Comparing Corruption in China and the US

Today's WSJ China Realtime reports on a study by a George Mason University economist who attempts to compare corruption in the US and China.  His conclusion is that corruption in America's Gilded Age (1877-1893)* was worse than corruption in China today.

Perhaps the conclusion is correct, but the methodology used by this professor is flawed.  US corruption is measured by mentions of corruption in US newspapers 1870-1930.  China corruption is measured by mentions of corruption in US (not Chinese!) newspapers 1990-2011.

So he is measuring corruption in two countries by the number of times the newspapers of only one of the countries mentions the word.  Even if the researcher had used Chinese newspapers, the study still would have been flawed due to Communist Party control of Chinese print media throughout the period in question.  (Why the author of the study did not even attempt to scan Chinese newspapers for mentions of corruption, I don't know, but I'll venture a guess that it's because he doesn't speak Chinese.)

The question the researcher is asking is a valid one.  America during its Gilded Age was extremely corrupt, as is modern day China.  An answer as to which one is/was more corrupt would be enlightening.  It would be interesting to consider whether actions taken to curb corruption in the democratic America of the Gilded Age are even remotely applicable to modern authoritarian China.

Nice try, but we're still no closer to a valid measure for corruption that we may compare across countries.

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* The official dates of the Gilded Age are considered to be 1877-1893, after which the Progressive Era began, but the author of the quoted study extends his analysis to 1930.

Will India Challenge China? Not yet.

Last month my wife and I took our first ever trip to India. Since that time I have struggled to put into words what I learned on our trip – not only about India, but also about China. Since today is the last day of 2011, I have determined that my latest thinking on this topic, however crudely formed at this point, is going up on the blog today.

India Gate, Delhi

So what does China have to do with India? More importantly, you may be asking, how could one hope to learn anything about China by visiting a completely different country?

Why India?

Aside from the fact that I thought India would be an interesting place to visit, I had begun to notice over the past year news stories, blog posts and twitter discussions about whether India would ever challenge China economically, militarily and/or diplomatically.

One book I read earlier in 2011 was Robert Kaplan's Monsoon, a fascinating historical approach to explaining why the Indian Ocean will become the world's most contested region, and how China and India are already competing for influence. (Kaplan also leads the reader to wonder a.) whether the US understands the importance of this region and b.) even if the US gets it, whether the US will have either the will or the ability to maintain its influence.)

The question of whether China's influence in the region will increase is no longer contested, but many people – including some long-time China watchers such as me – see India as a potentially credible rival to China. India has a large land mass, the world's second largest population and an economy that has consistently turned in upper-single digit economic growth for most of the past two decades. India and China also share a long and contested border, with both countries occupying lands claimed by the other, and as a result, the level of trust between the two has always been fairly low.

Regardless of whether India could become a credible rival, it is easy to see that many of the necessary ingredients for a rivalry are there. And given what I know about China – that it fully intends to return to its historical role as regional (if not global) hegemon – I wanted to see for myself whether India might truly be on the cusp of challenging China's ambitions.

So why might I have expected to learn anything about China while in India? Perhaps it is because China is the first country in which I ever spent significant time abroad. Ever since the mid-'90s, every other country I have visited has further illuminated my view of China.

Since 2000, when my employer sent me to Japan for a couple of years, I have viewed China slightly differently. To give but one small example, having been a waiter in college, I had always thought that service in China was poor because no one tipped in restaurants. After my first dinner in Japan, not only was I amazed by the friendly and efficient service, but also by the fact that the Japanese don't tip in restaurants either. There was clearly a much deeper cultural or sociological explanation for the disparity in service levels between China and Japan.

Will India challenge China?

So, back to the first burning question that drove me to India, the question of whether India will be a credible rival to China. The short answer to this question, I am disappointed to admit, is no – certainly not in the near future, and not without China self-destructing from the inside.

