More on the China middle-income trap

Great piece in Forbes that my wife found.

Part that caught my eye references a second analysis:

In their final installment on the Chinese economy, titled “Beyond the Miracle”,Barclays Capital analysts in Hong Kong led by Yiping Huang wrote that China will avoid the middle-income trap as a whole. However, they did not underestimate the risks facing China’s economy in the coming years.  It’s one thing to be middle income. It’s another thing to move out of that middle income and into the coveted high income category of Western Europe, the United Statesa and Japan.

The experience of countries that failed to make the jump to high-income status suggest that their inability to innovate and upgrade can be attributed to three broad factors: (1) macroeconomic, political and social instability; (2) persistent inefficient allocation of resources; and (3) insufficient support to physical infrastructure and human capital development.

The persistently inefficient allocation of resources is the government having too much of a role in investment and picking winners and losers (mostly shielding the latter while the elite corruptly hoards the benefits of the former).  I realize that contradicts the "wisdom of the state" notion behind the Beijing Consensus, but history says the state displays little smarts, and there is a ton of evidence of badly spent public investment in China.  

The instability arises from a lot of things:  enviro damage, repression of political rights and free speech, corruption of officials, and the S-curve slowdown in general.

China does decently-to-well on the sufficient support to infrastructure development - both hard and soft.  But that can backfire too if the growth fails to materialize or the slowdown is profound enough.

Answer for all these things is simple:  turn the people loose on creativity and freedom of spending choices. Problem is, of course, the single-party dictatorship finds all that uncomfortable, so they shortchange it whenever and wherever they can.  Why?  If people get to decide too much of their economic reality on their own, their ambition naturally turns to politics over time.  People simply stop being willing to be treated like children on the latter score; it offends their intelligence and obvious sense of accomplishment - especially when they know full well that talented Chinese abroad succeed and get to politically participate in democracies.

And that's what eventually stops the show, forcing political change.

The coming age of hyper-transparency

In a huge simulation that we just ran at Wikistrat (and in several previous ones), this issue of hyper-transparency keeps popping up as a magnificently powerful shaping dynamic in future politics - as in, you can corrupt but you cannot hide (for long).

NYT reporting here that the paper's networks have been subjected to massive hacking efforts directed from China and that these repeated assaults were timed in response to the paper running that nasty expose on how Chinese political elites (and particularly the family of Premier Wen Jiabao) made - literally - billions on an insider deal involving what is now the world's largest insurance company.

Naturally, the Chinese government thinks it's sending a signal big-time - as in, don't mess with our political crooks.  Like any mafia, the Chinese Communist Party believes intimidation will always save its skin.  And when the masses of Chinese were too busy starving or struggling through their lives (see, Mao), there was no question that it worked.  

But things changed with Deng Xiaoping, who knew that what he set in motion would both make China a powerful economic giant and eventually cost the party its dictatorship.  This is why Deng is a personal hero of mine - a great and wise man who changed world history for the better.

No, his legacy is not yet complete, and Deng, who was one of those who approved the Tiananmen Square massacre, knew full well that timing was everything.  So, no illusions on his part about how long this would take.

But that hyper-transparency is arriving already across China.  What the Party wants hidden is getting far harder to hide.  Bravo Times!

So yeah, the CCP remains fearful of its citizenry and now it needs to fear the NYT as well, because it is all one vast conspiracy called globalization and connectivity and transparency and markets and democracy and super-empowered individuals.  It is a conspiracy hatched over 200 years ago by a far-sighted bunch of genuine revolutionaries.

And it's coming for you, Mr. Apparatchik - and your little (running) dog too!

As always, when in doubt, resort to nationalism - the last refuge of scoundrels the world over.  So the Party justifies this as America's doing/meddling/etc.

But rest assured, when they come for the Wens and his relatives and everybody else who stole from the Chinese people, they'll all be wearing Chinese faces.

The real "virus" has already infected too many Chinese to be stopped now.  These people are among the most rabid capitalists in the world, and you've got to respect everything that goes into that.  

But capitalism unbound is one nasty creature, which is why democracy is the only antidote.

And that's why the Chinese Communist Party is totally screwed, no matter how big a fight it puts up.

The clock is ticking, my friends.

China: The race up the production/development/political ladder is on!

Wow, that took a long time!  

Recall my recent post on China's college graduates (8m strong per year) and their expectations.

