China, Economics, Democracy
pondering the present and future of the Reds over there
I read this morning a very excellent article in Data Driven Investor here in Medium by ‘The China Guys’, “Veiled Intentions & Long-Term Mindset: Beijing Rejects Market-Oriented SOE Reform.” The gist of the article was to make the case that, words to the contrary, China’s ruling Communist Party is continuing to use public funds not only to sustain, but to ‘grow’ SOE’s (state-owned entities) despite their lack of efficiency. The article suggests that the Party has created a two-tiered economy in that nation.
One tier is geared towards providing products for consumers. It is a ‘capitalist’ economy of POE’s (privately owned entities) in competition with one another for consumers’ money, driven by ‘market forces’ to become ever more efficient in terms of output in relation to inputs, including capital and labor.
The other tier consists of what the Part considers to be “strategic” industries, such as energy, aerospace, and ‘tech’. It is dominated by inefficient SOE’s that can depend on the Party, through the institutions of government it controls, to pour money into them despite their manifest inefficiencies of all kinds. The Party is using public finance as the means to ends that are dictated by its goals for the nation, not ‘market economics’. It is contriving as time goes by to shape and stretch the forms of public finance to accommodate what it wants China to be as a nation.
Domestically, the Party wants two things: to maximize employment and to minimize poverty (with the latter implying a requirement to keep inflation at an absolute minimum). Internationally, it is less clear what the Party wants for China. Is it seeking mere independence from ‘the West’? Is it seeking to provide a means for all non-’Western’ nations to share that independence? Is it interested in ‘defeating’ the West, conquering it economically as a prelude to dominating it culturally, including determining its political forms?
I have no clue as to the intentions of China’s Communist Party internationally. Its domestic economic agenda, on the other hand, seems obvious. It also seems to me to make sense (within the standard structures of organization for national economies as they have evolved to this point in time). Like, say, the U.S., China has a federal system of government in which the performance of the national economy is seen to be the responsibility of the central government and the central bank, as the linchpin of its monetary system.
In both nations both of those entities must work together to see to it that national political goals related to the performance of the economy are met. The use in China of certain segments of the economy to further those goals through creative public finance, without regard to the dictates of ‘market economics’, i.e., ‘efficiency’, i.e. maximizing returns to investors, is certainly not unreasonable, much less irrational.
China’s goals are determined by the Communist Party, which brooks no criticism, much less any challenge to its political domination of the nation. Even within the Party, to challenge the political positions of its Chairman is not allowed.
I think that if the Party were to formalize its economic practices the nation as a whole would embrace the economic structure that it has developed in the same way that the U.S. as a whole embraces ‘market economics’. Political activity of all kinds within a democratic political process would be culturally limited to that fundamental model.
In short, the Party has achieved its goal of establishing a hybrid economic system that by its nature would define the terms of political debate in that nation. It is time for the Party to declare victory and usher in democracy. In the long run, democracy will allow that system to evolve to sustain more effectively the culturally defined goals of the nation than an inevitably ossifying single Party will be able to do.