Growth Miracle Coming to an End? October 17, 2010

October 17, 2010

There’s been a lot written about the future of China. Some argue that the small group of leaders of the CPC (Communist Party of China) has managed a 32-year trade-off of economic growth and increasing prosperity in exchange for the people of China continuing to surrender their democratic freedoms. These include no rights to vote for their leaders in a free political system where the people can propose candidates. Also included (or rather excluded) is some of the freedom of speech and press found in modern democracies. This also means that if the leaders feel they need to delay investment in the environment to favor economic growth, there is little that can be done to change that. It means that if your shabby housing project is needed to enable a new high rise, there is nothing you can do to prevent it. You get a nice new home, but you don't get to prevent the move. It means your intellectual property rights (for foreigners) are not going to be protected when you do business in China—not until China has enough intellectual property of its own to protect.

Some say this era of growth under such controls is nearing an inevitable end. Soon there will be enough economic prosperity and the citizens of China will want what’s next: freedom to choose leaders and to speak freely, write freely, to criticize, even change their government in the areas that trouble them. It is true that there are many protests in China, seemingly a growing number as time passes. The government quickly quells most and little is heard of them. Whether these have any connection to the economic growth and prosperity (essentially freeing people to rise to the next level of Maslow’s hierarchy), or whether perhaps due to the growing access to the Internet and news from the rest of the world, is the subject of speculation only. These are legitimate concerns expressed by insiders and outsiders to China. There are problems.

However, while much has been written about all this by Western press, little credit has been given by the critics to what has been accomplished under the Chinese manner of rule, which has overseen the 30-year miracle of China becoming a world superpower and one of the greatest capitalisms of all time:

o 30 years of peace between China and all its neighbor in Asia, and the world

o 30 years of peace inside China—that is, no civil wars

o Continuously improving living conditions for the majority of Chinese

o Economic opportunity, better jobs, entrepreneurship

o Unlimited access to news, entertainment (outside the one realm of being denied criticism of the CPC)

All of this coming from an incredibly poor economy and standard of living prior to 1978 and with the largest population in the world, now 1.3 billion people.

It is also interesting to consider where the unrest, the quickly quelled riots, is coming from. Is it from the new ultra rich? Doesn’t seem likely. Is it from the middle class, which has been enjoying a better home, a car, computers, HDTV’s, and soon an iPhone? Not so likely, either. It may be coming primarily from the still large majority of Chinese who have not yet participated significantly in the fruits of the economic revolution. While there is undoubtedly great intelligence among these people, there is less education in subjects like economics. We imagine many of the protestors have not seriously considered the enormous tradeoffs that CPC leadership has been navigating, rather successfully, for an amazing period of time.

We dare say there is not a government leader in the world who would not envy the 32-year history of success that the small group of leaders of the CPC has engineered. The critics of the west to all of this give far too little credit. One can certainly rightly challenge with any single instance of denial of rights we enjoy in the west, or maybe even with justification challenge the lack of attention to a single issue or industry—like the danger of coal mines in China, to the workers and the environment. However, few economists would question the real tradeoff Chinese leadership made in choosing growth. Had they not chosen growth, there might be up to 30 million new work force entrants denied jobs annually. It would only take a few years of growth at half what they have enjoyed to result in economic unrest which would threaten the stability of China. Clearly, they knew they needed 10% annual growth, and this would be hard to come by—it would mean some hard tradeoffs against “nice to haves” for a number of years. Had China stumbled and not been here to support the world economy in 2008, where would we all be now?

Now, are we at a point where all of this must change? Are we at a point where democracy as we know it is inevitable for China—with all the fairness and openness, accompanied by all the extreme points of view and all the burdensome bureaucracy, which often seems to accompany democracy in the West now? It’s not going to change anytime soon, because the vast majority of Chinese still completely support their system and their leaders, whose polls are far higher than those of any of our Western leaders.Furthermore, if it does start to change, let’s not be too quick with our hurrahs. Managing for economic growth, jobs, opportunity will have to be diluted to meet the many other objectives we try to address in nations of much smaller size and much more mature economies and governments. The risks to the country, the region, and the world during such change will be significant. And, it would help our relations with this great country if we would continue to acknowledge the amazing miracle of what they tried to do and did, with great intelligence and with their own form of government.