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China modernizes, “Democracy” faith wavers

I am now anxious to watch the debate between Eric X Li and Minxin Pei at the recent Aspen Ideas Festival, where the topic was “China and Democracy.” Once the video is available, I’ll post. The debate was moderated by The Atlantics’ James Fallows, who actually admits himself here biased. So, perhaps the debate was 1 vs 1 where Pei having gotten a partial referee on his side. Interestingly, J.J. Gould, a deputy editor from the same paper, was in the audience and recounts some key arguments put forth by the three. Not having had access to the actual debate yet, I decided to weight in on Gould’s recount. For Americans, and Westerners in general, there is a great deal of anxiety when it comes to China modernizing. China’s rise challenges their notion that modernity must be predicated on “Democracy.” Actually, if you think about it, why must China’s success challenge that notion? The simple psychology there is, as Henry Kissinger recently observed in his book, “On China:” America (and the West which she leads) pursues her “values with missionary zeal.” They see China as not a “Democracy.” Hence the title of the debate is what it is, isn’t it? I wager there are many Westerners who are sincere in wishing for what the best is for Chinese society. However, much of the anxiety really stems from zeal and intolerance for any other way. In that light, I am countering Pei and Fallows’ assertions.

Gould’s article is on the left column and my take on the right.

Chinese Democracy: Will It Ever Be More Than a Guns n’ Roses Album?

J.J. Gould

JUL 2 2012, 10:27 PM ET

Minxin Pei, Eric Li, and James Fallows debate the legitimacy and resilience of the People’s Repbublic

 

In time of wide-ranging political change initiated by new pro-democracy movements, across North Africa and the Middle East, and elsewhere around the world — change that’s taking place against a centuries-in-the-making historical backdrop where the language of democracy has become increasingly the language of political legitimacy itself — there may be no non-democratic political model with a stronger claim to sustainable legitimacy than China’s. I think it is incorrect to view the Arab Spring as a clamor for democracy.  In the case of Egypt, it was unemployment and corruption due to a non-performing system largely propped up by the United States.  The Occupy Wall Street movement in fact drew inspiration from the Arab Spring as well, and the more accurate characterization is people around the world (or pockets of them) generally discontent with their own societies.If democracy is the true salvation, then what the OWS has shown, even in the supposed beacon of democracy, is that it is not working well.
So how sustainable is it? At the Aspen Ideas Festival today, Minxin Pei, professor of government and the director of the Keck Center for International and Strategic Studies at Claremont McKenna College, debated the question with Eric X. Li, founder and managing director of Chengwei Capital, a Chinese venture capital company. The exchange was moderated by Atlantic national correspondent, and author ofChina Airborne, James Fallows.
Pei’s argument, one he’s been developing for years, is that there are contradictions in the Chinese system that are straining that system and starting to manifest themselves more and more. Pei sees these contradictions on two levels: economic and political. In the economy, he says, we’re seeing a slow-down that’s become cyclical: The economy has been driven primarily by investments at home and exports to developed countries, which isn’t sustainable. In the political sphere, we’re seeing manifestations of a fundamental vulnerability of one-party systems globally: a tendency to drift into benefiting a relatively small, and ultimately predatory, elite at the expense of society generally, and the associated phenomena of high-level corruption and inequality. It is true that Chinese society is undergoing tremendous stress.  The country is in the midst of an industrial revolution.  Roughly half of the country’s population still resides in the rural areas, meaning, half a billion people are still yet to move in the coming decades.  Imagine 1 billion people on the move within few generations.  That’s incredible transformation.Obviously, China will not sustain +10% GDP growth year on year in perpetuity.  If there is one truth about our world economy is that it is cyclical.

 

Pei’s observation that the economy is slowing down says exactly what?  Is he implying that the Chinese system inherently is incapable of managing her economy?  That’d be ridiculous.

 

In fact, China’s new 5-year plan is precisely designed to spur domestic consumption, because the leadership expects a cut back on exports to markets like the U.S. and the E.U..

 

With the crash of the Western financial system in 2008, China immediately put a massive stimulus package in to smooth out the negative impact.

 

Remember that prior to the crash, China was in fact fighting inflation.  It takes conviction and foresight to suddenly go from fighting inflation to stimulus on such a massive scale.

 

What the Chinese system has shown is in fact adeptness in managing her economy, something many experts in the West in fact admire.

 

On Pei’s assertion that one-party systems tend to concentrate wealth to a few is just not true.  One could easily make the same case about democracies.  Look at the wealth gained by the top 1% of Americans versus the rest in the last two decade!

 

If anything, socioeconomically, Chinese society is more upwardly mobile than ever in her modern history!  America’s top listing of billionaires doesn’t really change.  Super rich continues to maintain their dominance.  However, in China’s case, the top list is much more dynamic.

 

I agree with Pei’s assertion that there is rampant corruption in China.  This is also something acknowledged by the Chinese government.  In fact, they see this as one of their top priorities.

 

What I also find mind boggling is that Americans tolerate the corrupt practice of lobbying in Washington.  They also accept bailing out Wall Street and letting the banks off the hook for not complying with government wishes to loan, to spur economic development.  Wall Street gambles with peoples savings.  They would reap the rewards year after year.  When finally their gamble failed, the public would come to their rescue.  This is mind-blowing corruption which nobody has been made accountable.

 

Perhaps Americans can take some comfort in pointing at how corrupt Chinese society is today, but the truth is that both societies ought to address their respective rampant corruptions in their own way.

Together, Pei claimed, these two domains of contradiction tend to impede the growth of China’s economy and undermine the legitimacy of its government. You can see the last two decades as a story of the rise of the Chinese system, Pei said; but the next 10 to 15 years (no less than 10, no more than 15) will be one of the system’s unraveling. And this is what the United States and the West generally need to worry about — not China’s strength but its weakness, because when the transition to a more democratic system comes, it will be very difficult to manage, particularly given the country’s deep ethnic divisions, its disputed borders, and its complex integration with the global economy. Legitimacy applies both to one-party or multi-party political systems.  Besides the OWS, also look at the recent London riots.Gordon Chang more than 10 years ago forecasted the same thing in his book, “The Coming Collapse of China.”  I just checked, and China didn’t collapse.

 

Francis Fukuyama pronounced the “End of History” at the end of the Cold War.  He would come to regret for spouting such nonsense.

 

I am sure Chang would be eager for Pei to co-author version 2.0 of that book.  Ten years from that, they could write version 3.0.  If we look at Chinese history, then he may eventually be right a few times within a millennium.

 

If Chinese society suddenly collapses, I don’t think it will be difficult to manage for the United States.  The U.S. would be dealing with individually weakened pieces.  China has also settled most of her land border disputes, a fact Gould has left out.

 

On the other hand, if there is a sudden collapse of the United States, that would be a much graver danger for the world.  The United States could descend into fascism.  With her military might, there could be a rampage across the planet.

 

Even if you take a more benign view towards an American collapse, as Zbigniew Brzezinski try to argue recently, the world may succumb to chaos while different countries try to realign politically.

