Opinion

Chrystia Freeland

Chinese authoritarianism does not guarantee prosperity

Chrystia Freeland
Oct 21, 2010 20:01 UTC

On a recent trip to Hong Kong Chrystia recorded a podcast for the American Chamber of Commerce in China, about an op-ed she published in the Washington Post this summer that critiqued China’s economic system of state capitalism.  Chrystia, invoking a recent speech from Mike McFaul of the National Security Council, tells the Chamber that while the Chinese system succeeded in raising the country out of the lowest rungs of poverty, there is no historical evidence that suggests it can turn China into a rich nation:

My argument, and as it turns out quite independently, Mike’s argument, was we have to be really careful about thinking that authoritarian regimes are better at modernization, and one reason why we have to be careful is there is some historical evidence that says that authoritarian regimes can be quite good at the early stages of modernization.  They can be pretty good at that brute force moment when you’re dragging and economy out of being an agrarian society into industrialization.  What we haven’t seen yet—and as we look across the world, across histories—we haven’t yet seen that an authoritarian state is able to move an economy to the next level, and in fact what we’ve seen is that even in those countries where an authoritarian state successfully led an industrialization effort, as the country got richer and the economic transformation that needed to be achieved was more complex, what you actually have had happening is democratization.  There are some Asian countries that are a really good example of that.  I think South Korea is perhaps the best one.  […]  What we don’t have evidence of is that the state capitalist model… works in a really rich country.  All the countries that are really rich are democracies.

Chrystia also elaborates on a topic she touched on in her original op-ed, namely economic historian Joel Mokyr’s thesis that the same centralized, authoritarian decision-making process which foreigners marvel at today actually caused China to miss out on the Industrial Revolution centuries ago:

What is most interesting is China could have been the place where the Industrial Revolution actually started.  If you look at medieval Chinese history, China had all of the ingredients for an Industrial Revolution centuries before Western Europe did, but it didn’t happen in China.  And why was that?  Because China had a highly centralized authoritarian state, and just as those elements were coming together, the Chinese state, which was authoritarian and centralized, decided, “We don’t want that,” and decided to go in another direction.  That couldn’t have happened in Western Europe because Western Europe was much less centralized.  Suffered from that of course—lots of wars, lots of countries moving in bad directions, less good at doing all sorts of things.  But because you didn’t have this centralized, authoritarian decision-making process, industrialization did happen in Western Europe.  And when one Western European country slowed down, went off the rails, became too authoritarian, that process—those people, those ideas—very quickly jumped across the border into another country and the energy, the economic growth went there.  And the whole continent, the whole society benefitted.

Do go listen to the whole thing.

Posted by Peter Rudegeair

Bread and circuses—but real issues, too

Chrystia Freeland
Oct 15, 2010 14:03 UTC

As the U.S. mid-term elections approach, it is easy to despair about the quality of this country’s political debate. Christine O’Donnell, the surprise Tea Party-backed Republican candidate for the Senate seat in Delaware, has captured the nation’s attention with her opposition to masturbation and a campaign ad in which she assures voters that she is neither a witch nor a graduate of Yale University. Here in New York, Buffalo businessman Carl Paladino, running for the governor’s office, has made his contribution to the carnival atmosphere by discussing his rival’s “prowess” and urging reporters to investigate whether he was a faithful husband.

Part of my job at the moment is appearing as a commentator on other people’s TV shows. Viewed from the green room or the studio, America’s political discourse can look particularly grim. I sometimes find myself in the role of finger-wagging, middle-aged scold calling for a discussion of global financial imbalances, rather than the latest juicy scandal or mockable example of political foot-in-mouth disease. TV producers, I’m afraid, find this schoolmarmish persona as unappealing as my kids do — and given the juicy alternatives available it is hard for me to blame them.

But the campaign trail has always been as much about providing a circus as it is about bread and butter issues. And, dipping just below the froth of the cable sound bites and the blogosphere, I’ve realized this campaign is actually revealing a country that is struggling seriously and passionately to come to grips with the very big issues it faces.

Inflation is inevitable counters Wolfensohn

Chrystia Freeland
Oct 12, 2010 23:08 UTC

While Laura Tyson thinks America has no intention to inflate away its debt, former World Bank President Jim Wolfensohn said in an interview today he believes inflation and a devaluation of the dollar are “inevitable”:

Countries that get into heavy debt find that other countries realize that their currency isn’t as valuable as it was because they owe so much money. So the currency devalues. As it devalues, you have an inflation. And it is my judgment that that is likely to be a very important element in how we unwind this whole issue of debt to income levels in the United States.

