Posts Tagged ‘economics’

Control, Freedom and the End of China’s Boom

Yesterday’s New York Times featured a well-written and quite balanced article looking back over eight years of a China-based correspondant’s experience of the country – “Notes on the China I’m Leaving Behind” (hat tip to Peng Jingchao for the link). Ignoring the uncomfortably convenient anecdote in the last paragraph, the author’s description of the evolution of Chinese society in the 21st century is one that strikes a lot of interesting notes.

I work with two fantastic researchers who are investigating the Chinese media and the systems through which control is exerted over media narratives at a state and regional level in the country. In essence, they are trying to lay bare the cogwheels and levers that the New York Times piece hints at – the mechanisms that allow the shaping of narratives and belief systems, even while encouraging the outward appearance of more freedom, more marketisation and more democracy. It’s tricky research; most of these systems are not formal or legislative, but conducted through mutual understandings, through winks and nods and carefully coded speech, and can only be uncovered by looking at the fine detail of the outcome in the form of actual reporting of events across the country’s various media outlets.

What I’ve gleaned from watching their work progress, and from talking to other researchers who engage with Chinese social media and the control of information on China’s separate, mirror-world version of the Internet, is a sense of just what an extraordinary and darkly impressive enterprise the Chinese government is presently engaged with. It is committed to market capitalism, to economic growth (at almost any cost) and to the advancement of living standards and growth of the middle class; it is also committed to keeping the Chinese Communist Party firmly in control of the nation, and as such, its objective is to decouple democracy from capitalism, severing economic freedom from political freedom. In a philosophical sense, what China is doing right now is an utter repudiation of the beliefs that underpinned the West during the Cold War; by advancing capitalism without democracy, markets without freedom, China would prove that these things were never inextricably linked, that one can happily thrive without the other.

That’s not exactly news, of course. Countries like Singapore – which, I suspect, China’s leaders have viewed as a hugely instructive model – have effectively managed to combine fantastic economic growth and high standards of living with deeply undemocratic regimes for many years. They provide just enough of the trappings of democracy to keep international relationships nice and smooth (democratic countries often make uncomfortable noises when dealing with undemocratic states) and to allow their comfortable middle classes, enjoying the benefits of economic growth, to dismiss the complaints or unrest of less-advantaged groups as mere “troublemaking”. China is this socio-political experiment writ large upon the canvas of the world’s largest state; an attempt to generalise the model successfully implemented by the ruling elites of Singapore and elsewhere upon a population of well over a billion people. Its tools in this enterprise range from the blunt force of arrested and imprisoned activists to altogether more subtle and powerful techniques of information control – through education, through media and, increasingly, through the very Internet tools that activists so often lionise as harbingers of democracy.

Buried in the New York Times article is, I think, the most important truth about this whole process – that the Chinese authorities are afraid, primarily, of one thing, namely the Chinese people. In discourses about China, at least those taking place outside China (and especially here in Japan, a country which by and large doesn’t know quite what to think of the huge, vastly important neighbour with whom it shares such a complex and contested history), there’s a tendency to emphasise China’s external relationships. A great deal of focus is placed upon territorial disputes with Japan, Vietnam and the Philippines, on the curious and difficult relationship with Taiwan and on the complex, inter-dependent and occasionally belligerent jostling for power with its fellow superpower, the USA. When people talk about internal relationships in China, they talk of Tibet or the Uighur people, about the contested status of Hong Kong, or about the treatment of prominent activists like Ai Weiwei. I’m not a China specialist by trade (though as mentioned, I work with several), but I can’t help but feel that these foci miss the point; they’re chosen through the lens of what people outside China care about, and miss the reality of what people within the country, and people within the government and the CCP, care about.

I’d contend that the most important relationship within China, the one that really matters, is none of those listed above – it’s the relationship between the Chinese Communist Party and the huge, burgeoning Chinese middle class. These are the people who have benefitted from China’s economic growth, who enjoy a quality of life undreamed of by their parents or grandparents and who are deeply proud of China’s rise in the world (but who also still tend to see China as being bullied, disrespected or put down by powerful rivals like the USA and Japan). They are also a generation far more educated than their parents’ generation, far more exposed to global influences – and thus far less likely to accept the “elites know best”, top-down rule of the CCP. If the CCP ever loses power, it will not be because of Tibetans, Uighurs, human rights activists or interventions from its neighbours; it be because the Chinese middle class demands democracy en masse, either violently or otherwise.

Right now, that isn’t happening. The majority of the China experts I speak to see no deep wellspring of democratic sentiment, no silent majority wishing for democratic freedom. They see a middle class that’s far more interested in its freedom to consume than in its freedom to vote; a population lifted in the space of a single generation from rural poverty to urban comfort. They have flat-screen TVs, smartphones, cars; they take holidays abroad, eat well, often consuming exotic food their parents would never have tasted, buy consumer goods and electronics, and each year sees an incremental increase in quality of living which, in almost any country you care to mention, easily quenches any thirst for democratic freedom. When life is so materially better today than it was ten years ago, why risk it all by speaking out for something so abstract, so removed from your own daily existence, as democracy?