 

Li responded by conceding — despite the populist idiom of the Chinese Communist Party and the “People’s Republic” itself — that if you understand democracy specifically around the idea of one person having one vote in a competitive multiparty system, China is indeed not a democratic system. But should it become one? “I’m a venture capitalist,” Li said, “so I look at track records.” In 1949, the country had been suffering from years of war and economic stagnation. The average life expectancy was 41; the literacy rate was 15 percent; GDP was nothing. Now life expectancy is 75; literacy is at 80 percent; and GDP is a multi-trillion-dollar number. There were other accomplishments important for Westerners to understand.  After seeing how much power Mao had, Deng Xiaoping reformed the political system where only the National People’s Congress (NPC) has the power to elect the President.  Presidents are limited to two terms maximum.The Chinese Communist Party’s own constitution has adopted the “scientific development concept,” whereby policies are experimented and adopted only when observable evidence proves so.

 

Many would agree with the observation that in America and much of the West, scientists are co-opted to serve politics and ideology.

 

If there is a report card for the last few decades, Chinese leadership clearly performed better than their Western counter parts.

Yes, Li said, monumental mistakes have been made (he didn’t specify what these were), but they’ve been dwarfed by China’s achievements. Here Li referred back to his role as a venture capitalist and the priority he puts on track records: If I’m at a board meeting, and the proposition on the table is to take a company that’s engineered an enormously successful turnaround and to fire that company’s top executives, replace the entire management system, and do everything differently, that doesn’t make sense. “The one-party system has taken China from 1949 to today. … I think the answer is clear.”
Track records may not contain all the information you need to place a good bet, Fallows pointed out: “The Wang computer company had a very strong track record — until it didn’t.” Rome had a track record until it didn’t.  Lehman Brothers had a track record until it didn’t.  Today’s democracies might have a track record – – until it didn’t.The truth is, when societies fail to progress, that’s when you try to fix them.  The West has not offered any convincing argument why the current Chinese system will not evolve successfully.
China’s is in any case a complicated track record, Pei argued — and one “with a lot of cliff-hanging moments.” From the Great Leap Forward, through a period of mass famine, and all the initial stages of the Communist system’s consolidation, the cost of that system’s development is measurable in tens of millions of lives. “This was one of most violent episodes in Chinese history,” Pei said. “The Mao regime outdid all other emperors” in bloodshed — “and China’s history is full of bloody emperors.” I agree with Pei that the Great Leap Forward and the Cultural Revolution were disasters.  That was under very different circumstances when Mao had tremendous power and could unilaterally sustain bad policies.  It happened when ideologically, China didn’t understand greedy capitalism would prove more productive.  Those are lessons learned.Pei is quite specious in lumping in “bloody emperors” in describe modern China.  First of all, there aren’t emperors any more.

 

Since we are talking about democracy, where do we place WW1 and WW2?  Where do we place slavery?  Where do we place the hundreds of thousands Iraqi children killed by the Iraq war?

 

If Pei would like to pin all the ills of China’s 5000 year history to the modern Chinese, then he mind as well argue the illegitimacy of all modern democracies.

 

This line of argument is incredibly weak.

When you look at the future of this system, Pei said, the issue is: How does it compare with similar “companies”? And is it in a “sector” that shows future growth? To answer this, the most important issue is the ultimate collapse of similar one-party systems around the world. The longest-surviving among them ever was the Soviet Union, which didn’t make it past 70 years. Chinese Communism has been in power for 63. So if you consider the Soviet lifespan, and the nature of what ultimately limited it, would you “invest” in the Chinese system’s political future today? There were Chinese dynasties with an emperor at the helm that lasted much longer than most democracies on this planet.This is cherry-picking some data to support one’s argument.
It wasn’t that long ago, Li responded, that they said Apple was going to flop, because all personal computing would all be open-system. The history of real democracy is in any event very short: In America, it generously speaking goes back only to the post-Civil War, less generously only to the passage of the Civil Rights Act in 1965, if you take the “one person, one vote” definition seriously. Li makes an excellent point here.  I would add, with the Patriot Act, the American democracy is yet different than from immediately before.
Democracy has contributed to rise of West, Li said. But electoral politics is in disarray on both sides of Atlantic, and Western democracies are broadly incapable of dealing with the monumental challenges they’re charged with. Comparing public-opinion polling in China with that in the United States, Li noted the happiness and trust in their institutions that Chinese people report relative to Americans. Asking China to democratize? “It’s like asking Apple to turn itself into RIM.” The two ruling parties, the Democrats and the Republicans, have reached a point where they no longer can compromise.  Look at the number of bills stuck in both houses.
Corruption in China is a big problem, Li concedes, but that needs to be understood in a proper context: In Transparency International‘s ranking, for example, all of the top-20 least-corrupt countries in the world, except four, are Western, and among that four, only Japan is democratic; the rest of the TI’s top-20 that are not from the West are autocracies. The question, Li said, is whether corruption is inherent to the political system, or whether it’s a byproduct of rapid development — noting the portrayals of earlier times in the development of the United States portrayed in films like Gangs of New York or There Will Be Blood. “China should have at least as good a shot of correcting for corruption as any other system.”
On the greater reported levels of support for government and public institutions reported among Chinese relative to Americans, Pei said, “popular opinion surveys are highly variable” — and one of the factors that really tends to affect it is past experience. I.e., the Maoist era was terrible. But in any event, if you really want to test whether people accept the current system, rather than using popular-opinion polling as an indicator of legitimacy, “give them the real test — give them the vote.” In the United States, Pei said, citizens get angry, but they don’t question the legitimacy of the system in a way that people do in power systems maintained by lies, cheating, and violence. The world today has 120 democracies; 80 have made transitions to electoral democracy in last ten 10 years. Yes, corruption exists everywhere, but the main thing to take away from the TI list is that the world’s least-corrupt countries are almost all democracies. The exceptions are the autocracies. Democracies cannot, to be sure, eliminate corruption altogether; but autocracies have no hope combating it effectively. The three conditions any political system needs to check corruption, Pei said, are free media, the rule of law, and nongovernmental-organization / civil-society monitoring. None of these things are available in autocracies. Pei does not understand China.Chinese government censorship against ‘dissidents’ are normally against political opposition.  If we look at Weibo and the Chinese Internet, criticisms are many.  The Chinese media are increasingly shedding light in dark areas.

 

China recently has passed laws requiring government departments to disclose information.

 

China is slowly marching towards rule of law.  Judicial corruption is still rampant.

 

However, as more court cases are reported, the more Chinese society will become aware of the legal recourse.

 

Absent of that awareness, people bribe officials or pull in their friends to help them settle disputes.  It is the sense of justice from the more ‘powerful’ that help disputes settle.

 

That’s how Chinese society has worked for millennia, and towards rule of law takes time.  It’s a cultural transformation.

 

Chinese workers are increasingly suing companies and winning.

 

This is an undeniable trend, which apparently Pei does not see.

Fallows asked Li whether he saw the current system in China as being optimal in the long run, or whether he saw it more as the best system for now, pending future economic and social development. Fallows questioning is symptomatic of the Western mind-set: everything is black and white; is it the best or the worst?
“I am saying the former.” Personally, I am not sure.  Society constantly evolves, and if we look at China’s 5000 year history, the pendulum always seemed capable of swinging.The Chinese leaders usually will state that China adapts to suit her unique circumstances.  They normally do not profess any ideal system.
The system will certainly have to adapt, Li said, but the country today would be unrecognizable to the Chinese people 63 years ago, and that entire transformation has taken place under the same one-party system. Not only that: On a global axis, the breadth of change that this one-party state has been able to embrace and oversee has been unparalleled in any of the world’s advance democracies. Agreed.
Much has changed, Pei agreed, but the one thing that has not is the political system. If you look at footage of the National People’s Congress, for example, there you see stasis. People have changed, society has changed, the economy has changed — but one thing that has not changed is political system. There must, Pei emphasized, be meaningful compatibility among society, the economy, and the political system. But the political system doesn’t want to change. More than that, it wants society to change slower than it’s changing. “At some point, either the political system gives, or social system slows down.” Pei asserts the need for compatibility between society, the economy, and the political system.I would agree with that.

