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Wednesday 29 September 2004

Chinese Cargo-Cult Capitalism

A pair of articles in Monday’s Washington Post point out the fundamental problem I have with people treating China as if it’s just another place. The headlines are:

Big Red Ferrari Wins in Land of Little Red Book
Glitzy Grand Prix Symbolizes China’s Embrace of Wealth


Google Conforms to Chinese Censorship

The first article is the current version of the ancient-meets-modern story that journalists in China have been writing for decades. “Ancient meets modern” is an entire genre of photos and writing about China, for reasons I can’t discern. A Google Image Search for ‘ancient meets modern’ turns this up as the very first result:


This is the kind of thing that schlocky TV producers love. The voice-over talks about China’s long history while guzheng music plays in the background. Suddenly, the camera swings around or zooms out from the view of a temple, or a palace, or some tumble-down shack, to reveal the airport, superhighway, or other emblem of modernity next door. (At this point, the music usually shifts to a ‘dynamic up-tempo’ track from the producer’s CD of royalty-free music, almost always something synthesizer-heavy with lots of space-laser-cannon sound effects. I believe the point of this is to underscore the idea of modernity and up-to-the-minute-ness embodied in the 35-year-old Boeing 747 or the miracle of prefabricated concrete buildings, but of course that music was only ‘modern’ for the 45 minutes in 1978 during which all royalty-free music seems to have been produced.)

You can see the same juxtaposition of old and new all over the place in Europe, of course, but to a Western eye this doesn’t evoke the idea of ‘ancient meets modern’; it’s just some guy in the middle of Paris talking on a cell phone. Somehow the same thing is ‘exotic’ when it’s in China.

But I am getting away from the point here. The-Reds-Get-Rich is the standard China story now for journalists with more deadlines than news, and the Post ran one on Monday. And my point is that I seem to be the only person in the universe who shakes his head whenever people talk about the Wonders Of Capitalism In China. It’s not capitalism at all that they’re practicing, but a kind of state socialism that uses the possibility of great personal wealth as a carrot. On the surface, this might look something like capitalism, but it isn’t.

On Monday the Post also ran an AP story about Google. Google, it seems, censors the search results they return to Chinese users so that the results do not contain any links that go to sites that have been censored by the Chinese authorities.

Let’s not get into whether or not this is the wrong thing for Google to do. They defend it by saying that it wouldn’t serve people in China to get Google results that pointed to pages that their government didn’t allow them to see. They’d spend time clicking on what are, from within China, broken links. True, if Google prunes the search results to exclude censored pages, the Chinese user will be less aware of what his government is trying to protect him from. But it’s not as if Google decided to limit what the Chinese can see; and the Chinese are arguably better-off with a censored Google than they would be with no Google at all.

But the thing here is that the Chinese government exercises control over what people in China can read and hear, presumably because the government obtains some political advantage by doing so.

Now with that in mind, let’s return to the first article for a moment:

The days when Chinese dutifully pedaled their bicycles to low-paying jobs wearing identical Mao suits and learned about self-abnegation in the Little Red Book have long since given way to the late Deng Xiaoping’s discovery in the 1980s that “to be rich is glorious.”

As with Beijing’s plans to host the Olympics in 2008, Shanghai’s staging of the Formula One, the first in a six-year contract, also reflected a desire among many Chinese to be recognized as a modern country. With many foreigners in the crowd, the race seemed another affirmation that China’s years of ideological extremism and isolation are over.

But this shrugging off of ‘extremism’ and ‘isolation’ doesn’t mean, for instance, actually allowing the free flow of information in and out of — and around — the country. The government wants ‘market reforms’, by which they mean a system that actually produces goods, services, and wealth. But they don’t want the messy freedom of information that is a necessary component of a market economy.

People are flocking to invest money in China, and they seem to be deliberately ignoring the fact that the government there is still a communist dictatorship. The biggest advantage of market economies and democratic governments is that things seldom, if ever, happen suddenly and without explanation. In market economies, faulty and/or secret information results in scandals like Enron and Worldcom. In a place like China, keeping certain information secret is seen as the whole point. What’s going on in China? The answer is: nobody really knows. One thing that’s almost certain is that they’re expanding at too fast a rate. Even in a land of over a billion people, such a thing as an oversupply of concrete apartment buildings is possible — particularly when the regulatory milieu is such that would-be landlords are denied real demand information via subsidies and other government programs to encourage people to do things that they wouldn’t ordinarily do.

It is not possible to have an actual market economy without the free exchange of information. At best you can have a system where you have multiple vendors offering similar goods and services, and where some people are rewarded with more money for performing particularly highly-valued work: it’s still not a market.

At the same time, you can’t have a totalitarian state with the free exchange of information. History is not short on examples of people voting totalitarian governments into power, but I can’t think of a single instance where a totalitarian government was returned to office in a free election. It might be possible, but it’s hard to say: the first thing a totalitarian government does is establish a political monopoly.

Anyway, eventually either the market will win and China will undergo enormous political upheaval, or totalitarianism will win and they’ll abandon their flirtation with the ‘market’. Either possibility won’t be good for the investor who’s bet on China.

Posted by tino at 15:34 29.09.04
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Very well said. And something that needs to be said far more often.

I have a coworker from mainland China who told me, a year ago, that nobody at home actually knew that there was a possible SARS epidemic. She knew more about it in the U.S. than her relatives back in China itself knew. And to talk about SARS openly in China was considered essentially treasonous by the government.

That is not a formula for a working capitalist society, methinks.

Posted by: Erich Schwarz at September 30, 2004 02:40 AM

Your analysis confuses “capitalism” with “free markets” and “market economies.” They are related but not the same.

I am no scholar of Chinese culture, but I don’t think the notion of free markets has been held in high esteem since the Opium Wars. That China has chosen to model itself on a form of state capitalism seen widely in Europe rather than follow the system practiced in the US should not come as a surprise. In the short term, I do not see how it could it could be any other way.

I do not agree with your conclusion that either the free market or totalitarianism will necessarily prevail in China. While I am a strong proponent of individual and market freedom, I take a Darwinian view on capitalism — it will adapt as necessary to its host environment to first survive and then flourish. I do not pretend to know what the future holds for China, but I am curious to see what capitalism will bring. I suspect it will be something quite different from the binary options you propose.

Posted by: Eric Canale at October 4, 2004 01:51 PM