As thrilled as we were to have arrived at the clean new terminal of Delhi Airport, my wife and I were simply dumbstruck by the the poverty, filth and chaos we witnessed during the hour-long ride to our hotel. Delhi makes Beijing look clean and orderly by comparison (a fact that cannot have been lost on any Chinese leaders who have visited India). And while I reserved judgment on that first day, the remainder of the two weeks we spent in India further confirmed that India is not quite ready for prime time.

Chandni Chowk Bazaar

This is not to say that India has no hope at all, but a lot of what I saw on the ground, combined with what one may easily learn about politics in India by reading the news, leaves me to believe that India has much further to go if it ever hopes to catch up with China. I simply never imagined India's overall development gap with China would be so wide.

I also came away from India with a new level of appreciation and respect for the accomplishments of China. While I don't believe China's accomplishments excuse the lack of personal freedoms and rampant abuses of human rights, one cannot help but admire the speed with which China has pulled itself out of a deep hole of poverty.

Traveling in India and China

Traveling in China, while having improved quite a bit over the past two decades is still a bit of a grind, and in some areas it has become worse. When there were fewer people traveling by air back in the '90s, there were also far fewer unexplained flight delays than there are now.

That said, we found traveling in India to be even more difficult. Travel agencies and airline ticket offices tend to close on Sundays so if an emergency arises (say, for example, one gets food poisoning – don't ask me how I know about this) and you need to change your travel plans, just be sure it doesn't happen on a Sunday. (Apparently the planes do still fly on Sunday.)

Also, trains in India are apparently affected by fog. The day we left Delhi for Agra, our train was two hours late, which actually wasn't bad considering many trains were as much as six or seven hours late that day.

New Delhi Train Station

This connection between train travel and weather would not have occurred to me, but apparently train engineers in India need to have a certain distance of visibility before a train can travel. Having traveled on trains in China in all kinds of weather, I don't think this is the case there, though I could be wrong. I mean, if all trains follow their appointed schedules, and all trains are connected via radio to each other and to a central dispatch, avoiding collisions shouldn't be rocket science.

Of course, one can easily avoid the hassles of air and train travel by hiring a car and driver, but it can be quite expensive, particularly if it is arranged by your hotel, which (as we later realized) has no problem doubling the price of the car for their own profit.

Corruption

And in terms of scams and general corruption, I used to think the Chinese were masters at cheating foreigners, but they have nothing on the Indians I encountered on the tourist track. By comparison, the Chinese are rank amateurs. At every turn – particularly in north India, but less so in the south – we encountered people who, on the pretense of being friendly and inquisitive, wanted nothing more than to separate us from our money while providing nothing of value in return.

A market in central New Delhi. Where were all the women?

In all fairness, I must emphasize that these people were gathered in massive numbers around the areas frequented by tourists. Because we did not really experience the everyday lives of average Indian citizens, I cannot comment on whether such corruption affects their lives to a similar degree. However, if the many Bollywood movies I have watched are any indication, perhaps the corruption for the average Indian is just as bad though taking on different forms.

But you should go to India anyway...

While my post thus far has focused on some of our negative experiences in India, the truth is that my wife and I loved India. The amazing sights we saw, the outstanding food we ate, and the smart and honest people whom we encountered along the way combined to make the whole experience worthwhile.

If you have ever considered traveling to India just to see the sights, we can attest that it is absolutely worth the effort. (And this comes from a couple who have seen many of the amazing sights that China, Vietnam, Japan and California have to offer.) Though we were disappointed to find our view of the Taj Mahal completely obscured by pea-soup fog, this in no way diminished our experiences in seeing the Qutb Minar, Humayun's Tomb, the Red Fort, Agra Fort and the Amber Fort near Jaipur, among others.

The Taj Mahal (It's back there somewhere.)

We also experienced fantastic service aboard a kettuvallam boat on the backwaters of Kerala while dining on outstanding Kerala cuisine and learning about the lives of the people who farm and fish in the area. And probably our best experience was at a farm homestay near Kochi where we enjoyed the warm hospitality of a world-wise Syrian Christian family and engaging conversation around the family dinner table.

