WhatsApp Only Needs 50 Engineers for Its 900M Users

 

Earlier this month, in a post to his Facebook page, WhatsApp CEO Jan Koum announced that his company’s instant messaging service is now used by more than 900 million people. And then Facebook CEO Mark Zuckerberg promptly responded with two posts of his own. One said “congrats,” and the other included a cheeky photo Zuckerberg had taken of Koum as the WhatsApp CEO keyed his 900-million-user post into a smartphone. “Here’s an action shot of you writing this update,” Zuckerberg wrote.

WhatsApp is owned by Facebook, after Zuckerberg and company paid $19 billion for the startup a little more than a year ago. That means Facebook now runs three of the most popular apps on the internet. Its primary social networking service is used by more than 1.5 billion people worldwide, and Facebook Messenger, an instant messaging service spun off from Facebook proper, spans 700 million. But the 900 million-user milestone announced by Koun is very much a WhatsApp achievement, not a product of the formidable Facebook machine.

One of the (many) intriguing parts of the WhatsApp story is that it has achieved such enormous scale with such a tiny team. When the company was acquired by Facebook, it had 35 engineers and reached more than 450 million users. Today, it employs only about 50 engineers, though the number of WhatsApp users has doubled, and this tiny engineering staff continues to run things almost entirely on its own. In a world where so many internet services are rapidly expanding to millions upon millions of users, WhatsApp shows the way forward—at least in part.

WhatsApp doesn’t talk much about its engineering work—or any other part of its operation, for that matter—but yesterday, at an event in San Jose, California, WhatsApp software engineer Jamshid Mahdavi took the stage to briefly discuss the company’s rather unusual methods. Part of the trick is that the company builds its service using a programming language called Erlang. Though not all that popular across the wider coding community, Erlang is particularly well suited to juggling communications from a huge number of users, and it lets engineers deploy new code on the fly. But Mahdavi says that the trick is as much about attitude as technology.

Mahdavi joined WhatsApp about two years ago, after the startup was up and running, and its approach to engineering was unlike any he had seen—in part because it used Erlang and a computer operating system called FreeBSD, but also because it strove to keep its operation so simple. “It was a completely different way of building a high-scale infrastructure,” he said on Monday. “It was an eye-opener to see the minimalistic approach to solving … just the problems that needed to be solved.”

Code in Parallel

In using Erlang, WhatsApp is part of a larger push towards programming languages that are designed for concurrency, where many processes run at the same time. As internet services reach more people—and juggle more tasks from all those people—such languages become more attractive. Naturally.

With its new anti-spam system—a system for identifying malicious and otherwise unwanted messages on its social network—Facebook uses a language called Haskell. Haskell began as a kind of academic experiment in the late ’80s, and it’s still not used all that often. But it’s ideal for Facebook’s spam fighting because it’s so good at juggling parallel tasks—and because it lets coders tackle urgent tasks so quickly. Meanwhile, Google and Mozilla, maker of the Firefox browser, are striving for a similar sweet spot with new languages called Go and Rust.

Like Haskell, Erlang is a product of the ’80s. Engineers at Ericsson, the Swedish multinational that builds hardware and software for telecom companies, developed the language for use with high-speed phone networks. “Instead of inventing a language and then figuring out what to do with it, they set out to invent a language which solved a very specific problem,” says Francesco Cesarini, an Erlang guru based in the UK. “The problem was that of massive scalability and reliability. Phone networks were the only systems at the time who had to display those properties.”

Erlang remains on the fringes of the modern coding world, but at WhatsApp and other internet companies, including WeChat and Whisper, it has found a home with new applications that operate not unlike a massive phone network. In essence, WhatsApp is a replacement for cellphone texting services. It too requires that “scalability and reliability.”

What’s more, Erlang lets coders work at high speed—another essential part of modern software development. It offers a way of deploying new code to an application even as the application continues to run. In an age of constant change, this is more useful than ever.

Keep It Simple, Smarty

The language does have its drawbacks. Relatively few coders know Erlang, and it doesn’t necessarily dovetail with a lot of the code already built by today’s internet companies. Facebook built its original Facebook Chat app in Erlang but eventually rebuilt so that it would better fit with the rest of its infrastructure. “You had this little island that was Erlang, and it was hard to build enough boats back to the island to make everything hook in,” says Facebook vice president of engineering Jay Parikh.

