First off let me be clear: I like the common Chinese person a great deal. I empathize with their struggles, I lived in mostly rural areas for three years and hold no ill will towards them. I hope the country develops and flourishes. I wish them, as the polymath philosopher Borat says “great success!” I should also note, that I interviewed Peter Schiff four years ago for the Mises Institute.
Last night in NYC, Intelligence Squared held a debate between four panelists. To answer the question above, there were two teams and two panelists on each team.
Academic Orville Schell and financier Peter Schiff were on the same team, defending that “yes,” China does do capitalism better than the US.
Peter Schiff
On the other side was Ian Bremmer and Minxin Pei, two analysts that believed the US still does capitalism better than China.
Now let me be fair: Peter’s teammate was the complete characterization of an Ivory Tower socialist intellectual. Orville Schell deflected all the hard questions and when he did talk, he came across as Edgar Snow. The guy has a total love affair with technocracy, with social engineering.
So they might as well have been three sides as that is pretty much the way the debate played itself out as.
And to his credit, Peter did state at the very beginning that the issue really should be framed in terms of where the pendulum, the momentum towards free-markets, towards liberty, towards hands-off capitalism was heading. And thus he believed that China was headed in the right direction, towards as he repeatedly suggested: the golden US economic years of 1866-1913. And the US was conversely headed away from it.
While many of Peter’s statements stood on firm footing (eg. “the US government is hemorrhaging red ink”) his opening statement was very problematic.
He said that China is “not communist in the way Russia was,” that a “young American is going to face more hurdles and regulations” in starting a business in the US than their counterparts in China. And he doesn’t cite any studies or references, instead relying on polemical hypotheticals. There are of course others who have had and seen different, positive experiences in China, but this is supposed to be a debate, where are the details and specific stories of success in China?
Peter -1 point.
I think most people – libertarians or not – would agree that it can be difficult to own and operate your own firm in the US. Warren Meyer at CoyoteBlog serves as an excellent case study of the regulations, paperwork and bureaucracy that small business owners must deal with on a daily basis.
But in my own experiences of working in China and from the stories I have heard from Chinese people and statistics from non-profit organizations like Transparency International, Peter is wrong. In fact, let me use an example Peter used in the debate: fruit vendors.
When I worked in Anhui I witnessed cops bullying fruit vendors on the street. One local store across the campus had given the police hong bao (bribe) to remove competitors from nearby. Week after week the small vendors would arrive, set-out their wares and then would be driven away by policemen. Sometimes these entrepreneurs would be lucky not to be kicked to the curb or have their wares destroyed.
Orville Schell
These entrepreneurs were uneducated farmers that had come to sell their manually planted, manually watered, manually harvested crops on the dusty streets of the city. There is no justice for them, not now and I doubt in the future as well. It is as Minxin Pei said in the debate, “whoever knows the party secretary” that will end up winning the case. In other words it is guanxi (personal favors), something a rural bumpkin from the sticks does not have.
In fact, while Schiff and others (like Jim Rogers) have valid frustrations with the US, this has made them turn to wishful thinking. China is a police state and spends more on internal security than they do on their national military and even more than the US does on internal security, despite having 1/3 the GDP. And that IS budget only increases every year.
In his opening statement Peter also suggested that the Chinese government “doesn’t have nearly the amount of debt” that the US has. Nominally that might be true, but in terms of percentages, the Chinese central government is also on the bill for all of the provincial and local debts that have skyrocketed since 2008. Victor Shih and others have suggested that the number is over 100% GDP in China. In fact, we really don’t know because there is no transparency, there is no way to actually find those numbers because the Chinese government blocks all access to it.
Peter -1 point.
In the middle of his opening statement Peter also states that China has “accumulated massive savings, doesn’t have social security and doesn’t have a lot of the same government programs that the US does.”
