Saturday, February 27, 2010

China's Great Leap Forward

Barack Obama is confronting the same problem that all his predecessors confronted: He knows too well what the long-term solvency of the country demands, but he can’t act, because our political system won’t allow it. The majority rules, and the majority wants to live on the cuff, because that’s the way it has always worked, and if President Obama told us the hard facts – that we’re broke – the voters wouldn’t stand for it. So we are treated to the same old “the richest country on earth ought to be able to give everyone___________.” You fill in the blanks.

Some people in other countries have grown up wanting a system like ours, but now they are not so sure. Maybe, they are thinking, China has got it right. They have the fastest growing economy on earth, but....their government is COMMUNIST! You know, the system that says the state owns all the land and the means of production. The system that says “from each according to his abilities, to each according to his needs.”

Well, not quite. The new breed of Chinese communist is shopping for Mercedes and BMWs in Beijing showrooms, while America is giving “cash for clunkers” to prod people to buy new cars with money that comes from the U.S. government, which borrows it from…..China!! What’s wrong with this picture?

For a quarter century, from roughly 1960 through 1985, we had it made: The transistor (Bell Labs) begat the semiconductor industry (Fairchild, Intel, TI, Motorola), which begat the computer industry (IBM, DEC, H-P), which begat the personal computer industry (Apple, Compaq, Dell). I was there, and it was a wild ride, a once-in-a-lifetime high.

The chief perceived threat in 1980 was Japan, and there was widespread anxiety here about the Japanese obsession with quality. They took what American quality gurus had taught them and then raised the bar. If anybody was looking for other threats, there was Korea, and possibly Taiwan. Nobody, but nobody, was thinking about China. China? You’ve gotta be kidding!

I’m sure a lot of books will be written about China’s leap into high-tech, but here’s my take: Like many others, I had visited our sales offices in Singapore, Taiwan, and pre-1997 Hong Kong often, offices that were staffed by expatriate Chinese, and in my dealings with them one distinguishing characteristic stood out: They were all capitalists down to their bone marrow! The Chinese were deal-makers, whatever government was in control. And it occurred to anyone who thought about it that if the government in Beijing ever decided to adopt a market-based economy, it would need a very short runway, because they had a billion born capitalists ready to roll, The decision was made around 1980, and within a relatively short time the Chinese machine was airborne.

It remains to be seen whether Chinese capitalism can coexist with centralized control. But I believe (and have heard this echoed by Chinese in Beijing) that there is no turning back. Economic liberalism breeds political liberalism, especially now that the Chinese people have a taste of market success. Only two outcomes are possible: (1) The Chinese authoritarian government will soften and eventually be indistinguishable from our government (which has been drifting leftward, in case you haven’t noticed) and (2) The Chinese leadership, feeling threatened by an increasingly assertive, increasingly acquisitive middle class, will try to force the genie back into the bottle, leading to widespread instability. I don’t know which option will prevail, but I would probably bet on (1). Things are going well in China today, and Hu Jintao doesn’t need to rock the boat.

And he doesn’t have to worry about getting this or that bill through Congress. He doesn’t have to fret about filibusters and blue states and red states. When he decides that something makes sense for China, he just does it, making a few phone calls to get his ministers on board.

Meanwhile, when Barack Obama decides that something makes sense for the United States, he has to deep-six it because it won’t play in Chicago or on CNN, and he could never get it through Congress anyway,

Democracy is messy, but people will put up with the mess – as long as they are winning.