Tuesday, October 5, 2021

Pro-equality turn in China and the United States?

While the United States and China are at loggerheads on many issues from  trade to intellectual property rights to South China Sea islands, and the talk is rife of a new Cold War, internally both countries are trying to adopt policies to reduce income inequality. The similarity in objectives, and in some cases, even in policies is the product of similarities in the evolution of inequality over the past decades, and of increased social consensus that something has to be done to curb it.

            At the time of the introduction of the responsibility system in 1978 (privatization of land) and first reforms, income inequality in China was at an extremely low level, estimated at 28 Gini points. Today, it is 47, an almost Latin American level. America’s income inequality, using the same metric, was 35 when Ronald Reagan came to power; today it is 42. Chinese increase in inequality, pushed up by the remarkable structural change (movement from agriculture to industry and then to services) and urbanization, has been more dramatic than American. It was often “concealed” by the fact that Chinese incomes have in the meanwhile increased hugely and thus the proverbial pie, although its pieces were distributed more unequally, had grown so much that almost everybody’s real income rose.

            In the past decade, it became clear that in both China and the US inequality increase had to be checked, and if possible reversed. The process in the United States is well known: it goes at least back to the Occupy Movement whose tenth anniversary was marked last month. The Chinese situation is less well known. High inequality has led to many protests. In 2019 (latest available year), the official Chinese count is of 300,000 cases of “disturbing order in public places”, most of them economically or otherwise socially-motivated (Statistical Yearbook of China 2020, Table 24-4). The proximate cause of many protests has to do with the expropriation of real estate that made owners of building companies rich, helped embezzlement by local officials, but dispossessed farmers of their land. The urban-rural gap officially estimated at almost 2 to 1 is among the highest in the world (calculated from Chinese urban and rural household surveys)  The regional gap between the prosperous Eastern cities and provinces, and Western and Central parts of China threatens the unity of the country. Decent housing in big cities has become virtually unaffordable for young families. This has contributed to a drop in the birth rate and accelerated China’s demographic problems (aging and thus declining share of the working-age population).

            The Chinese leaders, somewhat like American social critics and the Davos participants, have bewailed such inequality for years, but have done almost nothing to change it. That state of affairs is in the process of change. Earlier decisions to increase state investments in Central and Western regions, to spread the fast railroad network throughout the country, and to give authority over the implementation of the hukou (residence permit) system to provinces, with the right to abolish it altogether, have all to be seen as attempts to reduce China-wide inequality by reducing income disparities among the provinces and enabling easier movement of labor between rural and urban areas, and thus lower inequality between the two.

            More importantly, the latest moves by the Chinese government show an even greater awareness of what needs to be done to stop the increase of inequality. They resemble, in some aspects, the measures that the US might pass in the next couple of years. The concerted effort to crack down on platforms and high-tech companies and to increase their regulation is similar to the anti-monopoly suits brought on by the US against Google and Facebook. The American system, because of many checks and lobbying power of tech giants, moves much more slowly than the Chinese but the objective of control of sectors who are natural monopolies and have acquired enormous economic and political power is common to both countries. Xi Jinping’s moves are often interpreted in purely power-political terms. While there is certainly such an element, curbing the power of monopolies has its own economic (efficiency) and social (equality) rationales.

            Education has, both in the US and China, become extremely competitive and affordable, in its best form, only to a small minority. The transmission of family privileges via the education system was amply documented for the United States. Some recent  work by Roy van der Weide and Amber Narayan shows that social mobility in China is equally low. Xi Jinping’s decision to ban for-profit tuition companies is an attempt to “democratize” access to top education and to reduce privileges of rich families. Whether the move would be successful may be questioned. The underlying inequality and education competitiveness are not affected as rich parents may still buy individual tutoring. The intention of the policy though is right. Biden has likewise spoken about the revitalization of American public education system that was the backbone of prosperity after the Second World War but has since  deteriorated.

            “Common prosperity”, a new slogan enounced by the Chinese government, attempts to promote policies to correct inequalities accumulated over the past forty years –some perhaps inevitable in the transformation of the country—by  changing the direction away from a single-minded pursuit of high growth to that of a more equitable society. It is not very different from what the progressives and a part of the Democratic establishment have recently argued for: the end of neoliberalism that has  governed economic policies of all US administrations since the early 1980s. If this “pro-equality turn” indeed takes place in both countries, the moves we have seen so far are just a preamble. The long era that began with Deng Xiaoping in China and Ronald Reagan in the United States may be coming to a close.       

