This piece first appeared in The Washington Post.
Forget the “Ground Zero mosque,” Michelle Obama’s Spanish holiday and even the oil spill in the Gulf of Mexico. When future historians look back to the summer of 2010, the event they are most likely to focus on is China’s emergence as the world’s second-largest economy.
Mostly, this is a very good thing. The rise of China, and the related, albeit slightly slower, emergence of India, is the story of hundreds of millions of very poor people joining the global economy and getting a little richer. Gross domestic product per capita in those two countries was basically stagnant from 1820 to 1950. Then, it increased 68 percent from 1950 to 1973, and a whopping 245 percent from 1973 to 2002.
But we need to be careful not to draw the wrong lessons from China’s resurrection. The most dangerous one is that authoritarianism works.
That notion has become particularly tempting at a time when so many Americans, on the right and the left, are skeptical of the efficacy of their government. By contrast, many, particularly in the U.S. business and political elite, openly admire the effectiveness of China’s state-controlled version of capitalism. Indeed, a popular intellectual trend, as Stefan Halper, Ian Bremmer and others have noted, is to suggest that, especially in the wake of the global financial crisis, China’s economic model — a.k.a. “the Beijing consensus” — could replace the U.S. model.
That’s plain wrong. Centrally planned economies tend to be good at wrenching societies out of agricultural poverty into the industrial age — especially when the technologies needed to accomplish that shift have been invented elsewhere. Remember that in the 1930s, ’40s and even ’50s the Soviet model seemed viable, for precisely that reason.
So far, China’s rise has mostly been about industrializing an incredibly poor, rural economy. Even today, China’s $3,600 per capita GDP is roughly on par with those of El Salvador and Albania. We haven’t seen whether centrally run China will be able to take the next step and compete at the cutting edge of technological and financial innovation. When South Korea went through the same transition in the 1980s, it also shifted to a much more democratic form of government and freer version of capitalism.
One reason state capitalism may falter as China gets richer is that it may be hard to allow people to become consumers without letting them become real citizens, too. One of China’s big economic challenges over the next decade will be to allow its domestic market to grow. That will mean giving the Chinese people more spending power. As the Chinese become more bourgeois, they may demand more political rights, too.
A second constraint on state capitalism will be innovation. The American political economy has many flaws — collapsing infrastructure, a hollowed-out middle class. But America has one great virtue that no other country has yet to replicate: When it comes to innovation and its translation into things people want, America is unbeatable. This is the country of Apple, Google and Facebook. These are the inventions driving the technology revolution, and only an open society can create them.
In fact, China is an object lesson in the threat that centralized, authoritarian states pose to revolutionary technological development. One of the big questions historians wrestle with is why China, which was on the brink of industrial revolution in the 14th century, then seemed to give up on radical technological change, ceding the initiative to Europe.
A favorite explanation for those centuries of stagnation is the same one we offer for China’s current dynamism — its centralized, authoritarian state. As economic historian Joel Mokyr has written, “the absence of political competition did not mean that technological progress could not take place, but it did mean that one decision maker could deal it a mortal blow.” Meanwhile, in chaotic, divided, inefficient Europe, when one ruler decided to repress his innovators, “they did no more than switch the center of economic gravity from one area to another.” Dictatorships aren’t so great at self-correction.
The United States shouldn’t be complacent about China’s rise. At the very least, it means that American companies, American politicians and the American people need to adapt from the comfortable role of the globe’s sole hyper-power to the tougher task of working in a multi-polar world. China’s fans are right when they point to some of that country’s dazzling infrastructure projects and ask why Americans, whose average income is more than 12 times greater than that of the Chinese, can’t come together to achieve something so grand.
But America can respect China without imitating it. Dictators are easy to admire, especially at a distance. Free markets and free societies always look messy and inefficient, especially up close. But when it comes to inventing the modern world, and living at its edge, so far the best model the world has come up with is democratic capitalism.
We’ll have to wait and see if China’s rise actually manifests as an improvement in the quality of life for the common people. So far it’s success can be argued either way.
This article makes a great point. Authoritarianism can result in a fast-responding and highly effective form of economic control. However, it falters with high-complexity problems or when the people in charge are misinformed, make an error, or working for their own special interests. Don’t forget The Great Leap Forward.
True capitalism has an advantage in basically trying every technological option and every business strategy possible under the sun all at once. The ones that work survive and are perpetuated in a form of natural selection.
The most successful example of semi-authoritarian intervention into the economy by the government may be the newly third-place economy, Japan. They became a competitive technologically advanced industrialized nation extremely quickly at the beginning of the twentieth century by using government-subsidized private businesses. The government left established sectors alone and only focused on rewarding and building up weak areas to establish an extremely strong and self-sufficient economy. Again, though, it seems that technique only carries a nation so far. Once you’ve dug yourself out of the hole with centralized economic control, a shift to a more laissez-faire approach is needed to progress to the true superpower level.
I think that you are misunderstanding China.
There have no intention to mimic American way as it is impossible to have 1.4 billion Chinese driving cars. So, 16,000 km of bullet train is under construction.
