Wednesday, May 22, 2019

The social and geopolitical origins of China’s rise

I read with pleasure the recent book “The China boom: Why China will not rule the world” by Ho-fung Hung. You should not be put off by the silly subtitle (probably added by the publisher to contrast Hung’s book to Martin Jacques’s). The book is much better than its subtitle implies. It gives a historical overview of how China’s economy functioned under Ming and Qing, goes over the well-known themes of how and why capitalists failed to create a coherent class in China (unlike in Europe), and how the paternalistic Qing slowed down that process by often supporting workers in disputes with owners, the very opposite of what capitalist-controlled European states did at the time. I wrote about these themes in my reviews of Arrighi, Jacques, and Pomeranz, so I will not go back to them.

There two other interesting things that I find in Hung’s book.

The first is: what is origin of China’s success? It is the mixture of the Asian export-driven policies (with open US markets) combined with Maoist centralization of capital through surplus exploitation of peasantry. For the reasons of paternalism and weakness, the Qing were never able to centralize capital needed for development. The post-Qing (republican) regime also failed in it but, in an era of chaos, let local gentry, merchants and the military be transformed into a number of regional  “military-predatory elites” vying with each other for power. China under the Republican regime was like Libya today. If you believe that Libya will soon begin to develop, then you can as well see in those multiple “militaro-predatory” elites of the early Republic a proto-capitalist formation, as some like Pseudoerasmus do. (I had a Twitter discussion on this issue with him.)

China’s rise differs in another way from the general East Asian experience. The flying-geese pattern (Akamatsu) whereby the most developed country gradually abandons less value-added productions to the next in line, and so forth, was upended by China, which started low but gradually took over the top-of-the-line products while not giving up the low-value added. Rather than flying in a orderly flock, China thus, both through its size and fast innovation, changed the model by becoming the hub through which many East Asian products are now exported to the US and Europe. The entire second part of the book is devoted to the interdependence between the US and China (trade surplus and investments in dollar-denominated T-bills) and while it may be, especially now, of significant interest for many I will not review it here.

For me, the second interesting part is what Hung regards as the class base of China’s current regime of political capitalism. This is a topic I deal with in Chapter 3 of my “Capitalism, Alone”. I wish I had read Hung before I completed the chapter because he introduces several interesting elements. Hung, like many others (including me), sees the dominant class to be “politico-capitalist” or in his formulation “politico-entrepreneurial” (p. 91). The “ruling bloc” combines people from the political sphere who benefit from political and economic power of SOEs, and capitalists, mostly from the Southern maritime provinces, who benefit from China’s “export machine”. Following Michael Pettis, an American professor at Peking University, Hung argues that three fundamental Chinese policies of (i) wage (and consumption) suppression, (ii) cheap yuan, and (iii) financial repression have their origin in this class structure.  Wage suppression and depreciated currency are obviously good for Chinese exporters (the new entrepreneurial class). Financial repression, combined with huge trade surpluses generated by the “export machine”, allow the political part of the ruling class to use SOEs for projection of its power domestically, and increasingly, internationally.

There is an additional twist that lovers of history’s convoluted implications would appreciate. Hung argues that the wave of privatizations that increased unemployment by thousands and reduced workers rights in the early- to mid- 1990s was possible only thanks to the repressive post-Tiananmen regime. The pro-democracy students and pro-Maoist workers who decried inequalities in 1989  “succeeded” in unifying different political factions of CCP, afraid of losing power, and made it possible for CCP to launch, after Deng’s “Southern turn”, the most far-reaching privatization and liberalization policies. In Hung’s view such policies would have met with much stronger societal resistance had they been implemented in the more permissive pre-Tiananmen climate.

Hung also explains why wage repression and urban-rural differences in China are, and can be, greater than they were in South Korea and Taiwan at the same level of development. The answer is also somewhat counter-intuitive but no less logical. South Korea and Taiwan had to be more careful and to spread the wealth to the countryside lest they create revolutionary conditions in villages or allow disgruntled rurals to move into cities. They had to be more careful because of proximity of China and the appeal of left-wing, pro-Communist, policies. But China does not have to “fear” the left-wing appeal of any nearby egalitarian power, and can thus pursue much more inegalitarian policies.

Let me finish with a small detail,

The book that was clearly written before the last US presidential election (although it was published in 2017), mentions, as a curiosity, on page 1, one “Donald Trump’s…entertaining [sic] bid for presidency in 2012”. The joke is on Hung.