Right on cue, the NYT runs another front-pager that follows the logic up nicely:  "With diplomas, Chinese reject jobs in factory."

This is the development conundrum in a nutshell for the single-party state:  you give the people what they want (factory jobs that generate income so people moving off the land can make it in the city and send their kids to college) and then they just want more - in the form of those college kids.  And the more they want and you provide and they accomplish and achieve, the more they're running their own complex lives and get tired of hearing how only the one party and the one way are acceptable.

Best example of this was South Korea in the 1990s - four decades of essentially single-party rule and then things got a bit tumultuous.  But now look at South Korea - a second-tier great power on the move and becoming a soft-power exporter (Psy's hilarious and catchy "Gangnam Style" is just the hardest door-knocker of the burgeoning flow; personally I love the horror movies best) in addition to being a powerhouse product exporter. In many ways, China wants to replicate South Korea's path.  It's just the Party that assumes it can (or should) be done in a single-party format.

But yes, all the same tipping points eventually get reached. The size differential isn't key; it's a matter of generational turnover, and this article is a big pointer in this regard:  college grads who turn down their noses on factory jobs.

There's no turning back at this point:  China's future evolutions are already a fait accompli.  The only thing left for the West is to NOT screw it up, which typically occurs whenever we freak out over perceived "gaps" or "being passed by" or other such declinist nonsense.

The "victory," if you need such things, has already been won.  And we have Deng Xiaoping to thank for that.

China must live in the real world of its own making.  It cannot exist in the imaginary balance-of-power environments posited by the realists - on either side of the Pacific.    That real world of its own making forces very hard compromises.

And they are just beginning across China.

China's future with a only-child society

NYT story on Science article describing Australian research on the only-child phenomenon inside China.  This wasn't interview based, but actual work with kids, testing their trust behavior (a simple drill involving money).

The result:

The researchers concluded that the "one-child-policy" players were less trusting, less trustworthy, less competitive and more risk-averse than the older participants.

And on the basis of a personality test, they were also "less conscientious, more neurotic and more pessimistic ...

What is interesting:  China is already all those things in terms of top leadership stuck in a single-party mode. What this says is, there is quite possibly no hope on the horizon in terms of top-down reform/democratization dynamics.  Yes, the leadership will talk such lines (reforms) and hint at such possibilities (democracy), but they won't move down this path without pushing from below - and hoping generational changes will trigger top-down dynamics is probably far too optimistic.

A bit more depressingly, it also says there may only be a generational window of people, roughly corresponding to the 6th generation of leadership (on slate to rule 2022-2032), who are able to trigger the bottom-up dynamics necessary for change (i.e., serious demand for it from below that pushes the way-too-cautious elite to finally do something real and not just experiment and talk and promise).  To me, that says the 2020s may be it - as in, get the system moving in the right direction or China loses its nerve - both above and below - to make the difficult steps happen for the post-Mao system's full maturation (reforms, marketization, globalizing, middle-class and then democracy).

A worrisome observation, but not an insurmountable one.  The Chinese system is already rife with intense populist anger and it's growing by leaps and bounds.  We can hope Xi Jinping and Co. catch a clue, because if they don't, China - in terms of generational leadership - might have only one more swing at the plate to get it done before turning - yet again - back in on itself.

China's rising pool of college grads - and expectations

NYT story on the 8m college grads that China cranks each year at the cost of about $250B a year.

The comparison that comes to mind is the US post-WWII and the remaking of society and politics that ensued (think of all that change across the 1960s and 1970s).

Yet another reason why I stick with my prediction that China is democratized by 2030.  This article speaks more of economic strengths than challenges, but the real danger (which appears only when you get to the jump page) are the social expectations and - if they are met - the resulting political confidence that will be hard to manage on a mass basis.

When people make the effort and sacrifice for that degree, the same-old, same-old factory job won't do.  This forces China into a race up the production ladder alright, and that fits the nation's desire to base more future growth on domestic consumption.  But that desire forces a progressive agenda to fix their healthcare and pension problems, which are not all that different from the US in their ability to mess up economic growth.  In China's case, the two issues combine to depress consumption by forcing individuals to save mightily against fate's whims. So if the government wants all that domestic consumption-led growth to make all those white-collar jobs happen so all those college grads can be happy (and not too disruptive politically), then major government efforts along the "great society" trajectory will be forced by all these dynamics.