The first part is true, the average Chinese person does save a lot, but they do this for a number of reasons. First, culturally they are taught from a young age to save and be thrifty. But they also have their own fair share of loan sharks, Ponzi schemes and get-rich-quick scams that percolate in the West. In fact, several businessmen committed suicide in one city alone last year, Wenzhou, due to becoming involved in “subprime” loans. Though to be even handed, Reason magazine suggests that this may be an outlier, an exception to the rule, so we’ll call it a tenuous tie. [Update: things have gone from bad to worse in Wenzhou. See: 1 2 3]
The average Chinese family must also save domestically because of strict capital controls that prevent them from investing their money offshore. And because the banks – all state-owned – have low interest rates for CDs, one unintended consequence is that many family members will collectively combine their funds and purchase real-estate as a hedge against uncertainty and inflation. Thus in a obscene twist, pushing already high real-estate prices higher, despite not living or even renting the rooms out!
The other parts of his statement are entirely false. The central government has reintroduced social security schemes – foreigners are not exempt either – and has also rolled out universal health care plan that is targeted for a 2020 completion date. That does not sound like the right direction, or at least the direction that Peter says the pendulum is swinging.
Peter -1 point.
Ian Bremmer
In his own opening remarks Ian countered several of Peter’s claims. He noted that 62% of China’s GDP is comprised from state-owned-enterprises (SOEs). In fact, to give you a more clear picture of just how dominating the government still is, here is a quote from a very informative book published last year, China’s New Place in a World of Crisis:
After several stages of reform, Chinese SOEs still dominate among large enterprises in China to a remarkable degree. SOEs account for 70 per cent of the Chinese top-500 enterprises, 94 per cent of assets and 88 per cent of profits. The Chinese SOEs also contribute 93 per cent of taxes generated from, and employ 89 per cent of the total workforce in the Chinese top-500 enterprises.
And as both Ian and Minxin Pei noted, these SOEs are not being privatized. In fact, Minxin would later note that there are over a dozen nationalized industries that private entrepreneurs cannot enter, including energy, banking and telecom. These are the “commanding heights,” the key industries that Vladimir Lenin believed were strategic to controlling the country. And since 2008, SOEs have grown once again, reversing the trend since 1985 (where SOEs accounted for approximately 70% of GDP). Furthermore, as Ian mentioned, Chinese government officials “do not go after their own intrinsic interests” — regulatory capture has effectively taken place, as government officials at all levels will not bite the hand that feeds them.
Orville’s opening statement was a bit jaw-dropping in that he literally said that “capitalism has failed its promise to the US” and that “China has grafted gorilla mobility on top of Leninist rigidity.” He doesn’t really go into detail about how capitalism has failed, but he does gushingly discuss how China “uses reason,” it uses “engineers and technocrats” to “marshal facts and marshal capital” to implement 5-year plans. And to top it off, Orville quotes Adam Smith, using him as a straw man for laisseze fair capitalism:
“But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical.”
Or another way of putting it, the needs of the many outweigh the needs of the few. If you follow Orville throughout the entire debate it becomes pretty clear that in his own words, “do not well to assume that China has nothing to teach the US.” He is Paul Samuelson circa 1961 and 1973 when it comes to the USSR.
Minxin’s opening statement was great. He led off by using all but Frederic Bastiat’s name, noting that “the impression [with China] is understandable, it is a very superficial impression.” It is the seen and unseen. In fact, throughout the debate Orville continually has to pull his drooling jaw off the table because he is in love with China’s high-speed rail system, the “seen” of Pyramid building. Yet Minxin notes that US companies are far more profitable than their Chinese counterparts (a fact that Peter Schiff says will change if/when interest rates rise). He suggests that while Americans pay more in taxes overall (43%), the average Chinese person will pay 35%. But, and these are his words, “at least the American will receive social security and medicare” whereas the average Chinese person gets very little.
Peter responded by saying that government handouts was hardly a defense of capitalism and thus gets one point back.
Peter +1 point.
Minxin Pei
Minxin went on to quote a number of statistics from international NGOs: in least corrupt the US is 24th and China is 75th; in competitiveness the US is 5th and China is 26th; innovation the US is 7th and China is 29th; ease of doing business the US is 4th and China is 91st; starting a business the US is 13th and China is 151st. Peter and at least one audience member (Dan O’Connor) questioned the numbers but offered no other alternative metrics.
In fact later on Peter suggested that in the future China’s male:female ratio conundrum (there are 20+ million more men then women in China) will be solved with increased immigration. But here are the cold hard facts:
There are 2.1 million foreigners living in Japan (out of a population of 127 million). There are 1 million foreigners living in South Korea (out of a population of 50 million).
