Andy Stern’s Peculiar Idea

by Reihan Salam

Andy Stern believes that the Chinese economic model is superior to what he calls the “conservative-preferred, free-market fundamentalist, shareholder-only model.” Having spent the day in Chongqing, Stern sees the sprawling city as indicative of China’s success. Those of you who are familiar with the political economy of Chongqing, and the devastation of its rural economy and its environment, might find this somewhat peculiar. The fact that China’s rural interior actually saw decreases in literacy levels and life expectancy for long stretches of the boom years might also be of interest. He points to rapid annual wage growth and the creation of specialized industrial zones as other promising signs, while others see rapid inflation as a consequence of its currency peg and a future source of economic vulnerability. He also seems to believe that China’s current growth rates are sustainable as the country transitions to a more service-oriented economy, which is an interesting view, and he seems to have missed the extensive evidence that growth slowdowns tend to occur sooner in countries with undervalued real exchange rates. Then, of course, there is the fact that China’s post-1979 catch-up growth followed several decades during which large numbers of Chinese died of starvation and the remnants of its pre-war industrial economy languished. 

Stern writes:

America needs to embrace a plan for growth and innovation, with a streamlined government as a partner with the private sector. Economic revolutions require institutions to change and maybe make history, because if they stick to the status quo they soon become history. Our great country, which sparked and wants to lead this global revolution, needs a forward looking, long-term economic plan.

To be clear, Andy Stern believes that the United States needs a Chinese-style central plan to flourish, one that will be executed by a streamlined government.  

To really learn from the Chinese, and to enjoy such staggering growth rates, we should go about things differently: let’s have a Maoist insurrection followed by a civil war that lasts for several years. Then let’s destroy most of the wealth in the country, and drive out millions of our most enterprising and educated citizens by launching systematic terror campaigns during which millions of others will die in violence or of starvation. Next, let’s have a modest economic opening in coastal regions: impoverished citizens will be allowed to launch small-scale township and village enterprises and components will be assembled in a handful of cities by our stunted descendants. Then let’s severely curb those township and village enterprises because they represent a potential political threat and invite large foreign multinationals and state-owned enterprises [let's not forget those!] to work our population to the bone at artificially suppressed wage rates, threatening those who complain with serious reprisals up to and including death. Let us also initiate a population control policy designed to improve our dependency ratio for a few decades. As large numbers of workers shift from low-value agricultural work to manufacturing, we will experience … rapid growth! Mind you, getting from here to there will involve destroying an enormous swathe of our present-day GDP. And that sectoral shift from rural to urban work will run out of gas pretty fast, as will the population control policy that will guarantee rapid aging.

Another way to grow the American economy is to embrace Brink Lindsey’s “Frontier Economics” approach.  Recognizing that advanced economies are different from other economies — it is easy to replicate the institutions and practices pioneered in the leading economies; it is harder to create new practices and products that take off — we need to facilitate experimentation to achieve growth, and even then we won’t match growth that flows from conditional convergence.