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Cognitive Maps of Policy Makers on Financial C rises of
South Korea and Malaysia: A Comparative study
Kim, Dong-Hwan* and Rai, V.K.+
* Chung -Ang University, School of Public A ffairs,
Kyunggi-Do, Ansung-Si, Naeri, 456-756, South Korea, sddhkim@ cau.ac.kr
+Tata Research Development and Design Center (TCS)
54B, Hadapsar Industrial Estate, Pune- 411 013, India, vkrai@ pune.tcs.co.in
Abstract: Republics of South Korea and Malaysia underwent economic crises in 1997. They
both recovered by 1999 by taking radically different approaches. This study reports the
comparative study of the perception of the economic crises by the policy makers of these
countries. It uses cognitive maps to discover and compare the perceptual structures of
decision-makers. This study finds that the causes of the crises were perceived different and
so were the strategies adopted to overcome them, but there was something common in the
way of thinking of policy makers of respective countries. Their cognitive maps contained
feedback loops.
I. Limits to Economic Reasoning of Asian Crisis
Republics of South Korea and Malaysia came across a financial crisis in 1997. They
experienced abrupt depreciation in the value of their currency. Several companies in these
countries went bankrupt. Unemployment rate went high unprecedented and social stability was
at stake. The common citizens as well policy makers in both countries reacted differently to the
crises based on their differing perceptions of the cause of the crises and strategies adopted to
overcome them. Koreans thought the crisis was perpetuated by internal factors while
Malaysians thought it was caused by extemal forces including hedge fund.
Korean government accepted the recommendations of IMF and restructured the financial and
industrial institutions and opened the economy to the global markets, while Malaysian
government did the opposite. It rejected the recommendation of IMF and separated its currency
markets from the rest of the world.
Economists focussed on the weak financial institutions in these countries and spillover effect of
currency crisis of Thailand to discover the causes of financial crises (Ungson 1998). The
explanations put forward by economists, however, could not elucidate the differences in
strategies adopted by Korea and Malaysia to overcome the crises. Both of the countries
recovered from the crises adopting radically different strategies.
In order to understand, therefore, the difference in strategies adopted by policy makers of these
countries we need to examine the perceptual structures of policy makers of Korea and Malaysia.
Authors of this article used cognitive maps to articulate the perceptual structures of respective
policy makers to ascertain the causes of financial crises and corresponding policy measures to
overcome the crises.
Even though there were many policy makers dealing with the crises, authors focussed on the
presidential and prime-ministarial utterances about the crises in order to construct the respective
cognitive maps. This is so because president of South Korea and the prime minister of
Malaysia were the ones who set the agenda for dealing with the crises also because their
utterances reflected the collective opinion of their advisers and policy makers.
II. Cognitive Maps as a Tool for Comparative Study
Cognitive maps have been used widely in political science and organizational analysis. In
political science cognitive map approach has been applied to discover belief systems of political
leaders and policy makers (Axelrod 1976, Sergeev, Akiomov, Lukov, Parshin 1990). In the
organizational analysis, cognitive maps have been used mainly to analyze organizational
decision making processes (Weick & Bougon 1986, Eden 1989, Calori, Johnson, Samin 1994).
In the context of politics and management, statements of leaders are usually interpreted as
expression of their intended policies and beliefs. And so cognitive maps of leaders can provide
us indicators on direction and ground of their policy. In this sense, cognitive maps of political
leaders may be said to reflect their political intentions.
Usually there are two purposes in applying cognitive maps: understanding and prediction.
Bonham and Shapiro could successfully predict Syrian Intervention in Jordan in 1970 (Bonham
& Shapiro 1976). Furthermore, belief system and cognition represented by cognitive map
does not directly produce action and behavior, for, circumstances are also contingent upon it.
There is a long hiatus intervening cognition and action. This hiatus is the source of uncertainty,
which makes prediction imprudent. Moreover, credibility level of public utterances of political
leaders and policy makers also determines the predictability. Therefore, it is prudent to use
cognitive maps for the purpose of understanding rather than prediction. Nonetheless cognitive
maps can be very useful tools in deciphering how policy makers perceive and describe their
environment. A clear understanding of cognitive maps can also elucidate the critical
components of belief systems of policy makers.