Why, then, are China’s elites afraid? Because sustaining power through economic growth can’t be done indefinitely. Economies slow down or go into recession, and the meteoric growth of a country transitioning from a rural, agricultural economy to an urban, high-tech economy is largely an exercise in picking low-hanging fruit. Giving apartments, cars and TVs to a billion people who didn’t have them before is pretty heady stuff, economically, but as the rest of the developed world has been discovering for the past decade or more, eking out growth becomes a hell of a lot harder once all that low-hanging fruit is picked. China, too, is slowing down; it has announced much lower growth numbers over the past year than in previous years, and many good economists even question those numbers, suspecting that the figures are being artifically inflated to keep things looking good. If growth stalls or, worse, starts to go backwards, it will create two major sources of unrest within China – firstly, those still in poverty who have been anticipating that economic growth will reach them eventually, but now fear that they have ended up on the wrong side of a permanent socio-economic cleavage within the country; and secondly, the new middle classes, who have become accustomed to rapid improvements in their quality of living and now find this movement stalled. Oddly, history shows that it could be the second group who are most dangerous to China’s authorities; a concept called “revolution of rising expectations” emerged in the 1950s (though Alexis de Tocqueville had explored similar ideas as far back as the mid-1800s) which showed empirically that it’s not the impoverished and hopeless who rebel against governments, it’s the segments of society that have seen rising standards of living and abruptly find their raised expectations unfulfilled.

It is inevitable that this will happen in China – which is why the authorities are so determined to explore every other avenue of control available to them, before the economic honeymoon period comes to an end. This is the most powerful and important motivator of the behaviour of the Chinese state right now, and I don’t think it’s extreme to say that almost every single action taken by the Chinese state can be read and understood in the context of this desire to control its own middle class. Its international disputes – over mere rocks and reefs in the South and East China Seas – are often explored in economic or military terms, but are arguably far more important in internal propaganda terms, by setting up minor conflicts with Japan, America and their allies which can be easily exploited for nationalist propaganda purposes. The suppression of activists and the international condemnation it attracts is played as the cultural imperialism of the West directed against China and its system of values. Trade agreements like the Trans-Pacific Partnership are presented (not entirely unfairly) as evidence of China’s rivals trying to contain its economic growth; and of course, historic disputes with Japan, over everything from Nanjing to Yasukuni and back again, are used to stoke nationalist sentiments and give the Chinese people a sense of facing a common enemy (a strategy which Japan’s own hapless nationalists fall over themselves to enable, over and over again, like particularly unintelligent dogs in a Pavlovian experiment).

Not everything that the Chinese authorities are doing to secure their position in the post-boom years is bad, of course. The country’s economic growth has vastly improved the standards of living of hundreds of millions of people. The nation’s lack of democracy shouldn’t disguise its extraordinary achievements; the sheer number of people who have jumped in single generation from village peasant lives barely changed since medieval times to being urban, college-educated professionals is staggering and hugely impressive. Nothing has moved the needle on the world’s problems with poverty in the past decade as much as China’s advancement. Under Xi Jinping, the country has also started to tackle the political corruption that was endemic at local levels, an effort largely designed to stamp out a likely source of future unrest in the Chinese people.

It’s anyone’s guess whether any of this – the information control, the stoking of nationalist fires, the careful shrouding of the harsh machinery of totalitarianism in the soft language of democracy and freedom, or even the laudable crackdown on corruption – will count for anything when China’s economic growth finally stalls badly enough for its middle classes to feel the pinch. But this is the context in which we need to read what’s happening in China today. The authorities know that the stability and security of their position has enjoyed a blessed existence under the protection of the country’s economic growth, but they see the end of that protection in sight. Extending economic growth is a priority, of course, but building the structures that will protect their position in a post-growth world is the motivation that drives China’s authorities today – and this is the only analytical lens that makes sense of the country’s actions towards its neighbours, its trading partners and its own people.

Greece: Debt Relief is the only way forward

The Greek people have voted in a landslide to reject further austerity measures demanded by the “Troika” (the European Commission, the European Central Bank and the International Monetary Fund) in return for financial aid that would allow it to continue repaying its debts. This leaves Europe, and indeed the world, in unknown territory; nobody really knows what happens, or can happen, when a sovereign state that belongs to an international currency threatens to default on its debts after rejecting the proposals of the ECB et al. Conservatives and neo-liberals, unsurprisingly, are predicting apocalyptic scenarios; the complete collapse of the banking system and economy of Greece, the confiscation of all bank deposits over €8000 in the country, the expulsion of Greece from the Eurozone and potentially even the collapse of the Eurozone itself. Greece, the neo-liberal lobby wails, is risking the entire European Project through its intransigence.