Tuesday, September 14, 2021

Can globalization be “improved”?

 In an excellent just-published book “Six faces of globalization” Anthea Roberts and Nicolas Lamp, produce six plausible narratives of globalization and what, according to each, went wrong or right with globalization. Their approach is to take a given narrative, present all its points as its defenders would, with rather minimal outside (i.e. their own) interventions, and in the second part of the book discuss overlaps and differences between these various narratives.

Here, I will review the six narratives, saying perhaps little about each of them explicitly both because they are all rather well known by the general public and because I hope that my critique of each narrative will indirectly throw sufficient light on narratives’ main points.

The first approach Roberts and Lamp discuss is the establishment view according to which globalization ultimately benefits all participants even if the gains are uneven and in many cases take a long time to materialize. The establishment narrative is often self-serving as when it ignores the fact that the US did not become rich through free trade but rather through Hamiltonian protectionism, or that a number of trade agreements established after World War II were motivated less by some abstract free trade principles or “liberal international order” but rather by the US strategic desire to bind in a strong interdependent framework the nations of the “Free World” (conveniently defined to include everybody, regardless of domestic politics, who is not communist). The biggest advantage of the establishment narrative is that it can quite plausibly point out to the fact that tighter economic links between nations have since 1980 contributed to the doubling of the world per capita output and consumption of goods and services.

            The left-wing narrative (under which I combine both what Roberts and Lamp term the “populist” left-wing narrative à la Bernie Sanders and Elizabeth Warren and the “corporate-power” monopolistic narrative) is, in many ways, the most consistent. Its strong points are two: (1) domestic polices have been slanted in favor of capital-rich and high-income individuals, and (2) pro-corporate policies have allowed large companies to become monopsonist in the labor market (the only local employer), and not to pay their fair share of taxes. Not only are both points true, but they correctly direct one’s attention toward the political origins of the middle class malaise. The malaise was to a large extent (I will come back to this “large” qualifier) manufactured by the ability of rich companies and individuals to create favorable legal framework for themselves, including most importantly lower taxes. (Reading “The Wall Street Journal” allows one to very simply define the view of the world of that category of people: there are only two variables that matter: how high is the “market” and how low are taxes?)

But the qualified “to a large extent” was not there for no reason. The decline both in the size and relative income of the Western middle class is not only the product of domestic policies. It happened also because globalization allows companies to move to cheaper (lower wage) locations, or to replace production of domestic goods by cheaper imports.

The proponents of the left-wing view have hard time acknowledging a tacit coalition of interests which has been created between the capitalists of the rich world and poor people of developing  countries.  They both gain  by replacing more expensive  Western workers. In the chapter on corporate greed narrative, an accurate critique of large Western corporations for avoiding taxes is mixed up with an attempt to show that NAFTA or other similar arrangements have produced worse outcomes for workers in poor countries, and that there is thus an identity of interests between workers in rich and poor countries. This is very difficult to accept. Very low-paying jobs, from the Western point of view, are generally very well-paying jobs from developing country’s point of view. Workers from Vietnam, Thailand, Ethiopia, or Peru are not unhappy to be hired by North American or European or Chinese companies. In many cases, their alternative is not having a job at all, or living at the edge of subsistence through self-employment.  The attempts to argue for some kind of international workers’ solidarity simply fall flat on the hard grounds of self-interest.

That problem however does not bother what Roberts and Lamb call the “right-wing populists.” Right-wing populist do have a consistent view of the world. First, in it, the welfare of foreigners does not matter at all (hence, they are uninterested in whether Mexican workers are better off with trade or not). Second,  national cultural homogeneity –a largely fictitious recreation of the 1950-60s—is the ideal to strive for. Their problem is not lack of intellectual coherence. The problem of right-wing populists is that their supporters like parts of globalization that provide them with cheap goods, but do not like losing high-paying jobs which is a sine qua non for the production of cheap goods they like. In other words, their supporters love buying cheap HD television screens, but they also like having a $50 per hour manufacturing jobs. These two things cannot however exist together. The right-wing politicians therefore can, as Trump did, make lots of moves (and noise) to slant the playing field in favor of their countries, but they cannot disconnect from globalization. Their opposition to globalization will forever remain on a verbal level; they are tied to the mast of globalization by the attractiveness of achieving high real income through consumption of cheaper goods. Thus, the right-wing opposition should not be, in my opinion, taken seriously in matters of policies.

