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You teach an MBA course called "Doing Business in China in the Early 21st Century." What are the key things you're teaching future executives?
McFarlan: First, there's the incredible emergence of China in the last 30 years. There's no other place that's had a sustained 11 percent growth rate per year that China has had for the last 30 years. This has led to glittering things like roads, automobile congestion, stadiums and buildings. On the surface, it looks very exciting.
But there are all kinds of gaps in the infrastructure. For example, you need only a bank account and a cell phone to get a credit card. The cell phone is used for the confirmation of a transaction passed through your house. The 50 years that we've had of developing credit authorizations simply is not there. So what you see is very exciting, but they're 50 to 75 years behind us.
Second, this is the land of centralized political control. It's been that way for the last 3,000 or 4,000 years. There's nothing in the slightest bit different between the current government and the dynasties, except that instead of today's leaders being hereditary, every five years they go through a process and pick a new leader.
Here's the third thing: People sometimes get confused confused thinking it's a communist country. In fact, it's the most entrepreneurial, deal-making operation that you know. As long as you don't try to overthrow the government, the notion of making money is glorious.
That leads to the next point: At every step along the way, there are institutions of government control that you may not be aware of. When you run across something that's against public policy, you can suddenly becut off. So there's an incredible pressure in trying to understand the environment.
In many ways, China is the last of the great empires. In 1900, the great empires were the British, the Russian, the Austro-Hungarian and the Chinese;the others have all gone the way of history, but China is actually physically bigger than it's been in almost any point in its history.
Are China's environmental problems an obstacle to its business potential?
McFarlan: We're on the other side of the Pacific from China, but we're getting their soot in the Rocky Mountains. But the people being hurt worst by the pollution are the Chinese. We need to be careful: People who live in glass houses shouldn't throw stones.
In 1910, we had 130,000 miles of railway in the United States. In China, at that time, they had 233 miles. Basically, they have lagged us 50 to 75 years in the development of the economic infrastructure. Then, look at Pittsburgh in 1950: It was an absolute horror, in terms of a cesspool of pollution from the steel mills. The last killer smog took place in London in 1951, just before they eliminated coal-burning stoves. When coal burning stopped, the killer smog stopped.
For the last several hundred years, the signs of a rapidly emerging industrial society have included the problems of pollution, which had to be addressedbecause they became a huge detriment to quality of life. China is now working through that problem.