“Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, “See, if it weren’t for the government, you wouldn’t be able to walk.” – Harry Browne, Libertarian

 

Lately I can’t turn around with out being reminded by the business press or naïve academics of the so called “China Miracle” and listening to pundits tout the benefits of Beijing’s “State Capitalism” model of growth. The standard line seems to be: “a controlled economy might be a good thing if you put the right engineers in charge of it; see how fantastic it is that China has been growing at 10% or more for years?”

Well, there are a couple of problems with this line of “reasoning” and the first is the dangerously implied assumption that wealth creation is a function of government policy – just as recessions must always be cured with interventions  – rather than a result of people, resources, capital, and technology. More often than not, what governments do is throttle potential growth by misallocating these wheels of growth and China is no exception. In fact, they’ve been the poster child for holding back a nation from its rightful economic position and standard of living. “What!, how can that be. China is a miracle, everyone agrees, right?” you ask?

Let me illustrate my assertion with a little alternate history. Sherman, set the WABAC* machine for October 1, 1949, please. Imagine, if you will, that rather than Mao up on a podium before Tiananmen proclaiming the People’s Republic – history’s biggest misnomer – that Chiang Kai-shek had established a Kuomintang government in Beijing.

With nods due to General Chaing’s many imperfections, it would be reasonable to assume that China would have followed an economic path a lot closer to Taiwan than to that reckless roller coaster ride into hell that Mao designed. Taiwan began to recognize growth rates around 10% all in the 1950s – while mainlanders were melting down their pots for metal and chasing sparrows under Mao’s insane “Great Leap Forward” campaign. By the 1970s, when Deng get’s his great idea to allow a few “special economic zones” Taiwan is already a gobal manufacturing powerhouse. Not only Taiwan, either; Hong Kong and Signapore are exploding with growth as well. This is because Chinese people set free to do business, do it very well and they need no help from “brilliant” communist planners.  During the 1970s ALL of South Korea was a “special economic zone!” and Japan is obviously on overdrive as well.

These countries have lately been held back by limited natural resources, limited populations, and unreasonable defense spending (required to protect themselves from a belligerent China and its insane puppet princeling in North Korea.) Now, China must be considered with because it does have hundreds of millions of workers and claims over vast resources, and knows how to copy other’s success; but not because it has been brilliantly managed now or in the past.

The bottom line is that if China had not been blessed with the CCP it would have been on a trajectory to surpass the US in 1995 rather than 2016 or 2020! Crediting Deng, Jiang, and Hu with a Chinese “miracle” is like crediting the jockey on the last horse in at the Kentucky derby. “So what?”

The fact that China’s people and resources have been badly mismanaged is obvious to anyone who actually goes there and opens their eyes or lungs. Consider how the different systems have managed the economic externalities of growth. While their environmental records are far from perfect (nobody’s are) cities in Japan, South Korea, and Taiwan never became the cancerous cesspools that China’s metropolises are. In fact, no place on Earth from Dickensian London to 1970’s Los Angeles has been as unhealthy to live in as Beijing or any just about any Chinese city is now.

As to human resources, there were issues with labor conditions in the early days of the Asian Tigers, but free people organizing to protect themselves quickly corrected that. Neither unionization nor real legislative corrective processes are allowed in the “People’s Republic”, so thousand of workers continue to be maimed and killed every year in medieval conditions. This is no Chinese “miracle” but rather a source of shame.

It is not any coincidence that the very best factories in China – like Hon Hai (Foxconn) in Shenzhen or the Honda plant in Foshan – are run by the Taiwanese or Japanese. Its sadly ironic that when workers there have issues they actually get improved conditions and pay increases, and then government blames the foreign management. When workers in Chinese state owned plants have issues they get the business end of an electric baton.

Japan, Korea, and Taiwan also became innovators in technology and management because they allowed the free flow of information and ideas while latecomer China has copied, stolen and cheated to get its 10% growth number every year, because its planners simply don’t understand or can’t trust that the fountainhead of innovation is freedom.

“State Capitalism” has been simply too little, too late despite the best efforts of the Boys from Beijing to take credit for everything the Chinese people do.

–       Greg Autry teaches Macroeconomics at the Merage School of Business, UC Irvine and is co-author (with Peter Navarro) of the new book “Death by China” www.gregautry.us

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*When in doubt, google it. 🙂