French economist Thomas Piketty is having none of it, and if you read one thing about the Greek situation this week, it should be Piketty’s absolutely searing and on-point interview with German newspaper Die Zeit. Piketty’s core point is that Europe’s success stories in the post-war 20th century were all based on exactly the kind of debt relief which the Troika now seek to deny to Greece. Germany’s debt burden in the immediate post-war era was around 200% of GDP, but within ten years, it had fallen to 20%, largely thanks to negotiations which cancelled huge swathes of German debt. That debt relief was given with the understanding that an economy simply cannot grow and thrive (and thus have any hope of paying off its debts) while it is shackled by enormous public debt, and the so-called German “economic miracle” of the mid-20th century was a product of the willingness of German’s creditors to forgive its debts in favour of peaceful growth and stability. Exactly the same logic was applied as recently as the 1990s, when former Warsaw Pact countries such as Poland (whose political leaders now parrot German’s hard-line on Greece) saw the majority of their huge debts cancelled in order to support their growth and development.

Compare that to the situation of Europe’s so-called “PIIGS” – Portugal, Italy, Ireland, Greece and Spain, the countries which lost out most severely in the 2008 financial crash and which were forced by the Troika to assume the enormous private debts of their banking systems as public debts. Each of these cases is different – Ireland, at one extreme, had a very low and manageable level of public debt which was then completely destroyed by the nationalising of debts from the country’s huge, failing banks; Greece, at the further extreme, had serious problems with national debt all along, which it attempted to hide with manipulation of its public accounts, but were compounded by the forced nationalisation of huge amounts of private debt. Each was dealt with similarly, however; the Troika forced the national government to take on private debt from failing banks as public debt, then demanded that the country impose incredibly severe austerity in order to service its now-enormous debt burden.

That austerity has been absolutely horrific in its effects. Pensions, education and health budgets and support for the sick and disabled have been slashed. New, regressive taxes which target poor and middle-income people have been imposed. Infrastructure projects have been halted. As a consequence, unemployment has risen drastically (especially youth unemployment, which is now a full-blown national crisis in countries such as Greece and Spain), the economies have shrunk, and the vicious cycle has continued – because a shrinking economy makes it even harder for the government to pay back its debts.

It’s all apparently become too much even for the IMF, one of the members of the Troika, which broke with the party line at the start of this month and published a draft report which said what everyone in Greece has known for years – the country’s debt burden is unsustainable. It cannot and will not be repaid. Attempting to torture the money out of Greece – for that is precisely what the austerity measures being imposed right now amount to – isn’t going to work; the astonishing economic pain which countries such as Germany wish to impose on the Greeks will just result in an even smaller economy with even less capacity to pay back its debts. In other words, the left-wing government of Greece, which just received a resounding vote of confidence from its people in the referendum, is absolutely right to reject the Troika’s demands. Whatever happens next, even if it is as bad as the neo-liberal doomsayers predict, will be a short, recoverable shock compared to the many, many decades of stunted growth, harsh austerity and drip-fed ECB handouts that lie in store for Greece in the Troika’s plans.

None of this is to say that Greece is a poor, abused and angelic figure; the country falsified its accounts for years. However, it wasn’t ordinary Greek people who have lost their pensions, their healthcare and their public services who did this. It certainly wasn’t young Greeks whose employment prospects have completely evaporated who did it; they were children when it happened. The austerity tortures devised by the Troika would go so far as to extend the punishment to people who aren’t even children yet; decades from now, the private debt nationalised at the demand of Europe’s fiscal masters and the public debt held over Greece like a weighted sword will still be being repaid, at huge personal economic and human cost, by people who haven’t yet been born. This is precisely the scenario that led to the debts of countries like Germany and Poland being forgiven; yet it is seemingly a scenario that moves few hearts in Germany and Poland today.

Whether hearts are moved or not may not matter. It’s entirely likely that Greece simply cannot be removed from the Euro, whose currency union mechanisms were originally designed to be irreversible, and that the Troika – already fragmenting thanks to the IMF’s draft report – will be forced to return to the table with the Greek government and work out something different. That “something different” will have to include debt relief in some form; and yes, the rest of the PIIGS will demand that the same rules apply to them. There will be howls of protest from neo-liberals in Germany and elsewhere; but not because some natural order has been upset or some terrible debt-dodgers have been allowed to “get away with it”. Rather, the howls will be because the great neo-liberal con perpetrated in the wake of the financial crisis has failed; the con which demanded that all the money which the wealthy had placed in too-good-to-be-true financial instruments and dodgy banks should be indemnified and protected from risk by the national governments (and thus the ordinary people) of the countries in which those banks were based. The wealthy individuals and corporations threatened ill-defined economic chaos if governments did not allow them to use ordinary taxpayers and public services as “human shields” to protect them from the storm of their own making; governments, in thrall to neo-liberal thinking, acquiesced across the board. If Greece wins its argument with the Troika and receives a debt relief settlement, and the other PIIGS follow suit, it will be a sign that after seven long years, that neo-liberal bluff is being called.