Chrystia Freeland

Are we outsourcing repression to China? That is the fear driving stepped-up scrutiny of labor conditions at Foxconn, the consumer electronics maker that assembles products for a number of Western technology companies, most prominently Apple.

As one blogger put it before watching the latest high-profile investigation, aired this week on the ABC news program Nightline: ‘‘I had been worried that after I watched the report, I’d feel angst-ridden and guilty about using my iPad, iPhone, or MacBook Pro.’’ An independent assessor working with the Fair Labor Association, a non-profit group that Apple has hired to audit conditions at the plants, said the California company was facing its ‘‘Nike moment,’’ a reference to the 1990s, when the sporting goods maker was accused of using Asian sweatshops to manufacture its iconic sneakers.

The conditions at Foxconn are indeed grim: 12-hour shifts doing boring, repetitive work; dorms that pack seven workers into each room; commands issued by a disembodied fembot. And the ABC cameras and FLA auditors surely didn’t see the worst of it: Foxconn first came to international attention in the spring of 2010, when 18 workers killed themselves, or tried to.

But the Nightline report included an implicit justification — the 3,000 workers lined up at Foxconn’s gates before dawn in hope of a job. Work at Foxconn may be hard and boring, but for many Chinese people, it is better than the alternative.

This is the historic price and promise of industrialization: It is no fun, but it is better than subsistence living back on the farm. And, modernization theorists like Seymour Martin Lipset have argued, as people get richer thanks to dismal jobs like those at Foxconn, they are able to demand more rights.

That is a powerful argument, and it has been true not only in the Western developed world, which industrialized first, but also in 20th century stars like Japan and South Korea. But Daron Acemoglu, an economist at the Massachusetts Institute of Technology, warns that we should not assume that the happy connection between prosperity and democracy will automatically hold true for China. That is because China is industrializing in the age of Apple — in an era of globalization and the technology revolution.

The result, Acemoglu argues, is that China is able to deliver strong economic growth without transforming its domestic political and social institutions. To illustrate the point, in an essay written for a forthcoming book, Acemoglu contrasts China’s ‘‘catch-up’’ economic development with the way the process unfolded in Germany and Russia at the end of the 19th century and Japan and South Korea in the second half of the the 20th.

In these places, catch-up growth ‘‘involved developing industries, building a domestic market and undergoing a process of structural, social and institutional changes,’’ Acemoglu writes. In order to grow their economies, those countries had to reform their politics and their society.

But globalization and the technology revolution mean that China’s authoritarian rulers have been able to deliver strong economic growth without surrendering political and social control: “Instead of having to develop an entire industry, an emerging market economy can house just some of the tasks such as assembly and operation. This not only enabled China to grow very rapidly by relying on world technology and leveraging its cheap and abundant labor force, but has also mollified demands for structural, social and institutional changes that previous societies undergoing catch-up growth had experienced,’’ he writes.

Acemoglu sees a powerful, and worrying, paradox at work. It is the triumph of the open society in the West, with its focus on individual rights, independence and iconoclasm that created the technology revolution. But the impact of those discoveries on the world’s mightiest dictatorship may be to prolong its reign. The connection between the free-thinking of Cupertino and the Communism of Shenzhen may not be an accident or a temporary phase — the first may be strengthening the second.

Acemoglu’s vision of how the simultaneous economic transformations of the West and of the emerging markets — a double act I have described as the Twin Gilded Ages — are interacting is a powerful alternative to the two more common narratives about Communist China’s remarkable economic rise. One story is that the eventual shift to democracy, as we saw in previous catch-up countries, is inevitable. The other is that China shows that state capitalism is actually a more effective form of governance in this volatile age than chaotic democracy.

Acemoglu offers a third possibility: Chinese authoritarianism is working so well because of the success of other nations’ democracies. But — and this is the paradox at the heart of Acemoglu’s analysis — that relationship may retard the growth of democracy in China.

This debate isn’t just for political scientists or Sinophiles. One of the biggest questions in the world today is what impact a rising China will have on the rest of us. One of the big books of the season is foreign policy thinker Robert Kagan’s The World America Made. It has mostly been glossed as an assertion that the United States is not in decline.

That is part of Kagan’s argument. But he also warns that if the United States commits ‘‘pre-emptive superpower suicide,’’ global politics and economics could change profoundly. “China may have benefited from our economic order,’’ Kagan told me. “But its capacity or desire to sustain that order is very much in question.”

Kagan makes a point of limiting his focus to foreign policy and explicitly excluding economics. But from his very different vantage point, he arrives at a version of Acemoglu’s paradox — China owes its rise to Western democratic capitalism, but that very success may put it at odds with the social order that created it. Call it Apple authoritarianism — what happens when the ideas from the freest valley in the world end up underwriting the planet’s most powerful dictatorship.