 

However, he doesn’t explain why those three pieces are not compatible within Chinese society.

 

Do OWS and the bickering between the Republicans and the Democrats represent incompatibility within the American society?

 

What gives Pei the ‘faith’ that democracy by itself could fix the ‘incompatibility’ in America?

 

Has Pei confirmed with the Chinese leadership that they are giving up?

Pei copped to regularly fantasizing about how China could become democratic. “Economic performance is the key,” he said. If it stays as strong as it’s been, that would mean one kind of transition; but if it falls off, the Communist party will face rising social discontent. The party will ultimately split, and one of the splinter groups will end up trying to tap into that social discontent to gain legitimacy. No democratic transition has ever occurred without support from elements of the ruling elite, Pei said, and China won’t be an exception. I agree that economic performance is key.That idea applies in democracies as well.  Imagine if unemployment rate in America is at 25%.  Think of the London riot if U.K.’s unemployment is doubled what it is today.

 

If such situations persist, it may be possible that democracy turns toward fascism and then dictatorship.  Groups of people could get killed in a genocidal fashion.

It’s a fallacy to say the system hasn’t changed, Li countered: There have been big changes the National People’s Conference — most conspicuously, its members are now younger, because of term limits and other reforms. There have been major changes to the composition of regional and municipal governments, as well. But these changes are not reported in the West, because, Li speculated, Western reporters aren’t interested in this kind of story; they’re interested in the dichotomy between dictatorship and democracy. Agreed.
Fallows then asked Li about expatriation among the families of Chinese elites, noting the degree to which they’ve come to move their assets, or send their children to school, outside China. Li had little to say on this point, admitting that it was an issue, though insisting that it’s highly overplayed. (Pei pointed out that the data on these matters are difficult to come by, but there are at least hundreds of cases of Chinese officials looking for American passports — and you don’t ever see American officials looking for Chinese passports.) This is easily explained.  The American standard of living is light years ahead of the Chinese.  Do we see rich Chinese clamoring for Indian passports?  After all, India is a democracy.Do Indians and Mexicans clamor for the American passport just like the Chinese do?  Absolutely.

 

If America is relatively poor like China and if China is relatively rich like America, Americans would be eager for a one-party and non-“democratic” Chinese passport.

 

More Africans are finding their way into China now because China represents opportunity and higher standard of living.

Li wanted to go instead to what he clearly sees as the bigger picture and the real comparative context for assessing the legitimacy and durability of the Chinese system: the weakness of American democracy, both in its ability to live up to its ideals and in its ultimate ability to justify them.
By the standards of democracy that he, Pei, and Fallows agreed to at the outset of the conversation, Li insisted, some of the greatest political leaders in American history were illegitimate. Washington was illegitimate; Lincoln was illegitimate; and if you take the 1965 Civil Rights Act as the beginning point for anything that could really be considered democracy by our own parameters for the idea — as Li clearly would — even Roosevelt was illegitimate.
In response to a question from the audience, Li also criticized the very ideas of political liberty and individual rights. Unless you think rights come from God, he insisted, you really have no theory of why any one view of political liberty any discrete set of individual rights should be sacrosanct at all. “If they’re from men, they’re not absolute; they can be negotiated.” It was only too bad there wasn’t time to discuss what “negotiated” means here.
“I want to break the spell of the so-called right to freedom of speech,” he added later. “Speech is act. It has harmed from time immemorial.”
Asked about the Chinese government’s censorship of the Internet, and its potential for exacerbating social disaffection and economic deceleration, Li asserted that these would be negligible. Pei disagreed: Internet censorship, he said, is a massively futile and regressive thing: It’s targeted toward very few people, but it inconveniences millions. Pei said that he didn’t know if this practice has played any real part in slowing down the economy, but he’s sure that it’s had a social cost. Ask Chinese people which they’d rather have, faster internet connection or access to social media, Pei said, and they’d say the latter. I agree with Li that the government censorship has minimal impact.Looking at the number of Chinese students studying English within China, studying abroad, and working for Western companies, the flow of Western ideas into Chinese society is immense.

 

If there is any censorship, it is a mental firewall within the Western world towards anything Chinese.  Do you know of any Westerner searching on Baidu in Chinese on some research done in China?

 

Internet in China is fast, and certainly fast enough for the Chinese.

 

Since Twitter and Facebook are blocked in China, I understand his point about how this lack of access from within China inconveniences some.

 

China’s position is that those tools while unwilling to subjugate to Chinese jurisdictions within the Chinese border, must not be allowed, otherwise they’d be used as tools of political opposition.

 

For Westerners in China, they are already accustomed to VPN’s, so the censorship is really an inconvenience.

Earlier this week, here in Aspen, when The Atlantic‘s Jeffrey Goldberg spoke to Google executive chairman Eric Schmidt about technology and democracy, the conversation turned to a similar question: http://bcove.me/f8b7xohb What Eric Schmidt has proven is that as a company, Google is arrogant enough to think they can take on the Chinese government.  It’s misguided.Fortunately, China is still pragmatic in allowing Android and some of Google’s other products to continue to operate in China.

 

Google could have a dominant position in China right now, especially given the synergy between Android on smartphones and Google’s services.  Instead, Google’s services are dwindling in importance in the Chinese market.

 

Apple enjoys are much more dominant position with the iPhone and iCloud working in tandem.

 

It is quite inappropriate for a corporation to flaunt not complying with any society’s law.

So, what’s the punch line? Be tolerant. Accept that other societies have ideas of their own. And that’s actually very much in alignment with the democractic ideal. If Westerners have so much faith in “Democracy,” then have confidence that others will be clamoring for it.

  1. Zack
    July 4th, 2012 at 00:51 | #1

    my question to Pei and Fallows is this:
    Exactly why is the PRC’s legitimacy in question whilst that of any of the liberal democracies in the West is not?

    Compare and contrast the conduct and leadership of successive western style liberal democratic governments in dealing with the current financial crisis with that of China or any of the BRICS (who have followed China’s lead step by step) and ask yourselves: which is in the more beneficial position?

    Anybody serious about scholarship and science would quickly reach the conclusion that naturally China’s model is far superior to that of the much touted ‘Washington Consensus’ and that therefore, it is not China’s government that should have its legitimacy questioned, but rather, that of the liberal democracies of the West. Popular discontent have already bred domestic unrest in the form of OWS and their offspring in Europe, whereas the case can be made that much of the violent unrest in China stem from foreign sources dedicated to subversion.

  2. July 4th, 2012 at 01:21 | #2

    This can be such a long discussion, with so many angles. If you look at the other example within the Chinese cultural sphere, Taiwan. It held the first election that is considered by many in the West as the first democratic election in 1996. Based on its historical per capita nominal GDP data and dollar inflation data, since 1996, Taiwan has had exactly -0.1% accumulative growth in dollar term.