The crew on our kettuvallam cruise, Lake Vembanad, Kerala

All of this should come as no surprise to anyone who has traveled to more than a handful of foreign countries. The world is a big place, and every country has both its pluses and minuses. While I still have yet to visit most of the world's countries, in every country I have visited, I have discovered uniquenesses that make my travels worthwhile. And though India did not live up to my (unreasonable) expectations, I have no regrets for having visited, and I will most certainly return. (While I was able to touch the Taj Mahal, I still have yet to see it!)

Evolving views on India vs China

This has been a difficult blog post for me to write, if for no other reason than that I really, really wanted India to be the credible rival that China needs to have in Asia. Also, since returning from India, my wife and I both have found that our views are evolving as we continue to ruminate over our experiences there and compare them to our experiences elsewhere.

And I must also emphasize that this does not arise from a desire to “keep China down” as China's media often likes to claim whenever foreigners disagree with China's government. As I stated before, I have an even greater appreciation for China's accomplishments to date. Yet at the same time, it is somewhat unnerving to the free world that a big, powerful country such as China may have figured out a way to build prosperity without personal freedoms (note the emphasis on “may”). It makes many people uncomfortable that this kind of government aspires to regional hegemony and world leadership.

I would argue that no one really has a desire to “keep China down,” but that many do have a desire to keep authoritarianism down. If China were to demonstrate its concern for human rights, few would have a problem with its asserting influence around the world. (Though one might argue the same for the United States.)

And this is precisely why my hopes for India were so high. I very much wanted to see for myself that a democratically-led government could provide for its citizens both freedom and economic prosperity, and act as a counterweight to the other big country in the region that only wants to provide the latter. But what I saw is that, similar to America, India's prosperity is limited to a small sliver at the very top of society. The middle class experience stagnation while the poor are just trying to keep their heads above water.

It would be easy to blame democracy for the disparity between China and India, but I believe that is too simplistic of an answer. (Naturally, this is the lesson that China's leaders will choose to take from their own comparisons with India.) There are many other differences between China and India that cannot be ruled out as factors affecting the countries' trajectories of development.

The most obvious difference is demographic. Whereas China is quite homogeneous, India is a patchwork of ethnicities, religions and languages. Without going into too much detail, I can only say that it is a surprise to me that India has remained a cohesive unit since 1947. The fact that it didn't break into dozens of rival states is a testament of the determination of independent India's first leader Jawaharlal Nehru. Love him or hate him, one cannot deny that he laid the foundation for modern India – both good and bad.

Since this blog post is already far longer than most people will bother to read, I will end it here and simply note that my thinking on this topic is far from complete. Scholars far more brilliant than I have tackled this topic of comparative modernization, and have yet to produce anything more than hypotheses (some more plausible than others).

The one thing I know, however, is that I will most certainly spend time in both India and China again in the future. I see great value in understanding both countries and how their political systems affect the lives of real people.

Happy 2012, everyone!

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EDIT (4 Jan 2012)
Dan Harris at ChinaLawBlog, one of my favorite China blogs, linked to my India-China post and had some interesting comments of his own -- some of them way too kind, but also some valid criticism. Since his site generates a lot more traffic than mine, his post generated a lot more comments than mine (although I believe this post sets the all-time record for comments at ChinaBizGov.)

Check out Dan's post and also the comments that follow. Some people are critical of the fact that we would even compare China and India, but I think the fact that so many people took issue with this post tells me that there really is no consensus answer on this topic. There are a lot of great ideas and food for thought in the comments (along with the usual anonymous sniping from the sidelines).

If you're really interested, here's another related post on this topic that I came across today. It's written by someone with a great deal more experience in both China and India than me, and he includes a lot of facts and figures to back up his assertions.

US budget issues predicted in the 1970s

This post contains no business advice and is only tangentially related to China. You have been warned. :-)

Having recently read Daniel Bell's The Cultural Contradictions of Capitalism, I am reminded of how, back in the 1970s, Bell predicted the budget issues we are now enduring in the United States.