Of course, WhatsApp didn’t have to integrate with an existing infrastructure in this way. And Mahdavi believes the relative scarcity of Erlang coders isn’t a problem. “Our strategy around recruiting is to find the best and brightest engineers. We don’t bring them in specifically because the engineer knows Erlang,” Mahdavi said on Monday. “We expect the engineer to come in and spend their first week getting familiar with the language and learning to use the environment. If you hire smart people, they’ll be able to do that.”

The company has succeeded by hiring engineers who are adaptable—in more ways than one. Asked to explain the company’s secret, Mahdavi’s response seems far too simple. But that’s the point. “The number-one lesson is just be very focused on what you need to do,” he said. “Doing spend time getting distracted by other activities, other technologies, even things in the office, like meetings.”

At WhatsApp, employees almost never attend a meeting. Yes, there are only a few dozen of them. But that too is the point.

 

source : http://www.wired.com/2015/09/whatsapp-serves-900-million-users-50-engineers/

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A Fireside Chat with Bill Gurley of Benchmark: The Future of Ecommerce — September 15, 2015

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Venture capitalists say startups are taking on too much risk, and a shakeout is inevitable. But they’re not saying who will be shaken out.

Venture capitalists say startups are taking on too much risk, and a shakeout is inevitable. But they’re not saying who will be shaken out.

It wasn’t long ago that startups refused to reveal their valuations. It makes sense—valuations are paper money, after all. They’re based on the company’s ability to hit future growth milestones, which is a big “if.” Announcing a high valuation to the world makes a startup look like a guaranteed success, even if the reality is far from that.

That’s all changed, though, in the age of the unicorns. More than 130 startups are now worth $1 billion or higher, according to Fortune’s latest Unicorn List, and fundraising announcements today lead with the valuations—sometimes going so far as to call it “unicorn status” in PR pitches. TheNew York Times even made a list of 50 future unicorns, startups it believes are likely to hit that once-elusive $1 billion mark.

But amid all the unicorns getting their horns, investors have warned of “dead unicorns.” In March, investor Bill Gurley made headlines with his pronouncement that “a complete absence of fear” would lead to dead unicorns this year. Venture capitalist Marc Andreessen warned in a tweetstorm that startups with high burn rates would “vaporize.” Last week Salesforce CEO Marc Benioff also predicted dead unicorns as startups seem to focus more on their valuations than their customers.

Investors are happy to predict failure, but they refuse to point any fingers. It’s understandable given the clubby, interconnected nature of Silicon Valley, and the fact that it’s bad form to be a “hater.” (Not to mention, they’d hate to admit having dead unicorns in their own portfolios.)

Whenever an investor does predict a major startup failure, it sends shock waves throughout the Twittersphere, as happened when Khosla Ventures’ Keith Rabois tweetedthat Foursquare, the local discovery service, would have to be bailed out with a “Hail Mary” acquisition. Rabois was quickly called a hater and compared to Donald Trump and Turtle, the freeloading character from Entourage.

Behind the scenes, though, some venture firms are quietly keeping tallies of unicorn startups they expect to die. None that Fortune spoke with would admit as much, even off the record—no one wants to appear to get enjoyment from someone else’s failures. (When their own portfolio companies fail, they simply remove the startup’s logo from their homepage and quietly tiptoe away.) But those who operate in the orbit of those VCs—limited partners, portfolio company execs, angel investors—have shared multiple “dying unicorn list” email chains with Fortune.

Why would a venture capitalist want to track startups that are failing? Opportunity. Cash-strapped startups are chock full of valuable employees who may be ripe for recruitment, or outright acquisition, by a competing portfolio company.

So which companies are on the dying unicorn lists? None that would surprise anyone playing close attention. If anything, the ones Fortune saw were disappointing in their lack of creativity. They include Gilt Groupe, the luxury commerce company rumored to have raised a “down round” below its $1 billion valuation earlier this year; Jawbone, whose struggles with strategy and lawsuits have been widely documented (including this year in a Fortunefeature story); and Bloom Energy, a fourteen-year-old fuel cell startup that has raised more than $1 billion in funding in a category that has proven challenging.

A Bloom Energy spokesperson said in a statement that the company is experiencing strong demand from new and current customers, citing a new partnership with Exelon to support 61 megawatts of fuel cell deployments. Representatives from Gilt Groupe and Jawbone declined to comment.

