Ross Terrill wrote a book called the “New Chinese Empire” in which he makes a number of specific predictions, almost all of them are wrong. What I would do if I were in a similar position (which is the same as Gordon Chang “The Coming Collapse of China”) is to go back and figure out what I got wrong with the intention of trying to understand the situation more and make better predictions in the future.
But he doesn’t seem to be doing that, and from the NYT article, what he seems to be doing is just hoping that events will prove him right.
Specifcally he writes….
If China is perfecting a new system of Leninism-plus-consumerism, based on yin and yang, such a hybrid would be a first. The Soviet Union and its satellites could not blend strict authoritarianism and a loosened economy. Nor did they slide gracefully into post-communism; several states broke into pieces in the process.
So China is doing something that no one has done before. Just because no one has done it before doesn’t mean that it can’t be done. (Since Terrill mentions Hayek, one of the things that I like about Austrian economics is that it isn’t trapped by the past unlike other models of economics. Neo-classical economics assumes that things start off a certain way, and it can’t deal with things being radically different. Austrian economics is fundamentally based on a theory of human behavior, and so it is much more flexible in dealing with new and weird situations.)
Scores of new skyscrapers in Shanghai are half-empty. The government seldom allocates capital to private, commercially rational projects. Banks extend 65 percent of their loans to state-owned firms that produce only 25 percent of the national output. State subsidies make it hard to measure the returns on capital.
Those bits of information are unconnected. First, only a very small fraction of bank lending goes to real estate. The second number is a “so what?” number. The last statement is totally false. The state stopped direct subsidizing companies in the early 1980’s, and indirect subsidies through banks were largely stopped in the mid-1990’s.
Meanwhile, labor costs are on the rise in southeastern China, prompting exporters to move to Vietnam and Cambodia. Old folk proliferate, as do farmers on the move for coastal cities. Urban air is dirty, and water is in short supply in the north.
Labor costs rising means people are making more money. Old folk prolifereate means that people are living longer and China doesn’t have a population problem.
And again “so what?” China has problems. Everyone has problems. There is no reason to believe that the problems that China has are particularly intractable or that they threaten the overall stability of the government. Water is in short supply in north China. It’s also in short supply in California. Doesn’t mean that the government is going to collapse.
Now if you *argue* that the China’s government is particularly incapable of solving these problems, that’s another issue, but Terrill isn’t even providing an outline of an argument here. And the big problem with that argument is that you have to explain why the problems that China has today are more difficult than the problems that China has faced before.
China’s recent growth has been aided by an unprecedented calm. No international crisis has complicated Beijing’s economic decision-making in the 27 years of peace since the China-Vietnam war; no domestic disturbance has shaken the state in the 17 years since Tiananmen Square. But tensions, both internal and external, are unlikely to remain at bay.
Why are tensions unlikely to remain at bay? This is where Terrill undercuts the argument he makes in the “New Chinese Empire”. It is pretty obvious that it is in the PRC government’s interest to keep a stable domestic and international environment, and they are going to do everything they can to not provoke a crisis. The PRC is going to do everything it can to prevent a crisis over Taiwan and North Korea, and it is going to be aided by the fact that the United States has too many things on its plate for a crisis there either. This means that China is *not* going to follow an aggressively expansionist policy which Terrill predicts, because they are not idiots.
But if Adam Smith was correct to call his free market economics a “system of natural liberty,” this will not be possible. In Beijing in the spring, I watched people snap up Chinese-language copies of F. A. Hayek’s “The Road to Serfdom,” which says a command economy is precisely that.
1) What if Adam Smith is wrong? After all, its true because Adam Smith said it is a stupid argument, just like it is true because Karl Marx or Mao Tse-Tung said it.
2) And this gets at where I fundamentally disagree with Terrill. A market economy doesn’t promote freedom, a market economy *is* freedom. In a market economy, you have choices that in a command economy, the state makes for you. Should I eat steak or salmon or vegetables this evening. Where do I live? What do I learn? What do I do this weekend? In a market economy, you get the money, and make your choices. No in Beijing, people don’t have the freedom to demonstrate against the Party, but they can decide what clothes to wear and what color cell phone they want.
What this means is that once you have a market economy, the fact that the political system is Leninist becomes rather irrelevant to people’s lives. You can ignore the state today in a way that you couldn’t in 1965. This is actually in the interest of the Communist Party. As long as people are busy trying to figure out what color cell phone to buy, and how they are going to decorate their house, they aren’t going to care all that much about politics or street demonstrations. Consumerism keeps people political apathetic as long as the goodies keep flowing, and there is no particular reason to think that the Party won’t keep the goodies flowing.
In Beijing in the spring, I watched people snap up Chinese-language copies of F. A. Hayek’s “The Road to Serfdom,” which says a command economy is precisely that.
And those people might have the same reaction I have. Whew!!! China was hell in 1965. What exists now isn’t so bad. I’m a *huge* fan of von Mises and Hayek, since they identified the basic problem with the Chinese society circa-1975. That basic problem has already been fixed. You don’t have to have your employers permission to get married, and you can quit your jobs and find another one. *That* is freedom.
The thing that has to be emphasized is that China is no longer a command economy. It has a lot of state ownership, but resource allocations happen by the market. You want to do something, you get money and you spend money. Because a market economy *is* freedom, having consumerism and markets dampens calls for political change.
Even without such sharp contradictions, economic fireworks have a way of flaming out sooner than expected.
Or they could last a lot longer. The problem with Terrill’s article is that basically he is saying nothing. Maybe China’s economy will spin out tomorrow. Maybe it won’t. But it is very possible that you’ll end up with a system that is both consumerist and Leninist for a long time (think Singapore), and what happens depends on specific choices made in the economic system.
As far as what to do. Personally, I think it would be a disaster for the Communist Party to fall.
Suppose it keeps in power. What’s the worst case? You end up with a Leninist-Consumerist society for the next hundred years. That’s basically Singapore. What’s the best case? A gradual transition to a more liberal society which is going to have its own political problems and challeges. That’s basically Taipei.
Neither Singapore or Taipei are bad places to visit or work. Now suppose you case the Party to fall. You are in the situation where you are despearately trying to keep the passions and frustrations in check. When people are angry and mad, they tend to turn on their neighbor.
Singapore? Yes it is annoying to have to work under a Leninist government.
But it is much better than Baghdad…….