Crypto-currencies, Bitcoin and Blockchain

Photos from two meetings I attended last week.

Some general comments on crypto-currencies:

1. Bitcoin doesn't really solve any payment problems, unless of course you are a paranoid libertarian who hates "fiat" currencies. But why should you trust the Bitcoin Foundation any more than you trust a central bank? (See Bitcoin dynamics.)

2. Most potential users just want something that works and don't care at all about crypto magic.

3. The high volatility of Bitcoin makes it unattractive as a store of value, except for speculators looking for price appreciation. It's possible that confidence in and the liquidity of Bitcoin (or another crypto coin) will rise to the point that this problem is eliminated. At that point things will get much more interesting. However, it's not clear what the timescale is for this (but see point 7 below).

4. Blockchain processing is extremely inefficient and has a high cost overhead.

5. Ethereum, with its Turing-complete blockchain operations, does make possible low-cost derivative contracts, insurance, etc. But I have yet to hear a convincing case for a killer application. Gambling is an obvious use, but the US government has shown a strong inclination to pursue those involved with illegal online gambling.

6. Innovation in payment technologies is long overdue, but because of positive network effects it will probably be a big player like Apple or Google that finally changes the landscape.

7. One interesting scenario is for a country (Singapore? Denmark?) or large financial entity (Goldman, JPM, Visa) to issue its own crypto currency, managing the blockchain itself but leaving it in the public domain so that third parties (including regulators) can verify transactions. Confidence in this kind of "Institutional Coin" (IC) would be high from the beginning. An IC with Ethereum-like capabilities could revolutionize the financial industry. In place of an opaque web of counterparty relationships leading to systemic risk, the IC blockchain would be easily audited by machine. Regulators would require that the IC authority know its customers, so pseudonymity would only be partial.

Here's a good podcast on crypto-currencies for non-experts.

Wall Street journalists Paul Vigna and Michael J. Casey talk about cybermoney in The Age of Cryptocurrency: How Bitcoin and Digital Money are Challenging the Global Economic Order. Vigna and Casey argue that digital currency is poised to launch a revolution that could reinvent traditional financial and social structures, and bring the world's billions of "unbanked" individuals into a new global economy.

Dept. of Physicists Can Do Stuff: Harold Brown

Ashton Carter won't be the first physicist to lead the Department of Defense. Harold Brown was President of Caltech and Secretary of Defense under Carter.

Caltech Oral History interview:

BROWN: You asked me first for a brief review of my career before coming to Caltech. I grew up in New York [City] and went to Columbia University for my undergraduate and graduate degrees, all of them in physics. As a result of acceleration during the war years, I was not quite eighteen when I got my bachelor’s degree in 1945. But then I was somewhat tardy in getting graduate degrees. It took me about four years more to get my PhD. That was in nuclear physics. The area I actually worked on was beta-ray spectroscopy.

... Early in my graduate career, I saw that some of the other graduate students were going to do better in pure science than I, maybe because they were smarter or better researchers, but at least as much, it seemed to me, because they were able to focus very, very strongly on a narrow piece of research that they were doing. And it’s often been said that Nobel Prizes are won by people partly through brilliance but largely through a combination of an ability to focus very narrowly and to have an unhappy family life. [Laughter] Those things may go together to produce the intensity that, in addition to brilliance, creates Nobel Prize winners. I concluded that I was not going to be able to focus that strongly because I had too many other interests. That drew me away from theoretical and toward experimental physics first, and then toward applied science, and then toward managing. So I think it may have been a combination of that sort.

... I found Christy’s attitude very interesting. Christy, of course, is a theoretical physicist. [See The Christy Gadget.] But when I asked him ... he said that he had always found that there were applied problems that had as much inherent intellectual interest [as those relating more to “pure” science]. And if they met that criterion, he was perfectly willing, and felt others should be willing, to look to such applied problems where they had important impacts, economically, environmentally, or whatever. There were enough other faculty people who felt the same way, so we were able to do some of these things.

