History has given China this moment to do what Japan could not. The Japanese did not seriously attempt to rebalance until their economy was well-developed, ossified, and allergic to change. So when the jig was up on their longstanding economic model, rather than rebalance, Japan unraveled. In this sense, the global financial crisis was serendipitous for China. By reminding China's leadership that relying on exports means depending on unreliable foreigners, the crisis put the pain of rebalancing in perspective. It is not out of altruism that we have seen renminbi appreciation accompanying Chinese wage hikes and other rebalancing measures. A slight loosening of controls over media and finance could be in the offing. Deregulating the service sector might be a frightening political proposition, but perhaps less so than not having one when the exports dry up.
A good article comparing the economic malaise Japan has become to the economic malaise that possibly awaits China if they cannot put into place lessons to be learned from the Japanese collapse - the point being China largely borrowed their current thriving economic model from Japan's once thriving economic model and therefore is liable to make the same mistakes or become vulnerable to the same miscalculations and endemic inefficiencies. It's that notion of
inefficiency considered along with the prescription of increased
freedom in the last two sentences above that interests me. no one's gonna deny the exponential growth in China - likewise, though, I imagine few would suggest that this particular 'great leap forward' is or will prove any more efficient then the great leaps of Mao and company that preceded it. China's economy, like Japan's before it, is at the moment served well by it's authoritarian, top down, heavily bureaucratized command approach to capitalism not because of the efficient, innovative, dynamic attributes of this approach but rather because once an autocracy decides to wrangle its vast resource of cheap labour and turn it loose to feed off the bloated carcass of consumerism, well, the prospects for growth are immense because the amount of untapped potential is immense - but nothing about that suggests that the resulting marketplace and the allocation of capital within that marketplace will be dynamic and efficient - in fact command economies always end up inefficient, wasteful, corrupt because the marketplace the bureaucracy is responding to is artificial - is in fact a creation of the bureaucracy itself - like 'the bridge to nowhere' times a billion. And this is what interests me - the economics is complicated and what the hell do I know about economics anyway - but this is what interests me: in order for the Chinese economy to continue to prosper and eventually stabilize in an efficient and rational way the bureaucracy that now
commands it will have to relinquish its power so that
freedom can work its magic - but tell me, why would anyone believe this bureaucracy will willingly do that? Isn't it much more likely that this bureaucracy will resist change and assiduously try and rationalize that resistance? And isn't likely that the communist party will gladly assist in the manufacturing of this illusion? Once the inefficiencies are revealed the causes will have to be addressed or covered up - but addressing the causes will lead to great disruption, possibly even social upheaval, and the loss of power by many who now have it - for them won't the only option be then to cover it up? I've always said that the greatest achievement of democracy based on individual liberties is that it upends claims to absolute power and therefore not only makes dynamic change palatable but even desirable - thus the miracle of America. The Chinese miracle on the other hand is a creation of the state, not a product of the people - it will not embrace change easily.