Today at 11am, Chrystia will interview Alan Simpson live on YouTube. She and the former senator will discuss the Obama administration’s proposed budget for the next fiscal year as well as his new memoir, Shooting from the Lip: The Life of Senator Al Simpson. You can watch the whole thing here:

In an age of rising income inequality, one of the big questions is what impact the growing gap will have on democracy. Francis Fukuyama worries about it in this month’s Foreign Affairs, in an essay that bears the worrying subtitle, “Can Liberal Democracy Survive the Decline of the Middle Class?” President Barack Obama, as he signaled again with his budget this week, is putting the issue at the center of his re-election campaign.

The powerful connection between money and politics is also on vivid display in the roller-coaster Republican race, where Rick Santorum owes his surge in part to the generosity of the Wyoming multimillionaire Foster Friess, whose “super PAC” helped keep Santorum’s candidacy alive by running TV ads on his behalf.

I interviewed Friess a few days ago, before he made his headline-grabbing remark about women using aspirin as contraceptives in his earlier days (“The gals put it between their knees, and it wasn’t that costly.”) He’s a folksy, white-haired, septuagenarian charmer whose Web site features a photo of him astride a horse and “Foster’s Campfire Blog.” He also has unequivocal views about the proper relationships among the wealthy, the state and politics.

Friess’s most striking observation was about the value of what he called “self-taxation,” as opposed to taxes levied by the state.

“People don’t realize how wealthy people self-tax,” Friess told me when I asked whether, given the country’s economic troubles, it was fair to ask the rich to pay a bigger share. “You know, there’s a fellow who was the CEO of Target. In Phoenix, he’s created a museum of music. He put in around $200 million of his own money. I have another friend who gave $400 million to a health facility in Nebraska or South Dakota, or someplace like that. You look at Bill Gates, just gave $750 million, I think, to fight AIDS.”

Friess’s point is that the common good is better served when the wealthy “self-tax” by supporting charities of their own selection, rather than paying taxes to finance government spending.

“I think we should get rid of taxes as much as we can,” Friess told me. “Because you get to decide how you spend your money, rather than the government. I mean, if you have a certain cause, an art museum or a symphony, and you want to support it, it would be nice if you had the choice to support it. Where we’re headed, you’ll be taxed, your money taken away, and the government will support it.

“It’s a question: Do you believe that the government should be taking your money and spending it for you, or do you want to spend it for you?” Friess explained.

As for the idea that an economic age like our own, which is conducive to creating vast fortunes, should also be one in which taxes are high, Friess considers that absurd. “If you look at what Steve Jobs has done for us, what Bill Gates has done for society, the government ought to pay them. Why do they collect money from Gates and Jobs for what they’ve contributed? It’s ridiculous.”

Indeed, Friess is unconvinced by the entire 99 percent paradigm. In his view, it is the Americans at the bottom of income distribution who are getting the free ride.

“I’m just so amazed at this concept that President Obama says, ‘I’m not going to let half the American people, that pay no taxes, bear the unfair burden of the other half, who are not paying their fair share.’ It’s pretty comical, when you think about it,” he said. “About 46 percent of the American public pay no income taxes.”

By contrast, Friess believes we all rely on the 1 percent and should respect them accordingly.

“It’s that top 1 percent that probably contributes more to making the world a better place than the 99 percent. I’ve never seen any poor people do what Bill Gates has done. I’ve never seen poor people hire many people,” he said. “So I think we ought to honor and uplift the 1 percent, the ones who have created value.”

Given these views, you probably won’t be surprised to learn that Friess’s main concern about the role of money in U.S. politics is that it is too hard for the wealthy to directly support their preferred candidates.

“I do dislike the system now, because when I give money to the Red, White and Blue Fund” — the super PAC that has been backing Santorum’s candidacy — “I have to be very, very careful not coordinating with the campaign. I have to be careful what I say. I think the best system would be if we all had unlimited free speech and spending our money the way we want, but give directly to the candidates,” he said. “There’s just too much jumping through too many hoops. And I’m not happy with that process.”

Having said that, Friess added, “the role of money is overplayed.” Meg Whitman’s millions, he pointed out, had been insufficient to win the governor’s seat in California. Santorum, he said, owed his ascent more to his tour of 381 towns in Iowa in a Dodge Ram truck than to Friess’s money.

Moreover, Friess argued that the 1 percent was not exclusively bankrolling the right. “If money was able to make things happen, I think there’d be more Republicans, if they’re theoretically the people with money. But I think the Democrats have more billionaires than we do.”