... There was, I think, a severe split among the faculty on this matter. ... A good many of the science and engineering faculty regard social scientists with much more hostility than they regard humanists—partly because they feel that the word “science” in social science is a lie and see it as an attempt to appropriate some of the prestige that correctly applies to the physical, biological, and mathematical sciences and even to technology and engineering. A good many of the science faculty say that whereas the humanities have a distinct different dimension to bring to bear, social science is pseudoscience and that any relationship to “science” is nonsense. That attitude created some interesting faculty meetings. But in retrospect, I can’t say that that prevented the institute from going ahead and making social-science appointments, or that the social scientists were driven away by this attitude. The best and most prominent of them have quite as much self-esteem as many scientists and engineers, although not as much as some of Caltech’s scientists.

... The economists, in particular, were perhaps at the cutting edge of this dispute. In many ways, they are the most prestigious of social scientists, because they purport to be able to predict or influence the real world more nearly the way scientists and engineers do, than can the sociologists or the anthropologists. At Caltech, many of those who were skeptical about them — and in this I tended to share their skepticism to some degree — said, “The economists who have the most academic prestige and win Nobel Prizes are the ones who are most analytical and pretend to be most like the scientists.” In fact, of course, in order to be analytical, they have to assume away most of the driving forces in real economic behavior. By creating the ideal economic man, they eliminate all the real psychology, and that’s what determines economic behavior.

... One thing I learned from Caltech—it wasn’t the first time I learned it, but I learned it perhaps in intensified form—is that an institution depends on a number of very high-quality people. That number can be small or large. I don’t think I had been at a place before that had quite such a concentration of intellectual power in a not-so-narrow—but not universal, either— area of human ability. It reinforced in me the belief that people who are very good at what they do are likely to be more understanding of other people’s talents than people who aren’t very good at what they do and who therefore try to do other things that they’re not very good at either.

Another interview from the archives:

LEVIN: When you came to Caltech, what did you expect from the Caltech undergraduate? What did you expect him to be-aside from his academic capability? Have you been surprised or disappointed in any way?

BROWN: I had been told about Caltech students' practical jokes, and I have seen some of those come off pretty well. I had been told that quite aside from their academic proficiency, they were also very, very intelligent - which is not the same thing. They are very good at spotting flaws in arguments, any arguments, and they are not easily put off by authoritative but incorrect statements. And I have been quite satisfied, pleased, and impressed with what I have seen. I would add that Caltech undergraduates have turned out to be somewhat less self-assured and socially at ease than I had expected. But that has a certain charm; it's not a total loss.

Astrophysical Repulsion from Dark Energy

The manifestation of dark energy on cosmological scales is well known: gravitational repulsion which leads to the accelerating expansion of the universe. Perhaps surprisingly, there are potentially observable effects on galactic length scales as well.

The Dark Force: Astrophysical Repulsion from Dark Energy (http://arxiv.org/abs/1501.05952)

Chiu Man Ho, Stephen D. H. Hsu

Dark energy (i.e., a cosmological constant) leads, in the Newtonian approximation, to a repulsive force which grows linearly with distance. We discuss possible astrophysical effects of this "dark" force. For example, the dark force overcomes the gravitational attraction from an object (e.g., dwarf galaxy) of mass $10^7 M_\odot$ at a distance of $~ 23$ kpc. It seems possible that observable velocities of bound satellites (rotation curves) could be significantly affected, and therefore used to measure the dark energy density.

Seasons and Veritas

Harvard graduates explain why we have seasons. If only their understanding matched their confidence.

See also Why is it dark at night?  ,  Inside HBS: "kill, f^^k or marry"  ,  Frauds!  and

High V, Low M: ... high verbal ability is useful for appearing to be smart, or for winning arguments and impressing other people, but it's really high math ability that is useful for discovering things about the world -- that is, discovering truth or reasoning rigorously.

