Convergences

Democracy in China (and the U.S.)

At the AEI's Enterprise blog, I discuss a recent article on democracy in China Daily. My underlying point is that we in the U.S. spend too little time thinking about the problems of making democracy work, and this gap in our thinking will trigger serious consequences in the not-so-long-run.

See, e.g., a recent statement by CBO Director Douglas Elmendorf:

The country faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are prepared to send to the government to finance those services. That fundamental disconnect will have to be addressed in some way if the nation is to avoid serious long-term damage to the economy and to the well-being of the population.

Political incentives militate against any resolution. People are treating the Federal budget as a commons, and hastening to exploit it before others can do so. In such a situation, restraint is a bad strategy -- it leaves more for others and does no good over all.

So, the rising concern about the problem actually leads to an intensification of everyone's desire to get what they regard as their just due, and the rapacity increases. DC lobbyists just had their best year ever, and it was not for any efforts to solve the problem.

The Chinese are surely watching this dynamic with interest. According to legend, Zhou Enlai, when asked his view of the French Revolution, said "It's too early to tell." Similarly, they must be interested in seeing  how this novel U.S. idea of a constitutional democracy works out in practice -- at present, it is too early to tell.

Behind the Green Dam

Behind the Green Dam, a comment on the rise and fall of the recent Chinese proposal on Internet porn (and maybe politics), has been posted by The American.

That Ole Time Religion: Manufacturing

GE CEO Jeff Immelt has a column in today's FT: "Over the past few decades, many in business and government bet that the US could transform itself from an innovative, export-orientated ­powerhouse to an economy based on services and consumption." This was theological error, and now "We must make a serious national commitment to improve our manufacturing infrastructure and increase exports."

Watching this gives one whiplash: First, because GE was a leader in the trend, ruthlessly re-inventing itself as a finance company, and, second, only yesterday the WSJ said that GE wanted to sell its appliance and lighting businesses but was stuck with them.

Well, the prodigal son and all that, so Immelt makes a good point. The idea that the US can do the thinking and collect most of the money while Asians do the work is not now and never was realistic. Hollow out the US manufacturing base and over the not-too-long term, the thinking will go overseas as well. An electronics manufacturer in Asia can integrate into design more effectively than a US design firm can develop manufacturing capacity, and if design is where the money is, it will happen.

On the down side, part of the GE story is that the company is up to its eyeballs in the green energy and health care industries, which are toxic mixtures of crony capitalism and venture socialism. So it would be nice to see GE decide that it has had enough of toxic assets and bubbles and get even more fundamentalist by embracing the religion of free markets, which represents a much more effective approach to both these issues than the track we are on.

China & Land Reform

Property rights may be taking a beating in the U.S. lately, but they are prospering in China. The Li & Fung Research Centre reports on the recent rural land reforms:

On 12 October, the 3rd Plenary Session of the 17th Central Committee of the Chinese Communist Party was concluded. A long-term goal of doubling farmers’ income by 2020 from the 2008 level was set. A “rural land reform” plan was announced, which is viewed as one of the most important and ambitious government policies in recent years.

According to the “rural land reform” plan:

1. Farmers are allowed to transfer, sub-contract, lease, exchange, or to offer/transfer through a shareholding system the use rights of their farmland
2. Government will establish markets for the lease of contracted farmland and the transfer of farmland-use rights.

Before the reform, farmers can only lease farmland for long-term use, typically 30 years. While individual farmer only leases small plots of farmland, the agricultural production in China is mostly in small scale. After the reform, farmers can choose how to exercise their farmland-use rights and hence, economic efficiency can be boosted.

The reform is expected to encourage farmland consolidation. With larger farmland, farmers will have more incentive to make investments and raise the mechanization level of the agricultural production. Meanwhile, the process of urbanization would be accelerated as farmers can be compensated for leaving rural areas and moving into cities.

The “rural land reform” is one of the major policies to develop both rural and urban economies, and is consistent with the government strategy to stimulate domestic demand – which has become particularly important amidst the global economic slowdown. We expect more capital will be attracted to the countryside for developing a modern agricultural industry. Besides, rural residents’ wealth will increase, as they are entitled to the income from their land-use rights. In addition, it is expected that a lot of rural residents will leave the rural areas and migrate to cities. This will greatly stimulate the demand for housing (and related products and services) in the urban areas.

The bf sentence is important. One of the major corruptions in China is that local Party officials have been able to cream off the value of changes in land use. By making the farmers the de facto owners, the government is not only increasing economic efficiency and removing a major cause of rural unrest, it is removing a source of income from the local officials and increasing the control of the central government over the Party itself.

For the present circumstances of China, this is a good thing.

Chinese Earthquake

The FT reports that the CCP is "expected to enshrine the rights of rural citizens to transfer or rent their 30-year land leases to other individuals or companies and possibly allow that land to be used for collateral to access loans."

Such a step would horrify remaining Maoists, of course, but it would also allay the outrage that is causing tens of thousands of demonstrations, as land is summarily taken from farmers and put to new uses, with minimal compensation.

Communist theory is that the land belongs to the people, so the farmer has no right to it anyway and cannot complain when its use is changed. But the farmers don't see it that way, and what they do see is Party officials getting paid by industrial and real estate developers for enabling the transition. When people talk of "corruption" in China, to a large extent they are talking about these payments to officials for shifts in land use.