by Eric Shierman
We either take it for granted or deny it outright, but a great deal of America’s economic growth is dependent on the continued expansion of the Chinese economy. This is particularly true of Oregon, a state whose reliance on its exports to China bears a more material impact on our local prosperity. Our two largest private sector employers, Intel and Nike, have led the way. Like any other capital-intensive product, Intel produces high-end semiconductors in Oregon more cheaply than the Chinese could produce themselves. That is what comparative advantage in trade is all about.
The greatest minds in sports marketing on this planet live and work on the west side of Portland. Nike has managed to help China embrace basketball as tightly as Japan embraced baseball to the point where the day the Chinese Olympic basketball team beats our own, a financial windfall will be felt all the way from Beaverton retailers to the University of Oregon’s development office. Notice which player’s jersey sports a Nike Swoosh:
Do the math. For every $1 billion in exports to China roughly 5,400 jobs are created. During this past recession, as exports to the rest of the world declined, Oregon’s exports to China grew substantially to their current level of over $4 billion, a 1,300% increase since 2000.
Our greatest economic advantage comes from our $2.4 billion worth of Chinese products that Oregon imports. The mercantilist mentality dies hard so I cannot help but wonder how many of my readers think exports are great but imports are bad. To show the economic gains that imports bless an economy with let’s take a product that Oregonians consume a great deal of but is not made in China: cheese. Most cheese in the US is made in Wisconsin, but Oregon has a nice dairy farm in Tillamook. The US Constitution is among other things a free trade agreement among the states. Although article I section 9 forbids it, would the Oregon state economy benefit from trade protection measures against the import of Wisconsin cheese?
The answer is not just no, but a big loud heck no! Tillamook County Creamery Association would benefit yes, but at the expense of the rest of the state resulting in a net loss. Take a look at the price difference between Tillamook Cheese and its Wisconsin competition from this picture I took from my phone while shopping at the QFC across the street from my condo this morning:
Kroger, which owns QFC, acts as a big importer of Midwestern products into our local economy. If they did not do so, Tillamook Cheese would cost us substantially more than their already higher prices. By paying more for the cheese we consume day upon day, the lost purchasing power would eliminate demand for many other local goods and services.
Let’s bring the same principal back to Oregon’s trade with China for a silly trade dispute lingering in today’s headlines. Oregon has a steady demand for solar panels, not to save money mind you, but to display one’s green bona fides. Todd Meyers in his excellent book Eco Fads, points out how often “green homes” that face to the north will still install their solar panels on the front of the house so the neighbors can see them, forgoing the opportunity for full electric substitution from the setting sun to the west. Buying solar panels is a form of conspicuous consumption that has a healthy market in our state. Even with substantial tax subsides, they are not cheap, but home and business solar panels are substantially cheaper now than they would otherwise be without our imports from China. When Hillsboro’s Solar World lobbies for trade protection from these imports, they are trying to protect a small amount of jobs from the capital intensive production of this product at the expense of far more jobs from the labor intensive installation of them as well as the lost demand from all the other products and services Oregon’s environmentalists will not be able to afford if they pay too much for their green eye candy.
Like the Chinese people, we are stakeholders in China’s economic success. So why are so many Americans’ demands for democracy in China so at odds with the demands of the Chinese people? The most honest answer to that question is probably that complaints about China’s political system are really little more than red herring arguments against trade. That is why I went to such trouble reminding us how valuable our bilateral trade relationship is before I even began dealing with the subject for this article. The intellectual divide on trade is so great, such red herring arguments thrive. Just as the only geocentric astronomers in the seventeenth century had yet to look down Galileo’s telescope, today the only serous trade protectionists are those who have never taken the time to see just how overwhelming the empirical research has become. Since these are mostly progressives, the greatest irony is that they are quick to quote Paul Krugman as an authority on fiscal policy matters where he has never published any meaningful peer reviewed research, but they ignore the substance of his life’s work that won him the Nobel Prize. Not only was he a trade specialist in his academic work, but in Pop Internationalism Krugman penned the most lucid advocacy of free trade policy ever written.
Once we remove the trade issue from any political conversation about China we can begin to appreciate what they have accomplished as a society rather than rush to highlight their faults. Ever since a coup led by Li Xiannian and Ye Jianying ousted the Maoists in October 1976 the Chinese Communist Party (CCP) has successfully initiated more reforms to advance civil liberties and executed more tough free market reforms than any other political party in human history. Their greatest move was to transition power not to a democratic process, but rather to Deng Xiaoping.