Venture capital in the 1980s

Via Dominic Cummings (@odysseanproject), this long discussion of the history of venture capital, which emphasizes the now largely forgotten 1980s. VC in most parts of the developed world, even large parts of the US, resembles the distant past of the above chart. There is a big gap between Silicon Valley and the rest.

Heat Death: Venture Capital in the 1980s

... Risk is uncertainty about the future. High technical risk means not knowing if a technology will work. High market risk means not knowing if there will be a market for your product. These are the primary risks that the VC industry as a whole contemplates. (There are other risks extrinsic to individual companies, like regulatory risk, but these are less frequent.)

Each type of risk has a different effect on VC returns. Technical risk is horrible for returns, so VCs do not take technical risk. There are a handful of examples of high technical risk companies that had great returns–Genentech43, for example–but they are few44. Today, VCs wait until there is a working prototype before they fund, but successful VCs have always waited until the technical risk was mitigated. Apple Computer, for example, did not have technical risk: the technology worked before the company was funded.

Market risk, on the other hand, is directly correlated to VC returns. When Apple was funded no one had any way of knowing how many people would buy a personal computer; the ultimate size of the market was analytically unknowable. DEC, Intel, Google, etc. all went into markets that they helped create. High market risk is associated with the best VC investments of all time. In the late ’70s/early ’80s and again in the mid to late ’90s VCs were comfortable funding companies with mind-boggling market risk, and they got amazing returns in exchange. In the mid to late ’80s they were scared and funded companies with low market risk instead, and returns were horrible.

Today is like the 1980s. There are a plethora of me-too companies, companies with a new angle on a well-understood market, and companies founded with the hopes of being acquired before they need to bring on many customers. VCs are insisting on market validation before investing, and are putting money into sectors that have already seen big exits (a sign of a market that has already emerged.)

Saying VCs used to take high technical risk and now take high market risk is both an overly optimistic view of the past–the mythical golden age of heroic VCs championing the development of new technologies–and an overly optimistic view of the present–gutsy VCs funding radical innovations that create entirely new markets. Neither of these things is true. VCs have never funded technical risk and they are not now funding market risk45. The VC community is purposely avoiding risk because we think we can make good returns without taking it. The lesson of the 1980s is that no matter how appealing this fantasy is, it’s still a fantasy.

16 years of training

Joe Rogan (UFC commentator) receives his BJJ black belt from Eddie Bravo.




Now go train jiujitsu.

Measuring college learning outcomes: psychometry 101

Pressure is growing for outcomes testing in higher education. Already hundreds of schools allow graduating seniors to take the CLA+ (Collegiate Learning Assessment Plus) to provide evidence of important job skills. I doubt that the CLA+ adds much information concerning an applicant's abilities beyond what can be obtained from existing cognitive tests such as SAT, ACT, GRE. But those tests have plenty of enemies, creating a business opportunity for shiny new assessments. The results covered below will contain no surprises to anyone modestly familiar with modern psychometrics.

Forbes: More people than ever are asking the question: is college worth it? Take a look at the numbers: 81 percent of respondents in a 2008 survey of the general public agreed that a college education was a good investment, but that number was down to 57 percent in 2012. A recent Wells Fargo study reported that one-third of Millennials regret going to college, and instead say they would have been better off working and earning money. This rhetoric is reflected in the reality of declining enrollment: one survey of colleges showed that enrollment for spring 2013 was down 2.3 percent from spring 2012, a trend that has held for consecutive years.

Meanwhile, the wave of keeping colleges accountable for their outcomes continues to crest, even from the left. A recent Brookings Institution study concluded, “While the average return to obtaining a college degree is clearly positive, we emphasize that it is not universally so.” President Obama, a major recipient of plaudits and campaign dollars from the academic left, has called for a government-authored set of rankings for American colleges and universities that rewards performance and punishes failure: “It is time to stop subsidizing schools that are not producing good results, and reward schools that deliver for American students and our future,” he said.