Even if China pulls all that off, and then suffers the natural slow-down in growth that occurs when you start better covering the needs of the left fortunate (Freudian slip, as I meant less unfortunate) in society (a costly proposition), then you move into the next tier of problems:  all those college grads now making it and living complex lives will bristle at being spoken down to regarding political debates and government transparency.  We saw this big time in South Korea roughly a generation ago.  China is now 10-15 years (at best) from confronting that fabulous problem.

All of this is to say that, if you imagine that China somehow becomes truly powerful down the road but will still look like today's single-party state, you'd be wrong by every experience of history that we know.  Once you embrace the markets and all the other great aspects of modern society, the politics must change in reponse - eventually.  Yes, the Chinese are adept at postponing that reality.  

But it will not be postponed forever.

A truly strategic thinker worries about handling a democratizing China down the road more than some single-party state.  A single-party state is inherently cautious; it cannot suffer a genuine overseas debacle because there is no throw-the-bums-out dynamic to stabilize the system.  But a democratizing China looks more like the rising US of the late 19th century.  I personally don't foresee that being an unmanageable problem, given all the domestic issues that China will still be finessing throughout that transition, but it will definitely be a new and different China "challenge."

China has to learn how to take better care of its own

NYT front-pager on how new model of outreach and service to HIV community is being appreciated as possible approach to host of underserved populations currently in the official shadows, to include the mentally ill, the extremely impoverished, and the environment. The key is letting NGOs rise as part of a general maturation of civil society.  The simple but harsh reality for the Party is that, by spending so much time obsessing over political speech (Kristof's point in his op-ed of same day), it's losing ground on a host of government support/regulation areas where the public desperately needs help.  The result?  Rapacious behavior all around, but especially on the part of the elite - a growing problem that only hyperventilates the already profound populist anger.

The conundrum is solved, in both instances, by the Party actually extending more trust to the public it claims to represent, because, right now, the combination of over-exertion on political speech and under-exertion on everything else is a losing battle.  As progressive agenda items pile up (what is more progressive than extending coverage to the underserved?), the Party ends up looking like it's only concerned with its own power - along with its own greed (all that corruption).

You put that all together, and I don't know how pundits see a triumphant Chinese model, because it's stalling at the same point that all industrializing powers do, and the answers are still the same - more and better democracy, or more opportunity extended to the people to take more responsibility for themselves and each other.

China's model is not "better" than ours by any stretch.  Instead, it's an insult (growing) to the Chinese people, who prove themselves to be smart and responsible and capable the world over - whenever they're extended the chance to prove that.

The Chinese Communist Party lives in fear of its own people, and that's sad - and ultimately self-limiting for all.

That's why democracy is coming.  People want more and achieving more requires it.

The Chinese Communist Party comes up with new "test" for industrial projects

Thanks to growing grass-roots protests by Chinese citizens over big industrial projects, the NYT reports that the government there now says all such plans must pass a "social risk assessment" prior to final approval.  

Interesting choice of terms, yes?  The environmental impact is what the people worry about, but it's the "social risk" that gets the government interested.  Apparently this has been done in some local governments for a while now (the experiment, per the Chinese way) and now it's being adopted on national scale.

China already has environmental impact studies, and now the government says (as of 1 Sept) that they must be posted on the internet (also interesting).

Environmental minister says, "By doing so, I hope we can reduce the number of mass incidents in the future."

The tipping point?

Enviro protests used to attract only the old and retired.  Then the young started showing up in numbers, and that's when the Party got scared.

China is, as I argue, on the verge of a huge and prolonged progressive era.  All sorts of things to clean up. Each time such steps are taken, just a bit more power to the people - always defensively offered by the government.

China not-so-bad sign: no longer growth-at-all-costs

Nice NYT story on growth of (primarily) middle class resistance to unlimited growth ambitions WRT environmental damage.  Most experts who track the grass-root democracy arising in China have noted its strong concentration in the environmental realm.  

It's a natural development that we've seen everywhere else a middle class historically arises:  once you get to a certain level of GDP ($4-7,000) you start caring about the environment a whole lot more.

Chart shows all the places where projects have been delayed/cancelled in response to popular demands.

Point being:  all part of the natural slowdown in growth that comes with modernization.  Things get more complex.  The public puts up with less crap.  China is not different in this regard whatsoever.