The fundamental political fact in the second half of the twentieth century has been the extension of state-directed economies. These developed first because of the need to rescue the system from depression, later because of the demands of a war economy and the enlargement of military commitments, and finally because of the strategic role of fiscal policy in affecting levels of spending and patterns of investment...

The new “class struggles” of the post-industrial society are less a matter of conflict between management and worker in the economic enterprise than the pull and tug of various organized segments to influence the state budget. Where state expenditure approximates 40 percent of Gross National Product, as it almost does in the United States … the chief political issues become the allocation of monies and the incidence of taxation.

… it is also likely that in the United States a state-directed economy and a state-managed society will please no one... Radicals are becoming increasingly suspicious of government … even though their first reaction to any issue is to call for more “government,” … And the state management that will emerge will be a cumbersome, bureaucratic monstrosity, wrenched in all directions by the clamor for subsidies and entitlements by various corporate and communal groups, yet gorging itself on increased governmental appropriations to become a Leviathan in its own right.

Oh, and did I mention that Bell was an admitted "socialist"? (If you watch Fox News, please don't let that word put you off just yet.)

By way of background, the most significant "contradiction of capitalism" that Bell identified was one between asceticism and acquisitiveness. The Protestant work ethic that Max Weber credited for turning work into a “calling” for Americans and implanting within us the idea that the work itself and the associated accumulation of capital were honorable pursuits, became (sometime during the 20th century) conflicted with the rise of consumer culture encouraged by the introduction of installment credit.

The resulting conflict has shifted the focus of American society 180 degrees from a focus on production to a focus on consumption. Whereas, according to Weber, Americans were all previously motivated by hard work and savings as the ultimate service to God and country, according to Bell, not only have God and country been supplanted by the individual, but we now all measure ourselves by how much we are able to consume.

In other words, employers demand of their workers a traditionally puritan level of commitment to work while urging their customers toward a hedonistic, anything goes, make-yourself-happy-and-screw-everyone-else lifestyle. The obvious problem here is that the workers and the consumers are the same group of people.

But I digress...

Back to Bell's quote above, if Bell was right, then we haven't even begun to see the worst of impending budget fights. Even if the two sides in Washington are able to reach a last minute deal this time, nothing will be done to solve the fundamental issues that have placed the budget front and center of American politics.

Think about it. Seemingly all discussions in Washington now revolve around spending and taxation. Rarely does the debate have anything to do with what sort of society we want to be.

I said above that this post would have little to do with China, but having written this far, I cannot help but wonder whether China's form of state capitalism might not also lead to similar contradictions.

Again quoting Bell:

In a modern [i.e. capitalist] society, the engine of appetite is the increased standard of living and the diversity of products that make up so much of the splendid color of life. But it is also, in its emphasis on display, a reckless squandering of resources... [If you're a China watcher, and this doesn't sound familiar, perhaps you haven't been to China in awhile.]

Where resources are prodigal, or individuals accept a high degree of inequality as normal or just, this consumption can be accommodated. But when everyone in society joins in the demand for more, expecting this as a matter of right, and resources are limited, ... then one begins to see the basis for the tension between the demands in the polity and the limitations set by the economy.

Bell says this results in five elements that are "structurally transforming the old market system":

1. institutionalized expectations of economic growth and a rising standard of living.
2. the incompatibility of various wants and diverse values
3. enormous spillover effects from economic growth (e.g. environmental effects)
4. a worldwide inflation -- "the largely inescapable consequence of a commitment to economic growth and full employment"
5. crucial decisions about the economy are no longer left to the market, but become political questions.
   

When Bell wrote all of this in the mid-1970s, he wasn't really thinking of China (how could anyone have predicted what China would become?), but his descriptions of problems that would soon afflict the US now also seem to apply to China.

While conventional wisdom tells us that China's leaders are probably patting themselves on the back for rejecting democracy and its besetting partisan difficulties, does Bell's warning indicate that China may also be running headlong into a similar set of problems?

Is China "skirting the rules" on clean tech support?

Maybe, maybe not, but I think there's a far more important story here.