Drum roll please.
There are a mere 600,000 foreigners living in mainland China (out of a population of 1.34 billion). And neither Schiff or Jim Rogers or Gerald Celente live on the mainland.
Sure there are lots of Chinese that study in the US and then return to the mainland. About 160,000 Chinese are now studying in the US whereas a meager 14,000 Americans are studying in China. But lots of these Chinese also stay, marry and join the workforce. Where are the stuffed boats filled with expats trying to sneak into China?
In fact, last year alone 3,000 Chinese millionaires purchased an EB5 investor visa in the US. It cost a million each. How many Americans are laying down hard cash for a chance at moving and immigrating to China? Slim to none. Having a Chinese passport is a burden because you can’t go anywhere.
Debate Round
Peter started off the second part of the debate stating that capitalism in China “will only get better.” That “their currency peg and loaning money to the US drags the Chinese down.” And that ultimately “I think they [PRC] will figure it out.”
As a rebuttal, Ian said that “the US has so many strong intrinsic advantages — that 30% of the worlds calories come from the US.” And ends by asking “what will China go into if they leave the USD, not into the Euro, not into the yen, maybe some gold but not much” and that at the end of the day “they will stay with the USD.”
Sitting aloof on his cloud, Orville talked past everyone saying that “it is foolish to idolize China. But I think if this country [the US] can’t grasp reason again, it won’t matter what China does.” And then he talked about his “lack of confidence in Washington” and how it is not effectively “playing the role every government should.” So again, Edgar Snow.
Minxin got the debate back on track, saying that the PRC “they plan a lot, but do nothing with the plan. But they accomplish very little, because if they had actually followed through the plan they would be doing a lot better than the US.” And the crowd went wild. Not really though.
Peter countered by going back to a previous comment made by Minxin in his opening statement regarding the perceived benefits US citizens receive from their taxes. Peter asked “what is capitalism about a centrally planned retirement system?” One more point for Peter.
Peter +1 point.
Minxin responded saying that “Chinese national debt is higher than US debt” citing figures of 80% for China and 65% for the US. And that after all this debt is owed, the average Chinese person “doesn’t get social security benefits.”
Orville woke up and had an “ah ha” moment, explaining to Minxin that the PRC is “implementing a health care system” and that a “social security system is also implemented.” Then he bemoaned that “we haven’t built a new tunnel in New York City since the 1920s and 1930s.” Perhaps he has Robert Moses posters on his bedroom wall.
Ian got back into the debate by noting that while the “Chinese are doing better now than before, the profitability has gone to the US.” He noted that in terms of an iPhone sale, “$9 to $10 go to China, $60 goes to US, the rest go to stock holders who are almost all Americans.”
Peter responded that “profits will change when interest rates go up” and that “no doubt that many people want to live here because our quality of life.” He concluded by saying “sure we all live a good life but when debt bubble pops” the game is over. The problem here is while Peter may eventually be right (or wrong) the current situation is probably the same one that will be here tomorrow and the day after tomorrow. Peter hopes that China will change, but there aren’t many citable indications that they are changing right now… towards the early 1900s golden economic age. It would be nice for that to be the case, but it is halfway through the debate and it doesn’t look that way. Where are your facts Peter?
Ian rejoindered saying that “China is throwing good money after bad and not just in the US.” That “they [PRC] keep building infrastructure, they cook the books and their model is not sustainable or profitable.”
Orville woke up again asking everyone where he was and “worse still that US leaders and the political system are broken” and that “we must restore reason to our decision making.” I think the word he is looking for is socialism.
Ian the says that “in Europe” the governments are “being pressured and they are acting.” And that the world “is getting faster but the government isn’t getting faster” and that the longest can getting kicked down the road is China.” Oddly enough Ian never really acknowledges that Peter is right in the sense that eventually the US government will also be forced and pressured into acting — despite recognizing that the ECB and European political class(es) are facing an existential crisis.
Mao Zedong
In fact, Peter responded by saying the “trillion dollar cuts were an illusion” that rather than actually cutting the budget it was merely a “reduction in rate increases” and “we don’t have to deal with it because Fed and foreign central banks buy dollars and treasuries.” One more point back to Peter. Why oh why does he cite real examples when he defends capitalism in the US but fail to do so when defending the central thesis about China?