Even so, Friess couldn’t resist bragging a little about how effective his own investment in the Republican race had been so far. “Sheldon put up, I’m told, close to $10 million to back Gingrich, who’s kind of struggling right now, and I put up much, much less than that to help Rick Santorum,” he said, referring to casino magnate Sheldon G. Adelson. “So I like to tease that I’m the investor and Sheldon is the casino guy.”

If you want to get a finger-tip feel for one of the most important transformations in our world today, read The Fear Index, Robert Harris’s new thriller.

Harris has been widely praised for his adept portrayal of the hedge fund universe in which his novel is set. “The greatest pleasure of this book is that it gets the finance right,” cooed Felix Salmon, the Reuters finance blogger whose keyboard often oozes acid.

He is right that Harris’s hedgies are a welcome and realistic departure from the Masters of the Universe of most popular fiction. For one thing, these are the alpha geeks, the nerdy doctorate-holders whose testosterone is channeled into equations instead of frat-house swagger.

And Harris knows his superrich. As they are being wooed to make a billion-dollar investment, over a 1995 Latour in a fine Geneva restaurant, an international group of investors energetically discusses the ways that their national governments oppress them. Dr. Alex Hoffmann, the billionaire hedge fund manager protagonist who is making the pitch for their cash, reflects: “He was remembering now why he didn’t like the rich: their self-pity. Persecution was the common ground of their conversation, like sport or the weather was for everyone else.”

But the most valuable intellectual takeaway from this riveting novel is the element that has been widely dismissed by reviewers as familiar and unpersuasive: VIXAL, the intelligent machine at the heart of the story that torments its human creator and may be trying to rule the world. Michiko Kakutani, writing in the New York Times, gave The Fear Index a thumbs up, but deemed the machine takeover “silly and contrived.” VIXAL, the evil genius computer, “seems less like a plausible villain than like a metaphor for the greed and heedlessness that overtook Wall Street,” she wrote.

Kakutani’s dismissal of VIXAL as an unoriginal and uncompelling reworking of the Frankenstein template misses the most important point. VIXAL and the parallel world the computer program creates by interacting with other machines is worth reading about — but not for the usual pulp fiction pleasure of entering a vividly rendered imaginary world.

The Fear Index is fun to read because Harris is a great novelist, but VIXAL is worth getting to know not as a fictional character, but because so much of what it does is already happening in real life.

Futurists and fantasists have been dreaming about the rise of intelligent machines for centuries. Now it is actually starting to happen.

For a drier but in many ways even more astonishing account of what is going on, read “The Second Economy,” an essay in the McKinsey Quarterly by W. Brian Arthur, a visiting researcher at the Intelligent Systems Lab at the Palo Alto Research Center in California.

Arthur’s contention is that a second, machine-to-machine economy is emerging and that it will bring deep economic, social and political change comparable to the transformation wrought by the Industrial Revolution.

“Business processes that once took place among human beings are now being executed electronically,” Arthur writes. “They are taking place in an unseen domain that is strictly digital. On the surface, this shift doesn’t seem particularly consequential — it’s almost something we take for granted. But I believe it is causing a revolution no less important and dramatic than that of the railroads. It is quietly creating a second economy, a digital one.”

Arthur describes this economy as “vast, silent, connected, unseen and autonomous (meaning that human beings may design it but are not directly involved in running it).” The second economy is manifest in transactions as quotidian as checking in for a flight with a machine and as esoteric as the algorithm hedge funds of Harris’s thriller, which use information produced by machines to trade with other machines.

Economists and novelists aren’t the only people musing about the rise of the machine-to-machine economy and its transformative potential.

Yuri Milner is one of the savviest technology thinkers in the world; he was a pioneering investor in Facebook, a bet that was wildly vindicated last week.

Milner has a presentation in which he describes the nine most important changes in the world today. Three of them are about what Arthur has dubbed the second economy: the rise of what Milner calls “the Internet of things,” or the machine-to-machine economy; the growing power of artificial intelligence; and the emergence of a “global brain,” which is the network of all of the people and the machines in the world and their connections to one another.

The one aspect of The Fear Index that is tired and familiar is its depiction of the rise of the machine-to-machine economy as murderous and menacing. That time-worn worry that the smart machines will turn on their creators isn’t one I share. I am a fan of the machine-to-machine economy and of all the ways it makes my human life easier and less expensive.

But I am concerned about something Harris only hints at. At the end of The Fear Index, VIXAL changes its hedge fund’s mission statement. The first lines of the new, machine-written version, read: “The company of the future will have no workers.”

I’m not afraid our smart machines will try to exterminate us, but I do worry that the second economy may be a jobless one.

