The risk from China is not economic

There’s a long history of despotic powers predicting they’ll eclipse their democratic rivals, with no shortage of contemporary democratic observers enthusiastically agreeing.  The current installment might be China, for whom there are many cheerleaders willing to overlook that nation’s manifold problems.

Some have likened the Chinese Communist Party to a “crime syndicate,” her economic numbers fudged on an Enron or Madoff scale, with ecological nightmares and a real estate bubble worse than our recently popped one.

I take a jaundiced view of their intentions towards us, but count myself among the pessimists regarding the long term economic threat they represent – other than the wealth they are able to devote to military buildup.  Recently John Derbyshire wrote of a despotic boom-n-bust cycle:

The question implied is really two questions: (1) Has modern China escaped from the boom’n’bust dynastic cycle — a few decades of despotic order followed by uncontrolled corruption, popular uprisings, disintegration into warlord rule, then conquest or consolidation and the start of a new cycle? (2) If she has not, how near to the disintegration phase are we now, in 2011?

My own guesses are (1) no, and (2) not very; but they are only guesses (though I’d claim decently well-informed ones), as is everything else you read on the topic.

Mr. Derbyshire goes on to cite this piece by Lawrence Solomon in Saturday’s National Post (Toronto):

Twenty years ago the [Chinese] Communist Party decided that “getting rich is glorious,” giving the green light to lawless capitalism. The rulers in China started by awarding themselves and their families the lion’s share of the state’s resources in the guise of privatization, and by selling licences and other access to the economy to cronies in exchange for bribes. The system of corruption, and the public acceptance of corruption, is now pervasive — even minor officials in government backwaters are now able to enrich themselves handsomely.

This ethos of corruption is captured in a popular song in China, I want to marry a government official, whose lyrics explain why an official makes for a good matrimonial catch: “He has power, a car and house; He only needs to drink tea and read the newspaper during work; He never spends his own money on cigarettes and alcohol; He can get free food every day; He can get promoted by only kissing his boss’s ass.”

Mr. Derbyshire also points to his review of his 2001 book The Coming Collapse of China (in which he quotes a predecessor from 1932) to argue that pessimism about China has a long pedigree:

You might have got the impression from some of the more upbeat commentary in our news media that the Communist Party has faded into the background, stepping aside to give China’s entrepreneurial forces free rein.  Nothing of the sort, says Mr. Chang:  the Party’s urge to control everything in sight is irresistible. It is irresistible to the cadres themselves, no least because it offers them endless opportunities to enrich themselves by corruption.  And there is no organized alternative power center in Chinese society that can resist it, because the Party never has, and never will, permit any such alternative to develop.

The Party is, of course, clueless about the actual mechanics of free enterprise.  They have made, and are continuing to make, every mistake in the book:  assuming that size will guarantee success (in ration economics, as the author points out, things happen the other way round), trying to “pick winners” and throw public funds at them, using the banking system as a vast “error account” to hide their fiscal failures, and son on.  Everything is done with an eye to regime survival, the Party’s one true priority.  Thus, having favored the creation of huge enterprises on the size-brings-success principle, they dare not let those enterprises compete freely or fear of the social consequences if one of the fails.  “Beijing is like a nervous referee in a boxing match, rushing in to stop enterprises from competing at the first sign of a nose bleed.”  Bankruptcy in China, Chang observes, is much more often brought about by political disfavor than by failure in the market place.

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