Like a spoiled wealthy child that heaps scorn on his parents, our political culture likes to blame our problems on China when in reality Americans fail to fathom how worse off we would be had Deng Xiaoping not prompted China to punt out of the poverty of socialism thirty years ago initiating the greatest economic turnaround ever seen that has lifted more people out of poverty in a shorter period of time than could ever have been dreamed possible given the inefficiently planned economy he was working with and its hungry, uniform-wearing automatons for a population. China could not have made these tough reforms as a democracy. It would have drifted in the seas of rent-seeking as has India, and China’s short lived democratic experiment would have collapsed in an avalanche of corruption like Boris Yeltsin’s Russia.
To any casual observer who has actual spend time in China, it is obvious the people of China know this, and the CCP is probably the most popularly supported political party in the world today. While reliable polls on such matters are nonexistent, I have traveled extensively in China and am fairly proficient in Mandarin. I have seen firsthand that there is no more love for democracy in China than there was for it among America’s founding generation. The Anti-Federalists campaigned against the ratification of our Constitution by calling it democratic. The Federalist Papers responded to this heinous charge with a unified theme: this constitution is great! We promise you it is not a democracy.
James Madison feared the rise of demagogic politicians flattering the people’s fleeting yet passionate demands; so he authored a constitution that put as much friction between the will of the people and the implementation of policy as possible for a sparsely populated 13 colonies. Could we not cut the Chinese a little slack for sharing the same fears with a densely packed population of 1.3 billion people? The balance our constitutional convention sought was a broadly diffuse electorate of propertied white males that amounted to a fraction of the population to elect representatives that govern for a term.
The Chinese today have developed a form of government that divides power among a broadly diffuse electorate of party members who are also a fraction of the population, electing representatives to govern for a term. There are more than twice as many cadres of the CCP as there are voters in Canada. Deng Xiaoping’s primary institutional goal was to leave a system in place that could never again be dominated by one man. Every successor of his so far was handpicked by Deng himself. In their current transition, we are witnessing the first unpredictable formation of a politburo that is being determinate by the votes of the grass-roots of the party with all kinds of Electoral College like friction along the way.
Just as the United States started off with a vision of having no competing political parties only to see Hamilton and Jefferson’s factions become a two party system, multiple ideologies and interests within the CCP are forming into two distinct factions that are doing the same. The Chinese call them the Guangdong Model and the Chongqing Model. The province of Guangdong borders Hong Kong and had the first Special Economic Zone in Shenzhen and is thus associated with free market policies. The Guangdong Model is the “party” of Deng Xiaoping’s center-right vision of greater market liberalization. Its inspiration comes from Singapore and Hong Kong two undemocratic polities that have enjoyed the rule of law with freer market economies than the United States and higher per capita GDP than we have as well.
Deng Xiaoping passed this ideological baton off to what the Chinese call “the third generation” with Zhang Zemin as head of state and the Zhu Rongji as head of government having plucked these two from the obscurity of Shanghai municipal government after the purge of Zhao Ziyang in 1989 due to their firm but nonviolent treatment of prodemocracy protestors. The Deng vision continued on in “the fourth generation” with Hu Jintao as head of state and Wen Jiabao as head of government. This fourth generation has been challenged to pass its policies on to a fifth generation of politburo leadership because of the emergence of a rival vision in recent years.
With Bo Xilai we have seen the rise of a viable center-left alternative to Deng. Bo had a western style charismatic animation to him in stark contrast to the stoic form of post-Deng technocratic rule. Bo had the feel of his audience like Bill Clinton with the tactical political cunning of Richard Nixon.
Beyond his blatantly ambitious style, Bo became out of step with Beijing in five ways. First, he opposed the continued privatization of state owned enterprises.
Second, he built a Rudolph Giuliani like name for himself as a tough-on-crime clean-up-the-city guy, but with extra legal powers. Beijing has been working hard on the Deng vision to foster a rules-based criminal law system, but Bo fought crime with a Star Chamber approach.
Third, though Bo really did break the back of organized crime in his jurisdiction, he used this power to frame political enemies. He also extorted businesses into voluntarily contributing to public causes, quickly making him the Chinese Eliot Spitzer.