President Obama’s impulse to define and reward value in higher education was correct, but a government-rankings system is not a sufficient corrective for the enormity of the problem. There is no panacea for reforming higher education, but the CLA+ exam has potential to be a very useful step. ...

More from the Wall Street Journal.

WSJ: A survey of business owners to be released next week by the American Association Colleges and Universities also found that nine out of 10 employers judge recent college graduates as poorly prepared for the work force in such areas as critical thinking, communication and problem solving.

“Employers are saying I don’t care about all the knowledge you learned because it’s going to be out of date two minutes after you graduate ... I care about whether you can continue to learn over time and solve complex problems,” said Debra Humphreys, vice president for policy and public engagement at AAC&U, which represents more than 1,300 schools.

The CLA+ [Collegiate Learning Assessment Plus] is graded on a scale of 400 to 1600. In the fall of 2013, freshmen averaged a score of 1039, and graduating seniors averaged 1128, a gain of 89 points.

CAE says that improvement is evidence of the worth of a degree. “Colleges and universities are contributing considerably to the development of key skills that can make graduates stand out in a competitive labor market,” the report said.

Mr. Arum was skeptical of the advantages accrued. Because the test was administered over one academic year, it was taken by two groups of people. A total of 18,178 freshmen took the test and 13,474 seniors. That mismatch suggested a selection bias to Mr. Arum.

“Who knows how many dropped out? They were probably the weaker students,” he said. [ THIS LAST POINT IS ADDRESSED BELOW. SCORE GAINS AFTER ADJUSTMENT FOR THIS EFFECT ARE MODEST -- TYPICALLY LESS THAN 0.5 SD; SOMETIMES CONSISTENT WITH ZERO. ]

What exactly are these college learning assessments? They measure general skills that employers deem important, but not narrow subject matter expertise -- some of which is economically valuable (e.g., C++ coding) and some much less so (e.g., mastery of ancient Greek or the works of Shakespeare). Of course, narrow job-essential knowledge can be tested separately.

What Does CLA+ Measure?

CLA+ [Collegiate Learning Assessment Plus] is designed specifically to measure critical-thinking and written-communication skills that other assessments cannot. CAE has found that these are the skills that most accurately attest to a student’s readiness to enter the workforce. In the era of Google, the ability to recall facts and data is not as crucial as it once was. As our technology evolves to meet certain needs of the workplace, so too must our thinking about success and career readiness. Therefore, the skills taught in higher education are changing; less emphasis is placed on content-specific knowledge, and more is placed on critical-thinking skills, such as scientific and quantitative reasoning, analysis and problem solving, and writing effectiveness and mechanics. That is why CLA+ focuses on these skills and why CAE believes employers should use this tool during recruitment efforts.

Sample.

Two important questions:

1) Are the CLA+ and related assessments measuring something other than the general cognitive ability of individuals who have had many years (K-12 plus at least some college) of education?

2) By how much does a college education improve CLA+ scores?

The study below, which involved 13 colleges (ranging from MIT, Michigan, Minnesota, to Cal-State Northridge, Alabama A&M, ...) gives some hints at answers.

Test Validity Study (TVS) Report

This study examined whether commonly used measures of college-level general educational outcomes provide comparable information about student learning. Specifically, do the students and schools earning high scores on one such test also tend to earn high scores on other tests designed to assess the same or different skills? And, are the strengths of these relationships related to the particular tests used, the skills (or “constructs”) these tests are designed to measure (e.g., critical thinking, mathematics, or writing), the format they use to assess these skills (multiple-choice or constructed-response), or the tests’ publishers? We also investigated whether the difference in mean scores between freshmen and seniors was larger on some tests than on others. Finally, we estimated the reliability of the school mean scores on each measure to assess the confidence that can be placed in the test results.

