In the comments to yesterday's post on China trading its way to world influence, James of Hobson's Choice said:
I feel a little awkward because now, and for another decade, China is likely to perform impressively. I'm not excessively alarmed about the price of oil right now, although well-informed observers may disagree. But it's incorrect to assume that Japan is struggling now because it adopted a western model of economic growth; likewise South Korea or Taiwan. These countries adopted highly centralized growth models which have faltered as they hit their ceilings; China's is even more so.So of course China will grow long enough to make me look like an idiot, and then hit the same sort of wall.
I said yesterday there's more than one way to be a capitalist, and that all those ways wield the full power of capitalism to change things. China's very controlled approach to capitalism indicates to me they see this too and are constructing a mode of capitalism that works with their intent. As a result I don't expect China to hit that wall.
Here's a thought experiment that will support that view. Imagine there are no trade embargoes against Cuba, starting today.
To assume a centrally directed economy…well, to assume another kind exists in the wild, but that's another post…to assume it must max out simply because it is centrally controlled is to history provides all likely examples. What we've seen is liberal philosophy supported by capitalist economy (USofA historically), capitalist philosophy supported by capitalist economy (USofA now), socialist philosophy supported by capitalist economy (Europe) and communist philosophy supported by socialist economy (Russia). One has failed for the most part…the one with the socialist economic model.
China, I believe, is crafting a communist philosophy supported by capitalist economy approach. You can react to communism as a moral failing if you like, but this has a good chance of success. It would have to be measured sanely differently…the US economy, being driven by consumerism, is measured in terms of income and expenditure. The US economy is like a bicycle…if it doesn't keep moving it will fall down.
Posted by P6 at July 13, 2004 11:54 AM
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One has failed for the most part…the one with the socialist economic model.
One thing I've got to say about that failure, though, is that is it really a failure of the "socialist economic model," or a failure in the face of massive economic and political warfare from the U.S.? If the U.S. would have treated the Soviets with disinterest, I can't help but think that it may have worked. Cuba is also an example of the damage our ideological chauvanism has caused.
Posted by QuickSauce at July 13, 2004 02:00 PMis it really a failure of the "socialist economic model," or a failure in the face of massive economic and political warfare from the U.S.?
I'm not sure that difference makes a difference. Let's face it, the economic and military warfare was returned in spades.
Cuba is actually the reason I think China can do this, thought. Castro hasn't been expansionist. Couldn't be, under the circumstances. But in the center of our economic sphere of influence, against the hostility you name, Cuba has shown you can maintain. And China is in a much better position relative to us than Cuba.
"China, I believe, is crafting a communist philosophy supported by capitalist economy approach."
This may have been the case in the earlier stages of its economic reforms, but China no longer has a communist philosophy. Chinese workers have no rights, receive no social benefits, are guaranteed nothing by the state, and the country is run by and for business elites and foreign investors with not even a pretense of worker control. At one point, a Chinese leader justified denying democracy in Hong Kong by claiming it would prevent Hong Kong voters from choosing "Euro-socialism" over China's laissez-faire capitalism. I think it has an extreme capitalist economy and a nationalist philosophy, with communism relegated to historical status.
The Chinese are more worried about social upheavals than economic stagnation - the government's primary concerns are to avoid mass layoffs, capital flight, and an even faster pace of rural->urban migration, because those things would threaten the government's rule. So it makes sense for them to try and have a managed pace of growth rather than a boom-and-bust cycle like many of its Asian neighbors.
"Cuba is actually the reason I think China can do this, thought. Castro hasn't been expansionist. Couldn't be, under the circumstances."
Castro wanted Cuba to do much more to instigate revolutions in Latin America and Africa, but the Soviets wouldn't let him, because they didn't want conflict with the US.
"But in the center of our economic sphere of influence, against the hostility you name, Cuba has shown you can maintain. And China is in a much better position relative to us than Cuba."
Cuba has a large tourism industry that brings in loads of money, and lots of fertile land with only a small population living on it, so it can get away with a basically non-functioning economy.
Posted by Iceman at July 13, 2004 04:31 PM"Cuba is actually the reason I think China can do this, thought. Castro hasn't been expansionist. Couldn't be, under the circumstances."Castro wanted Cuba to do much more to instigate revolutions in Latin America and Africa, but the Soviets wouldn't let him, because they didn't want conflict with the US.
Okay, no disagreement.
"But in the center of our economic sphere of influence, against the hostility you name, Cuba has shown you can maintain. And China is in a much better position relative to us than Cuba."Cuba has a large tourism industry that brings in loads of money, and lots of fertile land with only a small population living on it, so it can get away with a basically non-functioning economy.
I don't see why you feel their economy is non-functioning. They're not the only nation that depends on a single industry. This industry is active enough to generate the capital and income they need to survive against American intent. They've certainly done better than any number of American backed regimes in Central and South America.
China no longer has a communist philosophy. Chinese workers have no rights, receive no social benefits, are guaranteed nothing by the state, and the country is run by and for business elites and foreign investors with not even a pretense of worker control. At one point, a Chinese leader justified denying democracy in Hong Kong by claiming it would prevent Hong Kong voters from choosing "Euro-socialism" over China's laissez-faire capitalism. I think it has an extreme capitalist economy and a nationalist philosophy, with communism relegated to historical status.
I think the nationalism has always been there. And I think, in saying they no longer have a communist philosophy, you're jumping the gun a bit. This is still a new thing to them.
As you say, they are as concerned with keeping the upheaval to a minimum. Whatever the reason, that makes their capitalism a different animal than ours.
Thanks for the interest. And I'm sorry my comment was not very clear. Yes, P6, there are actually an endless number of ways to be capitalist. Most countries, including the USA, tend to rely very heavily on foreign capital; the USA, taken as an example, went through a period (1893-1974) of being a major capital exporter, but even then, that is an illusion caused by the extreme large size of the United States. In fact, during the above,mentioned period, the vast majority of the US population was hevily dependent upon capital exports from the region of NY and other areas where capital formation exceeded growth.
Since 1980 or so, our capital formation and use has tended to mimic the pattern of Latin American countries.
Now, in regards to China: many nations that could, deliberately sought to use either monopolies (cartels, state enterprises) or main banks* to manage the economy and achieve social goals. A drawback to the strategy is that in any event, there is chronic underemployment and economic rent--an inevitable feature of monopolies.
(Relative to a competitive economy, I mean.)
So countries like Korea and Japan resolved the problem by contriving to keep wages relatively low, prices high, consumer credit low, and savings rates high. The savings captured in this way (and with a bunch of other methods) then flowed into capital projects, which--under the free trade umbrella--allowed Japan to export and grow.
The problem came when Japan's economy became a machine for churning out exports, importing only raw materials, and re-exporting foreign currency as investments. The Japanese were swimming in a sea of capital, but all it did was flow out and drive up the exchange value of the yen. As new capital was accumulated, it flowed abroad to chase higher returns.
China's leaders are on the same path. One scenario that is possible is that oil prices will suddenly explode and the Chinese will wind up spending all their trade surplus with the rest of the world on trade deficits with OPEC. That could happen, but maybe not. Assuming it doesn't then the PRC will simply start exporting capital rather than investing it domestically.
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* A main bank is a bank with a special relationship to the government; it is used to manage the actual pattern of M2 growth, rather than prevent inflation or defend the local currency's value. The latter is done by the central bank. Examples of main banks include the Industrial Bank of Japan (to 1996), Deutschebank (1870-1919), CITIC (today, China) and Sberbank (Russian Federation). While economists claim main banks are bad, in fact, they can be required to prevent a liquidity trap.