As I've noted for years now, Asian countries that modernize and open up to globalization typically do so as single-party states (either explicit or de facto) for about 5 decades.  Then things change.

That logic says China goes democratic in the 2020s - or faster.

China bad sign #2: young professionals leaving in record numbers

Yes, a brain drain as reported in the NYT.

At 30, Chen Kuo had what many Chinese dream of: her own apartment and a well-paying job at a multinational corporation. But in mid-October, Ms. Chen boarded a midnight flight for Australia to begin a new life with no sure prospects.

Like hundreds of thousands of Chinese who leave each year, she was driven by an overriding sense that she could do better outside China. Despite China’s tremendous economic successes in recent years, she was lured by Australia’s healthier environment, robust social services and the freedom to start a family in a country that guarantees religious freedoms.

“It’s very stressful in China — sometimes I was working 128 hours a week for my auditing company,” Ms. Chen said in her Beijing apartment a few hours before leaving. “And it will be easier raising my children as Christians abroad. It is more free in Australia.”

As China’s Communist Party prepares a momentous leadership change in early November, it is losing skilled professionals like Ms. Chen in record numbers. In 2010, the last year for which complete statistics are available, 508,000 Chinese left for the 34 developed countries that make up the Organization for Economic Cooperation and Development. That is a 45 percent increase over 2000.

Guess who wins this lottery, as usual?

When experts note that China modernized and marketized and opened-up to the world for the past 40 years and the Party still rules, they miss the reality of what happens when a critical mass middle class appears and starts wanting more than just a rising income.

That day has arrived.

So no, it's not a question of "Can China ever go democratic?"  It's only a question of when.

There is nothing unique about Chinese or Asian civilization in this regard.  Modernization is modernization.  People are people.  Democracy isn't achieved because it's fabulous.  It happens because it's the best worst system you can manage when you reach the point of genuine development.

Where I would expect Chinese to be right now - and reasonably so

 

WSJ story on snapshot of Chinese attitudes about things and their own lives by Chinese polling firm:

The vast majority of Chinese people believe their country is heading in the right direction, according to a Pew Research Center survey, although there is rising discontent over issues from corruption to food safety—and a growing fondness for U.S.-style democracy.

One of the more surprising findings of the survey of Chinese attitudes by Washington-based Pew is that as public confidence in Chinese institutions— from government bureaucracies to the health-care system—deteriorates, appreciation for other systems of government is building.

Some 52% expressed a positive view of American-style democracy, with approval levels highest among the urban educated elite. However, affection for U.S. policy-making and President Barack Obama has cooled since he took office.

Overall, domestic confidence is higher in China than anywhere except Brazil, according to the poll conducted by Beijing firm Horizon Research Consultancy Group. In all, 82% of those surveyed said they are satisfied with the way things are going, and 83% said China's economic situation is good or very good, while 70% said their family's lot has improved financially over the past five years.

But attitudes in key areas have soured since Pew asked many of the same questions in 2008. Half of those polled said official malfeasance is a very big problem, worse than the 39% who said so in 2008, while another 35% termed it a moderately big problem.

Chinese this year categorized as very big problems many issues they described as only moderately bad in 2008, such as food safety, air pollution, education, worker rights, income inequality and the health-care system. While 13% said quality issues related to manufactured goods were a very big problem in 2008, for example, that figure shot to 33% this year.

Rising prices registered as a problem for 92% of respondents. 

That, my friends, is a nation poised on the edge of a progressive era/democratization. 

I'm not predicting it for tomorrow.  My favorite window for the big push is 2025-2030, but I am guessing I am being too pessimistic.

Why the special relationship (US-Israel) isn't going anywhere

Fascinating factoid:  80 percent of the world's Jews live in US and Israel (roughly an equal split in numbers).

Then look at the lower right-hand bar charts and realize - Holocaust or no - that the 20th century was the best century the Jews ever had, because of the location of, and population concentration within, the two great safe places in the global system: the Jewish homeland of Israel and the next best thing called America.  The Economist (where the chart is drawn from) notes that the Jewish faith is now stronger and more "alive" than it's been for a very long time.  Naturally, Judaism experiences the same crises of all religious identities in this modernizing world (absolutely nothing "special" about the Jews in that regard, even as they consider themselves "chosen" like every other faith on the planet - the Lake Woebegon effect that all religions suffer ("I get it!  You don't!")), but there's no question it's a powerful and well-placed faith in a world experiencing religious awakening (everywhere but Europe's non-Muslims).