Peter +1 point.
Minxin ignored this issue and went on to quote the World Bank’s latest paper “China 2030.” He said that “high growth period is over,
from now on growth will be 6-7%” in the best case scenario, given that the PRC actually privatizes and reforms the SOEs. And that “savings will be a lot lower, that there will be older people, and negative environmental effects.” Despite what Sino-bulls say, China can have measurable slowdowns, for instance as illustrated in a recent NYT piece. In addition, the demographic head-wind that Minxin noted is coming hard and fierce.
Orville, talking to himself, asked a rather interesting question: “do developing countries want to be the US or China?” He followed it up by saying “a number of Chinese have gone home” which I assume means back to their ancestral provinces and not to their mothership. He ended by saying that when he has gone to China he “feels an amazing sense of energy” and that the young Chinese have “great American virtues” like a “can do” attitude. I believe the French call it a certain je nais c’est quo. So yeah, people in other countries, of all ages, also do in fact have “can do” attitudes. He never says how many Chinese people have hai gui “returned home” like sea turtles. Nor does he answer his own rhetorical question.
Ian tries to get things back on track once again by trying to take what Orville dealt, noting that “China does not have that kind of luster globally. They [PRC] have to support Chinese markets and Chinese companies.” That the “US wants broader markets by pushing the Doha-round and TPP. China wants its own standard as opposed to a global standard. China eroded global free markets and as China grows larger the problem grows.” From a free-market perspective the WTO and TPP are really just managed trade associations. Sure they are marginally better than restricted trade, but they can hardly be called free-trade agreements. In fact, the TPP probably is even more political in nature because the US basically invited everyone along the Pacfic but China to be a part of it.
Part 3
For those counting: Peter, Ian and Minxin are tied at nothing and Orville is at negative eleventy niner.
In this part of the debate, members of the audience were given a chance to ask panel members questions. The first question was asked regarding the labor market in China.
Minxin responded by saying that “the labor market is not free” and that “in terms of urban mobility there is lots of discrimination” towards those from the countryside. Rural migrants “don’t receive benefits, not qualified for public schools but must send their kids to substandard private schools.” Yea, Minxin loses a point for not defending capitalism, but rather defending public expenditures. After all, who should be determining education needs? A central planning committee or private individuals? If anything this should be a good case-study for why rural migrants and everyone else, should be allowed to keep their tax money so they can spend it however they see fit, including education.
Minxin -1 point.
Peter got himself in a pickle by getting a little sidetracked in his response, “US minimum wage laws make it illegal to hire a pretty sizable portion of the population.” The US government tells businesses “who to hire, who to promote and creates great expenses including opening yourself up to litigation.” And as a consequence “there are so many ways to be sued in the US, businesses don’t want to get in cross hairs of these mandates.” That sounds plausible from a free-market position and he could probably give evidence of hiring freezes due to uncertain political and legal climates. However he steps on a landmine that Rand Paul walked on a few years ago too, “businesses don’t have to worry about being sued by employee in China, if an employee got passed up with a promotion or handicapped, or race. They have fewer rules, negotiate without interference from the government.”
He made those claims about hiring people in China without citing anything. Has he tried to start a business in China? Has he dealt with employee lawsuits? ChinaLawBlog has some very interesting cases regarding some of these HR issues and yes, contrary to what Peter says, there are lots of rules, on the sometimes-enforced book.
The next question made the audience all laugh because the person notes that Orville and Peter are on the same team yet have two different believes. Peter quickly notes that he is in favor of “bottom-up” decision making as opposed to Orville’s desire for more “top-down” control.
The question after was “Human Rights, does it play a role in capitalism.”
Orville managed to stay on topic and said that the no one should “imitate what is going on in China” and that “authoritarian capitalism does stuff like that.” This begs the question: is it the ‘authoritarian’ or the ‘capitalism’ that crushes the jackboot through hoi polloi’s door?