Friday, May 3, 2019

Democracy or dictatorship: which works better?

Last night, in a response to something I had written on Twitter, a friend tweeted Oscar Wilde’s quip that “the trouble with socialism is that it takes up too many evenings”. And although Wilde wrote long before socialism got established anywhere, and although it looks like just a clever comment, I think there is more in it: like many artists, Wilde captured the essence of the advantages and the problems of a political and economic system even before it became a reality.

How come?

When I arrived in the United States, coming from the worker-management world of Titoist Yugoslavia, I was somewhat surprised how Americans took the strongly hierarchical, quasi dictatorial relations in the business world as fully “normal”. I was half expecting that workers would have a say in the choice of their “managers” (actually, for a long time, I could not even figure out who exactly is a “manager”) but of course they did not. The promotions were made by cooption or even direct appointment of lower echelons by the higher echelons. And of course, the management was selected by the owners themselves. So the system was entirely top-down: the top selected the down it liked to have.

It was remarkably similar to the political system from which I came. There too the Central Committee coopted its new members; these selected their replacements and so forth down to the lowest level of Communist Party cell. Formally speaking, American companies were organized like the Communist Party. In both cases, to paraphrase Bertold Brecht, the leadership selected their employees, or their citizens. In one case the dictatorship was in the social sphere, in another in the work sphere.

Democracy that in the US existed in the social sphere (with lower levels electing their own political “managers”) was replicated in the Titoist Yugoslavia in the workplace with workers electing their own workers councils and those electing directors (except in enterprises that were seen of special importance where the top-down system of Communist Party appointment held).

So there were two societies with key spheres of human activity (work and social) organized according to the exactly opposite principles. One of them won, another lost. The one that lost, lost because organizing the work sphere according to democratic principles is not efficient. When you do so, an enormous amount of time is spent on negotiating minutest details of work, pay, holidays, sick leave, right to take leave when a family member is not well, payment of overtime, cleaning of bathrooms, supplies of papers etc. etc. Academic departments in the US are what comes closest to labor management as existed in the socialist Yugoslavia. And hardly anyone would argue the academic department are organized in an efficient way. People who in such an organizational context win and become successful are those who are not really interested in working at all, but debating every issue until everybody gets exhausted and gives up. They have the patience to outsit and outlast everybody else in interminable discussions and negotiations. No issue is small enough that they would not discuss it ad nauseum. Obviously, hardly anything ever gets done under such circumstances.

But does not the same danger lurk in the political space? Do not citizen  initiatives, referendums and counter-referendums, law suits and counter-suits, carry the same danger that Oscar Wilde identified: that normal citizens do not have the time or do not care sufficiently about certain things so that the decision ultimately get taken by those with the greatest patience, by those who have nothing else to do but to get engaged into these “consultations”? In a heavily commercialized world of today where every minute counts literally and in terms of income foregone (you can write blogs for money, or study for your exam, or drive Uber, or charge your neighbor for taking his dog for a walk), social involvement is almost necessary captured by professional NGOs. (I have noticed that many NGOs have presidents who, by the number of their mandates, approach Mugabe and Mubarak, but, unlike those illustrious leaders, can never be overthrown by their hapless constituents.)

This is where more technocratic political capitalism of the Chinese or Singaporean variety comes to mind. What it tells you is that essentially the same efficient and dictatorial way in which the production of cell phones is organized ought to be extended to the political sphere. It argues that the two spheres are essentially the same. In both efficiency is reached by clear goal-directed activities which are technical in nature and which should not be subject to the constant approval by workers or citizens.

If these societies continue to consistently outperform societies where the social sphere is organized in a democratic fashion, there is, I think, little doubt that their appeal will be such that, in a hundred years, it may seem to those who are around so very quaint that people thought that in a complex society decisions should taken by democratic vote. The same as it seems to us today so very quaint to believe that people once thought that a decision about what a company should produce was supposed to be made by the majority vote of shop-floor workers.

Wednesday, April 24, 2019

Shadows and lights of globalization

To think correctly about globalization one needs to think of it in historical context. This means seeing today’s globalization and its effects, positive and negative, as in many ways a mirror-replay  of the first globalization that took place from the mid-19th century to the First World War.

