A boxing game on China's future

Via the excellent portal Arts & Letters Daily, I came upon this very entertaining and even more informative "boxing match" between in the one corner, Will Hutton, British writer and a.o. columnist for The Observer, and in the other corner Meghnad Desai, British economist, writer and Labour politician. The two gentlemen are having a fascinating sparring match on the topic "Does the future really belong to China", with no holds barred. I have the impression the two authors don't like each other very much and feel free to vent that feeling in their writings, but that is absolutely no obstacle to read through this entire piece, that basically has revealed to me one thing, how complex the world has become and that nothing is what it seems and nothing always is what it is claimed or claims itself to be.

The two gentlemen take views on the topic that more or less reflect the two most common found stances on the emerging (or rather: emerged) China issue, with Hutton defending the claim that China has reached the limits of it's unchecked growth and is entering the stage where it has to start coping with all the effects and side effects that has produced:

The breaches in the model are all around. How much longer can China's state-owned banks carry on directing billions of dollars of savings into investments that produce tiny or even negative returns and on which interest is irregularly paid? Poor peasants' ability to create the savings needed to fuel growth is reaching its limits. And in any case, for how long can a $2 trillion economy save at more than 40 per cent of GDP? It is reaching the limit of its capacity to increase exports (which in 2007 will surpass $1 trillion) by 25 per cent a year; at this rate of growth they will reach $5 trillion by 2020 or sooner, representing more than half of today's world trade. Is that likely? Are there sufficient ships and ports to move such volumes—and will western markets stay open without real reciprocity on trade? Every year China acquires $200bn of foreign exchange reserves, mainly dollars, as it rigs its currency to keep its exports competitive. It is absurd for a poor country like China to be lending to a rich one like the US; in fact, it is unsustainable, and the financial markets seem to agree.

China would like to lower the current feverish growth rates, but the tools available in the west—raising taxes, cutting spending and lifting interest rates—are not available to China. The party dare not trigger protests by raising taxes; officials in state enterprises and provincial governments ignore orders to lower spending because their careers depend on generating growth and jobs. And raising interest rates could create a credit crunch as loans go sour.

Baron Meghnad Desai is insisting on the fact that the West had better not view it's way of dealing with capitalism as the one and only. China is taking a different road that seems to make sense under the circumstances and that should be given the opportunity to prove itself wright (or wrong if it fails):

China has achieved rapid growth with a policy of under-consumption and over-saving, and exports rather than domestic consumption. But this is not an unusual path, nor one that China is stuck on. Japan and South Korea used the same model and are now part of the OECD club of rich countries. Moving millions of peasants to urban manufacturing centres is neither totalitarian nor sinister. It was proposed as the standard development model by Arthur Lewis, a Nobel laureate, in 1954, and is indeed the classical model. (If it was less dramatic in parts of Europe, this is partly because a third of Europeans moved to North America in the second half of the 19th century.) There are no other ways of shaking off poverty. The services sector alone will not do it, and nor will a green revolution, as India is finding out (...).

(...) Yes, there is a Leninist party in power within a state capitalist system. But capitalism has no unique path, nor does it require a liberal democratic infrastructure to flourish. Japan's economic rise took place without a fully liberal infrastructure, and most European states, including Britain and Germany, were capitalist before they were democratic. What the most recent phase of globalisation has shown is that capitalism requires neither the Weberian Protestant ethic nor liberal democracy; any country with a decent savings rate, mass education and access to western markets can "do" capitalism. It is not a western Christian monopoly. Indeed, some Asians are proving better at it than the Europeans.

Though, in view of the enormous challenges that still lay ahead for China in the very near future, I am slightly inclined to the Hutton point-of view, I feel there is much to say for both sides of the story. If we acknowledge the fact that the world is saying for I-don't-know-how-many-years already that China's growth can not possibly continue like this, while it simply still does, one knows that Mr. Desai has a valid point.

The piece (well, the correspondence between these two scholars) is more than worth to read for the elaboration of these two theses on the topic alone.

There are however also some interesting sidebars to pick up, such as the democracy issue. In Meghnad Desai's words:

The Chinese Communist party is at one level Leninist, but it is unlike the Russian Bolshevik party. The Chinese communists had to struggle to win the support of the peasantry for a decade and a half before they won power in 1949. They developed a philosophy of responding to popular needs within the confines of a single party. This is what they call people's democracy, and it is much more real than it was in eastern Europe. My colleague at LSE, Chun Lin, argues in The Transformation of Chinese Socialism that the Chinese concept of people's democracy is viable. In her view, the tradition has some strength left in it, although the party will have to become even more responsive. Deng Xiaoping encouraged inegalitarian capitalist growth for a period, but there may now be a reaction against it. At the recent People's Congress, Hu Jintao made some noises about the distress in the rural areas; the system can respond.

Whether the system can respond is in my opinion actually left to be seen. No doubt that the Communists would not have been in power were it not for the support of the peasantry, like Castro would not have won Cuba without the support of the peasants, and yes, that overhaul of the old -let's call it in chinese terms- feudal system may best be executed within the confines of a single party, but societies tend to evolve and what was maybe right half a century ago under those particular circumstances isn't necessarily so today. I really wonder whether "the tradition has some strength left in it". 80.000+ (reported) protests of a certain scale in a single year, be it all rather isolated, don't sound like like a strong argument for that these to me.
The popular needs at the time of the revolution I think can also be summarized in few terms: food, work and social care, the basics, quoi. What we see in today's China is that the "iron bowl" is all but abolished and lot's of people have to eek out a living in dire circumstances and that the social welfare system is in ramshackle. There is no denying that there are lot's of positive contributions to name on the other side also, but I'm afraid that the time indeed has come for China as Hutton formulates it:

The effective use of resources also depends upon a network of independent processes of scrutiny and accountability, undertaken by people in multiple centres of power and backed by rights and private property. A democratic election system is but the coping stone of this structure.

I doubt whether the system is ready to respond to that.

He scores another valid point by reproaching the West to proud itself on it's words and highbrow principles while neglecting these as often as to abide by them, but where Desai is way out of line for me is in te following paragraph:

Whatever else I may be, I am not a third world intellectual, having spent two thirds of my life in Britain! Nor am I a postcolonial postmodernist. I have a simple position: no nation, no region, no empire has any monopoly on virtue. East and west have both indulged in ethnic cleansing. China's imperial past is like any other country's, except the Chinese do not suffer from western amnesia.

I can indeed not think of any country that can claim the victory palm for pure virtue throughout it's entire history: not the Western powers, not the African, Latin-American, Middle-Eastern and Asian countries and definitely not China. However, I wonder what that western amnesia is he is talking about. The western colonial powers have often created havoc in their former colonies, maybe even beyond repair, but I believe most have come to recognize those facts and are now helping in the restoration of the victimized countries. The facts are definitely not being withheld from us.
In China the opposite is happening and I'm sorry to say but I believe it is one of the means needed to make the Chinese model work, like Mr. Desai is pleading. In the Chinese system, you can not be overly concerned with the past, because it could become a burden on your current development.

Lots to ponder about.

Update: I just found out by pure coincidence (actually by the Yoono extension from Firefox which I installed after doing this post) that J. from the Granite Studio beat me to this story by ... almost a month. Well, I suppose you can't have read it all and maybe here is some additional food for debate.