performance financial systems and the parameters for financial firms operating in them. We begin with an intuitive structural model of financial intermediation, and discuss the various stages of its evolution in terms of static and dynamic efficiency characteristics. We then consider issues facing players in, and users of, the financial system. We emphasize strategic positioning alternatives facing banks and other types of financial institutions, and the principal determinants of their competitive performance. This includes the critical role of regulation as a major factor affecting the performance of the financial system itself, both in the context of national economic growth and competitiveness, and as a factor in defining the future of various types of financial firms.

The study also deals with a critical and controversial dimension in the design of the financial system, that is the relationship between the structure of financial institutions, and the linkages to ownership and the control process in industry. How countries deal with this issue can have dramatic effects on both the financial system and the fundamentals of industrial performance.

The end of the Cold War is often interpreted as the victory of capitalism and the defeat of communism. But what is “capitalism”? Look- ing around the world, there are many countries where the economic system is considered a capitalist economy. Nevertheless, capitalism differs from North America to Western Europe and Japan, from East Asia to Latin America. What are the minimum common denominators of capitalist economies? What are the major factors which differentiate one capitalism from another?

In my view, despite apparent differences in many respects, the capitalist economies seem to have at least the following two common denominators.

First, the existence of private enterprises, which are owned and managed by private citizens who seek greater profits through a variety of economic activities on their own initiative. Private ownership of the means of production and distribution is a very important element. Of course, not all are entirely free to act, and all of them have to comply with regulations, controls, and guidance of the state to different degrees, but they are at least privately owned and managed. In many capitalist economies, there are state-owned enterprises, but even in the countries where the state-owned enterprises are very influential, the areas they cover are still a part of the entire national economy. There are an increasing number of countries where state-owned enterprises are gradually privatized.

The second common denominator is the market mechanism, through which prices are more or less determined by market forces, that is, the balance between the demand for and the supply of goods, services, and capital. Of course, in many capitalist economies prices are regulated when the supply of certain items is not sufficient, or when control of the prices of particular items is considered crucial for the entire national economy, or in cases of national emergency. Even then, however, the authorities are prepared, perhaps reluctantly, to adjust these controlled prices if and when they clearly divert too much and too long from the equilibrating level of demand and supply.

The ability of financial institutions to exploit opportunities within the C-A-P framework depicted in Figure 3.1 depends on a number of key firm-specific attributes. These include the adequacy of the institution's capital base and its institutional risk base, its access to human resources, its access to information and markets, its technology base and managerial culture, and the entrepreneurial qualities of its people.

Adequacy of the Capital Base

In recent years, financial institutions and their regulators have started to pay increasing attention to the issue of capital as a source of competitive power as well as prudential control (BIS 1986). This has always been true for activities appearing on the balance sheet. But with increasing concentration of domestic and international finance in the securities markets, the role of capital has become important as the principal determinant of risk-bearing ability in securities underwriting and dealing, as well as in off-balance sheet activities. One step removed, a large capital base that allows an institution to be a successful player in securities underwriting and dealing also may enable it to undertake mergers and acquisition activities, private placements and other value-added services for its clients.

Capital adequacy thus conveys a decided competitive advantage in bringing specific products to specific international markets, in maximizing firepower and reducing costs in funding operations, in being able to stick with particular clients in good times and bad—thus being considered a reliable financial partner—and in achieving compliance with capital requirements mandated by the regulators.

The Institutional Risk Base

Financial institutions fund themselves by creating financial assets held by others. In a deregulated environment where financial institutions are forced to bid for funds, the perceived quality of an institution is an important determinant of its ability to fund itself at the lowest possible cost. The level of embedded exposure to institutional risk has become particularly significant in the interbank market, and in the securities industry, leading to a substantial spread in funding costs between institutions and in erosions of funding availability from time to time, particularly in crisis situations.

In sketching an American perspective on economic. development, capitalism and democracy, let me* begin by asserting that the fundamentals of human nature are universal. The profit-maximizing model beloved to classical economics exhausts neither the range of mankind's motives nor its capacity for folly. Still, history suggests that rapid material advancement depends on harnessing the acquisitive instinct — greed, if you must, or as Adam Smith put it, self-love. Recall Smith's premises:

The economic arrangements based on these observations and premises we call capitalism. Our century has been the testing-ground for alternative theories of economic development that purported to be based on more attractive motives, in which each would contribute according to his abilities and receive according to his needs. And Smith's invisible hand could be replaced by the wisdom of central planners guided by modern science. This debate was settled at Berlin in 1989. Economically, the supposed development exploits of socialism were revealed as a fraud. And morally, as a basic premise underlying an economic system, the alternative to greed was revealed as terror.