  3. Zack
    July 4th, 2012 at 01:43 | #3

    Considering the fact that when they seem puzzled over what sort of ‘ideology’ defines modern China, both Fallows and Pei have overlooked the glaring fact that the technocrats in Beijing operate on scientific principles as outlined in the Scientific Development Concept.

    This is the difference between scientists and propagandist/charlatans like Pei and the soft minded like Fallows. Scientists rely on cold hard logic and less on emotional rhetoric as Pei and Fallows and so many Western commentators have expressed. I will say this as a scientist, if one were to apply the scientific method to current models on China and the West, it’s a no brainer to see which is more ‘successful’.

  4. July 4th, 2012 at 08:08 | #4

    Good work yinyang. I will just address one issue in this post. Some misguided individuals always want to point to Chinese students going overseas to study as a sign of something wrong or outright failure in the education system.

    If we take the number of mainland Chinese students in the US and compare it to the number of students from South Korea, we will conclude that Korean students are almost half that of the mainland Chinese. China has more than 30 times the population of South Korea! Does this mean that the Korean has no faith in their system? To come to this conclusion alone is mentally deficient.

    I personally want my kid to be brought up in a Chinese education system but I prefer that he has a taste of what other countries have to offer too later in life. The major reason of the backwardness of the late Qing dynasty is that it is totally oblivious of what is happening in the rest of the world.

    There is no shame in admitting that the developed countries are ahead in some areas and Chinese should learn from them. Frankly, the main reason of the continuing greatness of any civilization or country is its ability to learn from others and reinvent itself. And in a broader sense China should also encourage more students to study overseas in the rest of the world like South America, Africa, rest of Asia etc. As the Chinese saying goes, when three person are together, one will always be the teacher.

  5. Black Pheonix
    July 4th, 2012 at 13:30 | #5

    Minxin Pei is on my “call block” list.

    In a recent conference for JV high tech businesses between China and Israel, Minxin Pei degenerated the Q/A into political sloganeering to stage his negative views all over the place. (I don’t even know why he went there, just to be a fly in the oil?)

    When a Chinese reporter retorted on a point Pei was making without much support, Pei flatly asked (accused) the reporter (a woman) of being an agent of the local Chinese embassy.

    * In the future, if I ever see Pei in a conference, 1st question I will ask him is, “Mr. Pei, are you a paid agent of the CIA through NED? Because we know you are.”

  6. Zack
    July 4th, 2012 at 14:50 | #6

    honestly, what is with ppl like Minxin Pei? i know he’s travelled outside of China so how can he be so blind to the reality of China with respect to the US?
    Even ppl who are seduced by America’s first world living standards are intelligent enough to understand that living standards have more to do with wealth and technology (per capita) than actual governmental administration.

    That just leaves the possibility that Pei has sold out, and hates himself, his ethnicity and would in all likelyhood try to undergo gene manipulation to appear caucasian.

  7. scl2
    July 4th, 2012 at 16:32 | #7

    Pei sounds like Gordon Chang 2. They hate China. Why? Who cares?

    Wealth disparity: China is not that bad. Western media has been exaggerating: http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/06/24/the-billionaires-list/ If you use wealth/wealth ratio instead of wealth/GDP, the U.S. is even in worse shape: the wealthiest 400 U.S. citizens have more wealth than the bottom 60% of Americans (more than 180 million). At least the Chinese government is fully aware of the problem, and is trying to remedy it with the new income distribution law. In the U.S., increasing tax rate of the rich is something next to impossible. Talking about equality and upward mobility, primary education even in poor areas of China is remarkably good: http://www.bbc.co.uk/news/business-17585201

    Free speech and internet censorship: the Western media is doing their best to instigate instability in the Chinese society, virtually engaging in information warfare with China. Internet censorship is just a necessary evil in a war.

    Elites leaving China: Far more foreign investment and technologies have poured into China in all these years; they far exceed anything the “elites” could possibly take out of China. It’s just a two-way traffic that indicates normal healthy economic activity. BTW, more Chinese probably went to Africa than those went to NA and EU.

    Actually, none of the problems mentioned in the article is specific to China. That “democratic” societies cannot solve some of the problems, such as economic inequality, does not mean China cannot.

  8. Zack
    July 4th, 2012 at 17:04 | #8

    @scl2
    Gordon Chang’s sinophobia stems from a deep identity crisis where he was discriminated against for his ‘chinese-ness’ as a child. Therefore, when growing up, he sought to ingratiate himself with the White Establishment by being as anti-China as possible, a way of ‘proving his loyalty’ as it were. Add to that a strained relationship he had with his Chinese father and it’s clear why his blind anti China hate has taken over any semblence of scholarship such that he keeps making the same debunked ‘predictions’ year after year after year. At least Francis Fukuyama had the decency to admit when he was wrong; people like Gordon Chang can’t afford to admit they’re wrong, not simply because of politics, but because of deep personal issues within themselves.

  9. perspectivehere
    July 4th, 2012 at 17:35 | #9

    Often overlooked in discussions of income gap in China is the growth of village cooperatives. Here are some notable examples:

    Huaxi Coop: Sharing the Wealth and
    Living Large in a Tiny Chinese Village
    http://www.solidarityeconomy.net/2011/07/12/worker-cooperatives-chinese-style/
    “Published: July 11, 2011

    HUAXI, China — Ask not why the citizens of this village of 2,000, a few hours by car northwest of Shanghai, have built a 74-story skyscraper next to their prim town square. Everybody in China knows the answer: it is another step in their plan to create the communist utopia envisioned by Mao. The skyscraper will include a five-star hotel, upscale shopping mall, revolving restaurant and five life-size statues of a water buffalo, Huaxi’s symbol.

    The utopia part certainly seems plausible. Whether Mao would have approved is a bit more in doubt.

    Huaxi’s so-called New Village in the Sky — at 1,076 feet, a bit taller than the Chrysler Building in Manhattan — is getting finishing touches this summer in preparation for an October opening. Among other attractions, it will have a five-star hotel, a gold-leaf-embellished concert hall, an upscale shopping mall and what is billed as Asia’s largest revolving restaurant. Also, it will have five life-size statues of a water buffalo, Huaxi’s symbol, on every 12th floor or so.

    That this half-billion-dollar edifice is a good 40-minute drive from a city of any size is part of the plan. For though not many foreigners have heard of Huaxi, Chinese far and wide know it as the socialist collective that works — the village where public ownership of the means of production has not just made everyone equal, but rich, too.

    Two million tourists come annually to view the Huaxi marvel, no small number of them officials from other villages who yearn to know how Huaxi did it. The enormous skyscraper, topped with a gigantic gold sphere, will never win architectural awards. But it will add to Huaxi’s allure, the village fathers confidently predict — and soak up tourist money as well.

    “We call it the three-increase building,” said Wu Renbao, 84, the town’s revered patriarch, meaning that it will increase Huaxi’s acreage (by half), increase its work force (by 3,000) and, hardly least of all, increase its wealth.

    If he is right, all 2,000 villagers will get a little richer. They all own a piece of the building — just as they own the town’s steel mill, textile factory, greenhouse complex, ocean shipping company and other ventures. That is Huaxi’s carefully curated narrative: by rigidly adhering to socialism with Chinese characteristics, the citizens of this little village have created an oasis of prosperity and comfort that is the envy of the world.
    When China effectively embraced capitalism in the 1980s, Huaxi was an agrarian hovel, reachable by dirt roads. Mr. Wu, then the local Communist Party secretary, seized on the new market freedoms to shift the Huaxi economy from farming to manufacturing and trade, but with a twist: the residents would throw their money into a collective pot and share in the take from whatever new businesses they bought.