Effect sizes are modest. The result "d+" in the table below is the average increase in score between freshmen and seniors tested, in units of standard deviations. An individual's score as a freshman is probably a very good predictor of their score as a senior. (To put it crudely, additional years of expensive post-secondary education do not increase cognitive ability by very much. What cognitive tests measure is fairly stable, despite the efforts of educators.)

Note, in order to correct for the problem that weaker students drop out between freshman and senior years, and hence the senior population is academically stronger, the researchers adjusted effect sizes. The adjustment used was simply the average SAT score difference (in SD units) between seniors and freshmen in each school's sample (students who survive to senior year tend to have higher SAT scores -- go figure!). In other words, to get their final results, the researchers implicitly acknowledged that these new tests are largely measuring the same general cognitive abilities as the SAT!

Below are school-level correlations and reliabilities on various assessments, which show that cognitive constructs ("critical thinking", "mathematics", etc.) are consistently evaluated regardless of specific test used. Hint: ACT, SAT, GRE, PISA, etc. would have worked just as well ...

The results below are also good evidence for a school-level general factor of ability = "G". The researchers don't release specific numbers, but I'd guess MIT has a much higher G than some of the lower ranked schools, and that the value of G can be deduced just from average SAT score of the school.

Does the CLA have validity in predicting job and life outcomes? Again, experienced psychometricians know the answer, but stay tuned as data gradually accumulate.

Documenting Uncertain Times: Post-graduate Transitions of the Academically Adrift Cohort

Graduates who scored in the bottom quintile of the CLA were three times more likely to be unemployed than those who scored in the top quintile on the CLA (9.6 percent compared to 3.1 percent), twice as likely to be living at home (35 percent compared to 18 percent) and significantly more likely to have amassed credit card debt (51 percent compared to 37 percent).

Analogies between Analogies

As reported by Stan Ulam in Adventures of a Mathematician:

"A mathematician is a person who can find analogies between theorems; a better mathematician is one who can see analogies between proofs and the best mathematician can notice analogies between theories. One can imagine that the ultimate mathematician is one who can see analogies between analogies."  --Stefan Banach

See also Analogies between Analogies: The Mathematical Reports of S.M. Ulam and His Los Alamos Collaborators; esp. article 20 On the Notion of Analogy and Complexity in Some Constructive Mathematical Schemata.

I'll add my own comment:

The central problem of modern genomics is essentially cryptographic. The encryption scheme is the model relating phenotype to genotype, and the ciphertext--plaintext pairs are the genotypes and phenotypes. We will recover the schemes -- models which can predict phenotype from genotype -- once enough ciphertext and plaintext (data) is available for analysis.

We have programs (DNA code) and their outputs (organisms) to study; from this we deduce the programming language.

See also Alan Turing:

“There is a remarkably close parallel between the problems of the physicist and those of the cryptographer. The system on which a message is enciphered corresponds to the laws of the universe, the intercepted messages to the evidence available, the keys for a day or a message to important constants which have to be determined. The correspondence is very close, but the subject matter of cryptography is very easily dealt with by discrete machinery, physics not so easily.”

Locality and Nonlinear Quantum Mechanics v2

The paper below will appear in Int.J.Mod.Phys.A. We went through a strange series of referees during the last year, with reactions ranging from

this result is correct but trivial 

to

this result is highly nontrivial but possibly correct

to, finally,

this is a nice result and should be published. 

I would like to lock the first two referees in a room to exchange ideas! (What!? Of course, HE is the idiot, not ME!)

A consequence of the process is the added appendix which proves (rather pedantically)

Ψ[ φ ]  ≈  ψ_A [ φ_A ]  ×  ψ_B [ φ_B ]  ×  · · ·

for our coherent state example.

