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China for a Day, and Another Day, and Another. . .



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Brian Palmer’s explainer today in Slate — “Why does China not have famines anymore?” — is basically accurate in its reporting but wrong in its conclusions. Chinese agriculture was, as Mr. Palmer notes, turned around by the market-oriented liberalization of Maoist practices, government investment in infrastructure, particularly irrigation systems, and dumb luck in the form of unusually good farming weather:

There’s a short version and a long version, and the difference really matters—even for Americans. The short version reads something like a fairy tale written by free-market philosopher Ludwig von Mises. Chinese farmers under Mao were organized into collectives that worked common land. The manager of the collective made planting decisions and assigned duties, paying no heed to market signals or the particular skills of individuals.  . . .  Everything changed in 1978. A collective in the village of Xiaogang secretly agreed to go capitalist. The group’s output surged so dramatically that it caught the attention of the evil communist authorities. The Xiaogang dissidents feared they would be executed. Rather than punish the heroic Xiaogang collective, however, Beijing recognized their genius and adopted reforms. Farming families across China took quasi-ownership of plots of land and were granted more freedom to sell their yields on the open market. That single change created incentives to work hard and make investments for future productivity. And everyone lived prosperously ever after.

. . . The full story is far more complicated than a simple capitalist fairy tale, though. It involves prudent planning, heavy investment in infrastructure, and state subsidies. It doesn’t give you that warm, self-satisfied feeling of Western philosophical triumph. But you ought to hear it anyway.

Totalitarian economies have a remarkable history of fooling Western observers, who suffer from a version of confirmation bias when they see growth in centrally planned economies. It is the same sort of thing that led Lincoln Steffens to offer his famous assessment of the Soviet Union: “I have seen the future, and it works.”

The so-called Chinese miracle, like the Soviet miracle before it, requires particular conditions: If you have 1.) a relatively primitive and largely agricultural economy, and 2.) a police state, you can accomplish a dramatic economic turnaround — once. You really can do big things with totalitarian powers, for example forcibly industrializing an agrarian society, which will in most cases produce stronger economic growth, along with murder and gulags. (Mr. Palmer calls Mao “horrifically misguided.” What was Hitler? Tragically insensitive?) You can also undertake projects such as the one Mr. Palmer describes, using the state to install an irrigation infrastructure that would have taken longer to develop under free-market conditions. Similar things happen in free societies, too — e.g. President Lincoln’s “improvements” and government patronage of railroad development — but, in the absence of a police state, these things take more time.

In his 1937 Guide to Kulchur, Ezra Pound implored the intellectuals of his generation to appreciate “the actual achievements of the totalitarian states, which won’t stay still and will not be, at the date of publication six months or a year hence, what they are today.” Roughly the same dynamic is at work in Thomas Friedman’s “China for a day” vision of benevolent totalitarianism. What convinced Pound of “the superiority of these Corporate State fellows” was their (partly illusory) ability to act immediately, which he communicated with his usual idiosyncratic typography:  

I take it ROSSONI gets more DONE than all the rest of us economists because he does NOT allow himself to be too far distracted from the particular and material realities of his grain, his wool . . . He saw the point of stamp-scrip in ten minutes and started to think how it wd. FIT into the corporate system. NO! the state couldn’t issue it. The corporazioni could.

And the program was under way in a matter of weeks, at least as Pound tells it. Incidentally, if you haven’t read Pound’s eccentric Guide to Kulchur, it is a fascinating piece of work; the economic sections will be of particular interest to those who have read Jonah’s Liberal Fascism and would like to know more about what American intellectuals of the period were actually thinking when they succumbed to the totalitarian temptation.

Which brings us back to Mr. Palmer, who writes:

It’s fine to treat China’s food revolution as a fairy tale. The changes were so dramatic that it’s hard not to. But let’s make sure we get the moral of this story correct. Changing the incentives isn’t a magic trick that can turn any lagging economy into a global juggernaut. Investment in infrastructure, research and development, and putting money into the pockets of workers work wonders as well.

But that is not the moral of the story; the moral of the story is the one that Ezra Pound and Thomas Friedman discerned: Totalitarian states can act. An industrial and trade-oriented economy will grow much more quickly than an agrarian economy, especially one that is heavily oriented toward subsistence farming, and, if you are sufficiently committed to violence, as the Communists were and are, then you can force the transformation from farms to factories in a relatively short period of time, at tremendous human cost. You’ll get a great deal wrong: China’s centrally planned infrastructure projects are notoriously inefficient, and it will take a generation or more to get them sorted out, but the difference in productivity between an industrial-trade economy and a subsistence-agriculture economy is great enough to cover many blemishes. Mr. Palmer’s narrow question regarding Chinese famines is as much a result of industrialization and trade as agriculture reform: You do not have to rely on good farming weather when you can afford to simply import food.

But that blunt-force approach only works, to the extent that it works at all, in relatively primitive economic circumstances. Call it the law of diminishing returns to totalitarianism. In the United States, we already have a very advanced, technology-driven and trade-intensive economy. Contra Mr. Palmer, Mises’s greatest insight had nothing to do with workers’ incentives, which already was an ancient idea when he was active, but had to do rather with the problem of knowledge: In a complex society, knowledge is dispersed, local, and contingent, which makes central planning impossible. Add to that the problem of political incentives — men do not cease to be self-interested economic actors after winning an election — and the problem of political management of capital becomes very hairy indeed, which is why, from bailouts to boondoggles, it produces such poor results in the American context, and in the context of advanced economies generally. What is required in the United States is precisely the market part of the Chinese reform package, the liberalization of key sectors such as education and health care, which currently are organized on Prussian-monopoly and corporate-state models, respectively. 

Right story, wrong moral.



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