That globalization, underpinned by the Industrial Revolution in Western Europe, transformed the economic map of the world by making Europe much richer and politically and militarily more powerful than any other part of the world. It allowed European countries, and later the United States, to conquer most of Africa and significant parts of Asia, which even when they were not formally ruled by Westerners were subjected to their strong influence in terms of economic policy (opening to trade, control of custom revenues), or even juridical extraterritoriality for European citizens.

Advanced European countries became much richer, so that by 1914 the ratio of per capita income, according to the Maddison project database, between the UK and China was 8 to 1 compared to 3 to 1 one century earlier. (The figure below shows the reverse of this ratio: Chinese, Indian and Indonesian GDP per capita as percent of comparable West European GDPs per capita. It thus highlights the recent rise of Asian countries.) Moreover, the fruits of industrialization and globalization began to be spread across Western countries’ income distributions thus making even the poor people there richer than almost all Africans and most Asians. European dominance allowed it to “export” its surplus population and to blunt the edge of the incipient class  conflict.

This very short sketch of the well-known effects of the first globalization allows us  to remind ourselves of both its positive and negative sides: huge technological progress as against exploitation, increased incomes for many vs. grinding poverty and exclusion for others, European mastery of the world vs. a colonial status of Africa and much of Asia.

In what ways should it inform our thinking about the current globalization? First, in making us realize that broad historical movements cannot bring only benefits to everybody. Some will inevitably lose, others gains; and at times the loss of some is a condition for the gain of others. Second, thinking of the past enables us to see how the current globalization is in many respects a mirror-image of the first—but shorn of its more brutal effects of conquest and exploitation.

Today’s globalization represents a rebalancing of the world, where Asian incomes, not as in the past, only in a few countries like Japan, South Korea or Taiwan, but in the giants such as  China, India, and Indonesia, as well as in populous countries like Vietnam and Thailand, are catching up with Western incomes. The graph shows this rebound to have started in the 1980s, with Dengist reforms in China and Indian abandonment of socialist policies.

China’s and India’s GDP per capita as percentage of that of the United Kingdom (and Indonesia’s GDP per capita as percentage of that of the Netherlands),
The rebound brings the Eurasian continent (which we can “extend” to include North America) in terms of relative incomes and  distribution of economic activity to the situation that existed prior to the Industrial Revolution, when parts of Asia (mostly in China and India) had approximately the same income levels as the more advanced parts of Western Europe. When Marco Polo travelled to China in the 13th century he admired canals, bridges and markets of Hangzhou; there was no marked difference in income or technological know-how between Venice and Hangzhou. All of that changed in the next several centuries as the West pulled ahead of everybody else. But it is now in the process of changing again,  and bringing the world to the income relativities of the past—of course at much higher level of absolute income.

How can we then judge the shadows and lights of globalization? In relative geo-economic terms, by noting that it is a gain for Asia, and a relative loss for the West. It is thus exactly the mirror-image of the first globalization. But, perhaps more importantly we can look at shadows and lights of globalization by realizing that many highly desirable features of globalization: increased average real income, significant reduction in global poverty, extended life expectancy, higher average level of education, better access to electricity, sewage and potable water, are being accompanied—like in all great transformations—by some undesirable features: environmental destruction, commodification of activities that have hitherto been provided by family and friends, stress and loneliness and even numerous social pathologies (drug abuse, corruption, terrorism).

Even such a listing of “positives” and “negatives” is not merely incomplete; it compares the averages: the average life expectancy, the average income level etc. which may not be very relevant. With rising inequalities in most countries in the world, such averages carry less and less meaning. In an unequal or polarized society, the fact that the mean income is up, may not be at all reflective of the changes experienced by the rich (whose real incomes might have increased by much more), or by the poor (whose real incomes might have stagnated).

This is why we often feel a strong tension between what supporters of globalization tell us are its unambiguous favorable effects and frequent disappointment or unhappiness voiced by many. The average numbers, even when accurate, mean less in an unequal world, where additionally  globalization allows us to compare our incomes, access to public services, hours of leisure, stability of friendships, happiness etc. across national borders. Even when doing “objectively” well, we are bound  to find many people among the 7.4 billion in the world who are richer or happier than us. In that way, objective advances of globalization are, almost by definition, accompanied by subjective feeling of  unfulfillment. If we understand the process whereby this occurs,  it might make it easier to accept this fundamental duality---in-built perhaps in human condition. 

[This oped was written specially for "Nikkei" and was published on April 23, 2019.]