    “In the 30 years after the opening up, the system changed in many places,” Mr. Wu’s son, Wu Xie’en, said in a recent interview. “Some chose private ownership, but we Huaxi people chose public ownership. The biggest benefit is that the people share the common prosperity.”

    That Huaxi is prosperous seems undeniable. Here, the villagers get lavish annual stipends, live in spacious single-family homes instead of China’s usual cramped apartments, drive imported cars, and get basic medical care, education and even an annual vacation free from the government. Lately they also get free helicopter rides, courtesy of a 100 million renminbi, or $15.5 million, fleet of helicopters and small jets the village is buying to attract still more sightseers.

    Ge Xiufang, now 62, was a penniless peasant in a northern area of Jiangsu Province when her newly graduated son began looking for work in the early 1990s. “He saw an ad in the paper calling for workers to come to Huaxi,” she said. “So we came here, and two years later, we became villagers.”

    That was in 1993, before Huaxi took off. Ms. Ge was interviewed in her son’s house, a two-story building with marble floors, overstuffed leather sofas, a large aquarium and a liquor cabinet dominated by an enormous bottle of expensive Scotch. Ms. Ge said she and her husband live in a sprawling town house a few blocks away and shuttle between homes in one of the family’s three cars.

    “We peasants, we didn’t even have apartment buildings in those days,” she said. “We had no idea it would be this good.”

    The elder Mr. Wu extols Huaxi’s splendor — and the Beijing government’s wisdom and foresight — in a lengthy lecture given each morning in an auditorium packed with hundreds of tourists. To hammer the message home, there follows a musical, a sort of Chinese opera with Disney characteristics and toe-tapping lyrics:

    Where we live: garden, house, little Western-style mansion
    What we eat: a food culture full of nutrition
    What we wear: big brand names of fashion
    and
    Huaxi is rich in substance, politics and spirit

    One American guest said, “O.K., O.K,
    Socialism is so good, we Americans want it, too!””

  10. perspectivehere
    July 4th, 2012 at 17:42 | #10

    Another example:

    Village Cooperative Distributes Gold Bars
    A Yangtze River village head distributed 100-gram bars of gold and silver to over 2,800 villagers as part of dividends for the village’s cooperative enterprise. On March 17, Jiangyin Village distributed gold instead of cash dividends also as part of the village cooperative’s 40th anniversary celebrations. Much like the renowned Huaxi Village, Jiangyin Villagers claim to use a similar socialist model.

    http://english.caixin.com/2012-04-10/100377966.html

  11. perspectivehere
    July 4th, 2012 at 17:45 | #11

    The blog Shenzhen Noted has interesting descriptions of village cooperatives in the area surrounding Shenzhen. Not all the examples are successful, but these organizations encounter the usual problems one sees in any collective economic endeavor, whether private corporation, partnership or cooperative.

    Two Examples:
    ******************
    怀德村:virtue’s rewards

    “In 1988, Huaide was chosen as the location for Shenzhen’s Baoan International Airport. At the time, the SEZ decided that guannei land should be saved for urban development, rejecting a proposal to build at Baishizhou, which was then considered the suburbs and choosing instead to stimulate the guanwai economy by converting Shenzhen’s largest duck farm into an international airport. The Shenzhen airport expropriated over 1,000 mu of village land and in return Huaide received a compensation package of 3.5 million yuan. The question became: should the sum be divided evenly and distributed to each villager (as many villages had chosen to do) or should the village create a jointly held corporation and invest the money in common cause?

    In 1988, guanwai New Baoan County was still rural. This meant that the village was still organized as a collective brigade, which provided the organizational infrastructure for Huaide’s subsequent development as a jointly held corporation. Huaide’s current CEO and current Party Secretary, Pan Shansen earnestly explains that Huaide Party leaders understood that unless they could correctly direct the thinking of the villagers, the village was in danger of making a collective mistake. Collective and Party leaders then went to work on villagers with dissenting opinions in order to make sure that everyone was on board with the next step — using the money for capital investment to build and manage Cuigang Industrial Park. Pan Shansen then expresses his gratitude for the previous Party leaders’ foresight in using the Airport compensation to create a strong, collective economy.

    Pan Shansen describes the work of creating “a center where there was previously no center” as arduous and only possible through the cooperation of the people and their government. In addition to creating a large wholesale furniture market, in 1996 Pan Shansen established a venture capital fund that provided interest free loans to young villagers who wanted to start up companies. The fund started with 1/2 million when and grew to 2 million, and loans grew from 20-50,000 per project. In 2005, this venture capital project was expanded through collaboration with Shenzhen’s rural bank, providing low interest loans of up to 300,000 yuan to Huaide Villagers. By 2010, when the documentary was made, in addition to the villages collected holdings, over 40 families had used Village venture capital to create family businesses.

    Fiscal conservatism of the defining features of Huaide Village’s success. Huaide Village has its own “constitution” that requires any private investment over 5 million yuan to be approved by the village, they set up a legal aid office for villagers to consult when writing contracts, and since 1992 have not sold any village land rights. Telling, Pan Shansen makes a point of reminding documentary viewers that Huaide Villagers are farmers — to break their ties to the land and the village is tantamount to destroying what makes them who they are, regardless of how they actually make money. Land is at the heart of Huaide’s neo-Confucian CCP virtue and unlike many Shenzhen villages that no longer have collective land, Huaide still owns almost 1/2 of the land they owned before 1980. What’s more, the Village has actively purchased land rights from other Shenzhen villages, leaving its own land for future use.

    The rewards of Huaide’s virtue are a neo-Confucian-socialist hybrid capitalist success story, or as it is sometimes said, villagers washed their feet and left the paddies. In addition to its village venture capitalist fund, Huaide invested in social services and local culture. Huade provides medical insurance, education, including college scholarships, and old age activities for its 700 villagers, and in 2010, its Lion Dancing Troupe was the only village level troupe to receive an invitation to perform at the opening ceremony of Belgium’s Chinese Culture Festival. And thus, the moral to this episode tallies with Shenzhen’s ongoing campaign to promote Confucian ethics: good party cadres are at heart neo-Confucians, serving their people, who become collectively rich. In turn, inquiring minds wonder: to what extent has Huaide’s ethical sensibility extended to the organization of workers’ rights in the village’s three industrial parks?”

    http://maryannodonnell.wordpress.com/2012/04/28/怀德村:virtues-rewards/

    *******************

    Xiasha: What continues and what fades away

    “In 1983, the village secretary was a woman, Huang Meizhu (黄美祝). She organized collective investment in building factories and a system for distributing profits to all participating villages. In 1992, Xiasha established its eponymous joint stock-holding corporation and in 1993, Huang Yingchao (黄英超) the current CEO decided to go to England to hire an urban planner to design a new village layout — and yes, his name means “surpass England”, an ironic memory of Cultural Revolution China.