There's a great article by Keith Bradsher in today's New York Times, "On Clean Energy, China Skirts the Rules". Bradsher compares the extent to which clean tech firms in China and in the US receive government support. The upshot of the article is, as has become de rigeur recently, to paint a picture of a China that is getting ready to clean America's clock (pun intended).

Bradsher quotes the CFO of a US-based clean tech company on difficulties:

"You can’t get a penny in the United States, it doesn’t matter who you call — banks, government. It’s awful," he said. "Therein lies the hidden advantage of being in China."

Then he closes with this quote from the head of a Chinese tech company with operations in both China and the US:

"Who wins this clean energy race," Mr. Zhao of Sunzone said, "really depends on how much support the government gives."

Beijing-based lawyer, Stan Abrams, adds some illuminating commentary on this story at his blog, China Hearsay. He looks at it from more of a legal standpoint and concludes that, though China does appear to be skirting the rules, little to none of its behavior appears to be in gross violation of China's WTO commitments.

My sense is the recent rash of "China is kicking America's ass in clean tech" articles is really more about prodding the US government to take a larger role.

What concerns me is, if those who promote such views get their wish for more US government involvement in industry, would the US government know where to draw the line?

At some point government support in the US (and elsewhere) starts to result in diminishing returns. Once you unleash the state, it's hard to put that genie back in the bottle. Once you put in place a new bureaucracy, the people inside it begin immediately to plan for a perpetual existence.

During a recession, it becomes easy to clamor for government help, but when conditions improve, how likely is the government to withdraw?

This, to me, is a fascinating difference between the Chinese and US systems. We know that, over time, democracies bulk up with special interest driven programs that beneficiaries will fight for to the death, and that the rest of the population rarely have the collective will to fight.

On the other hand, China's "special interests" are all pretty much contained within the Politburo. They fight, someone wins, then they move on.

All the hand-wringing about whether the US should help with clean tech, though important, seems to be missing the much broader point (though raising the vital question) of whether the political system that has served the US well for over 200 years is sustainable in its current form.

Elusive Innovation: Inventing Stuff is Hard

Once one has climbed to the top of the hierarchy of the global division of labor, it really isn’t all that difficult to reach back down. However, if one has yet to make it to the top, getting there is extremely hard.

The US no longer manufactures most of what it buys, and many items it formerly manufactured are now being made elsewhere. But it’s not as if the US no longer has any economic activity. Much of that manufacturing activity was replaced by “higher level” knowledge work, part of which includes research and development that brings us such innovations as iPhones and this internet thing.

Despite the loss of manufacturing, one advantage the US has is that it can always decide to manufacture something if it wants to. All it has to do is throw money at the problem. The US rescue of General Motors is a case in point. It is quite likely that GM would no longer be building cars in the US if the US government had not determined to save the company. This is not to say the rescue of GM was necessarily a good strategy, just that, if the US government so desires, it has the wherewithal to pull it off.

China’s economy now provides a significant portion of the world’s manufacturing, a task for which it is currently well-suited. It has more people than it can count to throw at factories requiring unskilled labor. But an unfortunate disadvantage for China is that, whereas the US has the option of employing brute force (i.e., lots of money) to keep manufacturing onshore, China cannot simply employ brute force to encourage innovation.

Innovation is a higher level activity that requires a certain quality of education and a relatively free and open political environment. In absence of these requirements, China can throw all the money and slogans it wants at innovation and it will still not happen.

And this is why the US is in a far more favorable position relative to China. If, for whatever reason, all trade between China and the US were to stop for a period of time, not only could the US buy manufactured goods from other countries, but it would also have the option to begin rebuilding the manufacturing industries it once had. Again, while that may not be the optimal strategy, at least it is an option for the US. On the other hand, China, try as hard as it might, cannot become an innovative society without undertaking the kinds of political reform necessary to encourage innovation.

(And ironically, if China were to undertake such political reform, the probability of an interruption in trade between China and the US would quickly drop to about 0%, making this whole discussion more or less moot.)