I will mention only briefly the other two narratives. The geoeconomic narrative looks at globalization through the bellicose eyes of national interest. It is not an attractive approach, but it is internally consistent. For its adherents, there is no such a thing as a good or bad globalization. There is only a good globalization for the United States or a bad globalization for the United States (or any other given country). This allows them to shift seamlessly from supporting using power to extract intellectual property rights, to using power to prevent sharing intellectual property rights; from being in favor of higher labor standards to being against them.  Thus its total intellectual inconsistency in detail is explained by full intellectual consistency at the higher level.

The last narrative is of the “we [everybody in the world, regardless of nation, income, class, gender, race etc. ] are in the same boat” type. There is not much to say about it except that, unlike any other narrative, it manages to lack both internal intellectual consistency and to be totally fluid in how things should be improved.

So, is it, taking Roberts and Lamb book’s approach, possible to “improve” globalization? The only narrative that shows some promise is what they call (in my opinion, mistakenly) “populist” left-wing. It sees the key problems at the level of national politics, in the national political systems, and it can, at least in theory, focus on these shortcomings and try to mend them. It cannot be, I think, too optimistic on all issues because of the natural propensity of globalization, either through capital movements or trade, to favor cheaper producers, and Western middle class is most often not that producer. But that approach can reduce the political and economic power of the top 1 percent, fund public goods, increase taxes for the rich and large companies, and improve the national political climate.

Friday, September 10, 2021

Nobody’s war

 Stephen Platt, Professor of Chinese history at the University of Massachusetts, has in “Imperial Twilight” written an excellent book on the origins of the first Opium War, and perhaps even more importantly, at this time of US-China tensions, he has shown how wars may occur not just because the two sides do not agree, not even because of miscalculations and misperceptions, but even when key decision-makers whose behavior led to war….agree on the main points.

Platt, as one of the commentators wrote, has an eye of a novelist, and the book  often reads like a combination of history and historical novel. A number of picturesque characters that have populated China trade in the early 19th century add to that impression. This is not the most important part of the book though. It makes the book readable and fun—but the quality of writing improves as we go further away from these personal episodes and closer to the War. Perhaps it was Platt’s editor who tried to make the book more attractive to the general public by insisting on introducing human stories in the beginning (the stories that indeed are interesting, but from historical point add very little), and preferred a straightforward narrative that seems ideal for an audiobook. But that straight narrative in the beginning mutes Platt, the historian, whose voice becomes strong only in the latter part of the book when he discusses historical contingencies, provides different versions of the same events, passes judgment on the main characters, and even engages in some counterfactuals. All elements the we expect from a first-rate historian are then there.

The book covers British, and more broadly international, trade with China from the end of the 18th century to the first Opium war (1839-42). It deals with the so-called “Canton period” where all foreign trade with China was localized in one small place, a depot (”factory”) outside the city-gates of Canton, an area the size of several football fields. The trade in opium makes a rather late appearance in the book, but it was going on throughout the entire period, in smaller quantities at first. The East India company was originally ambivalent about it, not because of moral scruples but because it tried, in order to preserve the valuable legal China trade in cotton and tea (on which it had a monopoly) to rather scrupulously observe Chinese laws, including the ban on opium trade, and the ban on missionary activity.  But in time, independent traders, not mindful of either of these two concerns, became significant opium providers, and then the lure of profit made Company join in, in a rather big way.

The starting point of the war (which  happened after the Company was stripped of its monopoly power) had much to do with two individuals who were both.…against the war.  British superintendent of trade George Elliot, only the second such person appointed by the British government, replaced William  Napier, a belligerent and arrogant individual who tried his best “to teach China a lesson.” But there was no support for the war Napier wanted; neither among the British public, nor British government. Palmerston, who would later prosecute the war with gusto, was against it. Earl Grey, the Prime Minister who appointed Napier, told him that “persuasion and conciliations should be the means employed—rather than anything approaching the tone of hostile and menacing language” (p. 286). Thus Elliot, an abolitionist with the previous career in the West Indies, foreswore to change the policies of his predecessors, to fully observe Chinese sovereignty, and to fight against the scourge of opium which he likened to the scourge of slavery.

The Chinese side, which after many vacillations between the idea of full legalization of opium to the energetic ban on its use, including capital punishment for the most stubborn users, decided to go with the latter option. Lin Zexu, the governor-general of Hubei and Hunan who distinguished himself by reducing opium consumption in his provinces as well as his personal incorruptibility,  was appointed imperial commissioner in Canton with the brief of “obliterating opium trade”.  What united Elliot and Lin was their loathing of opium traders, their appreciation of the aboveboard legitimate trade, and their agreement that China’s laws should be respected. But then things went awry.