Wolfensohn has a similarly gloomy outlook for Africa, a continent whose development he championed during his tenure at the World Bank. African institutions and governance are less efficient and effective than their counterparts in India and China, he says, and growth will suffer as a result:

‘We can’t inflate our way to prosperity’

Chrystia Freeland
Oct 12, 2010 18:43 UTC

“There is no other policy tool available [besides quantitative easing],”‘ Laura Tyson, a former chairwoman of the Council of Economic Advisors, said at this morning’s Reuters/YouTube live debate on how to fix the economy. Tyson argues that additional Fed purchases of long-term bonds is the most viable way to energize the U.S. economy since a new fiscal stimulus bill is unlikely to pass Congress:

She appears alongside Glenn Hubbard, another former CEA chairman, who maintains the Fed will spend another $1 trillion to lower rates by 20 basis points. “We can’t inflate our way to prosperity,” he said.

Tyson disagrees and thinks the risk to inflation is low. She admits we have to convince the rest of the world that the U.S. has no intention to inflate away its debt.

Live Event: Can we fix the economy?

Chrystia Freeland
Oct 11, 2010 19:28 UTC

Reuters Global Editor-at-Large Chrystia Freeland teams up with YouTube to bring you the first-ever live debate between two of the most influential economists of the past decade, and possibly the next:

Laura Tyson and Glenn Hubbard

Live coverage begins Tuesday, October 12 at 8am ET.

To participate in and watch the live debate: Conflicting Visions: Fixing the Global Economy

Plugging into the age of uncertainty

Chrystia Freeland
Oct 7, 2010 22:14 UTC

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For most of the past century, the big global narrative has been the clash of rival paradigms: Nazism versus liberal democracy, communism versus free market democracy, and, more recently, fundamentalist Islamic states versus the secular, democratic west. When the cold war ended, Francis Fukuyama predicted that this clash of paradigms would end. He was right, but not for the reason he thought.

The battle of rival ideologies has ended not because, as Fukuyama foresaw, the triumph of capitalist democracy has been universally acclaimed. Instead, it is because all of us have realized we face a new challenge — how to thrive in the high tech, global economy — and no one country or single ideology is yet certain of getting this exactly right.

This isn’t the cold war, or the clash of civilizations, or even the end of history — it is the age of uncertainty, as the entire world struggles to understand and keep up with the biggest economic transformation since the industrial revolution.

Summers says currency interventions rarely end well

Chrystia Freeland
Oct 7, 2010 18:28 UTC

“When governments seek to manipulate exchange rates for competitive advantage, it rarely ends well,”  White House economic adviser Larry Summers said at the Yalta European Strategy Annual Meeting this past weekend.

Summers stressed the need for reducing global imbalances, which require both smaller surpluses in surplus countries and smaller deficits in deficit countries. Regarding the U.S. economy, Summers reiterated President Obama’s pledge to double exports in the next five years. He added that growth, “while still clearly unsatisfactory, is positive. The economy is growing. The process of recovery is underway.”

When I asked Summers if he is worried about America’s budget deficit, he said only in the long term. In the short term, Summers says the focus must be on growth:

Stiglitz says Fed policy is competitive devaluation

Chrystia Freeland
Oct 7, 2010 16:48 UTC

U.S. monetary policy is flooding the world with cheap liquidity, Nobel Prize-winning economist Joseph Stiglitz said at the Canadian Consulate’s “Invest in Canada” luncheon yesterday. Our current policy, he explained, acts as a competitive devaluation against emerging-market currencies. Stiglitz added that he is worried about the prospect of a currency war but conceded that there’s not anything we can do about it.

Stiglitz went on to say that what the Fed is doing is not so different from China’s interventions in the foreign-exchange markets and accused the U.S. central bank of undermining global financial market integration and only acting out of a sense of guilt:

The Fed, having created the problem in the first place, feels guilty and says, ‘We should do something to get us out of the mess.’ [...]   [Emerging markets] see this as competitive devaluation of the United States.  We say, ‘No, no.  We’re not engaged in competitive devaluation.  That’s something China does.  We don’t do those kinds of things.  We don’t manipulate our currency.  All we do is ordinary monetary policy.’  But the consequence of ordinary monetary policy is competitive devaluation.

IMF head: renminbi is very undervalued

Chrystia Freeland
Oct 6, 2010 22:45 UTC

The Chinese renminbi is “substantially undervalued,” IMF Managing Director Dominique Strauss-Kahn said at the Yalta European Strategy Annual Meeting. But, he added, too often that’s used as an excuse by rich countries to postpone structural reforms that would restore competitiveness:

The question of a revaluation of the renminbi should not be used as a curtain behind which you’re hidden to avoid to do what you have to do in your own country.

Strauss-Kahn noted that even a one-off revaluation of the renminbi by 20% would not right the world’s imbalances. Recently, while China’s trade surplus has decreased, America’s trade deficit has not.

Video: Steve Rattner says government rescues worked

Chrystia Freeland
Oct 1, 2010 19:00 UTC

In an exclusive video interview, Ex-Car Czar Steven Rattner tells Chrystia Freeland that without government intervention via TARP the economy would be ”dust.”

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