The value of such a list isn’t lost on the companies selling the pick-axes in our era’s gold rush. CB Insights, a venture capital data provider, has created a list of early-stage companies it believes are likely running out of cash. To access it, you’ll need some cash of your own—it costs $6,895.

( Source : http://fortune.com/2015/09/08/dying-unicorn-lists/ )

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China runaway train ?

David Dredge of global hedge fund Fortress has built a career studying, predicting and protecting against the world’s major financial crises. The recent convulsions in global sharemarkets are “just the beginning” of a painful adjustment as money drains from the emerging market economies, he says.

“August 2015 will go down in the record books, much like July 2007 or July 1997, as the beginning of the coming contractionary cycle,” says Dredge who is the co-chief investment officer of Fortress Convex Asia Fund.

August 2015 will go down in the record books, much like July 2007 or July 1997, as the beginning of the coming contractionary cycle.

David Dredge, Fortress

He’s a believer that markets move in long cycles, which “despite all efforts to the contrary, central bankers have not by any means gotten anywhere close to eliminating”.

Hedge fund Fortress says all emerging economies are in the midst of a painful adjustment after a "burst of credit expansion".Hedge fund Fortress says all emerging economies are in the midst of a painful adjustment after a “burst of credit expansion”. Photo: AP

“Like weathermen have not eliminated seasons,” he says.

Singapore-based Dredge says the current volatility in financial markets is in the early stage as markets react to a correction of global imbalances that will last from18 months to three years.

The global economy is made up of nations with a deficit of capital – the West – and those with a surplus of capital – the East and emerging markets, he explains.

Policy determined by deficit

“The flaw is that those with the surplus have all tied their currency to the main protagonist on the deficit side – the US.

“So monetary policy is determined by the deficit of capital side and flows through the currency linkage, and you end up having some form or another of the same monetary policy on both sides, with economies that are 180 degrees diametric to each other.”

The financial links to easy-money policies in the US have unleashed a burst of credit expansion in emerging markets that has proved unsustainable and is now in the process of unwinding.

That is forcing a painful “market-induced tightening” that will affect  the growth of emerging markets as credit expansion is halted and reverses.

The “simplest measure of these imbalances” is foreign exchange reserves, which have swelled in the past few years but are now being liquidated, tightening financial conditions in emerging markets.

“When the hose is on and credit is pouring from the deficit to the surplus side, the FX [foreign exchange] reserves increase and are indicative of the growing size and the location as to where the imbalances exist – because that’s where the most money is going.”

China’s foreign currency reserves peaked at $US4 trillion ($5.7 trillion) in mid-2014 but have since run down to about $US3.6 trillion.

‘In the inverse of imbalance’

“Each crisis occurred at the peak of FX reserves. The emerging-market FX-reserves graph looks exactly like the US debt to GDP because they are just in the inverse of the imbalance.”

Dredge says that differentiating among emerging economies misses the point of what is occurring. Capital is draining from the emerging markets as conditions have tightened, and has been since the “taper tantrum” of May 2013.

“In December 1999 the point wasn’t whether you should invest in Apple or Microsoft. The point was they were both going down [as the tech bubble deflated]. And that’s where we are now.

“The [credit] contraction might be triggered in China with retail margin lending in the equity market, or in Malaysia with recognition of corruption.

“But the trigger is not what we are trying to compare. It’s the potential risk, which is the excess credit creation in the last cycle. In that sense Brazil, China and Malaysia are all the same.”

Dredge co-manages the Convex Asia fund, a “volatility fund”, which manages about $US200 million and seeks to deliver outsized gains in times of market stress.

Stay ahead of spreading fire

He says he’s attempting to stay ahead of the spreading fire and that means looking for cheap exposures to volatility. Interest rate volatility is low and, while foreign currency volatility may have risen, it is below many of the peaks reached over the past five years. Corporate credit spreads, too, are around post-financial crisis lows despite a fair-sized correction in corresponding equities.

“This is indicative that we’re just at the very beginning of this,” Dredge says.

Where does Australia fit in as the cycle turns dark for emerging markets? We’re special in the sense that we have not pegged our currency to the US.

“It is just about the only non-manipulated currency in the entire world, along with New Zealand. By allowing the currency to move and avoid being a hard linkage to the monetary policy whims of the global reserve currency, it takes a lot of the pressure off.”

But there has still been a build-up of risks as credit has grown virtually interrupted and our economic linkages to China make us vulnerable to, not immune from, any shocks.

