Dialogues in English


China's Biggest Gamble - Can it have capitalism without democracy?

Found an interesting article in Mr. Blaahg's.


Henry Blodget actually makes some interesting observations about the coexistence of democracy and capitalism in China. China's growth miracle is an uncomfortable rhynoceros in the living room for those people who argue that strong competition and capitalism can only exist in the context of a democratic state.

Indeed. It was an interesting article. However I am not sure if "strong competition and capitalism can only exist in the context of a democratic state" or not.

Indeed I know a few people who would welcome a collapse in the Chinese economy as vindication of their belief that only unfettered capitalism could possibly allocate resources in an efficient way. Overinvestment and unproductive investment, they argue, must be the product of state controls on the economy and on the system of credit allocation.

I am some curious to know what kind of people welcome the collapse in Chinese economy as a vindication of their belief that only unfettered capitalism could possibly allocate resources in an efficient way.

I am somewhat agnostic on this issue. I wouldn't be surprised in China were to experience an economic "crisis" in the near-term, but I would be very surprised if its effects were to linger for longer than a few years. I would expect that a Chinese crisis would simply be a period of writing off some of the excess of the investment bubble, but that once the dust settles China would find itself endowed with a world-class manufacturing and technology profile. China's economic path, in other words, will not likely be a straight line, but dotted with accidents along the way, much like the history of any other capitalist economic miracle. Much like the US.

リンク: China's Biggest Gamble - Can it have capitalism without democracy? A prediction. By Henry?Blodget.

The question remains: Can the Chinese model—capitalism without elections or free expression—succeed forever? The common Western theory is that the more China's wealth grows, the more the pressure will build, until one day, the Communist Party's chokehold on power will break and American-style freedom of speech and democracy will follow (or, alternatively, that, in a desperate attempt to preserve itself, the party will revert to Cultural Revolution-style oppression and stop the economy cold). Both theories presume that free speech and elections are high on the average Chinese citizen's agenda, but, for now, a strong economy seems to take priority. ("The average guy wants to buy a car, eat vitamins, and get his kids into Berkeley," said one Beijing entrepreneur. "As long as the government doesn't screw that up, he's willing to play along.") The Western theories also presume that the transition from socialism to capitalism inevitably includes a transition from one-party rule to elected, multiparty democracy, but perhaps this isn't so. Especially when the leaders of the one party know exactly what keeps them in power—fat consumer wallets—and are willing to go to extraordinary lengths to control the spread of potentially destabilizing ideas.

This is in line with what I understand to be a common idea.

For China's economy to continue to thrive—and for its companies to grow strong enough to compete globally on something other than price—the government will have to continue to reduce corruption, strengthen property and legal rights, and develop a more efficient capital allocation system (including a securities market in which government connections are not a prerequisite for raising cash). In a democracy with a free press, the pressure that forces such changes often comes from decision-makers' fear of being ravaged in the media and/or voted out of office. In China, the repercussions may not be so immediate and direct, but based on the government's actions over the last decade, it knows well that continued economic reform and success are not only good for the country but key to its survival. The pressure is there, in other words, with or without the media, and the government continues to make progress in reducing corruption and buttressing legal and property rights.

The government also seems to be deciding that, at least in the realm of business and finance, greater press freedom helps advance its economic goals and lessen its regulatory burden. Business journalism keeps companies honest and makes customers and investors comfortable that they at least have a forum in which to complain. Such freedom is not all good—in the media's eagerness to advance its own economic agenda, it often manufactures scandals where there are none and spins normal free-market processes into institutional or regulatory failures. But just as a free market is more effective than central planning at, say, managing crop production and pricing, a free press enhances the regulatory abilities of a government and creates the information flow that capitalism requires.

But the Chinese government will probably continue to stifle the press's freedom to criticize it. As demonstrated by the government's subtle, sophisticated control of all forms of media and its ongoing penchant for firing, beating up, jailing, and perhaps even killing journalists who cross vaguely defined lines, we won't see a Michael Moore of China anytime soon (see Perry Link's essay in the New York Review of Books). But I doubt this will hinder the ongoing development of China's vibrant economy.

The key test of China's version of capitalism, of course, will be during the bust that inevitably will follow the current boom (some day). If elections were held today, many in China suggest, the current leaders would win the popular vote. On the whole, thanks to the economy, people feel they have done a good job. During the bust, the pressure for change will increase, with or without the press. If the government is to maintain control in such an environment, it will probably have to engage in a practice that has long been a fixture of oligarchies and democracies alike: blame. As long as the countrywide pain can be laid at the feet of an individual or group, instead of the system—and as long as the scapegoats can be tossed out on their respective rears—the public pressure for revolutionary change can probably be controlled. If China can survive that inevitable economic crisis without a political uprising, we will probably be able to conclude that a dynamic free-market economy need not, in fact, go hand in hand with democracy.

This final paraphrase could be one possible analysis at the moment. A strong leadership with a acceptable high performance of economy could make such scenario possible.

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What to do after providing liquidity

It is suerely a most difficult point. No fx intervention is expected. However, what about the potential and possible impact on some emerging economies? Major countries including China should seriously think about it and this could be the first possible occation where the regional as well as global cooperation is needed in concrete forms.

リンク: Angry Bear.

After the initial financial shock has been absorbed, then the next most important job of the Fed retakes center stage - ensuring that inflationary expectations do not change. Since there is little doubt that inflation would indeed jump in the wake of a revaluation, the Fed therefore will face the delicate task of switching, perhaps quite rapidly, from a position of ensuring liquidity to a position of dampening incipient inflation. This, it strikes me, will be the hardest part of managing the landing for the US economy.

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