Given this experience, it can be distracting to talk of an “American” path to development and an “Asian” path to development.

In Chapter 1, it was established that before the French colonial period, the ethnic Chinese community already played an active and significant role in several sectors of Vietnam's economy, for example, trade, mining, and handicraft. The French colonial period brought die beginnings of a modern capitalist economy, and how the Chinese business community adapted to this new challenge and expanded their role in it were to have a long-lasting effect right into the independence years. This chapter will look at the extent to which the Chinese have established themselves in the economy as a whole and in the individual economic sectors of the country during the years of the French, and thereafter in the Republic of Vietnam (ROV) in the South after the country was partitioned in 1954. No attempt is made here to look at the economic role of die Chinese in the Democratic Republic of Vietnam (DRV) in the North for two reasons. Firstly, the ethnic Chinese community was not that large in die North and secondly, after 1954 the DRV started to establish a centralized economy which eventually so marginalized private capital, whether of Vietnamese, ethnic Chinese, or foreign ownership, that it became irrelevant.

A common factor ran through the shifting patterns of the ethnic Chinese community's participation in the economy. That was the shaping force of die politics of whichever regime was in power. Starting with the French colonial period, Chinese enterprises engaged themselves mainly in commerce and a few processing industries such as the milling of rice. They refrained from investing heavily in other industries because the French excluded local and other foreigners (Chinese) from die industrial sector. It was not till after the Nanjing Agreement between France and China on 16 March 1930 that die Chinese in Vietnam got their right to participate in foreign trade and industrial activities.

The history of Chinese settlement in Vietnam evolved through several stages. The first massive influx came into what is today North Vietnam as long ago as 214 BC; subsequent waves were to follow, brought about by political instabilities or dynastic changes in China. Vietnam had traditionally been a refuge for defeated soldiers and fugitive scholars from China. These early settlers were assimilated through the centuries and no extant ethnic Chinese community in Vietnam could trace its roots directly to those times. Vietnam's rulers had also deliberately crafted state policies to assimilate Chinese immigrants, one significant period being from the fourteenth to the sixteenth centuries. So what remains identifiable as centres of Chinese settlement belongs to more recent history, the second half of the seventeenth century. Then there had been gathering points of Chinese immigrants in the northern and central parts of Vietnam such as Thang Long, Pho Hien, and Hoi An. Those Chinese communities then were engaged mainly in trading and handicraft. However, their trading activities were not maintained and developed in the centuries that followed. Most of them did their seasonal business and after a period of time returned home to China or emigrated to other countries.

But from the late seventeenth century onwards, historical and socioeconomic conditions permitted the beginnings of a Chinese migrant community as a relatively permanent entity within the ethno-demographic and socio-economic structures of Vietnam. There was, first, the large inflow of Chinese immigrants to the southern part of Vietnam. They congregated in distinct areas, being permitted to do so by the ruling Nguyen lords at that time. The relatively large numbers and the longevity of these communities saw the birth of community organizations based on dialect affinity and kinship ties. These were known as bang or clans. Business being a major lifeline of the Chinese, a Chamber of Commerce was also set up together with other kinds of business associations based on trades.

Intellectual interest in the growth and study of democracy is not a post-Cold War phenomenon, but its intensified interest is. The last decade produced several projects focusing on transitions to democracy in developing countries, the conditions facilitating the emergence of democracy, and the transition process itself, to better understand the opportunities for liberalization, the breakdowns and the reversals. Recently a new question has been asked, that is whether the widespread democratization process will yield similar end-products in different parts of the world which are endowed with vastly different heritages and history, or whether we will see the emergence of variants in democratic models.

In the same way, the growth of the capitalist system and practice of a free market in each country and region may be shaped by individual and special pressures and forces which in some situations lead the state to play a role not anticipated in the traditional free market model.

The differences in the capitalist, free market model of East Asian countries have been observed to be distinct from those in the industrialized West, and most certainly different from that of the United States.

It has been the growing concern of many academics and policy-makers that in the post-Cold War era, these differing perspectives and practices of democracy and the free market could become the substance of the new ideology debate in the coming decade between countries in East Asia and the West, led by the United States.

To bridge the gap and to provide a forum for an exchange of views and discussion, the Asia Society, the Institute of Policy Studies, the Singapore International Foundation and the Institute of Southeast Asian Studies organized a conference on “Asian and American Perspectives on Capitalism and Democracy” from 28 to 30 January 1993 in Singapore. The conference brought together a number of distinguished academics and journalists from the United States, Japan, Korea, Taiwan, Hong Kong and the ASEAN countries to reflect on the two key themes.