To slightly oversimplify, while the US can do what China does, China cannot do what the US does. Not today.

But it is not as if China is a stranger to innovation. While my European ancestors were still banging sticks together, the Chinese were inventing cool things like gunpowder, the plow, the compass, paper. So I am quite certain the current lack of innovation is not an issue of human capacity, but more of a systemic one.

Of course, the bad news for Chinese citizens is that, in the short term, the system will not change. But the good news for many educated Chinese is that there is always the option of emigration to more innovative societies. Unfortunately for China, this is a double blow to the country as a whole. Nearly every educated Chinese who leaves is not only a minus-one for China, but also a plus-one for the country to which he or she immigrates.

The global hierarchy of the division of labor, as it currently stands, has brought the world both innovation and inexpensively manufactured goods. The current structure, despite its flaws, works pretty well, but a major problem China has with the current structure is that China is not in its traditional place on top. We can see this dissatisfaction in the central government’s continually unsatisfied demands for “indigenous innovation”.

For how long will insistence on rule by an unelected government continue to outweigh the Chinese desire to once again lead the world in innovation? For as long as China’s single greatest fear is instability. Until China's government can become comfortable with a little unpredictability, it should expect little in the way of breakthrough innovation.

On Democracy, Authoritarianism and School Violence

Democracy has a well-documented downside: an irresistible urge to vote oneself a share of the spoils disproportionate to one’s economic contribution.

Of course, the wealthy in any society have a stronger voice because of their wealth, and they naturally fight increasing redistribution of income. But in truly representative democracies, there will always be at least one political party whose major claim is to fight for the rights of the poor, the powerless, the downtrodden – basically, everyone who would like a greater share in their nation’s wealth. And in a truly representative democracy, that party occasionally – and in some cases, frequently – wins elections.

Perhaps this is why China continues to so vehemently reject any variant of what they term “Western-style” democracy. With a massive population, only a small sliver of whom have truly benefited from China’s experiments with markets and capitalism, China’s leaders are concerned with how the poor would handle the potential ability to vote themselves a massive redistribution of income. They are also concerned about maintaining the support of the co-opted bourgeoisie who seem content to keep their mouths shut as long as they have opportunities to increase their riches. As study after study have demonstrated, China’s wealthy are not interested in agitating for democracy.

Indeed, this is the single most common argument you will hear from average Chinese citizens about why democracy is not appropriate – not yet anyway. Try this. Go to China and ask any Chinese why China doesn’t have democracy. Nine out of ten people will tell you it is because China has too many poor and uneducated people who are incapable of making informed decisions. (To which I often respond, “Oh, like California?” – which, for me, has been a very enlightening revelation in and of itself.)

The Chinese path of partial economic reform, combined with practically no political reform, has produced some astounding results when viewed in aggregate. China’s 30-year average of double-digit economic growth is unprecedented. Deng Xiaoping’s market reforms have lifted hundreds of millions of people out of poverty – more than ever before in human history.

Given this astounding feat, is it any wonder then, that developing country dictators find China’s model to be far more palatable than constant Western harassment to clean up their governments and democratize in exchange for aid?

While the China model draws increasing interest from among poor developing countries, we increasingly see discontent bubbling up from China’s “poor and uneducated” population. The increasing number of public demonstrations is an open secret in China. The citizens of thousands of local communities have felt the need to gather in large numbers to counter what they perceive to be the capricious and unchecked power of local officials.

Lately, we have also seen a rash of school attacks in China. At the risk of reading too much into this situation, I would like to suggest that these are further symptoms of disappointment among China’s lower classes due to their powerlessness. If this were simply a matter of mental illness, as some observers have suggested, then why aren’t the mentally ill stabbing children worldwide? Why is this happening in China, and why now? And even if most of these are copycat incidents (and I believe that is the case) just how bad do things have to get before people start to think that killing children is an effective strategy for calling attention to injustice?

