Paul Krugman is continuing his drumbeat against China, which he calls a “rogue economic superpower” in his latest column. Now, it turns out that he’s writing about a pretty complicated and interesting subject, which Tim Worstall covered in much greater detail in Foreign Policy. You won’t learn anything from Krugman’s piece that you won’t from Worstall’s, but it’s instructive to contrast Krugman’s jingoistic alarmism with Worstall’s measured take.
While Krugman rather hilariously tries to shoehorn Bush-bashing into a column on rare-earth materials, Worstall gives a more complicated, and more accurate, portrait of reality as the Chinese might see it:
Rare earths aren’t found in nature as separate elements; they need to be extracted from each other, a process that involves thousands (really, thousands) of iterations of boiling the ores in strong acids. There is also almost always thorium, a lightly radioactive metal, in the same ores, and it has to be disposed of. (Thorium leaking into the California desert was a more serious problem at Mountain Pass than low prices.) So ramping up production would mean that Western countries would need to tolerate a level of pollution they’ve been all too happy to outsource to China.
That is, the Chinese aren’t just monsters who’ve been taking Americans for saps. Mining rare-earth materials is dangerous and toxic and, very bluntly, the global marketplace values Chinese lives less than American lives. It would be helpful to at least acknowledge that this is part of the picture. But that would complicate Krugman’s black-and-white ideological lens.
Let me use this as an excuse to lay out my priors on China:
(1) My basic take on Chinese political economy is informed by Yasheng Huang’s Capitalism with Chinese Characteristics and, to a lesser extent, Bruce Gilley’s China’s Democratic Future. You can read the first chapter of Huang’s book at SSRN. In a terrific LRB essay titled “Sinomania,” Perry Anderson summarized Capitalism as follows:
His central finding is that the apparently unbroken rates of high-speed growth have rested on two quite different models of development. In the 1980s, a general liberalisation of financial policy allowed private businesses to flourish in the countryside, many under the misleading sobriquet of ‘township and village enterprises’, as credits flowed to peasant start-ups and rural poverty fell dramatically. Then came the shock of 1989. Thereafter, the state abruptly changed course, choking off credits to rural entrepreneurs, switching loan capital instead into large, rebuilt state-owned enterprises and urban infrastructures, and – not least – granting massive advantages to foreign capital drawn to the big cities. The social consequences of this change, Huang argues, were dramatic. Inequality – not only between village and city-dwellers, but within the urban population itself – soared, as labour’s share of GDP fell, while peasants lost land, rural healthcare and schooling were dismantled, and illiteracy in the countryside actually grew. In a blistering chapter on Shanghai, the showcase of Chinese ‘hyper-modernity’, Huang demonstrates how little average households in the city benefited from its glittering towers and streamlined infrastructures. Amid a ‘forest of grand theft’, officials, developers and foreign executives prospered while private firms were stunted and ordinary families struggled to get by, in ‘the world’s most successful Potemkin metropolis’. Nationwide, in 20 years, officialdom – raking in four successive, double-digit increases in its salaries between 1998 and 2001 alone – has more than doubled in size.
Cautiously, Huang expresses some optimism about the direction of the current Hu-Wen government, as a correction of the worst excesses of the Jiang-Zhu regime of the 1990s, while remarking that its reforms may prove too late to redress the ruin of peasant enterprise, in villages now often emptied by labour migration. But he ends by contrasting the sky-high Gini coefficient of today’s PRC with the relative equity that marked the high-speed growth in the rest of East Asia – Japan, South Korea and Taiwan – and the far greater role in China of foreign and state enterprises, and the lesser weight of the domestic private sector, in the country’s growth model. One consequence, he maintains, is that productivity gains have been declining since the mid-1990s. For Huang, the lesson is straightforward: efficiency and equity always depend on free markets, which in China remain half-strangled. Capitalism there certainly is, but a variety deformed by a corrupt and self-aggrandising state, which in denying its people liberty to manage their own economic affairs has failed to create reasonable conditions of fairness or welfare. The prescription is simplistic, as a glance at the United States could have told any scholar at MIT like Huang. Since the 1980s, financial liberalisation and cast-iron property rights have not delivered much social equity to Americans. But the indictment, set out with exemplary care and lucidity, is unnegotiable. So too is the anger behind it, at callousness and injustice. Not many economists would think to dedicate their work, as Capitalism with Chinese Characteristics does, to a couple of imprisoned villagers and an executed housewife. [Emphasis added.]
Basically, today’s China is Venezuela in the 1960s, but on a much larger scale. I’ll also note that Anderson doesn’t seem to appreciate that the pattern of wage dispersion in the developed world is likely to be different than the pattern in a developing economy, but that’s a minor point.
(2) As William Easterly has recently argued, its growth performance is often misunderstood:
Have a succession of crazy autocrats, political chaos, and war savagely repress one of history’s most inventive peoples, along with not allowing one of the most successful trading diasporas in history to operate in China proper. Then have things calm down a bit and have somewhat less crazy rulers allow more of the people’s energy and creativity to burst out. Presto, the change from EXTREME NEGATIVE to LESS NEGATIVE is called a “growth rate,” and it will be high. Now accept worship from around the world.
We fret about the rise of China. But consider where China might have been had the civil war of the 1940s turned out differently, or if the Cultural Revolution had somehow been avoided. We’d still be “dealing” with a big, influential Chinese economy, though perhaps one with a less problematic political culture.
(3) As David Shambaugh argues in China’s Communisty Party: Atrophy and Adaptation, the CCP has learned a great deal from post-communist transitions in central and eastern Europe and the persistent of communist regimes in the DPRK and Cuba. These guys are survivors, but they face an increasingly confusing, increasingly unmanageable economic and political landscape.
(4) If Michael Pettis is right, and I’m a great believer in the analytical powers of Michael Pettis, China is going to have a very hard time raising domestic consumption, and this is bad news for sustainable growth in China and, well, in the world.
(5) On the security front, I’m of the view that China is paranoid in much the same way that Turkey is paranoid: both countries are obsessed with the idea of foreigners trying to divide and undermine them. In light of historical experience, this paranoia is not entirely misplaced. This leads to instances of bullying chauvinism that neighbors find very threatening. Yet China is still a relative lightweight militarily, which is why they’re so focused on asymmetrical strategies. Military expenditures in China have been increasing, yet the reform era began with deep cuts in military expenditures. In a sense, China is playing catch-up with its military modernization efforts.
Interestingly, Krugman’s take on China — the only thing the Chinese understood is (economic) force; we need to “get tough,” etc. — mirrors his critique of the Bush-era “neocon” take on Iran and the Arab world.