The curse of the third generation

 I was approached by MalaysianInsider.com to be a columnist for this up and coming web paper some time back. I told those in charge that I could only write on an as-and-when basis, since I am a workig doctor, a blogger as well as having to care for a family.

Anyway, I wrote an article for them which was published yesterday. This article is a rewrite of my earlier post: ther curse of oil…The article can be viewed here . I thank Malaysian Insider (and  Shannon Teoh) for giving this opportunity for me to air my views.

I will post the whole article here since the points mentioned are even more relevant now that petrol price has shot up. I welcome constructive comments and criticism on the article:

The curse of the third generation

AUG 14 — The ancient Chinese sage Lao Tzu once said “Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime”. This saying was born almost two millennia ago but still holds true in our modern world today.

Looking around us, we can observe that many super rich families often discover that their estate cannot survive the third generation.

The first generation often starts out poor, but through sheer hard work and thriftiness and a little bit of luck become wealthy. From being wealthy, many of them then join the class of the super rich as a result of good entrepreneurial skills and judgment. Many of them, however, remain thrifty even when they become very rich.

The second generation very often grows up during the time their parents were struggling to make their fortune. They are better educated and often will be taught by their parents to “fish” intelligently. So when the family fortune passes to their hands, many of them can still maintain the business and some even expand on it. They are, of course, less thrifty than their parents, and will often marry someone from a rich family.

However, the third generation is usually born with silver spoons in their mouths. They are generally brought up in a life of luxury. They are usually not taught how to fish but are pampered with all sorts of expensive “fish” and hobbies. Many of them are sent overseas for education, but it is not uncommon to find some of them just fooling around and living an extravagant lifestyle. They are given everything and because of that, they do not really know how to cope with difficult situations and the intricacies of the business world.

Adding to that, the family wealth inevitably gets diluted among the more numerous siblings in the 2nd and 3rd generations, especially when these generations are unable to do much to expand the family businesses.

So, the wealth that was passed down just withers away. This is commonly known as the Curse of the Third Generation.

There is another curse which works in a similar manner but affects a country rather than a family.

Thomas Friedman, in his book “The World is Flat”, talks about the “curse of the oil”.

Many of us think that a nation with petroleum resources is a lucky and blessed nation. However, Friedman mentions that in countries like Venezuela, Nigeria, Saudi Arabia and Iran, the presence of oil in fact is the main retarding factor on the emergence of democracy and a diverse economy. He is of the view that the rulers of these countries use oil money to monopolise all the instruments of the state, including the army, the police and the intelligence. They don’t need to be transparent because they don’t tax their people, and since they do not tax their people, they do not feel the need to be accountable about how they spend the money. There is often no freedom of the press and dissent is usually harshly dealt with.

Oil money will eventually run out. Because of the short-term wealth, they are like the third generation rich men mentioned above. The rulers do not bother to develop their economy just like the 3rd generation does not bother to learn how to fish.

They do not bother to develop their human resources, and “drill” for natural talents instead of oil, train their people instead of importing trained people from other countries to work for them. Eventually, when their oil runs out, they will find that they cannot compete with the rest of the world that depends on their human resources instead of natural resources.

In other words, they do not bother to teach their citizens how to fish, and when the supply of fish is exhausted, they are in trouble.

Bahrain was one of the Gulf States to find oil first and also one of the first to finish its oil resources. It is also an exception to the “curse of the oil”. It is the first country in the Middle East to have free elections, in which even women are allowed to vote. It is also the first to sign an FTA with the US and the first to develop its own labour market and human resources.

It is able to do so because the leaders are more farsighted than its neighbours. They knew that they could not depend on oil revenue forever and hence the development of democracy and free trade treaties.

We are also a small oil producer. We are lucky in that we are already independent and have all the democratic institutions in place before we discovered oil. Our economy is also very much diversified. We are a workable democracy with regular elections. We have opposition parties and we have fairly vocal NGOs.

We have not been afflicted with the curse of oil, so far. But the perception among the people is that our oil money could be put to better use.

Taxes and royalties from oil and gas now amount to about 35% of our government revenue, up from 10% a decade ago. But people in the streets are asking how much of this is used productively? Perhaps our government would care to enlighten us.

This oil revenue must be utilised with utmost care because oil and gas revenue is a depletable income; it will end one day and that day is not far away. It should not be wasted on non-productive expenditure such as building offices and other non-productive hardware, or in the rescue of failed state or certain private enterprises.

It should be used for developing our human resources, training our people and preparing them for the challenges ahead. It should be utilised for those infrastructure that will spur the expansion of our economy, attract foreign investments, and increase mobility of goods and services.

Perhaps, we should have used part of this money to improve our transport system during the last two decades. If the public transport system is efficient, we would not be caught with our “pants” down metaphorically when the petrol price was hiked up recently, and we could have avoided the sudden damping effects on our economy.

We must use the money to develop our human resources. However, to avoid the pitfall of our country going down the path of the “third generation curse”, human resources development must be based on meritocratic principles irrespective of colour and religion, albeit with certain assistance to the weaker and poorer sectors of the population. There must be a certain amount of fair competition.

In a nutshell, the people must all learn how to fish instead of being given fish all their lives, and we must learn this skill when we still have plenty of fish to eat.

We should not pamper our people too much but instead let them take on competition and develop their skills. Only by letting our people learn how to fish in the best possible way can we then avoid the curse of the oil and the curse of the third generation.

Otherwise, if we just sit around and refuse to learn how to fish, if we just pamper our people by giving everything they need and take care of them from womb to tomb, the rot will inevitably set in.

We will then regret — and often it is too late — when our oil and gas supply ultimately runs out. That day of reckoning may be sooner than we realise.