Since Hu Jintao and Wen Jiabao ascended to power in 2002, their concern for China’s common people has been quite visible. They chose to divert the Party’s sole focus away from getting the wealthy on-board toward getting the poor on-board as well, and some tangible results prove their dedication to this goal. However, despite all their efforts to shore up support among China’s poor, the number, frequency and intensity of demonstrations and protests in China continues to grow.

While the notion that democracies eventually vote for redistribution may be true, it doesn’t begin to address the real issue. Perhaps the hypothesis should be broadened to include the poor in any society – from democratic to fully authoritarian. Perhaps the idea is that poor people in any society eventually grow tired of their lack of opportunity and will resort to whatever means they have available to make their voices heard.

In democracies, the poor vote for redistribution and only occasionally demonstrate. In authoritarian countries, they frequently protest and demonstrate, and when those options seem no longer to get enough attention, some may resort to even more drastic means to get their points across.

The purely democratic option is beginning to seem unsustainable over the long term – for proof of this, we need look no further than California where direct democracy has allowed voters to tie government’s hands to such an extent that the state is ungovernable. But the authoritarian option, while it has allowed China’s leaders the freedom to experiment and develop the economy, has also failed to satisfy those at the bottom rungs of society.

Maybe it is time people in all countries begin to take an honest look at the political sustainability of their systems.

Is democracy nothing more than a 250-year march toward excess and disincentive? Does authoritarianism sow the seeds of its ultimate destruction by suppressing freedom? Is there a mode of governance somewhere in the middle that gives the poor an honest shot at improving their lives while simultaneously giving the rich a stake in the success of the poor?

The rich are going to get rich. That’s what they do when provided with a system that allows them to do so. Most of the rich, I believe, don’t hate the poor; they simply see the poor as unwilling to work hard or to educate themselves to a level that would allow them similar achievements.

But what if, in addition to all of the necessary elements such as relatively free markets, relatively low tax burdens, and solid property rights, the state were also to provide the rich with a stake in the future of poor people?

Our current systems – both Chinese and Western – offer the rich a stake in the existence of the poor: the poor work themselves to death for a minimal wage so the rich get richer. It’s a great system – if you happen to be on the right side of that equation.

But what if our systems, instead of offering the rich a stake in the existence of the poor, offered them a stake in the success of the poor? What would that look like?

The problem in the US is that we have two parties whose interests lie ostensibly with these two groups: the Democrats support the poor and the Republicans support the rich (while both claim to support the middle class).

In China, there is one party who claim to represent everyone, but who will only allow a select few to become members. Still, the fact that both rich and poor have been allowed to join is at least a tacit recognition of the importance of both segments of society for the continued reign of the Communist Party.

The truth, regardless of whether we are talking about the democratic West or authoritarian China, is that the lives of the rich and the poor are more intertwined than many are willing to recognize. The rich could not become rich if there were not millions of poor and middle class toiling away in the trenches of business day-in and day-out. The poor and middle class could not make a living if not for the capital investments of the rich that create the businesses for which they toil.

China’s Marxist-Leninist model clearly didn’t work. While it took aim at the right problem, the gap between the rich and the poor, its solution offered no incentive for innovation and made everyone equally poor. Its semi-capitalist model, while a vast improvement, doesn’t seem to be working very well either; now that China is more than thirty years into its capitalist reforms, the rich-poor gap is wider than ever and growing wider by the day.

Which brings the discussion back around to China’s recent school violence. Perhaps foreigners who are getting all hung up on China’s ban of media reporting about the school stabbing incidents have directed their disdain at the wrong problem. Clearly, there is an issue of copycatting going on, and China’s government is right to want to prevent other similarly disaffected people from getting any ideas.

The problem that foreigners – or indeed anyone, especially China’s government – should be focused on is not media coverage, but the root cause(s) of these incidents. How can China’s poor be given greater hope, greater opportunity and a larger voice in society?

If the answer to this question is “more of the same”, then we should not be surprised to see China’s trend of violence continue to escalate. Whether through democracy, or by some other means, China’s leaders have to figure out how to give their most successful citizens a stake in the future success of the poor.