“Australia came through many of the last several cycles better than most because most of the volatility was allowed to take place in the currency.

“This has allowed the asset volatility to be far less than it otherwise would have been. But that means credit has built up and imbalances, while far less than they would have been, have been allowed to persist.”

 

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Bubbles oh Bubbles …

The risk that asset price bubbles pose for financial stability is still not clear. Drawing on 140 years of data, this column argues that leverage is the critical determinant of crisis damage. When fuelled by credit booms, asset price bubbles are associated with high financial crisis risk; upon collapse, they coincide with weaker growth and slower recoveries. Highly leveraged housing bubbles are the worst case of all.

Before the Global Crisis, the consensus among policymakers and economists alike was to largely ignore asset price bubbles. Justifications for this neglect differed. Some argued that asset price bubbles couldn’t be reliably detected. Others argued that nothing could or should be done about them since any intervention might be worse than the fallout from the bursting of the bubble. An implicit assumption was that central banks could, in any case, clean up the mess. The aftermath of the dotcom bubble lent support for this optimistic view of a central bank’s capabilities. Some even went so far as to decry the notion that asset bubbles exist.

After the Global Crisis, it has become harder for macroeconomists to treat asset price bubbles as rare exceptions that can be excluded from macroeconomic thinking on axiomatic grounds. In policy circles, Alan Greenspan, former Chairman of the Federal Reserve, very publicly stepped away from old beliefs; he admitted the ‘flaw’ in his worldview, and began to entertain the possibility that central banks might need to pay attention to bubbles.1 Yet, we still know little about the appropriate policy response to developing asset price bubbles. While a consensus is developing that ‘leaning against the wind’ with interest rates is not always a good idea, it remains to be seen if the high hopes that are pinned on macroprudential policy will turn out to be justified (Galí 2014, Svensson 2014).

Credit, asset prices, and economic outcomes: New evidence

To quantify these trade-offs, more empirical work is clearly needed. What risk do asset price bubbles pose to macroeconomic and financial stability? What does the evidence show? In our new research (Jordà et al. 2015), we study the nexus between credit, asset prices, and economic outcomes in advanced economies since 1870.

We rely on a combination and extension of two new long-run macro-finance datasets. In Jordà et al. (2014) we presented the latest version of our long-run credit and macroeconomic dataset in the form of an annual panel of 17 countries since 1870. To study asset price booms we have added equity price data. The second dataset from the study by Knoll et al. (2014) covers house prices since 1870 on an annual basis for the panel of 17 countries and extends coverage by about 50% compared hitherto available data.

Our main findings support the post-crisis consensus that leveraged bubbles must be taken seriously. Mishkin (2008, 2009) and other policymakers have argued that there are two categories of bubbles: unleveraged ‘irrational exuberance’ bubbles and ‘credit boom bubbles’. In the latter, a positive feedback develops that involves credit growth, asset prices, and increasing leverage. When asset markets switch into reverse gear, the balance sheet overhang creates a painful economic hangover.

  • Our study shows that leverage-fuelled asset price bubbles substantially raise the risk of a financial crisis and make recessions considerably more painful.
  • Unleveraged bubbles tend to blow over.

Yet, when credit boom bubbles go bust the macroeconomic consequences are severe.

  • Credit-fed housing bubbles are the most harmful combination of all.

Living in an age of leverage is not without its costs.

Empirical identification of asset price bubbles

The term ‘bubble’ traditionally refers to a situation in which asset prices increasingly deviate away from their fundamental value. Bubbles often end with a crash in asset prices. Determining the fundamental value is not easy since it is not directly observable. Moreover, there is no universally accepted standard definition of bubble phenomena. Studies such as Borio and Lowe (2002), Bordo and Jeanne (2002), Detken and Smets (2004), and Goodhart and Hofmann (2008) have all used either large deviations of price levels from some reference level and/or large rates (or amplitudes) of increase/decrease as indicative of the rise and fall of bubble episodes. We apply a two-pronged approach. We require a spell of sizeable asset price run-up (defined as a price deviation from log HP trend by 1 standard deviation or more) and a collapse in prices of 15% or more during the spell. Figure 1 displays examples of bubbles identified with this procedure.

Figure 1. Examples of bubble identification

Notes: The figures show, for each 10-year window, the log real asset price (rebased to the start year), a band of ±1 standard deviation (for that country’s detrended log real asset price), and the years for which the Bubble Signal is turned on using our algorithm.