    The design plan anticipated a population of 50 to 60,000 and included underground electrical wires, wide streets, and one of the largest plazas in the city. Indeed, Xiasha’s decision to spend 3 million rmb on an urban plan was one of the most expensive in the SEZ. In fact, Xiasha has become one of the poster villages for rural urbanization in Shenzhen. One of China’s more successful clothing brands, Ying’er was established in Xiasha.”

    http://maryannodonnell.wordpress.com/2012/04/01/xiasha-what-continues-and-what-fades-away/

  12. Charles Liu
    July 5th, 2012 at 10:09 | #12

    On the issue of expatriation, facts don’t support Pei’s insinuations:

    – With the exception of few corruption cases, most Chinese elites who can afford to move assets overseas are not leaving China. They continue to keep their primary residence and vocation in China and divert some of their wealth overseas for secondary residences.

    – Sending children overseas for education is not unique to China. In US “roadscholar” type of education traveling is still in fashion, for example the highly prized Rhodes Scholarships to England.

    – Chinese getting education abroad are returning to China, as observed by Shaun Rein recently in an article where he advocated for western universities to set up shops in China.

  13. perspectivehere
    July 5th, 2012 at 12:14 | #13

    Pei’s argument:

    “In the political sphere, we’re seeing manifestations of a fundamental vulnerability of one-party systems globally: a tendency to drift into benefiting a relatively small, and ultimately predatory, elite at the expense of society generally, and the associated phenomena of high-level corruption and inequality.”

    ******************
    What exactly is his data-set when he refers to “one-party systems globally”?

    Relevant Counter-example: Taiwan “miracle” development from 1950’s-1980’s was entirely under a single political party, the KMT (GMD). Economy, Chinese society and culture flourished although it sucked if you were a Taiwanese 本省人 who regarded KMT rule as illegitimate and sought independence through political action or violence – it was prison for those folks. “Human rights” were controlled under martial law, but these gradually loosened as economy improved and, most importantly, the security situation across the Taiwan Strait calmed down due to the normalization of relations between US and PRC (Nixon – Carter years) and lifting of US trade embargo in 1979. These allowed China to start its opening up reforms (after all, how much could opening up have done if China was still subject to US trade sanctions in the 1980’s?). In 1987 Chiang Ching-kuo’s administration lifted martial law and permitted other political parties to form. By that time Taiwan had already achieved a very high GDP per capita, and the quality of life was very high for most of Taiwan’s population.

    Far from “benefiting a relatively small, and ultimately predatory, elite at the expense of society generally”, the period of one-party KMT rule in Taiwan was quite the opposite.

    After the DPP came to power, it showed that a two-party system is susceptible to corruption, as the DPP President Chen Shui-bian and his wife are convicted of corruption and sent to prison.

    We also have examples from South Korea and Singapore where a one-party rule has functioned pretty well during the growth phase from “third-world” to “first-world” standard of living.

    You also have the counter-examples of the Philippines where a multi-party democratic system since the Marco’s regime fell in the mid-1980’s has not resulted in ending government corruption, or economic inequality. The Philippine economy heavily relies on remittances from its people who go overseas to work as domestic helpers, nurses, drivers, seamen etc. The government there has accomplished little over the last 30 years. Certainly with all their endowments (well-developed system of law, English-speaking, a “westernized” population) they could do better?

    ********************
    Rather than comparing one-party systems globally, it makes more sense to compare to other political systems in Asia, and ones with similar cultural systems as you have in China.

    The cases of South Korea, Japan, Taiwan, Singapore and even Hong Kong indicate that a one-party ruling system can work pretty well. It’s not clear that rushing to establish a multi-party system can help, and there is a good argument that it can hurt.

    For example, in the recent examples of Hong Kong elections, the filibustering actions of the opposition parties, as well as the blocking of the Chief Executive appointments, shows very clearly how silly and waste-of-time and resources multi-party systems are. Some people are disgusted with this. Others who believe in “democracy” are enjoying the spectacle. Meanwhile the government gets nothing done. This is how Washington works as well, as the Republicans put up a roadblock to every single Obama initiative.

    These types of shenanigans are not that critical in places like HK and the US which are relatively well-off societies. In places like the Philippines, bad government means that the poor grow up poor and stay poor. A multi-party democratic system (as well as a press relatively free of govenrmental control) has done little to change that.

    Of course, if MXPei is drawing examples from other parts of the world – Latin America or Africa, he will find examples that support his thesis. I don’t necessarily disagree, but these are very different places from East Asia. For one thing, the history of colonialism in Latin America and Africa is longer and deeper than in East Asia, where traditional social and cultural institutions survived much better than in Latin America and Africa.

    These traditional social and cultural institutions (like guanxi relationships and Confucianism), or royalty in places like Japan, Thailand and Malaysia, may in fact provide the social glue that gives legitimacy to governments, and it may be counterproductive within those cultures to have a multi-party system that “competes” for voter popularity.

    These are complex questions and not reducible to a formula as MXPei seems to be suggesting.

    This is the problem with political scientists – their pronouncements are usually more political than scientific.

  14. perspectivehere
    July 5th, 2012 at 12:54 | #14

    I mentioned “village cooperatives” above here , here and here as examples of a phenomenon in China that achieves remarkable economic, social (and perhaps even political) success, but is little known in the western popular mind, and not often acknowledged in the western press, except where there is a notable event (like the skyscraper in the huaxi case).

    What is surprising about Chinese village cooperatives to Western trained economists is that according to classic economic theory, they should not work. This is because private property rights are not well-defined in the village cooperative economies (also known as TVEs – Township Village Enterprises). In such situations, economic theory would say that decisions cannot be made efficiently, and there is a tendency for people to free-ride and shirk responsibility.

    However, in an oft-cited study done in the 1990’s, a Harvard and LSE economist noted that Chinese TVEs outperformed both SOEs and private businesses. TVEs exhibited entrepreneurship and growth in ways that were wholly unexpected.

    Here is an abstract of their conclusions:

    “This paper concerns the paradoxes and dilemmas that the very successful “Chinese model” presents for transition theory. The “Chinese model” is centered on the development of township-village enterprises. The main purpose of this paper is to make the case that TVE’s are not just some form of disguised capitalist institution; they are much better described as “vaguely defined cooperatives” – meaning an essentially communal organization extremely far removed from having well defined ownership structure. That a transition strategy based on vaguely defined cooperatives should be so successful presents a severe challenge for traditional property theory. We speculate that to address this challenge properly, traditional property rights should be extended by including a dimension corresponding to the degree of individualism/cooperation existing in a society. A model of the required extension is described. Implications and application are discussed.”

    The article is well worth reading, even if it dates from 1994. Much has changed since then, but for those who are unfamiliar with the phenomenon, it is worthwhile and even enjoyable to read just to appreciate the tone of surprise and head-scratching that is expressed by the authors in this article. Quite remarkable I think.

    {As a side note, what is interesting (and for this, I respect the authors of the article) is that the authors admitted that the phenomenon defied their theory, and looked to understand the phenomenon, rather than justify the theory. I see this as a classic Thomas Kuhnian situation where an “anomaly” appears that defies the paradigmatic scientific theories of the day. How do you deal with the anomaly? The tendency of normal science is to seek to deny or explain away the anomaly, or chalk it up to experimental error or bad statistics, whatever. And yet when these anomalous examples pile up, eventually the dominant theories give way as a new, younger generation of scientists who are more open-minded to these anomalous situations (or who are not institutionally or personally as bound up in the prevailing theory – after all, the establishment’s bigwigs wrote the textbooks and now they are getting all the accolades and grants – they don’t necessarily want to lead the work upsets the apple cart and trashes their own achievements). In this case, the authors point to the fact that cultural factors unique to a particular society may affect the economic behavior in ways that cannot be explained by the existing economic theory without modification.}

    The article is also found at this link.