Shopping bags: China's sticks or Ralph's carrots?

During the several months I recently spent in China, I occasionally found myself feeling a little miffed that I was charged for the privilege of carrying away food items I had purchased in plastic bags. In Shanghai, I was charged five mao per bag (roughly 7 US cents). The longer I was there, the more I found myself making a conscious decision to take used plastic bags with me to the store.

Over the past five years that I have lived in LA, I have noticed that supermarkets have begun their own attempts to discourage the use of plastic bags -- or rather, to encourage their non-use. The Ralph's in Westwood, where I have been shopping lately, gives you back five cents for any reusable bag you bring in.

So where am I going with this? I think there are a few lessons here about both political systems and human motivation. (Think of this as a hodge-podge post if you want.)

In China's case, it was the central government in Beijing, not local governments, that made the decision to charge for plastic bags. Regardless of how business owners feel about this issue, they have no choice but to charge for bags. (I will make no assumptions about where all of this money ends up.)

Due to the federal system in the United States, issues like this typically fall to state and local governments, and sometimes, directly to the voters. Unfortunately (from the point-of-view of someone who wants to see less usage of plastic bags) the closer such decisions get to voters, the greater the likelihood that taxes of this nature will not be passed -- unless, of course, one lives in San Francisco, whose relatively wealthy voters often happily tax themselves for green causes. Seattle's voters, given an opportunity to vote for a bag tax a couple of years ago, chose to vote it down. When Seattle later passed an ordinance, the plastic bag business lobby (who knew there was such a lobby?) successfully batted it down.

In New York City, bag taxes or bans have been discussed in the past, and, as far as I know, have still not been passed. In Los Angeles, the City Council has passed an outright ban on plastic bags to go into effect in July 2010 unless the State of California passes a statewide bag tax in the interim. The latest information I have been able to find is that California's legislature has still not been able to pass a bag tax. The plastic bag business lobby in California has also successfully sued cities that have banned plastic bags.

In doing a little Googling for this post, I have discovered that there is a lot of activity in the US surrounding plastic bags, but apparently none of the action is happening at the federal level. And, aside from Washington D.C. and North Carolina's Outer Banks, no local community has been able to pass bag taxes and make them stick. (If my facts on your particular community are out-of-date, please feel free to set me straight via the comments section below.)

My point here is that, aside from the exceptions mentioned above, the only policies in the US on plastic bags that appear to be approaching success are those taken all the way down at the store level. Our central government is (thus far) taking a hands-off approach, and our local governments are not powerful enough to fight a nationwide plastic bag business lobby.

Yet, while China's central government has approached this issue with a stick, local stores in Los Angeles are voluntarily offering carrots.

Which method is more successful? While I am sure China's Statistics Bureau has come up with some numbers on this, our intuition should tell us that China's policy has been more successful -- if for no other reason than that it is a nationwide policy. However, even if you could compare the cities of Shanghai and Los Angeles, I am certain we would see that Shanghai's bag use has fallen further than has LA's.

My intuition tells me that people will respond more to a stick than a carrot on an issue such as this, even if the values of the sticks and carrots are negligible. People don't want to lose something they already have, even if it's small, but they will also not go out of their way just to get a few cents back -- especially if they feel stupid doing it, or if it creates a little inconvenience.

While my wife is keen to make use of reusable bags, and I go along with it when I'm with her, I will admit that I sometimes bring home plastic bags when I'm shopping by myself. China's sticks did more to change my behavior than have Ralph's carrots.

• Can you think of similar comparisons between how China and the US attempt to legislate human behavior?
• Do you agree that sticks can be more effective than carrots on issues of conservation, or can you think of examples in which carrots have been more effective than sticks?
• Does the federal nature of the US government place the US at a long-term disadvantage when it comes to changing destructive human behavior? Or is there a price to be paid for the heavy-hand of China's unitary system?
• What are the tradeoffs between these two styles of governing?
  

(Apologies to my readers who haven't been in school for awhile and find such academic questions to be a bit of a shock. ;-)