China is going to become the world economic leader by 2030 according to the ongoing trend. Their dictatorship has an important edge that should be admired like giving capital punishment to corrupt people that spoils general interest of society. Fat cats would probably get death penalty in China instead of bonuses for erasing 10 million jobs in the US and burning around $40 trillions from the world economy that no government can fix.
If obesity becomes a problem in China easily the Red Party can impose a mandatory law enforcing fitness in the same fashion that all societies already demand humans to wear clothes even though we are born naked
Freeland sure has lost contact with low-level details since she became global editor, unlike her outstanding book describing the orgy of oligarchy greed in 1990s Russia.
She wrote: “We haven't seen whether centrally run China will be able to take the next step and compete at the cutting edge of technological and financial innovation.”
Uh yes, we have. As reported by Der Spiegel, China has stolen railway technology from Germany and Japan to create its own maglev and high-speed trains with three years, something that should have taken them a decade or more. China demanded — and the timid world accepted — that companies share their technology. China stole it, made a few improvements, and is now selling it. In many areas China has already caught up to the West. And with their advantage in labor costs, they won’t be caught anytime soon. Also, they are restricting exports of rare earths, necessary for green energy, most motors, and advanced weapons. My series of blog entries “The coming USA-China war” and the many UPDATEs details the theft of railway technology and other moves by China.
http://saucymugwump.blogspot.com/
Chrystia, you are mixing polithical and economic structure in an effort to emotionally guard the superiority of the capitalism and democracy. However, China’s economy is much less centralized than you want to imply, i.e it is essentially “laissez-faire”. Their political structure is beurocratic, regardless communist or something else. So, your true questions should be if beurocratic capitalistic country is more vital than the present USA model. Honestly, that is a tough answer and I see no statistical information against it.
A fulcrum of American competitive advantage is our intellectual property law. Such protections are deeply counterintuitive to Far Eastern and South Asian cultural systems and will represent a persistent advantage for the American institutions of higher education and business. The real innovators – even the one’s born in Asia – will always yearn for recognition and security of a type that is not possible without a society that has been built around these principles.
Must feel good to speak your “opinion”. I like your claim that “We haven't seen whether centrally run China will be able to take the next step and compete at the cutting edge of technological and financial innovation.” Obviously you are not familiar with the technological capabilities of China. They are now only second to the US in annual Patents. They are also becoming the driving force behind medical fields like stem cell research which is limited in the US. Are you aware that China is graduating over 600,000 engineers per year, compared with the USA’s 30,000?
As far as economic reform, while it is not a system that an industrialized nation should copy, it has been producing 8%+ growth per year since 1978.
Technological accomplishments did not cause political reform in Korea, or any other country. Rather, it was a combination of liberally educated politicians and a much stronger middle class. Reform will come to China, but not for a long long time. Confucian Idealism has helped the politic maintain its control to this point and will continue until their economy falters and the current bureaucracy loses its “heavenly right” to lead.
PS: hey Saucy, China did not steal train technology from anyone. THEY BOUGHT IT! Try looking up China’s bombardier contracts as an example.
What an good article; it is clear and positive, and an important step in moving forward with the massive problem that the West faces, in dealing with the brilliance of the Chinese achievements.
Is it not possible for some part of US industry to be made more competitive in some quick controlled way, without necessarily emulating or displacing China?
It amazes me how many people take basic freedoms that we enjoy here in the West for granted. Perhaps no one has actually lived in a dictatorship (such as China) and tried to utter an unpopular opinion?
The main reason Europe was stuck in it’s development during the middle ages was the chokehold of the Church and Holy Roman Empire had on society. It wasn’t until the 15th century that the weight was lifted somewhat (especially in NW Europe) and witness the development that that brought over the next several centries.
I agree with the writer that personal freedoms and the protection of individual rights through law will be required for China to sustain its growth, or their society will collapse under the weight of it’s own suppression.
Disappointed with argument. This is an important issue that warrants a higher level of analysis. Unsupported general statements by the author do little to persuade us.
Basically this lady says: China is an authoritarian country, so there must be some limit of its development, and let’s wait for that to happen; US doesn’t need to solve its problems since the competion from China will be gone someday.