Bubbles, credit booms, and financial crises

It is well known that rapid expansions of credit – credit booms – are associated with a higher likelihood of financial crisis (e.g., Schularick and Taylor 2012, Jordà et al. 2013, Drehmann and Juselius 2014). Here, we investigate how the interaction of asset price bubbles and credit booms affects financial stability. As the logit crisis prediction models in Table 1 show, our new research clarifies the results from our previous research. The association of credit and asset price booms is particularly dangerous relative to expansions of credit alone. Housing bubbles more so than equity bubbles.

Table 1. Predicting financial crisis recessions

Notes: Standard errors in parentheses. * p < 0.10, ** p < 0.05, *** p < 0.01. The dependent variable based on peaks of business cycles identified using Bry and Boschan (1971) algorithm. The dependent variable is one if the recession is associated with a financial crisis within a 2-year window of the peak, 0 otherwise. Bubble episodes are associated with recessions by considering the expansion over which the bubble takes place and using the subsequent peak. See text.

The economic costs of bubbles

The core theme of our new paper is about the connection between asset price bubbles, credit, and the consequences for the real economy. Can asset price bubbles be safely ignored? Does credit make any difference to how we think about the aftermath of bubbles? Are equity bubbles as dangerous as housing price bubbles? Using historical data, we characterise the typical paths of economies through the business cycle when an asset price bubble is involved and where we stratify by the expansion of credit. We apply local-projection methods (Jordà 2005) to calculate the dynamic responses of economies to leveraged and unleveraged bubbles in equity and housing markets.

The key results are presented in Figure 2 for the full sample (N=140 recessions). The left-hand panel shows the average path of real GDP per capita of economies through recessions and recoveries. In normal recessions, the economy shrinks in year 1 and recovers the previous peak level of output in year 2. The other lines show the average path when there is an equity bubble and below/above average credit growth, and the right-hand panel shows a similar chart using the housing bubble indicator instead. Each panel displays the baseline normal recession path with a 90% confidence region.

The basic lessons are as follows:

  • Equity bubbles are damaging.

They are associated with a slightly worse recession and a slower recovery in the full sample. However, we do find that after WWII the damage from equity bubbles does diminish. And even if equity bubbles have a relatively small effect overall, they are clearly associated with more damage when accompanied by above average growth in credit, regardless of the sample studied.

  • The right-hand panel shows that bubbles in housing prices are associated with noticeably worse recession and recovery paths.

Moreover, these effects grow much stronger when credit expands above the historical mean during the preceding expansion. On average, after a credit-fuelled house price bubble, advanced economies have taken more than five years to return to their previous peak level of output.

Figure 2. Economic costs of bubbles (full sample with controls)

Conclusions: Bubble trouble

In this column, we turned to economic history for the first comprehensive assessment of the economic risks of asset price bubbles. We provide evidence about which types of bubbles matter and how their economic costs differ. Our historical analysis shows that not all bubbles are created equal. When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.

In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms. This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles. The findings presented here can inform ongoing efforts to devise better macro-financial theory and real-world applications at a time when policymakers are still searching for new approaches in the aftermath of the Great Recession.

References

Bordo, M D, and O Jeanne (2002), “Monetary Policy And Asset Prices: Does ‘Benign Neglect’ Make Sense?”, International Finance 5(2): 139–164.

Borio, C, and P Lowe (2002), “Asset prices, financial and monetary stability: exploring the nexus”, BIS Working Paper 114.

Detken, C, and F Smets (2004), “Asset price booms and monetary policy”, in Siebert, H (ed.), Macroeconomic Policies in the World Economy, Berlin: Springer, pp. 189–227.

Drehmann, M, and M Juselius (2014), “Evaluating early warning indicators of banking crises: Satisfying policy requirements”, International Journal of Forecasting 30(3): 759–80.

Galì, J (2014), “Monetary Policy and Rational Asset Price Bubbles”, The American Economic Review 104(3): 721–52.

Goodhart, C, and B Hofmann (2008), “House prices, money, credit, and the macroeconomy”,Oxford Review of Economic Policy 24(1): 180–205.

Jordà, Ò (2005), “Estimation and Inference of Impulse Responses by Local Projections”, The American Economic Review 95(1): 161–82.

Jordà, Ò, M Schularick, and A M Taylor (2013), “When Credit Bites Back”, Journal of Money, Credit and Banking 45(s2): 3–28.