Ian responded to the question stating that “We can’t compare human rights with China, it will bite you in the hiney. China wants state Internet, wants to control Facebook and Twitter.” In contrast “you do actually know what the US is going on, we found out about Solyndra.” Whereas in China “they don’t want to tell you about Solyndra and this doesn’t facilitate creative destruction.” Ian makes a good case about transparency here in the US. We have legal opposition groups, we have independent resources such as social media that anyone can anonymously use. Sure there are lots of abuses and cronyism that still take place, but the CCP thinks everyone is out to get them, to topple them and are scared of what you might say behind their back in a mere 140 characters. One point for Ian. And to be even handed, the State departments handling of the Wikileaks affair was and continues to be a farce. But no one pointed that out.
Ian +1 point.
Peter tries to respond to a small retort that Ian said about hiring handicapped people, saying that “a government can dictate, diminish rights, create special privileges” and ultimately “create a special class of citizen.” This in turn “creates problems for businesses who have to spend resources to protect themselves.” He then tries to distinguish the difference between “individual rights and human rights” and “there are political prisoners in the US, my father is a political prisoner.” While I don’t think that it really helps his case overall regarding capitalism in China, I will give him a point for publicly noting that his father, Irwin, is a bonafide political prisoner.
Peter +1 point.
Speaking of which, it is also unfortunate that Ian, Minxin or Peter didn’t seize this exact moment or when Orville later digresses, regarding Nobel Prize winners. Orville said at the very end that China is lacking in innovation and doesn’t have the star power of Nobel Laureates, but forgot to mention that the 2010 Peace Prize winner is Liu Xiaobo, a political prisoner locked away somewhere in the middle kingdom — in their black jails. Isn’t political change towards individual freedom a form of innovation that can help economic growth?
The next questioner suggested that since 2008 a large portion of the US economy has become nationalized through bailouts.
Peter responded by saying that the current system in the US is fascism which caused the audience to respond with boos. He then noted that in a “socialist system, the government takes over the means of production.” But that in fascism the government has effectively nationalized “my business through taxation and regulation.” I’ll give him one point for being closer to the truth than the rest of the respondents. But at the same time he should recognize that the Chinese government is still socialist in practice, it is hardly the land of milk and honey, where government regulations and taxation still play a heavy hand in every industry.
Peter +1 point.
Orville said all of five words, “which economy does marketization best.” I wonder if he has colorful alphabet letter magnets on his refrigerator. Does he formulate sentences by combining the green characters with the blue?
Golden bull in Jiangyin village
Minxin’s response was that “to use debt as measure of capitalism is not right, I think the best measure is to look at contribution of SOEs to GDP — 40% in China, 1% in the US.”
Peter then says that “corporations borrow money to increase productivity whereas federal debt is spent on consumption — spending on government programs.”
Minxin replied by saying that “the government is a producer of public goods, it gives security.” Minus one for not defending capitalism, again.
Minxin -1 point.
The next question from the audience was, what is the “one-child policy effect on capitalism in China?”
Orville jumps over his table and sides with the other team, saying “the advantage is on the American side because we have immigration, China does not, and it is actually aging. There will be a huge burden of taking care of elderly people in the future.” Then he fell back asleep.
Ian notes that “I agree with Orville. China exports men to Africa to work on projects. This creates a backlash globally.” Ian doesn’t say what kind of backlash, but one that has been in the news over the past year is Zambia. While there has been a lot of Chinese investment in the country, there has also been a large amount of Chinese temporary migration that displace the local labor market and cause resentment.
Peter responded to Ian by saying that as China liberalizes, “women will come to China – immigration will take place.” Are you serious? Let me point out once more that there are a mere 600,000 foreigners living in mainland China (out of a population of 1.34 billion). What are these pro-immigration policies that China will enact? [Update: the PRC has cracked down on visa for foreigners: 1 2 3] Despite its extremely low birth rate, the family planning commission is still not yielding to pressure to allow for more than one-child per Han family… because the commissioners think there is already a large strain on resources from the existing population. What makes Peter believe that they will change their mind in the future?
The next question from the audience was, “define capitalism.”
Liu Xiaobo
Peter responded with “capitalism is where the means of production is completely private, allocated by markets. Wages and interest rates are set by the market versus socialism where it is micromanaged by a central authority, directly by communism or indirectly by fascism.”
Minxin added that “capitalism cannot exist without the rule of law and China does not have rule of law.”