Cognitive map can be applied to a single actor or to a set of actors. In the case of single actor it
focuses on his/her belief system. Cognitive map approach can also be applied to understand
collective action problem including conflicting parties (Bennett & Cropper, 1987) and group
decision making (Lee, Courtney, O'Keefe 1992, Bougon, Weick, Binkhorst, 1977). Also,
cognitive map can be used to compare how policy makers perceive differently a given problem
situation. For instance, Bonham, Sergeev, and Parshin used cognitive map approach to find out
differences in the perception of Kennedy and Khrushchev on the test-ban issue of nuclear
weapon (Bonham, Sergeev, Parshin 1997). By comparing cognitive maps of political leaders,
one can understand how and why they perceive as they do and how differences in policy
measures come from their differing perceptions (Jenkins, Johnson 1997).
III. Cognitive Maps of Policy Makers in Financial Crisis
As stated earlier, cognitive maps have been used to study the perceptual structure of decision
makers (Axelrod, 1976). Cognitive map usually consists of variables and causal relations among
them. In the cognitive map arrows interconnect variables. Direction of arrows means the
direction of causal influence. The signs attached to the head of arrows indicate the polarity of
the causal relations. If two variables are connected by an arrow with + sign, it means the
increase/decrease in the variable at the origin of the arrow causes increase/decrease in the
variable at the head of the arrow. With the variables and causal relations embedded in the
cognitive map, one can see the emergent perceptual structure. The perceptual structure can then
be analyzed to identify the perceptual bases of policy measures adopted by policy makers.
Policy makers define policy problems and chalk out measures based on their perception of the
real world. In this respect, cognitive maps are directly related to the cognitive aspect of policy
making. Variables in the cognitive map indicate what concepts policy makers consider as
important. Causal relations in the cognitive map represent the perception of policy makers on
what they consider determining factors and their perception on how to reach their policy goals.
Although cognitive maps do not tell us about the objective world, they do tell us the way policy
makers perceive the objective world. What is assumed here is the truism that people solve
problems as they perceive it.
In order to construct the cognitive map of President of Korea, we collected and analyzed his
speeches and interviews delivered from Februray to December of 1998. And for the Prime
Minister Mahathir, his speeches from June of 1997 to December of 1998 were collected and
analyzed. From their utterances, we elicited the elements and causal relations and constructed
the cognitive maps. We focused our attention on the causal relations that comprise feedback
loops. That is because variables in the feedback loops usually hold the lever in influencing the
system behavior. Figure 1 and figure 2 depict the cognitive maps of President of Korea Mr. Kim
Dae Jung (DJ) and Prime Minister of Malaysia Dr. Mahathir Mohammed.
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v a elltians ad +
SY ‘heewere fos a!
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Pr Fetancia esis
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oflabor Se z é
= "A
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oe
Aesibiity in tabor pain shating between
Vo snort JS
a
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unemployment
competition lined
Se
eifvah Sus: pokey
level ofeecrotic pe
BIS atic a ————
restructuring of
activity = Sinansialinstitsios
+ lon
t stoneyaonse 2 ,
_
+ bancioupcy sovestment ntti
SS
Figure 1. Cognitive map of President of Korea
oi
compitivenses of ye
ty She A atts
mere nitt cane
scuive :
sean a Penang Toullce
osperthy neighbour fvestment
a4 Seperate oa
esiicor ok a G cepsbaty to defend ‘ |
Se eganct speculative =
aslion -_ se
Pras ~~ 4 investment snatignal orectbiity
* wreath of ration aA 7 _
‘amgatie js as ___ ook vate _
see
_ stability
matket size
_injerest rate
inveotment “y
oppomunity
OS ig mesa
purchasing power
Figure 2. Cognitive map of Prime Minister of Malaysia
IV. Difference in the perception of the causes of financial crisis
The most outstanding difference between cognitive map of DJ and Mahathir lies in the variables
types included in the map. While variables in the cognitive map of DJ are related to domestic
affairs, variables in that of Mahathir are related to international affairs. We can say that DJ
approached to the financial crisis from the perspective of internal factors, while Mahathir
approached to it from the external factors. DJ attributed the cause of financial crisis to the
failure of domestic financial institutions and national competitiveness that resulted due to lack
of democracy. Mahathir, on the other hand, attributed the cause of financial crisis in Malaysia to
the speculative investment of foreigners who are used to exploit countries with low wealth.
