China and Continuum Privatization

We watched a Long Now talk last night, by Orville Schell (currently a fellow of the Asia Society in New York) entitled “China thinks long term, but can it re-learn how to act long term?”  His main point was that China is, even to the Chinese, filled with internal contradictions.  That both as a nation and a culture, it is to a greater degree than any other nation of consequence in the world, essentially unresolved.  To this end, he painted two pictures of China today: first optimistic, and then dark, but both to his mind true.

I thought one of the most interesting aspects he discussed was the ongoing and chaotic transition from a planned economy to a market economy.  The communists nationalized everything, meaning that at the beginning of the transition, the state had trillions, or tens of trillions, of dollars worth of assets.  Moving toward a market based economy to us means getting those assets into private hands.  Russia did this, and it was a disaster.  Former black marketeers and some of the Red Directors ended up owning huge portions of the formerly state controlled capital, and they got the goods at deep discounts in exchange for political support.  This cheated the state out of its wealth (which of course it had in turn cheated the original owners out of in the early 20th century, but then those “original owners” were at the time cheating the impoverished Russian underclasses in an almost feudal state…) and set up very concentrated economic (and thus potentially political) powers amongst the oligarchs.  Both of these things helped to create conditions where someone like Putin had a large incentive to try and wrest control back to the state (popular support for righting the economic wrong wrought by the oligarchs, and a political incentive to remove those concentrations of power and potential opposition).  Anyway, giant mess all around.  If it hadn’t been for the spikes in oil and natural gas prices, who knows what Russia’s economy would look like now.

It seems like China may have learned something from that experience — at least, something about how not to privatize a few trillion dollars worth of state property.  Instead of going whole hog all at once, and getting the economics tangled intimately with high level politics, China is privatizing piecemeal.  Schell couched it in terms of corruption, which I’m sure it is, but it’s not entirely clear that that’s all it is.  Different economic resources are controlled by different arms of the government, and operated by them for profit… for funding, almost in lieu of tax revenue and centralized budgetary processes.  It’s as if, he analogized, the EPA happened to own a nationwide chain of golf courses, which it ran on the side, in addition to its regulatory and governance duties, and with which it partially funded itself.  Poorly paid local and regional bureaucrats ultimately end up in control of state-owned resource flows, and in collusion with banks (some legal, others illegal), are more than happy to get in on the economic action.  Now, it’s easy to rail against this as corruption, and I’m sure it doesn’t help with any governance issues, but at the same time, the level of decentralization and the compartmentalization of economic interests within the government actually sets up approximately the right incentives to think of these public-private “partnerships” as quasi-privatizations.  Privatization done in parts, without centralized control, without (necessarily) creating the kind of concentrated loci of power that the Russian privatizations did.  It’s much more a continuum.  Schell’s talk was given and recorded in 2006, prior to our own economic debacle, which actually makes it all the better today, because in retrospect, it is obvious that our own economy shares all of the negative qualities that he brings up in regard to China to some degree — in fact to a much greater degree than anyone would have been willing to admit in 2006.  With the US government set to take up to a 70% stake in GM over the weekend, and the apparently abject subservience of our regulatory machinery to the banking industry, the differences between our two arrangements begins to get more than a little bit fuzzy.

Going forward, it seems hard to resist bigness, but more than ever I feel like bigness is the problem.  Big government, big industry, all concentrations of decision making power.  We need lots of small actors with the freedom to try lots of different things, and incentives to think as long term as possible.  Autonomous entrepreneurial city states that are willing and able to learn from each others trials and errors.  I have no idea how to get there from here.

Leave a Reply