The next statement from the audience was, “China will have turn ideas into products instead of just assembling products. Given the current status of IP rights where it is very hard to create ideas and own them.”
Orville found a glittery brochure on the ground and made a profound statement “this is a big problem in China but China must move up the value chain.”
Ian said that he is “more skeptical, they do create a lot of enterprises but not entrepreneurs. “ In the US we have ” college drop outs, who question why things work a certain way. It doesn’t work well in authoritarianism” and that “you can’t take politics out of the IP debate.”
Too bad Peter didn’t step in to talk about IP being a centrally controlled government mandate and how it would be in China’s best interest to continue not having the kind of IP regime in the US that has led to the current litigious climate of non-stop patent wars that harm businesses and stymie innovation. That IP is simply idea socialism and ultimately leads to thought-police regimes.
The next question from the audience was “as growth slows down, does that cause the state to double down?”
Minxin replied, saying “the slowdown is coming no matter what and their are two paths the government will follow.” They can continue to “increase infrastructure” or they can go along “a very different trajectory, to really become capitlist, to increase consumption to allocate capital efficiency.” But in order to do that “they have to privatize SOEs.”
Peter responded to the question saying, that the “currency peg creates a misallocation of resources to prop up the dollar.” And that “we’re too poor because we don’t export anything.” And that ultimately, “I think China will see the err in their ways, they will allow appreciation of their currency.” Minus 1 point for wishful thinking and not citing any references as to how China is moving away from the peg. As a matter of fact, China has allowed the RMB to depreciate slightly this year, to help prop up exporters.
Peter -1 point.
The next question from the audience asked about who will get the haircut next, bondholders or stockholders.
Peter responded by saying that in the “original bailouts, stockholders got losses, bond holders got bailed out.” And that the US government “simply prints money” and that if “we had sound money we wouldn’t have a country print money by fiat.” And as a consequence the US government “benefits more than any other debtor” due to this quantitative easing. Plus 1 point for finally talking about sound money. But you know what, China does not have sound money either and has about 1/9th the amount of gold reserves as the US (1054 tons versus 8965 tons).
Peter +1 point.
Ian responded by saying that “the US government is badly set up to do state capitalism.” That unlike Japan which has MITI, we have “Commerce, USTR and State” that all act out of coordination. Minus 1 point for missing the fact that our government agencies try to practice state capitalism with centrally crafted plans. Ian does note that we use euphemisms such as “economic state craft” instead of “industrial policy” but that doesn’t stop Commerce and especially USTR nowadays from trying to push policies from the top-down. Look at ACTA!
Ian -1 point.
In addition, the Chinese government is forcibly consolidating domestic car and airline industries, they are picking of winners and losers by fiat. One of the Mises pieces that has always stood out in my mind was Powell’s piece on Japan in 2002 that touches on some of this, though his entry in the CEE is a bit more condensed and to the point.
Orville donned on a Mao suit and recounted a story of a recent visit to California, to visit his friend governor Jerry Brown. That during this visit, there were many CCP secretaries, each of whom were accompanied by “10 men in suits.” He said that “it was very evident to me that that there is no ‘socket,’ that if we want to do business with China we can’t because we don’t fit.” Minus twenty for not thinking creatively; somehow humans have been able to conduct trade and commerce through language barriers, through war zones, over mountains, across seas and in all weather conditions. If Orville truly thinks we cannot do business with China because we don’t have the right “state interfaces” (plug & socket) then how on earth did we manage to trade in the past with any foreign country? Think outside the box.
Orville -20 points.
The next question was, “which country does entrepreneurship better?”
Orville was on a roll and began juggling chainsaws says “America does exceedingly well, innovation, bringing stuff to market, scaling it up.” In contrast, “China doesn’t do it well, I see a lot of self-made entrepreneurs bubbling up. But can the private sector become the majority sector?” Orville did not see “full spectrum innovation but these guys are crafty, they are good and they are smart.” He also mentioned that part I previously mentioned about lacking home-grown Nobel prize winners. The Chinese government is putting a lot of resources into recruiting tenured faculty from abroad. In fact, two years ago Jiao Tong University in Shanghai managed to entice and recruit French virologist Luc Montagnier, who received the Nobel Prize in 2008 for his discovery of HIV.