How did then the two countries get into a war? Lin, in order to send a message that he is serious, decided, as it was done several times before, to temporarily shut down all trade in and out of Canton and to establish an effective blockade of the “factory” area until opium trade cease and accumulated opium is surrendered to the Chinese authorities. Although the blockade was implemented half-heartedly (the food and drinks being brought in by the Chinese Hong  merchants who were the dealers on the Chinese side), it continued without a clear end-date. Lin’s objective was that the blockade force British traders to deliver opium which would be then publicly destroyed. He succeeded beyond expectations.  Elliot, who, as we have seen, loathed opium trading asked that all opium, including that which was not near Canton, be brought to one place, and delivered to the Chinese. It led to the delivery of 20,000 chests of opium (1,000 tons), an enormous quantity, for which Elliot, on his own, issued to British traders, IOUs for the full market value. To understand the enormity of that quantity, it is worth noting that it was equal to total annual exports of opium from India to China, and had the market value of 2 million which was one-tenth of the entire compensation paid by the British parliament to slave owners (when the slavery was abolished).  The quantity of collected opium surprised Lin (who, according to the Hong merchants, expected  at most 4,000 chests) but did not lead him immediately to lift the blockade. In the end, the blockade lasted six weeks and ended in May 1839. Elliot who panicked first when he “over-delivered” opium, was now enraged at the continuation of the blockade and panicked again, and in one of his fits asked for British naval support from India, effectively calling for war.

            From that point onward, the forces of war take over: there was always a small bellicose faction in London that now found additional reasons to advocate for war. Palmerston was shocked by the idea that, after government had to raise huge funds to pay slave-owners, it now had to pay opium traders too. The slide into war continued despite the preponderance of the public opinion which was against it. The war was voted by the House of Commons by the slimmest of the margins (with 9 votes of majority out of more than 500 MPs). It was declared eleven months after the blockade of foreign merchants in Canton had ended.

            Like in similar circumstances elsewhere, neither the casus belli, nor the objective of the war were clear. The less clear the reasons, the more of them were piled up: some thought the war was fought for British honor, others referred  to the Chinese demands that the British envoys kow-tow  to the Emperor (the demand more than 40 years old by the time the war was declared); yet, others thought it was the war for civilizations, Chinese being “barbarians”; another faction however saw the war as the revenge for Chinese calling the British “barbarians”; some (perhaps more clearly than others) saw it as the war on behalf of opium traders, which –to add to irony—were generally reviled in Britain. For some, it was fought so that China, rather than Britain, pay the indemnity to traders so rashly promised by George Elliot.

            Nobody’s war then lumbered on for almost three years, its objectives unclear, involving mostly unprovoked attacks on Chinese civilians by British ships. Terrorizing civilians (which had nothing to do with the war, nor with Canton, nor with opium) was a means a sending a message to the Emperor that he was no longer in control, and had to acquiesce to British demands—which lengthened as the war went on. Eventually, the Chinese capitulated, but as some people at the time warned, the war made China realize that if wanted to remain independent it had to possess an equally strong military deterrent. It took a “century of humiliation” to come to that, but eventually it did.

This silly war, fought  for the objectives that were either unacceptable to  openly acknowledge or difficult to formulate, is now the only 19th century event mentioned by Xi Jinping in his recent 100th CPC anniversary speech. It has acquired its place in history and nothing seems likely to dislodge it. The more time passes, the more important it becomes.  And it should have never happened. 

 

PS. It is somewhat strange that Platt does not discuss the diplomatic implications of Britain deciding, after the East India Company lost the monopoly of trade and representation in Canton, to send an official representative to represent the traders. As Platt explains, the Canton system was for more than a century based on the rules where foreign traders deal with their “equals”, the Chinese traders. Only through the latter could they convey whatever requests or problems they had  to the Chinese (Cantonese) government. The Cantonese government therefore dealt only with its own citizens, not with foreigners. The appointment of an official British representative upends this system in two ways.  First,  the  British government representative understandably wants to interact with Chinese officials which is unacceptable to the latter. Elliott was never able to deliver his letters of introduction. Second., as long as British traders dealt with Chinese traders and the latter with the Canton government, the question of sovereignty could never arise. But now that the British have an official representative for  “the factory”, the position of the piece of land on which the factory is located, becomes less clear. The Chinese rightly saw it as a potential affront to their sovereignty.