Locality and Nonlinear Quantum Mechanics
(http://arxiv.org/abs/1401.7018)

Chiu Man Ho, Stephen D.H. Hsu

Nonlinear modifications of quantum mechanics generically lead to nonlocal effects which violate relativistic causality. We study these effects using the functional Schrodinger equation for quantum fields and identify a type of nonlocality which causes nearly instantaneous entanglement of spacelike separated systems. We describe a simple example involving widely separated wave-packet (coherent) states, showing that nonlinearity in the Schrodinger evolution causes spacelike entanglement, even in free field theory.

Some excerpts:

The linear structure of quantum mechanics has deep and important consequences, such as the behavior of superpositions. One is naturally led to ask whether this linearity is fundamental, or merely an approximation: Are there nonlinear terms in the Schrodinger equation?

Nonlinear quantum mechanics has been explored in [1–6]. It has been observed that the fictitious violation of locality in the Einstein-Podolsky-Rosen (EPR) experiment in conventional linear quantum mechanics might become a true violation due to nonlinear effects [7, 8] (in [8] signaling between Everett branches is also discussed). This might allow superluminal communication and violate relativistic causality. These issues have subsequently been widely discussed [9].

Properties such as locality or causality are difficult to define in non-relativistic quantum mechanics (which often includes, for example, “instantaneous” potentials such as the Coulomb potential). Therefore, it is natural to adopt the framework of quantum field theory: Lorentz invariant quantum field theories are known to describe local physics with relativistic causality (influences propagate only within the light cone), making violations of these properties easier to identify. ...

... Our results suggest that nonlinearity in quantum mechanics is associated with violation of relativistic causality. We gave a formulation in terms of factorized (unentangled) wavefunctions describing spacelike separated systems. Nonlinearity seems to create almost instantaneous entanglement of the two systems, no matter how far apart. Perhaps our results are related to what Weinberg [11] meant when he wrote “... I could not find any way to extend the nonlinear version of quantum mechanics to theories based on Einstein’s special theory of relativity ... At least for the present I have given up on the problem: I simply do not know how to change quantum mechanics by a small amount without wrecking it altogether.”

See also Wrong, Trivial, Not Original.

Boom, Bust, and the Global Race for Scientific Talent

Michael Tietelbaum's new book on STEM labor markets and human capital is reviewed by John McGowan. John and I attended Caltech together many years ago.

Falling Behind? Boom, Bust, and the Global Race for Scientific Talent
by Michael S. Teitelbaum
Princeton University Press
March 30, 2014

Introduction

Falling Behind? is a recent (March 2014) book by Michael Teitelbaum of the Sloan Foundation, a demographer and long time critic of STEM (Science, Technology, Engineering and Mathematics) shortage claims. Falling Behind? is an excellent book with a wealth of data and information on the history of booms and busts in science and engineering employment since World War II, STEM shortage claims in general, and lobbying for “high-skilled” immigration “reform”. Although I have been a student of these issues for many years, I encountered many facts and insights that I did not know or had not thought of. Nonetheless the book has a number of weakenesses which readers should keep in mind.

... The evidence assembled in this book leads inescapably to three core findings:

o First, that the alarms about widespread shortages or shortfalls in the number of U.S. scientists and engineers are quite inconsistent with nearly all available evidence;

o Second, that similar claims of the past were politically successful but resulted in a series of booms and busts that did harm to the U.S. science and engineering enterprise and made careers in these fields increasingly unattractive; and

o Third, that the clear signs of malaise in the U.S. science and engineering workforce are structural in origin and cannot be cured simply by providing additional funding. To the contrary, recent efforts of this kind have proved to be destabilizing, and advocates should be careful what they wish for. ...

See also A Tale of Two Geeks.

Instability of Quantum de Sitter Spacetime

New paper! We show that quantum effects (in particular, the horizon temperature originally discovered by Gibbons and Hawking) modify the geometry of de Sitter spacetime.