Expats and coreligionists driving US foreign policy constitutes a long and storied tradition in America.  It - for example - essentially defines our special relationships with the Brits and Europe in general.  Is it weird or "unfair" with regard to Israel?  Hardly.  People want to see conspiracies and what not.  But it's the simple - and beautiful -business of money talking.

America is a supremely fair place when it comes to minorities - save African Americans for obvious historical reasons.  But, in general, if you're an immigrant group or otherwise minority, you can make yourself heard and somewhat obeyed in our political system simply by organizing yourself and applying your collective wealth to the system of influence that is our political system.  Many people find this process slimy, but I love that the only color that matters in this country is green, because that's eminently more fair than skin tone. (And yes, the fact that our first African-American president is a genius at raising money in small amounts is highly indicative of this process - thank God!).

Simply put, NOBODY in this country gets what they want until they organize and start donating money (or spending in the market corollary) - i.e., start making their market heft known.  We've seen it with ethnic group after ethnic group over the decades, and we're watching now with Hispanics and Asians - and Indians in particular (who are becoming amazingly adept at it at a rather fast pace).  We likewise watch it now with the GLBT (gay, lesbian, bisexual, transgender).

Again, cry all you want, but I like a process where money beats prejudice.  If you want to deny the party in question, then you mount a bigger effort. But, fortunately, people operating on the basis of love for something win out - time and again throughout history - over people operating on the basis of hatred (my personal fave being the early Christians v. Roman empire).  This is why I don't argue over things like gay marriage or America's continued support to Israel:  the connectors always win out over the disconnectors.  May take some time, but it always happens.  

You just can't bet against people wanting to connect. 

Strategy-wise, you just doom yourself to failure.

Pulling back the lens, this is why I don't - in the end - worry about globalization's future.  The fear-meisters will have their days (and revel in them), but history is stunningly clear on the subject - once America rose up and started running the show.

There is a reason why this is the greatest country in the world.  It's not that we're the best at doing this (personally, I would choose Canada or the Netherlands or Sweden or Norway - all very Wisconsin-ish, so it wouldn't be a big change for me), it's that we're right up there with the best AND we have the capacity and will to spread our system across the planet.  Notice how world history improves incredibly over the past several decades?  It's no accident. It's America doing on a global scale what minorities do on a national scale within our country.

Again, money talks . . . and wins over prejudice and tradition and intolerance and hatred and violence and . . ..

WPR's The New Rules: In Globalized World, Time Is on America's Side

Second-to-last column at WPR.

There is a popular tendency to characterize globalization as an elite-based conspiracy or as something imposed by greedy outsiders upon unsuspecting native populations, hence the enduring belief in the possibility of its systemic reversal. In truth, the spread of modern globalization reflects a bottom-up demand function, not a top-down supply imposition. People simply crave connectivity -- in all its physical and virtual forms -- as well as the freedom of choice that it unleashes. This simple truth is worth remembering when we contemplate America’s global role in the decades ahead.

Read the entire column at World Politics Review.

WPR's The New Rules: America Need Not Fear Connectivity Revolutions

A lot of international relations theories are being stress-tested by events in the Arab world right now, with some emerging better than others. Two in particular that are worth mentioning are Ian Bremmer's 2006 book, "The J Curve," which predicts a dangerous dip into instability when closed, authoritarian states attempt to open up to the world; and Evgeny Morozov's new book, "The Net Delusion," which critiques the notion that Internet connectivity is inherently democratizing. (In the interests of transparency, I work as a consultant for Bremmer's political risk consultancy, Eurasia Group, and penned a pre-publication blurb for Morozov's book.)

Read the entire column at World Politics Review.

Chart of the Day: Age difference between leaders and led

 The Economist.com by way of Dan Hare.

Clear advantage here to democracies, although China's gap will shrink dramatically with the generational shift coming up (Hu to Xi).

It's a double-whammy:  Democracies get to choose and they choose leaders not too far off from the median, and autocracies are more likely in underdeveloped societies, which - by definition - tend to be youth-skewed (poverty tends to cause babies, just like income growth tends to act as birth control).