Fourth, he tried to rehabilitate Mao packaging him into a more social democratic direction. While seemingly acceptable, the photoshopping of Mao out of CCP party ideology has been a steady yet delicate project of the Deng era. Having a mausoleum and his picture hanging from the palace museum is about the only Mao you see today. Deng’s CCP has tried to keep Mao as a George Washington figure for his fight for a China independent of colonial domination while ignoring his atrocities the way we would prefer to forget that George Washington was a slave owner. Bo was moving in the other direction, trying to salvage the left-wing ideology of Mao too.
Fifth, Bo engaged in a massive series of public works projects financed by very un-Chinese levels of deficit spending. None of these projects are going to pay off; he has racked up so much in debt that in a matter of a few years Bo has created a Greece like fiscal crisis deep inside of China making him the Chinese Abraham Beame. Bo’s fiscal woes can be seen in the remarkable spread between the yield on Chinese sovereign debt and Chongqing’s munibonds.
Bo XiLai was an incredibly popular figure both locally and nationally. He was out of step with the politics of his day, but personally seemed unstoppable. So if he was the Chinese Nixon, Beame, Clinton, Guliani, and Spitzer all rolled up into one man, it seems fitting that his opponents took him down with a scandal. First there were rumors that he was involved in graft, but in Politburo circles that did not seem like enough, because who out in the provinces isn’t? He was not dipping his beak any deeper than his peers. Then came rumors that his wife Gu Kailai had contracted the murder of a British national Neil Heywood who died mysteriously in a hotel room last November. This was serious enough to send agents down to Chongqing to secretly investigate, but Bo likely was aware of every move.
The greatest scandal that sent Beijing into action was the discovery that Bo XiLai was wiretapping the standing committee of the Politburo, including Hu Jintao himself. The security apparatus that Bo’s Chongqing Model created included enlisting the help of Fan Binxing president of the Beijing University of Posts and Telecommunications and the father of China’s “great firewall” of internet censorship to help him build an advanced domestic signals intelligence capability. Bo’s use of this asset to monitor his rivals in Beijing became the Watergate moment that swung the central authorities into action. As they were preparing to pounce, Bo’s police chief Wang Lijun, for reasons yet unknown beyond rumors, feared his life was in danger and sought political asylum in the United States on February 6th, walking into the US consulate in Chengdu with documents and secrets.
This no doubt involved a 3am call to the White House, and the Obama administration made the right decision by not granting him asylum. Wang was Bo’s henchmen overseeing the planting of evidence, tortured forced confessions, and perhaps political killings. The State Department contacted high level authorities in Beijing and handed him over to national police. Wang will probably face treason charges of some kind, but he is turning over state’s evidence for the ongoing Chongqing purge.
It remains to be seen how far the Deng Xiaoping wing of the party can exploit this moment to its advantage and continue the free market reforms that have made such a positive impact on Oregon’s economy too, but it is clear we are witnessing a monumental moment in Chinese political development. Bo is under house arrest. His wife is in a jail cell awaiting her trial for the murder of Neil Heywood, Wang is in some kind of Chinese witness protection program, and the Chinese media has been given a relatively free hand to openly report it.
This whole affair carries three clear take-aways. 1) In Bo Xilai we got a glimpse of what a rush to democracy in China would have looked like. This has been the dominant narrative in the popular Chinese blogosphere. 2) The intolerance of all sides of China’s political spectrum for the arbitrary arrests, kangaroo courts, and wiretapping in Chongqing represents a deep seated desire for the rule of law by the CCP and represents a maturation of China’s political culture. The left-wing minority in the CCP may desire a return to Mao’s goal of equality, but not Mao’s means of achieving it. 3) China is evolving in its own way at its own pace, reforming its institutions to adapt to its own unique circumstances. There is little advice an American diplomat could offer that would help China find its way.
When so much of our own prosperity is dependent on Chinese economic growth, US foreign policy has wasted way too much of our scarce political capital trying to interfere in China’s internal affairs. Mass political participation is only a means to an end. The end is good governance and civil liberties. If China can become a giant Singapore, delivering growth and freedom without democracy as we know it, good for them and good for us. If China were to democratize and become a giant Argentina, it would be a human tragedy on a colossal scale, a loss to the entire world, but Oregon especially.