Figure 3 summarizes and compares their view on the basic cause of financial causes. While DJ
pursued the internal restructuring policy, Mahatir focused his policy measures to shun the
impact of intemational currency trade on his country.
collusive tie between
politicians end | +
——
business aanenal financial crisis
_———™ competitiveness (value of currency)
lackof + government
—_ -
democracy intenspion in Snancial : _. mente
v investment
«
corruption
national
credibility
a. DJ
opportunity for
speculative +
Ona speculative
investment
“+ capability to defend
{am eins epoca ee
wealth of nation savecinent national credibitty Value of currency
+
b, Mahatir
Figure 3. Perception on the causes of financial crisis
One of the most interesting differences that can be found by comparing figure 3-a and 3-b is the
diagonally opposite perception on the relationships between national credibility and speculative
investment of foreigners. DJ said that the lower national credibility calls forth the speculative
fund, while Mahathir said that the national credibility goes down because of the speculative
investment of foreigners. Therefore, the different perception on the causes of financial crisis
resulted in the different perception about the causal direction between two variables - national
credibility and speculative investment. These differing perceptions of causal relationships
brought forth different measures to overcome the crises. Perception of DJ called for efforts to
increase the national credibility by way of industrial and financial restructuring in order to
reduce the activity of speculative investment of foreigners. But, in the perception of Mahathir,
the national credibility or the lack of it was the result of speculative investments. Even if
national credibility is high, speculative investment can come anytime and decrease or destroy
the national credibility, he contended. Thus the national credibility could not be a bulwark
against the speculative behavior of foreign investment.
The whole structure of their cognitive maps can be represented and understood by main
feedback loops that dominate their way of thinking. Main feedback loops of both cognitive
maps are summarized in figure 4. The cognitive map of DJ focused on the negative feedback
loops. To him, lack of industrial competitiveness resulted in the financial crisis. However,
financial crisis can make it easier to restructure the industrial and financial institution, and this
restructuring will enhance the industrial competitiveness. In his perception, the fundamental
cause of the crisis was the lack of democracy, and so if one introduced the democracy and fair
competition into the market, the crisis could be overcome.
+
inne —™ national foreign currency
emocracy competitiveness reserve ia
+ +
financial crisis
>) hee 4)
credibility
+
industrial
restructuring
Figure 4. Negative Feedback loops of DJ
The cognitive map of Mahathir is characterized by the positive feedback loops. The positive
feedback loops in the left side of Mahatir’s cognitive map (Figure 5) indicates the virtuous cycle
in the benevolent relationships among nations. The positive feedback loops in the right side of
figure 5 represents Mahathir’s perception of vicious cycle resulting through the speculative
behavior of foreign investors. Speculative investors attack the nations with the low level of
wealth because they can control the financial markets at their own. They earn great amount of
profit from the speculative behavior and disappear. The negative feedback loop in figure 5
demonstrates that this positive feedback loop continues until there is no wealth to be exploited.
+ opportunity for
prosperthy: neighbour pocsulatee
a policy investment =
reali “" hf) “ of nation Wf to defend aa speculative
nee against speculative investment
investment
inve: v4
cppertunity value of swear tH) oe credibility
a
Figure 5. Positive feedback loops of Mahathir
V. Differences in strategies to overcome the crisis.
The differences in their strategies can be explained by the variables as well as the polarity of
feedback loops in the cognitive maps of DJ and Mahathir. Firstly, in the cognitive map of DJ
there are many variables related to the role of domestic factors in economy. For instance,
restructuring of businesses and banks are important variables in the cognitive map of DJ, while
they do not appeared in the cognitive map of Mahathir. Once policy measures are included in
the perception, they can be conceived as promising candidates of policy measures. One of the
main differences between strategies of DJ and Mahathir to overcome the crisis comes from the
fact that their cognitive map contains different variables.
But their strategic differences cannot be explained by the difference in the types of variables
alone. Both of them share a lot of similar variables. For example, currency, national credibility,
national competitiveness, import, export, interest rates, speculative investment are all there in
their cognitive maps. The crucial differences that bring forth their differences in strategies to
overcome the crises can be detected in how variables are interconnected with each other and
what kind of feedback loops are formed in their mind.
With the negative feedback loop in his cognitive map, which is usually called balancing loop,
DJ expected that the crisis would be balanced by counteracting forces to recover the economy.
DJ made policy measures that accelerate the balancing process. Positive feedback loops are
usually interpreted as deviance amplifying loops and reinforcing loops. For the Mahathir, who
perceived the crisis situation mainly in the structure of positive feedback loops, crisis is
perceived to be aggravated in the future rather than recovered. There were no mechanism
expected to work toward recovering the economy from the financial crisis. In the cognitive map
of Mahathir, he cannot get out of the financial crisis. So he chose to break the causal
relationships he perceived in the economy. That explains his policy of restriction of trade of
Malaysian currency into the domestic market. With the introduction of regulation on the trade of
currency, he could break out the positive feedback loop (viscous cycle) in the right part of figure
2 and get out of the financial crisis. Therefore, while DJ remained in the loop, Mahathir chose to
break the loop because he could not find any solutions otherwise.