Jordà, Ò, M Schularick, and A M Taylor (2014), “The Great Mortgaging: Housing Finance, Crises, and Business Cycles”, NBER Working Papers 20501.

Jordà, Ò, M Schularick, and A M Taylor (2015), “Leveraged Bubbles”, NBER Working Papers 21486.

Knoll, K, M Schularick, and T Steger (2014), “No Price Like Home: Global House Prices, 1870–2012”, CEPR Working Paper 10166.

Mishkin, F S (2008), “How Should We Respond to Asset Price Bubbles?”, Financial Stability Review, Banque de France, vol. 12 (October), pp. 65–74.

Mishkin, F S (2009), “Not all bubbles present a risk to the economy”, Financial Times, November 9, 2009.

Schularick, M, and A M Taylor (2012), “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008”, The American Economic Review 102(2): 1029–61.

Svensson, L E O (2014), “Inflation Targeting and “Leaning against the Wind”, International Journal of Central Banking 10(2): 103–14.

Footnote

1 See, for example, “An interview with Alan Greenspan,” FT Magazine, 25 October, 2013.

( Source : http://www.voxeu.org/article/leveraged-bubbles )

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Weiqi :: Chinese whispers

By Subhash Kak Aug 31 2015

Experts view the recent turmoil in the Chinese stock market as a consequence of the overcapacity of the Chinese infrastructure, misallocation of resources, and the ballooning of internal debt. The steps taken by the Chinese government to deal with this crisis appear to be half-steps. On the one hand, it has promised more transparency in the financial sector so that the valuation of the offerings is reliable; on the other hand, it devalued its currency and has kept it pegged low compared with other currencies.

We see similar half-steps in its diplomatic relations and the projection of its economic power. Although China proclaims its desire to have good relations with its neighbours, it is aggressively pursuing unilateral action on the disputes regarding the control of the Paracel and the Spratly islands in the South China Sea. After constructing a string of artificial islands, it is building deep-water ports, military-grade airstrips and strategic infrastructure to the alarm of its neighbours and the United States.

China’s greatest trading partner is the US, so one would imagine it would generally be sympathetic to the US position in international conflicts. But WikiLeaks shows that while China presents a façade of being reasonable and responsible in its actions, it is actively supporting American adversaries in various theatres, and has supplied nuclear and missile technology to Pakistan and North Korea. Is there a deeper consistency to China’s actions?

I would like to argue that difference in the international dealings of US and China are a consequence of their different cultural styles. These styles get expressed not only at playfields but also in business, diplomacy and war. The Chinese style is based fundamentally on its Confucian heritage with its emphasis on study, ceremony, loyalty and harmony. This style is best represented by the Chinese boardgame weiqi, better known in the west by its Japanese name go.

Weiqi is played by two players who alternately place black and white stones on vacant intersections of a grid of 19×19 lines. Once placed on the board, stones cannot be moved unless surrounded and captured by the opponent’s stones. This is a game of controlling territory and the object is to surround a larger portion of the board than the opponent. Groups of stones must have at least two open points to avoid capture and, therefore, placing them close together helps them support each other. Stones far apart create influence across more of the board and help occupy more territory. The strategic challenge of the game is to find a balance between conflicting interests of staying close for safety and going far to capture territory. It is the perfect game to learn imperial strategy.

In contrast, the game that captures the way the west sees its sports and war is chess in which the players perform tactical manouvres to attain winning material advantage or to mount a successful attack on the king. This can involve real sacrifice for the sake of victory. Although primarily tactical, the game does have strategic elements that involve piece mobility, centre control and pawn structure. The chess player manouvres to force and consolidate a winning material advantage. The history of the west is about exploration and conquest. It has celebrated clear resolve and victory as in Caesar’s famous proclamation: “Aleaiactaest,” or “the die is cast” when he crossed the Rubicon.

The Qianlong emperor and Macartney

For many centuries, China had little intercourse with other countries but after trade began European nations found their commercial relationships with China to be unsatisfactory. For the English, viewed as a nation of shopkeepers and traders by Adam Smith, trade was the key to their power and prosperity. In the 1790s, the British government of William Pitt the Younger wished to consolidate its power in India by cutting through the restrictions of the Canton trading system imposed by the Qianlong government on European merchants in 1760. George Macartney, colonial administrator of Madras and a diplomat, was chosen as British envoy to the Qing empire.