  15. perspectivehere
    July 5th, 2012 at 14:13 | #15

    @perspectivehere

    My favorite part of the paper, which is highly relevant to the OP’s post on the democracy debate:

    *****Quote*****
    “According to almost any version of standard mainstream property rights theory, what we are calling the “Chinese model” should represent a far-out recipe for economic disaster. Without a true owner who has the clear rights and incentives to operate the firm for maximum profits, there ought to be inefficiency and shirking in TVEs. As a result, the TVEs should operate badly. A transformation strategy centered on “vaguely-defined cooperatives”, even with a hard budget constraint, would seem like the farthest thing imaginable from conventional wisdom in this area.

    The central paradox is the enormous success of the Chinese model in practice, contrasted with the predictions of the standard theory and also with the sputtering, tentative, comparatively less successful experience with the standard model. Why do theory and practice seem so diametrically opposed in this important area? Of course, one could attempt to argue that the “standard model” was never “really tried.” But this explanation begs many further questions and still leaves a big gap between theory and practice in explaining the success of the Chinese model.

    In keeping with the necessarily compressed nature of this paper, there is not space here to explore fully all the possible explanations. Several factors may be playing a role. We would like to emphasize in this paper one line of thought that seems to us particularly appropriate, even if it should be regarded as somewhat speculative at this stage because other explanations are logically possible. The conventional property rights theory may be inadequate here because it is missing a critical dimension.

    The key missing element is the ability of a group to solve potential conflicts internally, without explicit rules, laws, rights, procedures and so forth. To make this idea more operational, and more internally consistent, we consider a theoretical framework.30 It is possible to criticize this theoretical framework as, in the end, doing little more than elaborating the syllogism that “China’s vaguely defined cooperative enterprises perform outstandingly well because China’s culture is unique and different.” Yet we feel it is useful to go more deeply into the structure of a general argument that might reconcile the paradox, both for its own sake and because this line of reasoning could bear on many issues in economics other than just the one being addressed here.

    ….
    The Folk Theorem of Repeated Games and Cooperative Culture

    Let us consider the prisoner’s dilemma non-cooperative game.31 The only solution to the one-shot prisoner’s dilemma game is the selfish Nash equilibrium, which is Pareto inferior to the cooperative solution. However, when the prisoner’s dilemma game is played repeatedly, a much richer set of results is possible. Actually, a continuum of solutions is possible, which can often be Pareto ranked, corresponding to a greater or lesser degree of ‘as if’ cooperation. Thus, there is a sense in which a non-cooperative repeated game can yield the kinds of outcomes typically associated with cooperation, collusion, or binding agreements. This family of results is so important, and it has been known for so long, that it has been given a name: the so-called “Folk Theorem” of game theory.

    The Folk Theorem states that the outcome of a repeated non-cooperative game played among sufficiently patient players may look as if it is the outcome of some cooperative process, or some legalistic binding agreement to play cooperatively. Or, it may not. It all depends. Depends upon what? In a word it depends upon an intangible expectational factor that might legitimately be identified with the history or culture of the group of players.32

    If each member of the group expects that every other member of the group will play cooperatively and that there will be a relatively severe penalty for not playing cooperatively, then the cooperative solution may become a self-reinforcing equilibrium. On the other hand, if members of the group expect that other members will not play cooperatively and the penalties for such behavior are relatively light, then a non-cooperative solution will emerge as a self-sustaining equilibrium. In general, there will be a continuum of infinitely many such solutions, ranging from more ‘as if’ cooperative to less ‘as if’ cooperative. It seems fair to identify a “cooperative spirit” or “cooperative culture” with a set of self-reinforcing expectations that result in a more ‘as if’ cooperative solution. Let the outcome to a repeated non-cooperative prisoner’s dilemma game be quantified by the parameter

  16. Wahaha
    July 5th, 2012 at 19:50 | #16

    The central paradox is the enormous success of the Chinese model in practice, contrasted with the predictions of the standard theory …..

    ***********************************

    There is no paradox here, it is all about if you can manage human resource, nature resource and wealth scientifically, and make plan scientifically and CARRY OUT PLAN SCIENTIFICALLY.

    Scientific management means optimization, which means that goverment, if necessary, must be able to carry out plan even 50+% of people dont like it (like breaking the Iron bowls in 1990).

    Therefore the essence of democracy (whether real or fake) is anti-science because it allows too many unscientific factors into decision-making process, and the current understanding of human right by west simply makes scientific planning impossible. for example, freedom tower (can’t get it done by 9/11/2011), O’hara airport, Barclay center, interstate 710, and 3rd world infrastructure according Pei.

    If there is paradox here, it is that government is supposed to work for (hard-working) people, but government can’t allow people involving too much into making decisions, otherwise government won’t be able to help people.

    Why?

    Because science is in the hand of very few people.

  17. perspectivehere
    July 6th, 2012 at 13:25 | #17

    Apologies, my comment @perspectivehere #15 above got cut off due to a Greek character symbol “lambda” appearing in the pasted text.

    The authors of the cited article, Martin L. Weitzman (Harvard) and Chenggang Xu (formerly London School of Economics, and currently at Hong Kong University) use the concept of “lambda” to measure the degree of cooperation in a group, with lambda = 0 in groups that do not cooperate at all, and lambda = 1 for groups that maximally cooperate with one another. Applying this “lambda” concept to the phenomenon of economically successful Chinese TVEs / village cooperatives, they theorize that the reason TVEs were successful in reform-period China but similar collectives failed in post-Soviet Eastern Europe is due to cultural reasons, that China is a “high lambda society” (like much of East Asia) while Eastern Europe is a low lambda society. Because China is a high lambda society, the absence of the “rule of law” (established legislation and enforcement) did not prevent successful collective village enterprises from emerging and flourishing, whereas in low lambda societies, the absence of rule of law meant no economic development could take place.

    Here’s the rest of the excerpt, substituting the word “[lambda]” for the symbol.

    *****QUOTE*****
    The Folk Theorem of Repeated Games and Cooperative Culture

    Let us consider the prisoner’s dilemma non-cooperative game.31 The only solution to the one-shot prisoner’s dilemma game is the selfish Nash equilibrium, which is Pareto inferior to the cooperative solution. However, when the prisoner’s dilemma game is played repeatedly, a much richer set of results is possible. Actually, a continuum of solutions is possible, which can often be Pareto ranked, corresponding to a greater or lesser degree of ‘as if’ cooperation. Thus, there is a sense in which a non-cooperative repeated game can yield the kinds of outcomes typically associated with cooperation, collusion, or binding agreements. This family of results is so important, and it has been known for so long, that it has been given a name: the so-called “Folk Theorem” of game theory.

