»  National Review Online

January 9th, 2001

  China: The End of Economism


The world is full of surprises. With the Middle East coming to the boil again and the Russians acting up, it would be foolish to guess what foreign-policy headlines might look like this next four — let alone eight — years. However, there is not much doubt that China will feature in many of them, and that what foreign-policy wonks call "managing the relationship" with China will occupy a great deal of Colin Powell's time. As a close, though amateur, watcher of China for 25 years, with in-laws in the Chinese Communist Party and a wide circle of Chinese friends and acquaintances, I am going to put my few cents in on these pages. Piecemeal, because I have a lot to say. Here is today's pennyworth: The end of "economism" as a model for China's future.

Here I am using the word "economism" as Margaret Thatcher uses it (pejoratively, let it be noted), to refer to the sub- or pseudo-Marxist belief that only economics really matters. A corollary belief, applied enthusiastically to China in the past twenty years by optimistic pundits — and by the Clinton administration, in so far as they could be said to have had any coherent thoughts about China at all, which was not very far — asserts that if we can just get China practicing free-market economics and open trade, then parliamentary democracy, the rule of law and universal peace and harmony will inevitably follow. I dare say that this belief still dominates the thinking of the State Department China desk. Probably Colin Powell believes it. It is, unfortunately, false. Eight years from now we may find ourselves wondering why intelligent people ever believed such a thing.

Cast your mind back, if you are old enough — or well-read enough — to the 1950s and 1960s. At that time people took the Soviet-style command economy seriously. Many scholars and deep thinkers, with advanced degrees in economics and political science, thought the "planned" command economy was superior to free-enterprise capitalism, and would, as Nikita Khrushchev boasted, bury us. Many who did not think this none the less regarded the command economy with respect, as a formidable competitor to our own way of doing things. Somewhere in the archives of the CIA are carefully-researched memoranda from as late as the late 1970s arguing that the East German economy would overtake the West German in 5 or 10 years. These beliefs now seems ludicrous, the command economy an obvious no-hoper, a complete dead end. Yet people — friends and enemies both — believed in it. And in fairness it must be said that the command economy had its triumphs. Your average urban Russian, or Pole, or Chinese was materially better off in 1960 than his father had been in 1930. You can travel uphill before falling off a cliff.

On to the 1980s and 1990s, the great age of economism. The great age, in fact — if I may bring in another Thatcherism (how that woman bestrides our age like a colossus!) — of TINA economics. TINA stands for "There Is No Alternative" — no alternative, that is, to entrepreneurship and open markets. The triumph of TINA economics was swift and total. In his fine book about globalization, The Lexus and the Olive Tree, Thomas Friedman asks this very interesting question: As a result of the great Asian economic crisis of 1998, millions of people in countries like Indonesia and Thailand moved from middle-class comfort to destitution in a matter of weeks. Why was there no great political upheaval in those countries? Why no revolution? His answer: Because even the lowliest Thai peasant had internalized TINA economics. They knew that political revolution would take them nowhere. When you have tried capitalism and failed, you just have to pick yourself up and try harder. There Is No Alternative. Sure, you can vent your frustration in a riot or two, bring down a government minister or two, but systemic change away from capitalism? Fuggedaboutit.

Unfortunately the success of TINA economics has brought us into a new world, with new rules. Just as it was possible, forty or even thirty years ago, to believe that the USSR's command economy was a serious competitor for western-style capitalism, so many people — probably most people — believe that China's economy is, or quite soon will be, a serious competitor for us. I don't believe this. I believe that China's economy is about where the USSR's was in 1960: impressive to look at, with some real gains delivered to a lot of people, but heading fast for a point of diminishing returns.

TINA economics has been a great leveller. In an open, globalized world, nations compete with nations much more freely than ever before. Alas, in any competition there will be winners and losers. What will decide, in the decades to come, who wins and who loses, whose standard of living soars, and whose stagnates? What will be the magic ingredient, the "edge"? Who will have it?

Gentle reader, we will have it. It is an elementary principle of economics that as competition between producers gets more open and intense, small differences in corporate style, in management techniques, in philosophy, become more and more important. So it will prove in the world of the next decade or so. When we are all equal in economics, our political differences will be more starkly visible, and more decisive. Nations like ours, with rich and deep-rooted traditions of individual rights — most crucially, in this context, of property rights — and with political power located in several centers, able to challenge and restrain each other, will prove more nimble, more adaptable and more productive than those that are less free.

China's economy, with its artificial currency, its opaque banking system, its rust-belt state-owned legacy industries no-one dares dismantle for fear of popular unrest, its still-ambiguous attitude to private property, its carefree approach to environmental despoliation, and — most of all — its sensational levels of corruption, is a natural consequence of China's political system: one-party dictatorship by an aloof nomenklatura caste who hate and fear the common people, and know little, and care less, about their lives. This system was certainly able to raise the standard of living of urban Chinese from the abject levels of 1980 to something approaching a western norm, just as the Soviet-style command economy improved the lives of a previous generation of city-dwellers. It will not, however, suffice to keep China abreast of the free world in the decades to come. It is just too inefficient.

But what about the "economism" corollary: that when they see their country falling behind, the Chinese people will demand, and get, a better system of government? The Chinese are not fools. (They are in fact, according to psychometrists, about 6 IQ points smarter than Europeans on average.) Is political reform not, as all those optimistic pundits believe, inevitable? Well, I don't think so. It is possible, but not, I am sure, inevitable, nor even very probable — less than 30 per cent probable, I would guess.

I shall explain the reasons for my pessimism in another piece: I have already written as much as the webmaster will allow me at one throw. Please just take away this thought for the time being: This past half-century has been one of the best in human history, with great advances in the quality of life almost everywhere (Africa may be an exception), capped by the West's tremendous moral victory in the Cold War. We have all grown up in this world of hope fulfilled and right vindicated, and the normal cast of our minds is naturally optimistic. Perhaps our optimism will proved justified. For the sake of my kids, I hope so. But there are many futures, and common sense has no more subtle, persistent and resilient enemy than wishful thinking.