Once in China, Macartney refused to kowtow and finally it was negotiated with the Chinese legatee that he could go down on one knee. The meeting went smoothly but Macartney was never able to negotiate business with the emperor or his representatives. In fact, he was told to leave.

As Macartney’s embassy was leaving, he was given a reply from the Chinese emperor for King George III. In this, amongst other matters, he was criticised for not following the court protocol: “I do not forget the lonely remoteness of your island, cut off from the world by intervening wastes of sea, nor do I overlook your excusable ignorance of the usages of Our Celestial Empire.”

The emperor followed this by expressly denying the requests to open various ports to British ships, permission to establish a warehouse in Beijing, small island near Chusan for a warehouse, a site in the vicinity of Canton for the navy, and permission to proselytise. With regard to permission to spread Christianity, the emperor added that the jesuits “in my capital are forbidden to hold intercourse with Chinese subjects; they are restricted within the limits of their appointed residences, and may not go about propagating their religion. The distinction between Chinese and barbarian is most strict and your ambassador’s request that barbarians shall be given full liberty to disseminate their religion is utterly unreasonable.”

The failure of the Macartney mission was determined by conflicting cosmologies of China and Europe. In his memoirs, Macartney wrote about the poor quality of life for the Chinese under Qing rule. He realised that the Qing state faced fundamental structural problems. He wrote: “The government, as it stands, is properly the tyranny of a handful of Tatars (Manchu) over more than three hundred millions of Chinese.”

He also foresaw a serious internal challenge to the power of the Qing in China: “The frequent insurrections in the distant provinces are ambiguous oracles of the real sentiments of the people. The predominance of the Tartars and the emperor’s partiality for them are the common subjects of conversation among the Chinese whenever they meet together in private. There are certain mysterious societies in every province, who, though narrowly watched by the government, find means to elude its vigilance, and often hold secret assemblies, where they revive the memory of ancient independence, brood over recent injuries, and meditate revenge.” The Taiping, Nien, and the Boxer rebellions were to follow in the next several decades and the last Qing emperor abdicated in 1912.

Weiqi and the strategy of a thousand cuts

If we see the encounter between China and Macartney through the lens of weiqi, England was a small country in a faraway place that did not deserve any investment of the court’s energy. Modern China may be viewed as a restoration of the Qing empire, with the difference that the court has been replaced by the Communist Party.

Weiqi is profoundly strategic, but with incisive and complex tactics. The game proceeds with the players trying to balance conflicting and yet complementary objectives of territorial acquisition, projecting “influence,” maintaining access to the centre, and attack and defence. The tactics used in the game involve diversions and pincer and broader attacks and sacrifices. In weiqi, the consolidation of territorial borders takes place between safe opposing armies.

If chess is about decisive victory by vanquishing the enemy by taking the fight to the place where the king is located, weiqi is about consolidation of territory. This is the reason that the Qing emperors were busy fighting to keep the empire together, rather than advancing it elsewhere.

If Europe emphasises conquest, for China, the Middle Kingdom, the focus is on consolidation of its power. This difference between the styles of chess and weiqi explains Chinese history and why the Chinese did not go out to explore and conquer other nations. Another aspect of weiqi is a relentless pursuit of strategic gain, which may be called lingchi, or the strategy of a thousand cuts. The term lingchi derives from the notion of ascending a mountain slowly, where one requires a thousand small steps to reach the top.

Beijing’s warnings on economic consequences for those who challenge its political orthodoxies are consistent with the weiqi style. The punishment to those who don’t heed the warning comes in a thousand forms. China’s relentless pressure on Taiwan for reunification in fulfillment of its imperial vision is not only in terms of missiles fired across it on multiple occasions but constant shrinkage of its diplomatic space. The Chinese dole out punishment to those who welcome the Dalai Lama. Even Barack Obama met him not in his office or in public but in the basement, and the Lama had to leave through the backdoor of the White House.

(Subhash Kak is a Regents professor of engineering at Oklahoma State

University and author of 20 books, including The Architecture of Knowledge)

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This is a cyclical downturn this is a cyclical downturn

( Source : http://www.bloombergview.com/articles/2015-08-31/maybe-this-global-slowdown-is-different )

The global economy is slowing down. A couple of the big emerging-market economies that drove much of the growth during the past 15 years have hit a wall, and the question of the moment is whether the biggest of them, China, is in real trouble too. Commodity prices are tanking. Trade volumes are down. The Baltic Dry Index of shipping costs, which rebounded from a record low earlier this year, is falling again.