Yet Alex Katsomitros, a London-based analyst says that “[i]n general, the flee of academics might have been an issue of concern in the past, but it shouldn’t be that worrying today, as higher education and academic research are going through a phase of rapid internationalization. The fact that academics go to China for a couple of years doesn’t mean they have defected. On the contrary, they might bring back home valuable knowledge and help their home countries understand China better.”
So much for a brain-drain.
Peter responded to the entrepreneur question with his fruit stand example once again, saying that “I think that young person in China will be more successful than in the US.” And yet again, he doesn’t cite or provide evidence for why his hunch is right. It is pure conjecture. Minus one point.
Peter -1 point.
Minxin finishes strong by pointing out in China “you cannot open a private bank, you cannot get into telecom services, energy, or 14 other very important sectors. If you get into a dispute with another entrepreneur or businessmen, all it matters is if you know Chinese Communist Party secretary in charge.” Point set match.
Minxin +QED points.
Closing statements
Ian led the round of closing statements, saying “one of things we do well is creative destruction. You might like independent book stores, but Amazon is wiping them out. Creative destruction powers the American market.” And that the newest form is “fracking for unconventional oil.” The US leads this, “US researchers, US corporations and the Canadians” is where all the activity in fracking takes place, that ” game changing stuff is driven in the US. When the Chinese central bank wants to make that bet, they make it here. A guy can make an enormous coin for himself here, like Schiff.” He’s absolutely right and because of fracking, North Dakota is set to become one of the top oil producing states by 2020.
Schiff opens up a can of worms, ending with “what country does real estate better, US or China. It was a bubble and couldn’t last. If we were so competitive where are all our products and why do we have such a trade deficit? The pendulum is swinging the other way
have this debate again” after the collapse of the dollar.
Oh no he didn’t! Schiff wants to talk about real-estate to prove that the US is on its way down. The Chinese real-estate market is in shambles and deserves hundreds of pages just to be concise in the introduction. While Jim Chanos may have been a tad bit facetious to say China is Dubai times 1000, he is probably closer to the reality than Schiff. For example, last month the Chinese government instructed all banks to “roll over government loans.” Provinces and cities owe $1.7 trillion in construction related loans, “[m]ore than half those loans were scheduled to come due over the next three years.” Yea, that will end well. The US has lots of problems, it might even have a “monetary collapse” but China is not doing much better. Or if it is, Peter has yet to give much proof for it. And as he suggested, I would also like to see a debate five years from now with the same participants. He was right about calling the US housing bubble years ago, now let’s see how relevant his claims about China are.
Peter -1 point.
Minxin closed with, “China does do a certain kind of capitalism best, crony capitalism. Under their kind of capitalism, you are lucky to have clean air or safe baby formula. If you are part of the elite, crony capitalism serves you well. Which system will be here 20 years from now, democracy will still be around in the US, can you say the same thing about communism in China? My bet is it won’t be.”
The problem with his statement is that there is plenty of crony capitalism here in the US too. Peter was right to describe the current order as “fascist” (not with brown shirts) and Minxin, while he rightly pointed out that we do have a free press that can uncover political favors like Solyndra received, he never mounted a good defense against the fascist claim. I also don’t think it is very wise to try and be prophetic with such and such dates. The Chinese leadership has proven time and again that it will do whatever it takes to survive, even as Ian pointed out in the debate, using markets and profits for their own gain. Twenty years ago very few pundits thought China would survive and grow from Tiananmen, but it did. I’m very bearish on China and certainly hope the country moves towards freedom and liberty, but that doesn’t mean the political class will. In fact, starting this month all Twitter-like services in China (like Sina Weibo) will require real-name registration, no more anonymous posting. That is not a step towards early 1900s America.
Minxin -1 point.
Orville stunned the audience by talking for more than 60 seconds about the same, relevant topic, “I really want to agree with you [Minxin], but who would have thought that 5 or 10 years ago that we would be having this debate. China is undeniably in transition, we are a more finished model that is off balance. We have fallen into a lot of self deception.” We have to look at a “combination of control, wisdom at top versus vibrant entrepreneurs at bottom. Something has been working pretty well in China. We aren’t going to fix China, we’re going to fix ourselves.”
