One of my recurring themes is that foreign dictatorships are never as efficient and successful as they look from the outside. As a result, I am compelled to respond to David Goldman’s recent column extolling China’s economy. Goldman is an interesting writer. I like him because his take on current events is often different from what you hear elsewhere. On the other hand, he can be completely off the mark, as he is about China.
“China is succeeding despite many problems (including authoritarian administration) because the Chinese are working very hard.”
The Chinese have been working hard for millennia. The Chinese economy didn’t experience explosive growth in the last thirty years because, all of a sudden, the Chinese people discovered the work ethic. Their economy came to life because they started to copy Western liberal principles. The fact that they imitated these ideals so imperfectly is hidden away by the fact that they started from such a low economic base.
“The most important New York Times dispatch about China was the magazine item last week that reported on the cram schools that offer rural students a shot at admission to top universities. China now produces as many PhDs as the U.S., and twice as many STEM PhDs.”
You know, the old Soviet Union provided excellent technical training. If memory serves me correctly (please update me on this if you know better), they had more engineers per capita than the US. And if not more, they at least had the same number. The issue is not the quality of the technical training or even less the amount of people you graduate in STEM fields, but the incentive structure they live under. That’s what determines how much they produce.
“China’s merciless meritocracy makes university admission entirely dependent on examination scores. It is a transparent, rules-based system that cannot be gamed. One can bribe a public official in China by covertly paying the college tuition for a child at an overseas university, but not at a university in China itself.”
The children of high-ranking communist party officials don’t get a special break when applying to Chinese universities. Really? Considering all the stories I hear about rampant corruption in China, I find that assertion very hard to believe. According to Transparency International, China ranked 100 out of 174 countries in 2014 on the Corruption Perceptions Index. (It beats Russia and Mexico to be sure, but the latter just barely. Barely more honest than Mexico - what a feat!) Nevertheless, I am sure the admissions department at the Chinese equivalent of Harvard is squeaky clean.
“Inevitably, a great deal of effort is devoted to memorization… No matter: memorization also requires work. An economy doesn’t need a lot of creative people. It needs a few creative people and a great many people who are simply competent.”
This is very true, and a good insight on Goldman’s part. But as I said before, what matters with the creative and also the simply competent are the incentives you give them. In a free society, they can go in unexpected but fruitful directions. Look at Steve Jobs. Who could have said beforehand that the courses he took in calligraphy as a young man would change the shape of modern society.
“I believe that China is a competitor, but not necessarily (and hopefully not) an enemy.”
I hope the CHiCom’s believe the same thing, though their naval buildup (and the propaganda run on their state-run media) say otherwise.
“I’m also tired of hearing about the imminent collapse of the Chinese financial system. China had the best-performing stock market in the world last year (see above chart), and the big Chinese banks outperformed the overall market index.”
I understand that from June 2006 to Oct 2007, the US stock market also had a great year.
“The Chinese have had an emperor for thousands of years, and view the present emperor (the Communist Party) as the bringer of a Golden Age.”
Nevertheless, I stand by what I wrote just a couple of days ago:
“I am also not bullish on China in the long-term. The Chinese Communist Party’s Politbureau isn’t smart enough to run the entire Chinese economy. China’s explosive growth has been due to the fact that it has taken Chinese peasants, effectively living in the middle ages, and transported them into a ramshackled, semi-free, crony-capitalist simulacrum of a free economy. The growth rate has been high for so long because China has had a big supply of medieval peasants. These are beginning to run out. From now on, growth will be harder to achieve, and will require real policy smarts. All the problems that the ChiComs have papered over, ignored, swept under the carpet, or simply not heard of, will need addressing.
As a result, I see a severe economic downturn and significant political instability in China’s near future and America will remain number 1, in spite of the bumblers ‘running things’ from inside the beltway.”