VI. The similar way of thinking
Though, DJ and Mahathir had different perceptions on causes of financial crisis and used
radically different policy measures to overcome the crises, their respective cognitive maps have
certain common features.
The most prominent feature of their cognitive maps is their richness in feedback loops
dominating the economic scenario. This feature is not the one that can be found commonly. The
misperception of feedback loop is usually discussed in the previous studies of cognitive maps of
politicians. The lack of feedback loop is reported in early days of cognitive map studies by
Axelrod and his collegues (Axelrod 1976, Bonham, Shapiro, Tremble 1979). His group
constructed three cognitive maps of policy makers and found that there are no feedback loops.
The following paragraph quotes this problem.
“But the point is that neither positive nor negative feedback loops, and neither long
nor short loops are present in any of the three spontaneous cognitive maps that have
been investigated in detail. This is curious. The absence of cycles in these maps
seems to indicate that the images of the policy environment which these decision
makers present to each other in their meetings are devoid of feedback. It is curious
precisely because we know that feedback is vital aspect of the dynamics of almost
any complex environment, especially social environments (p.232, Axelrod 1976)”
Axelrod further goes on to comment on the phenomena of lack of feedback loops saying “Thus
the explanation seems to be in the way people conceptualize causation. They seem to see it as
flowing outwards, and not tuming back to affect some other concept variable that is regarded as
causally prior”. There are no agreed upon theory for explaining the lack of feedback loops. And,
after Axelrod's studies, Maoz found some feedback loops in the cognitive map of Kissinger
(Maoz;1991). The perception of feedback loops is important in comprehending a problem
situation. If policy makers are unable to perceive feedback loops and make policy measures
based on feed forward loops alone, they cannot understand the dynamics of the problem and its
environment and the long-term effect of their policy measures. So feedback thinking is an
essential feature of successful policy makers.
In our studies on the cognitive maps of DJ and Mahathir, we could found many feedback loops.
In this respect, the cognitive maps of both DJ and Mahatir are very rich and elucidating. This
richness in their feedback loops in their cognitive maps can be explained as follows. Firstly,
their cognitive maps were constructed not from the statements of their single speech, but from
their statements delivered in speeches over a period of more than a year. If we had constructed
their cognitive maps only from the statements of single speech, the resulting cognitive map may
have been lacking feedback loops.
Secondly, the richness of feedback loops might come from the position of DJ and Mahathir, who
are in the position of managing overall society including industrial sector, financial sector, labor
problems, and international relations. Thus their cognitive map cannot but represent important
feedback loops already embedded there. But the cognitive maps of policy makers who deal with
only a section of the society may not contain feedback loops as has been found in the studies by
Axelrod.
If this is the case, there comes an important implication. Divide-and-conquer strategy does not
help in perceiving the feedback loops. If the top policy maker/chief executive divides the
problems among his advisors and relies upon the inputs given by them he can not perceive non-
linear relationships among the inputs, for, inputs have come from a particular part of the overall
problem and thus may not contain feedback loops. Therefore, in order to see the problem in
totality the top policy maker must transcend the bits and pieces of the problem and see the
whole in order to capture the non-linear relationship between the parts of the problem.
VII. Conclusion
In this study we constructed and analyzed cognitive maps of President of South Korea and
Prime Minister of Malaysia with respect to the economic crises in their respective countries.
The comparison of their cognitive maps revealed that they perceived the economic crises
differently and deployed different approaches to overcome the crises. The similarities in their
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cognitive maps were found in terms of feedback loops, while the differences were found in
terms of types of variables and relationship among them. Different, in fact, opposite relationship
between the same variables was the most striking difference between their cognitive maps.
While president DJ saw national credibility as a defense against speculative behavior Mahathir
did not find any solace in it. President DJ perceived that the balancing loop of restructuring the
financial and industrial institutions could take care of the problem, Prime Minister Mahathir did
not see any option but breaking the vicious cycle of national credibility versus speculative
behavior by shunning off Malaysian currency trade. Thus on the basis of this study we feel that
cognitive map approach could be a very potential tool for comparative study of policy makers.
The most important issue this study has thrown up, which calls for thorough investigation is the
relationship between national credibility and speculative behavior. One needs to know whether
national credibility is the potential cause of speculative behavior or not. Are they mutually
dependent upon each other?. However, mere realization of interdependent nature of relationship
between national credibility and speculative behavior does not solve the problem. The critical
conditions involved in this interdependence are the subject of further study.
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