Instability of Quantum de Sitter Spacetime (http://arxiv.org/abs/1501.00708)

Chiu Man Ho, Stephen D. H. Hsu

Quantized fields (e.g., the graviton itself) in de Sitter (dS) spacetime lead to particle production: specifically, we consider a thermal spectrum resulting from the dS (horizon) temperature. The energy required to excite these particles reduces slightly the rate of expansion and eventually modifies the semiclassical spacetime geometry. The resulting manifold no longer has constant curvature nor time reversal invariance, and back-reaction renders the classical dS background unstable to perturbations. In the case of AdS, there exists a global static vacuum state; in this state there is no particle production and the analogous instability does not arise.

Zero Sum: college costs and public support of higher education

College tuition has increased faster than the rate of inflation for some time now. But the issue is more complicated than this simple observation suggests.

1. The increase in tuition cost at public institutions is mainly due to cuts in state support (see figure below), as opposed to enlargement of the overall budget.

2. The average amount paid per student is typically less than full tuition, due to financial aid. Redistribution is taking place, from families that can afford the full rate, to those that need assistance. The year to year rate of increase in the average tuition paid has typically been less than the increase in full tuition per student ("sticker price").

Below are the specific numbers for Michigan State University -- full tuition in 2012 for Michigan residents was ~ $12k.

Here's more data (thanks to Dave Bacon) supporting my claim for public institutions of higher learning: total expenditures roughly constant, tuition changes related to internal cost shifting. Note, though, that private research universities are an exception: they've been raising both tuition and expenditures in recent decades.

Fukuyama and Zhang on the China Model

This is an interesting discussion between Francis Fukuyama and Zhang Wei Wei on the so-called China Model. Zhang is an apologist but overall the discussion is enlightening. Fukuyama's perspective is the familiar liberal democratic one so I excerpt Zhang below.

ZHANG | ... In his presentation, Dr. Fukuyama raised four issues concerning the China Model, namely, accountability, rule of law, the “bad emperor” and sustainability. I would like to respond to Dr. Fukuyama’s view. I think what China has been doing is very interesting. China is now perhaps the world’s largest laboratory of political, economic, social and legal reforms in the world. What Dr. Fukuyama said reminds me of my conversation with the editor-in-chief of the German magazine Die Zeit last February. The topic was also the China Model. After a recent visit to Shanghai, he felt that there were more and more similarities between Shanghai and New York. In his eyes, China seems to follow the US model. “Does it mean there is no China Model but only the US model?” he asked. I counseled him to look at Shanghai more carefully and know the city well. A careful observer will find that Shanghai has overtaken New York in many respects.

Shanghai outperforms New York in terms of “hardware” such as high-speed trains, subways, airports, harbors and many commercial facilities, but also in terms of “software.” For instance, life expectancy in Shanghai is three to four years longer than New York, and the infant mortality rate in Shanghai is lower than New York. Shanghai is a much safer place where girls can stroll the streets at midnight. My message to this German scholar is that we’ve learned a lot from the West; we’re still learning from the West, and will continue to do so in the future, but it’s also true that we have indeed looked beyond the Western model or the US model. To a certain extent, we are exploring the political, economic, social and legal systems of the next generation. In this process, the more developed regions of China like Shanghai are taking the lead. ...

... I have visited the US on many occasions and found that the definition of corruption matters a lot. In my new book, I put forward a concept of “corruption 2.0,” as the financial crisis has exposed many serious “corruption 2.0” issues. For instance, rating agencies gain profits through regulatory arbitrage by granting triple A’s to dubious financial products or institutions. I think this is corruption. But these issues are called “moral hazards” in the American legal system. I think the financial crisis can be better tackled if these problems are treated as corruption.

We can also make horizontal comparisons. I have visited more than one hundred countries. The reality is that no matter how much Chinese complain about corruption at home, it is much worse in other nations of comparable size, say, those with a population of 50 million and above, and at similar stage of development such as India, Ukraine, Pakistan, Brazil, Egypt and Russia. The evaluation of Transparency International echoes my view.