In his upcoming book about Chinese investment cycles, Mark DeWeaver makes an excellent point about a great many things that China purportedly does very well at, here is one passage:
It is often claimed that China has an advantage over countries with democratically elected governments and free markets because it can “get things done.” In the absence of “parliamentary cretinism” and the “anarchy of the market,” it seems, the Chinese leadership can move rapidly and inexorably toward the accomplishment of any goal it sets itself.
The history of Beijing’s efforts to eliminate excess industrial capacity indicates that this is only half true. The central government can easily get things done if lower level officials want to do them. When central government policy runs counter to local interests, however, regulatory bodies like the National Development and Reform Commission often seem to be practically powerless. Beijing can engineer investment booms in particular sectors without difficulty. Recent overinvestment in wind and solar energy equipment production is a case in point. Eliminating excess capacity is much more difficult.
Throughout the entire debate Orville talks like a teenager with starry-eyes. They have huge buildings! Fast trains! They get things done! They are rational! They don’t deny climate change! He falls for the seen, the Potemkin village that the political class erect as showpieces. We saw it in Beijing, where many of the stadiums and venues were demolished after the Olympics and now we are seeing it in other areas throughout China, colossal monuments of misallocation and non-productivity. Take for instance the $300 million skyscraper built in the village of Jiangyin in which a solid gold bull statue sits on the top floor. Or the high-speed railway itself, deep in debt and mired in political favors. Or 3/4 of all airports that lose money.
Perhaps Michael Pettis says it best, as he observes from a paper he recently read,
“[I]f infrastructure spending can be so seriously mismanaged in relatively transparent systems with greater political accountability, what might happen in a country with a huge infrastructure boom stretching over decades, much less transparency, and very little political accountability? Isn’t the potential for waste vast?”
This was a frustrating debate. Half of the panel members did not define what “capitalism” meant, a fact pointed out by questioner Dan O’Connor. Furthermore, the fact is most foreigners (including the panelists) don’t end up knowing any more about China when they leave than when they arrived. It doesn’t really matter how long they stayed, particularly if they spent all their time with other foreigners and well-connected locals—both groups that love the system, not because it is a good system but because they have figured out how to game it.
There are a myriad of problems in each country, however the onus was on Schiff to argue and prove that China does capitalism better than America. Extraordinary claims require extraordinary evidence and while making valid points about problems, serious problems the US faces such as a possible monetary collapse, he did not prove that China is heading in a better direction, the right direction.
In summation:
Peter, while never saying the actual word, hoped that China was going in the right direction and aside from balance-of-trade and debt-to-GDP statistics, didn’t provide much in the way of evidence or references to prove that it was.
Ian was witty but did come across as a bit haughty, not taking Peter’s criticisms of the US very seriously.
Orville might be the twin brother of Redenbacher. And made about as much sense too.
Minxin had some great stats but kept digging himself into a hole by glamorizing pubic goods provided by the US government. He needs to make up his mind: is free-market capitalism also able to provide social services and profitably? I think Walter Block, John Stossel and many others show that it can.
As much as we might dislike current US policies and as much as we might hope that another country is headed in a freer direction, this comes across as wishful thinking. Most Chinese immigrants that move to the US care about healthcare, education, and safe food. And sometimes because of politics. How many people do you actually know that have moved or will soon immigrate to China simply because of politics? Are you planning to? If you don’t like the treatment that Private Manning receives, if you don’t like bailouts to GM or Citi, if you don’t like political favors and revolving lobby-military-industrial complex door, then why would move to China? They have the same problems and arguably more.
The studio audience was electronically polled before and at the end of the debate. The end results, 85% believed that the US still does capitalism better than China. And despite my qualms with the political class and America’s current direction, based on the facts presented at the debate, I too believe that the US does capitalism better than China — and will continue to do so in the near future.
[Note: all quotes were transcribed by me, thus there may be some errors. In addition, I exaggerated Orville's behavior... he wasn't that senile.]
Tim Swanson is a graduate of Texas A&M University. He has worked in East Asia for more than 5 years and currently lives in China. He is the author of Great Wall of Numbers: Business Opportunities & Challenges in China
{ 1 comment… read it below or add one }
Thank you for the long post, quite interesting read.