Arthur doesn’t offer much comfort on that score. In an exchange with a reader after his essay was published, the economist wrote: “Since the second economy began, in the early and mid-1990s, we’ve had wave after wave of downsizing and layoffs, and now we have ongoing structural joblessness. I hope jobs will be created, and maybe they will. More likely, the system, as so many times before in history, will have to readjust radically. It needs to find new ways to distribute the wealth.”

Mitt Romney’s thumping victory in the Florida primary this week is bringing us closer to a Romney-Obama face-off in the autumn. While we do not know for sure if Romney will clinch the Republican nomination, if he does, we can already say what the central question in November will be: Is the United States one nation under God, or has it become a country where the government needs to secure a better deal for the 99 percent?

We know Romney’s view. In a television interview last month, he explained: “When you have a president encouraging the idea of dividing America based on the 99 percent versus 1 percent — and those people who have been most successful will be in the 1 percent — you have opened up a whole new wave of approach in this country which is entirely inconsistent with the concept of one nation under God.”

Meanwhile, in his State of the Union address, the president opted explicitly for the 99 percent perspective. Restoring their fortunes is “the defining issue of our time,” he said. “No challenge is more urgent. No debate more important. We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.”

The Obama analysis gets a lift from “The China Syndrome,” a recent paper on the impact of trade with China by a powerful troika of economists: David H. Autor, David Dorn and Gordon H. Hanson. The empirical study, which was cited in an important speech on inequality a few weeks ago by Alan Krueger, chairman of the president’s Council of Economic Advisers, is particularly significant because it marks a shift in consensus thinking in the academy.

In the debate about the causes of growing income inequality, U.S. economists have tended to opt for technology as the driving force. Indeed, in his remarks, Krueger referred to a survey he did of those economists, who overwhelmingly cited technological change as the most important factor.

But drawing on detailed data from local labor markets in the United States, the authors of the “The China Syndrome” argue that globalization, and in particular trade with China, is having a huge impact on blue-collar U.S. workers: “Conservatively, it explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment.”

The deleterious effects go beyond those workers who lose their jobs. In communities hit by the China Syndrome, wages fall — particularly, it turns out, outside the manufacturing sector — and some people stop looking for work. The result is “a steep drop in the average earnings of households.” Uncle Sam gets hit, too, especially in the form of increased disability payouts.

Autor, Dorn and Hanson are no protectionists. But in a challenge to the “one nation under God” view of the world, they offer a sharp reminder that the costs and benefits of trade are unevenly shared. As they put it, their finding does not “contradict the logic” of arguments favoring free trade: “It just highlights trade’s distributional consequences.”

When I raised the issue with Joseph E. Stiglitz, the Nobel economics laureate and longtime doomsayer about the downside of globalization, he practically crowed with vindication. “The economic theory is very clear,” he said. “What happens when you bring together countries which are very different, like the United States and China, is that the wages in the high-wage country get depressed down. This was predictable. Full globalization would in fact mean the wages in the United States would be the same as the wages in China. That’s what you mean by a perfect market. We don’t like that.”

The truth is we are no longer living in “one nation under God”; we are living in one world under God. Globalization is working — the world overall is getting richer. But a lot of the costs of that transition are being borne by specific groups of workers in the developed West.

We are accustomed to thinking of the left as having an internationalist perspective. Liberals are the sort of people who worry about poverty in Africa or the education of girls in India. The irony today is that the real internationalists are no longer the bleeding-heart liberals, they are the cutthroat titans of capital.

Here, for instance, is what Steve Miller, the chairman of insurance giant American International Group and one of Detroit’s legendary turnaround bosses, had to say about globalization and jobs. “Well, first off, as a citizen of the world, I think everyone around the world, no matter what country they’re in, should have the opportunities that we have gotten used to in the United States. Globalization is here. It’s a fact of life; it’s not going away. And it does mean that for different levels of skill, there’s going to be something of a leveling out of pay scales that go with it, particularly for jobs that are mobile, if the products can be moved, which is not everything.”

No matter what passport you hold, if you run or own a global company, that is not really a big deal. But as Autor, Dorn and Hanson show, if you are a U.S. worker, that “leveling out” can be painful indeed.

Smart policy, however, can make a big difference. Europe may not seem to have much to teach the rest of the world at the moment, but as Chancellor Angela Merkel leads a group of German industrialists to Guangzhou this week, Americans might want to study how Germany has turned the China Syndrome to the benefit of both its chief executives and its blue-collar workers.

In an interview at the World Economic Forum in Davos, Bank of Canada Governor Mark Carney tells Chrystia that the implementation of the Volcker Rule in the U.S. will have unintended consequences in the international bond markets and that JPMorgan Chase chief Jamie Dimon is wrong to say that the Basel Committee’s decision to increase capital requirements is “anti-American.”