Furthermore, it’s necessary to look at such a large country as China in terms of regions. China’s developed regions are more immune to corruption. I once stayed in Italy as a visiting professor and visited Greece several times, and I think Shanghai is definitely less corrupt than Italy and Greece. ... Indeed, whatever political system, be it a one party system, a multi-party system, or a no party system, it must all boil down to good governance and what you can deliver to your people. Therefore, good governance matters most, rather than western-style democratization.

This brings me to Prof. Fukuyama’s “end of history” thesis. I have not published my point of view yet. But mine is exactly the opposite to Prof. Fukuyama’s. I take the view that it is not the end of history, but the end of the end of history.

The Western democratic system might be only transitory in the long history of mankind. Why do I think so? Two thousand and five hundred years ago, some Greek city states like Athens, practiced democracy among its male citizens and later were defeated by Sparta. From then on, for over two thousand years, the word “democracy” basically carried the negative connotation, often equivalent to “mob politics.” ...

But today, this kind of democratic system cannot solve the following big problems. First, there is no culture of “talent first.” Anyone who is elected can rule the country. This has become too costly and unaffordable even for a country like the US. Second, the welfare package can only go up, not down. Therefore it is impossible to launch such reforms as China did in its banking sector and state-owned enterprises. Thirdly, it is getting harder and harder to build social consensus within democratic countries. In the past, the winning party with 51% of votes could unite the whole society in the developed countries. Today American society is deeply divided and polarized. The losing party, instead of conceding defeat, continues to obstruct. Fourth, there is an issue of simple-minded populism which means that little consideration can be given to the long-term interest of a nation and society. Even countries like the US are running this risk.

In 1793, King George III of the UK sent his envoy to China to open bilateral trade. But Emperor Qianlong was so arrogant that he believed that China was the best country in the world. Therefore China did not need to learn anything from others. This is what defined the “end of history” then, and ever since China lagged behind. Now I observe a similar mindset in the West.

It is necessary to come to China and see with one’s own eyes how China has reformed itself over the past three decades. Small is each step, yet the journey is non-stop. The West still has strong faith in its own system, but it is the same system that has become more and more problematic. Greece, the cradle of Western democracy, has gone bankrupt. The British fiscal debt is as high as 90% of its GDP.

What about the US? I did a simple calculation. The 9/11 attack cost the US about $1 trillion, the two not-so-smart wars cost US about $3 trillion and the financial crisis about $8 trillion. Now the fiscal debts of the US are somewhere between $10 to 20 trillion. In other words, if the US dollar was not the main international reserve currency—this status may not last forever—the US would be bankrupt already. ...

See also Zhang's NYTimes editorial Meritocracy Versus Democracy.

... Virtually all the candidates for the Standing Committee of the Party, China’s highest decision-making body, have served at least twice as a party secretary of a Chinese province or at similar managerial positions. It takes extraordinary talent and skills to govern a typical Chinese province, which is on average the size of four to five European states.

Indeed, with the Chinese system of meritocracy in place, it is inconceivable that people as weak and incompetent as George W. Bush or Yoshihiko Noda of Japan could ever get to the top leadership position.

Take the incoming leader, Xi Jinping, as an example. Xi served as the governor of Fujian Province, a region known for its dynamic economy, and as party secretary of Zhejiang province, which is renowned for its thriving private sector, and Shanghai, China’s financial and business hub with a powerful state-sector.

In other words, prior to taking his current position as the heir apparent to President Hu Jintao, Xi had in fact managed areas with total population of over 120 million and an economy larger than India’s. He was then given another five years to serve as vice president to get familiar with running state and military affairs at the national level.

China’s meritocracy challenges the stereotypical dichotomy of democracy v. autocracy. From Beijing’s point of view, the nature of a state, including its legitimacy, has to be defined by its substance: good governance, competent leadership and success in satisfying the citizenry. ...

Related posts: Is there a China Model? , China 3.0 and China 1793.