Well, her’s is just one person’s clever opinion. Her arguments hinge solely upon some idea of a centrally planned (i.e. totalitarian) powers coupled with the will to use this power against the individual to force any possible change upon a society (is this the type of “change” America’s elite are wishing for?). The causal link between totalitarian society power and a rapid economic societal transition from agrarian to industrial is unproven by her, whether in China, USSR, Mexico, etc. What she conveniently overlooks is the elephant in the room. China runs a $174 billion dollar trade balance surplus. Their current account balance is $282 billion dollars. Much of this trade is with the US which now has a -$592 billion trade deficit and a -$392 current account deficit! Second but I think most importantly, China’s banking system is seamless with its national treasury. It creates all of the money supply that it requires for its economy by spending it into circulation on a myriad of public infrastructure projects, rather than by borrowing with interest every last dollar required from international banks, rather than reliance upon foreign capital inflows; with these internally created funds China has casually built up whole cities on a whim (think Brasilia circa 1956…) this monetary economic model is the primary engine to its growth and the trade surplus it runs with US and the rest of the world is part of the spoils of this policy. Moreover, its commercial banks which are national organs but with decentralized decision making are also creating new money every day and spending it into existance to the benefit of the average Chinese, and also the above average (income) Chinese, and they only think to occasionally deal with excesses of corruption by the extnesion of credit process, and rarely worry so much about repayment problems or timing, they are not so anxious to foreclose on their own society, as others are now so anxious to foreclose on American and European societies to the lenders’ benefit. The US and other nations could do well to emulate this aspect of their success, and it would not take an armed national police within the Treasury dept or central bank corridors to do this, it can be done completely within the framework of an “open” society, a constitutional republic even such as the USA. Finally, her statement about what democratic capitalism does best (inventing the modern world, and living at its edge) is sheer nonsence and old fashioned international jingoism, this time not national but western international societal ethnocentrism that in her cocoon worldview believes it superior to all other models, all is perfect in her perfect world. I am not arguing against US and west’s apparent ability to generate the modern world, invention; it appears to have done this pretty well, but much of this invention is the result of an unbridled ability of the M-I-C (military industrial complex) to generate innovation and invention as a byproduct of its ever-refining the methods and means of war, and these are rarely wars of defensive nature… Also, not to rest upon its laurels of the past, it would appear that the US and the west is very much in danger of having lost, or to soon lose, that edge in innovation if for no reason other than the poor education of its people and the crumbling infrastructure because all of its national resources are diverted to the financial sector, paying interest to the financial sector on an infinate amount of public and private bonds, to the disadvantage of the real economy sectors. Unless by her statement “inventing the modern world” she is alluding to that ever exporting western culture – Disney, Hollywood, and MTV which is possibly her low standard.
Mussolini and Hitler and their political and economic systems were admired by people like Woodrow Wilson, who enjoyed Mussolini’s initial beginnings, and Charles Lindbergh, who admired the Nazi state. The look clean, like a football team with a tough head coach.
But….
First, no one wants to live in a dictatorship–it can only sound good in the abstract.
Second, what is wrong with the US economy now can be attributed more to the govt than anything else.
Tons of uncreditworthy mortgages made and then sold, and ultimately packaged to serve bonds? Not possible without FNMA and FHLMC, which in the 1990s and early 2000s would buy any crappy paper.
Decline of industry? Too much environmental and personnel regulation, and a tax system that pernalizes success and doesn’t sufficiently reward risky long-term investment. Domestic industry must compete where it stands, not in the abstract gleam of some idealist’s eye in some govt agency seeking to regulate a business practice that was acceptable for the previous 50 years.
China will have to change or stagnate. People yearn to breathe free, and always will. The USA has problems, but they can be fixed without having to destroy the basic framework.
Chrystia neglects one thing. It is how people think that makes them something and it is God’s blessing that makes one rich. Northern European society, from which America descends, was the prime source of all innovation since the 1600’s. That is because of Christian thought expressed through the Reformation. These are the societies from which democracy, science, innovation, freedom of speech, universal education and heath care have sprung. The knowledge that God was an ordered, law making God, gave rise to modern science. On the other hand Eastern mysticism, is pantheistic believing that the creation is a God in itself and does not give rise to odered laws but rather superstition and totalitarianism. Atheism expressed in evolution, is also similar to Pantheism in that it sees the creation as self creating.e.g. the big bang. It is no coincidence that American children are now starting to think in terms of Pantheism. E.g attributing human like qualities to inanimate objects. As America does this it will decline. Also as it accepts other false gods that breed superstition and t On the other hand China has 100m Christians. They will make an influence on that society. Hopefully one day freedom will come as it came to England. The government under Cristian influence steadily becomes free in accord with Jesus words, “If the Son makes you free you will be free indeed.” This is the future one hopes for China and that America will not lose it.
Comparing to the present China to events of the past, and drawing conclusions is precarious. What we are seeing today is completely new. The Chinese have reached a level of collectivization never seen before, and this has occured at the psychological level. To think in political terms is sadly superficial, since the reality of the Chinese phenomenon is a completely new definition of human life which is being enshrined into the minds of the Chinese, who are reduced to an unconditional allegeance to the collective, in what can be best described as a most incestuous attachment to their clan. Chinese efficinecy relies entirely on this mutation of the human being. Very sadly, this insane and deseased society is still regarded as “semi normal”, and even admired for what amounts to some impressive economical statistics. By the time the West completely understands the reality of China, much destruction will have taken place already.
[...] For the full piece by Chrystia Freeland, click here. [...]
So, Obama’s socialistic medicine isn’t the answer? Huh…
We will see how the world does as intellectual freedom and innovation get squeezed out of the USA. The thinking and innovation must come from somewhere. Here we have abandoned independent research and outsourced it … to China and India. At least our power elites have. When was the last time a major innovation survived the venture capital process in the USA?
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