These are all characteristic of a cyclical downturn. And this is a cyclical downturn — oil prices will rise again someday. So will emerging-market stock and bond prices.

But there could also be something else afoot. We could be seeing early signs of longer-term changes in the global economy — changes that could be enormously positive, but also have the potential to upend a lot about how the world works today.

At this point these are just inklings, but I did what I always do when I have an inkling: I made some charts. First, here’s the picture on global trade:

global trade

After a spectacular rise in the 2000s, trade volumes plummeted after the 2008 financial crisis. They then recovered, but declined again in 2013. More up-to-date figures for just the G7 and BRIICS countriesshow that the decline may be accelerating.

trade slowdown new

Again, these things do go in waves. But there’s good reason to think that the trade gains of the 1990s and 2000s probably won’t be replicated anytime soon. As Michael Francis and Louis Morel of the Bank of Canada summed up in a recent report:

[T]rade reforms and technological innovations that lowered trade costs during the 1990s had a substantial effect on global trade by encouraging emerging markets to integrate into the global economy and by making global value chains economically viable. As a result, global trade rose relative to GDP. However, since this process is largely complete, the underlying incentives to expand trade are likely weaker now than they were in previous decades, leaving the world in a state where trade is neither rising nor falling relative to GDP.

A related argument is the one that’s been made by Harold Sirkin of the Boston Consulting Group for several years: Building global supply chains became so fashionable for Western manufacturers that they built them even when it made sense to keep production closer to customers; now they’re retrenching and revising their approach.

Still, I can’t help but thinking (perhaps wishfully thinking) that what we’re seeing might also be the beginnings of a plateauing in the world’s demand for things — and, even more, the resources needed to make those things. After all, the latest United Nations population projections, released in July, do indicate that we may be nearing a plateauing of the number of people on the planet.

population

Still, in the median forecast, the plateauing won’t happen till the end of the century. It’s possible that it won’t happen at all. Also, there are still billions of people around the world hoping to emerge from poverty and consume more things and resources. We’d have to see already-affluent people buying fewer things and consuming fewer resources to get the kind of shift I’m talking about. Are we seeing that?

Well, sort of. Here’s one remarkable shift the U.S. economy has made during the past 65 years:

goods services

The U.S. economy has grown so much during that period that people now are still buying more physical stuff than they did in 1950. Still, there are signs of a plateau. Consider what was long the iconic good produced by the U.S. economy, the automobile.

peak auto

The big growth years definitely seem to be over, even though U.S. population has kept growing. Still, this chart doesn’t exactly offer conclusive evidence. The trajectory on energy use is a little clearer.

energy

Americans use substantially less energy per capita now than they did in the 1990s. In Europe the trajectory is muddled by the entry of Eastern European countries into the global economy in the 1990s, which brought increased affluence and with it higher energy use — but the low level is an indication that the U.S. likely still has a lot of room to cut. The rapid growth in energy use in China was of course one of the factors behind the global natural resources boom that recently went bust.

The decline in Chinese demand for natural resources during the past year has been one of the main things prompting observers to wonder if the country is undergoing a much-sharper economic slowdown than the official numbers indicate. It may well be. But this also could be evidence of the Chinese economy’s shift away from resource-intensive manufacturing and infrastructure-building and toward providing services for Chinese consumers. In general, developing countries are making the switch from goods to services much earlier in their development than the U.S. and Europe did. This may not be all good news; economist Dani Rodrik worries that it might make it harder for them to catch up with wealthy countries. But it does mean less demand for things, and for the resources to make those things.

Finally, consider the things that people do want to spend their money on. The defining consumer product of our age is the smartphone. A smartphone is a good, and it takes resources to make and transport it. Still, it takes a lot less resources than, say, a car. Most of its value is in the software that is loaded onto it and the people, information and entertainment you can connect to with it. That’s a different sort of value creation than 20th-century resource-based value creation. If that’s the direction the global economy is headed in, the connections between growth, trade and resource consumption aren’t going to be the same as they have been. That is probably a good thing.

  1. G7: Canada, France, Germany, Italy, Japan, United Kingdom, United States. BRIICS: Brazil, the Russian Federation, India, Indonesia, China, South Africa.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Justin Fox at justinfox@bloomberg.net

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