    The Folk Theorem states that the outcome of a repeated non-cooperative game played among sufficiently patient players may look as if it is the outcome of some cooperative process, or some legalistic binding agreement to play cooperatively. Or, it may not. It all depends. Depends upon what? In a word it depends upon an intangible expectational factor that might legitimately be identified with the history or culture of the group of players.32

    If each member of the group expects that every other member of the group will play cooperatively and that there will be a relatively severe penalty for not playing cooperatively, then the cooperative solution may become a self-reinforcing equilibrium. On the other hand, if members of the group expect that other members will not play cooperatively and the penalties for such behavior are relatively light, then a non-cooperative solution will emerge as a self-sustaining equilibrium. In general, there will be a continuum of infinitely many such solutions, ranging from more ‘as if’ cooperative to less ‘as if’ cooperative. It seems fair to identify a “cooperative spirit” or “cooperative culture” with a set of self-reinforcing expectations that result in a more ‘as if’ cooperative solution. Let the outcome to a repeated non-cooperative prisoner’s dilemma game be quantified by the parameter [lambda], which is valued between zero and one. A high value of [lambda] near one means a non-cooperative solution that comes close to satisfying the Folk Theorem and looks as if it were the outcome of cooperative collusion. A low value of [lambda] near zero means a non-cooperative solution that is far from the cooperative solution, thus yielding low individual payoffs.

    The parameter [lambda] stands for the ability of a group of people to resolve prisoner’s dilemma type free riding problems internally, without the imposition of explicit legalistic rules of behavior, other things, including the size of the group, being equal.33 With a value one of [lambda], people in a group would be able to resolve free riding problems internally in repeated games regardless of the size of the group. With a value zero of [lambda], even two people – the smallest group of people – cannot resolve free riding problems. With a value between zero and one of [lambda], people would be able to cooperate relatively effectively when their group is sufficiently small, but they may not be able to cooperate so effectively when their group is sufficiently large.

    The relevant theory appears to justify taking [lambda] as a more or less given function of “culture.” As we have readily admitted, it could be argued that our approach essentially shifts the paradox back one stage to explaining the determinants of [lambda] – on balance, however, we think there is a useful net gain in understanding. A more serious inquiry would want to probe further, but suppose for the sake of argument we temporarily treat [lambda] as a quasi-fixed reduced form parameter. Of course it does not constitute proof, but a lot of anecdotal evidence could be cited to justify the general proposition that East Asia is a high-[lambda] society relative to Europe, which by comparison is more of a low-[lambda] society.34

    *****End Quote*****

    Using this concept of [lambda], the article goes on to suggest that in “high-[lambda]” East Asian societies like China, and particularly rural villages which traditionally do not have a great deal of legal protections but operate a lot on oral agreements and trust in relationships (e.g., traditional family / elder hierarchies and guanxi), business dealings based on these relationships may result in economically efficient outcomes because people operate based on implicit understandings rather than explicitly stated and applied rules.

    What the authors go on to conclude is that legally enforceable contractual relationships (and which operate together with clearly defined property rights) work better in low-lambda societies like Eastern Europe where the level of trust and cooperation is low, while in high-lambda societies like Chinese villages, oral contracts and implicit understandings (and vaguely collective defined rights over property) work better because it is a high-trust and cooperation society, by comparison.

    It also implies that the “Chinese model” may not be exportable to places outside of East Asia.

    Note the authors are writing in 1994 and the situation may have evolved since then. As China puts in place a legal system and enforcement, the legal system sits in some ways uncomfortably alongside the traditional guanxi system, as the legal system may intrude on and upset guanxi relationships, and vice versa.

  18. July 6th, 2012 at 21:26 | #18

    @Zack

    honestly, what is with ppl like Minxin Pei? i know he’s travelled outside of China so how can he be so blind to the reality of China with respect to the US?

    Pei has lived in the US for at least 2 decades. He was born in 1957, graduated from Shanghai International Studies University, and completed his Master and Ph.D degrees at Harvard. He left China at a time when China was extremely poor. The intelligentsia in China then believed sooner or later, politically China would have to democratize. Thinking otherwise, let alone advocating some “Beijing Consensus” or “Chinese Model”, was simply blasphemy. Even Deng in the 80s and 90s held the idea that one day in China there would be direct nationwide elections to choose the head of the state, though the great architect didn’t spell out the timeline and how the one-party system would work with that. Would it be “democracy” a la Singapore-style or a multiple choice among 2 or more CCP candidates?

    If I told you then that I didn’t believe the final destination of China would be one day fully embracing the “democratization” process like Taiwan did, much like what Pei now stacks his whole intellectual foundation on, I would be lying. As of today, if we look back to what Russia has been through, and what Taiwan has been through in the past couple of decades, compare them with mainland China, how can you not at the very least re-examine all your prior assumptions. Doing otherwise would be like — this is especially to those Stephen Chow’s fan — insisting everything in China is “just an illusion, and you can’t scare me”.

    The great John Maynard Keynes was supposed to have said, “when the facts change, I change my mind. What do you do, sir?” Well, if we didn’t change our mind, we would be still living in caves, or thinking the earth is flat, or the sun and stars rotating around the earth… In short, step #1 is stopping kidding yourself and facing the truths. China is doing fantastically well comparatively speaking, and the people are overwhelmingly satisfied with the country’s direction.

  19. July 6th, 2012 at 22:19 | #19

    @perspectivehere
    This is a very interesting topic. If you look at Japan as a Confucian culture, you will see that the number of legal professional per citizen is much lower than that of the U.S.. I wonder what is the ratio of court cases to total population per year for these countries: Singapore, China, Japan, and the U.S..

  20. perspectivehere
    July 7th, 2012 at 02:23 | #20

    yinyang :
    @perspectivehere
    This is a very interesting topic. If you look at Japan as a Confucian culture, you will see that the number of legal professional per citizen is much lower than that of the U.S.. I wonder what is the ratio of court cases to total population per year for these countries: Singapore, China, Japan, and the U.S..

    A well-known lawyer joke:

    Into a small town moved in its first lawyer. Even though he was the only lawyer in town, he was not busy and could barely make ends meet. Sensing opportunity, another lawyer moved into town. They both got rich.

  21. pug_ster
    July 7th, 2012 at 13:34 | #21

    This whole ‘debate’ why democracy is so ‘great’ shows what kind of fragile superpower America is. Not to mention that people like Minxin Pei have to resort to using personal attacks to prove make their point is the kind of narcissistic ‘intellectuals’ that America has.

  22. mister unknown
    August 3rd, 2012 at 15:07 | #22

    @YinYang – I feel that a few additional comments is necessary regarding the trend of the supposed “great Chinese escape” to the US.

    The rich & wealthy moving their assets, families, and themselves abroad is an international trend that’s not limited to China, or the developing world, or only to non-democracies. BBC published a recent article documenting how the rich in the UK are moving abroad as well. We also see the trend of young westerners moving to China to get work experience in emerging markets. Also, tax evading emigration occurs in the west as well – the most recent and most publicized example being a co-founder of Facebook giving up his US passport shortly before FB’s IPO to avoid taxation of his IPO income.

    The bottom line is that upper-class emigration of and asset flight is an international phenomenon and a byproduct of globalization, not strictly bound by a country’s political ideology or level of development. Just as one examines imports and exports of goods/services, so one should assess the inflows and outflows of human talent and wealth.

  23. August 3rd, 2012 at 15:27 | #23

    @mister unknown
    Well said:

    The bottom line is that upper-class emigration of and asset flight is an international phenomenon and a byproduct of globalization, not strictly bound by a country’s political ideology or level of development.

    Perhaps the country with the most capital spread around the world is in fact America.

    Capital spread to where ever opportunities exist.

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