The China syndrome

CHINA'S rise is, by any account, a remarkable story. The world's most populous country, China represented an outsized share of global output for centuries prior to the Industrial Revolution. As the industrial west rose, China fell behind, then fell further behind amid occupation, revolution, and communist mismanagement. But then, about thirty years ago, China's luck changed. Its leaders embarked on a path toward liberalisation, and its economy began to grow. Having fallen so far behind, China had plenty of ground to make up, and growth rates soared toward double-digits. It now seems likely that China will cross a symbolic but important threshold sometime in the next decade to become the world's largest economy.This growth story isn't unique. The route from underdeveloped country to rapidly growing economy is increasingly well-trod. From the ashes of the Second World War Germany and Japan rose to become economic powerhouses. The Asian tigers followed, as did countries on the European periphery. China's present rise is accompanied by strong growth in India, and other periods of catch-up may follow in Brazil or elsewhere in Asia. Africa may find its way into the game, as well.Unfortunately also not unique is the round of American handwringing and self-doubt that accompanies these stories. My colleague at Democracy in America directs us to a Financial Times piece by Francis Fukuyama entitled "US democracy has little to teach China". It contains sweeping claims about the governmental force in Beijing:The most important strength of the Chinese political system is its ability to make large, complex decisions quickly, and to make them relatively well, at least in economic policy. This is most evident in the area of infrastructure, where China has put into place airports, dams, high-speed rail, water and electricity systems to feed its growing industrial base. Contrast this with [democratic] India, where every new investment is subject to blockage by trade unions, lobby groups, peasant associations and courts...[T]here is a deeper problem with the American model that is nowhere close to being solved. China adapts quickly, making difficult decisions and implementing them effectively. Americans pride themselves on constitutional checks and balances, based on a political culture that distrusts centralised government. This system has ensured individual liberty and a vibrant private sector, but it has now become polarised and ideologically rigid. At present it shows little appetite for dealing with the long-term fiscal challenges the US faces. Democracy in America may have an inherent legitimacy that the Chinese system lacks, but it will not be much of a model to anyone if the government is divided against itself and cannot govern.The Washington Post's Steven Pearlstein is similarly taken by the Chinese way:The right response to these challenges would be for the president this week to laud China for the success of its economic policies and announce that the administration will begin forthwith to apply each and every one of them to Chinese exports into the United States. Subsidies and directed credit for local companies, buy-American provisions for government agencies and government contractors, currency manipulation, the rules on "conditional market access" and "indigenous innovation" - surely China could hardly complain if we were to pay them the highest compliment by embracing their economic model...This is the nub of the problem. With its state-controlled economy, China can force its companies to act collaboratively to achieve the country's strategic economic objectives. And that gives it a tremendous advantage in negotiating the terms of trade with a country like ours, where China can strike deals that may provide short-term profits to one company and its shareholders but in the long run undermine the competitiveness of the other country's economy. What's good for GE or Honeywell or Rockwell is, in this case, almost certainly not good for America and American workers.There is certainly a possibility that China has stumbled onto a striking new growth formula, and that Chinese citizens will ultimately grow every bit as wealthy as Americans and then some. That would be something! To move 1.3 billion people from grinding poverty to American income levels would represent a monumental step for human welfare. Who knows; it could happen.But I find the lack of perspective in the above pieces to be simply astounding.read more