In “Hitting China’s Wall.” Paul Krugman opines that “All the signs coming from the economic data show that China is in big trouble.”
He does not do a very deep job at explaining what he means. The latest China GDP growth number was an annualized 7.5%, down from a torrid, sustained, 10% (Brazil, recently a growth star, is hovering around zero growth, barely better than France).
There is a French saying: “Quand le batiment va, tout va” (“when construction is doing great, everything is great”). And it’s true that the run-up in real estate prices in the West is directly related to a dearth of construction. Basically, the West is not building enough comfortable, modern housing where work is to be found. A failure of Biblical proportions.
By contrast, China is still building at a frantic pace, symbolized by super tall towers all over. This is a pretty typically Chinese scene in Shanghai, May 2013 (the slab poking over the palm trees on the right of the “Shanghai Tower” is the “World Financial Center“, a super tall skyscrapper, finished several years ago, adorned with the highest public observation deck in the world):
Krugman’s explanation, for this alleged economic trouble, is that China is running out of peasants. A fine train of thoughts, except that there are 600 millions of them, Chinese peasants, out there (so, if the rate of peasantry approached that in the West, more than 500 millions should get urbanized in the next generation!).
Anyway, instead of sweating out the details, I wanted to deepen the debate, so, I sent him the following, and, kindly, the New York Times published it immediately:
Economy and politics are entangled. China’s economic problems are nothing relative to its political problems.
The number one consumption in the developed world, most powerful, and most craved for, is information. That’s what Chinese consumers will really want in the end. That sort of consumption, the Chinese dictatorship cannot afford to let the People of China enjoy. Thus, it is anxious to avoid such a dismal situation.
Hence the leadership is reluctant to allow ever more base material consumption: once that has proven unsatisfying, as it is certain would happen, the lust for meaning, would lead to ever more questions, of a deep emotional, rational, and then philosophical, thus political, nature. This is basically the psychological mechanism that led the children of the elite to turn against their parents at the time of Tiananmen.
On the other side of the mountains, India has opted for democracy. Democracy depends upon openness and information. As time enfolds, India will be able to become increasingly the master of both, and that’s what people want. Worldwide.
Thus the present Chinese political system blocks the long term production of the most advanced service, information. That’s what really hobbles the Chinese economy: getting ten dollars making a 600 dollar i-phone gets you only that far.
The Chinese surveillance apparatus, with its 50,000 Internet censoring goons, is only dwarfed by the American one, with its 1.2 million watchdogs. It’s an economy killer, be it there, or here.
And when it has too many goons in power, a state, any state, will collapse like the Soviet Union. Now the USSR is the so called Russian federation (Rossiyskaya Federatsiya). (Notice that “Russia” does not claim to be either a republic, or a democracy, this is important, just as it was important in Weimar!)
Having brutes, and brutish ideas, in power, a state cannot shake the habit of tyranny, or even plutocracy (Russia’s most prominent opposition leader Aleksei A. Navalny was sentenced to five years in prison on Thursday, July 18, 2013, for daring to call Putin’s machine, United Russia, the “party of swindlers and thieves” ).
Ultimately, such states, states devoted to the sinister arts of the Dark Side, spend so much energy fighting those who have ideas, that they end up with none. Or at least not enough ideas to support their society, let alone their economy.