Opinion

Edward Hadas

Can communist China drop Marxism?

Edward Hadas
Sep 5, 2012 15:21 UTC

Speeches by Chinese Communist Party leaders are great opportunities to play “buzzword bingo”. Hu Jintao’s July 23 policy summary was replete with such phrases as “socialism with Chinese characteristics”, “Deng Xiaoping Theory” and “Scientific Outlook on Development”. But the sloganising is more than empty rhetoric. The speech, echoed elsewhere, shows the outgoing leader wants the CCP, and the country, to escape from might be called a Marxist trap.

The trap has three parts. The first is the core Marxist belief that economic considerations come first while culture and everything else lag far behind. These days, many non-Marxists also put the economy first, but Chinese leaders are especially loyal to the simple claim that GDP growth equates to progress. Hu’s focus on scientific development, for instance, is shorthand for putting higher production before all other goals. His other big buzzword – harmonious development – is not a tribute to the traditional Confucian notion of cosmic harmony, but a call not to let inharmonious social disorder slow material progress.

The second part of the Marxist trap is the Communist Party’s monopoly of power in government and its final authority over everything in society. That predominance has been taken for granted by virtually everyone in the top leadership since the foundation of the People’s Republic in 1949, although the thinking comes less of Marx himself than his teacher G.W.F. Hegel. Hegel believed that the state would and should eventually take over the roles traditionally played by the various organisations of civil society: family, church, guild, cultural and special interest groups. Lenin added the claim that the Communist Party is the vanguard of this all-encompassing state, so there is neither need nor space for other voices.

The final piece of the trap was set by Deng Xiaoping, the second leader of communist China. His endorsement of rapid and chaotic capitalist development, later know as socialism with Chinese characteristics, may not sound Marxist – Deng’s doctrinaire opponents in the CCP were certainly horrified. But Marx himself believed that only bourgeois capitalists had the fervour and motivation required to industrialise a predominantly agricultural economy. In Marx’s day, the bourgeois and the communists were enemies, but the CCP has tried to co-opt the private sector by admitting leading industrialists into the Party.

By some standards, the Deng version of Marxism has worked very well, far better than the Leninist approach, adopted in the Soviet Union and its satellites, which gave the state control of all the means of production. China’s GDP has increased remarkably rapidly for almost four decades. There has been little social discord and the Party remains in firm control.

Tame the persistent elites

Edward Hadas
Aug 8, 2012 14:09 UTC

It is circa 1900. A young girl from a simple fishing village has been sold as a ’practice wife’ to the Bendoro, or local lord. When the Bendoro tires of her and expels her from his house, the girl retires from his presence the way peasants are supposed to: backwards, and on her knees.

The scene is from the novel “The Girl from the Coast”, and is based on the life of the grandmother of the Indonesian author, Pramoedya Ananta Toer. The girl suffered because the absolute authority of a petty local ruler and the accompanying indignities were considered normal. And this in a land which, by the standards of the age, was relatively refined. The Bendoro’s rules did not hold in the Netherlands, which ruled the land, but many Europeans would have shared his belief that sharp social stratification was part of the natural order of things. The Victorian author of All Things Bright and Beautiful, the childrens-favourite hymn, expressed the same sentiment a few decades earlier: “The rich man in his castle, the poor man at his gate, God made them, high or lowly, and ordered their estate.”

Times have changed. Pramoedya’s story comes from a vanished world, one in which the privileged elites were considered superior beings to the masses of ’ordinary people’. To the modern reader, the Javanese peasant bride’s humility looks demeaning and disgusting, not pre-ordained. The Bendoro’s worldview has been superseded by that of the Universal Declaration of Human Rights, which takes it as self-evident that, “all human beings are born free and equal in dignity and rights”. And the verse about “the rich man in his castle” is usually excluded from editions of modern hymnals.

The Big Smothering State

Edward Hadas
Aug 1, 2012 12:54 UTC

For more than three centuries, defenders of people’s freedom and dignity against the oppression of governments have frequently focused on economic depredations. In the 17th century, John Locke decried unjust limits on private property. In the 20th century, Friedrich Hayek attacked the state’s control of the means of production. The Austrian philosopher, who is a kind of patron saint for today’s crusaders against big government, was certain that men could not be free without free markets. He saw socialist economics behind all big governments, which he believed to be universally oppressive.

It is not only the enemies of powerful governments who have considered economic matters to be pre-eminent. The followers of Karl Marx disagreed totally with Hayek about government and freedom. They thought free markets led only to the oppression of the poor by the rich and that large states were needed to defend true freedom. However, like Hayek, they put the economy at the centre of the debate about the proper role of government. They merely reversed his primary prescription, with pure Marxists calling for total government control of the economy and revisionists calling for a strong state and a carefully limited private sector.

The revisionist Marxists are now known in Europe as Social Democrats and in the United States as Democrats (although few would admit this intellectual ancestry). They have had their way with the economy throughout the developed world – and the economies have basically flourished. Extensive, active and basically honest governments are good economic stewards. Big governments support and supervise the massive investment projects, complex technological standards and the astounding diversity of tasks required for industrial economies to thrive. Thorough tax systems restrain the rich while welfare benefits protect the poor.

Sloth and the Big Honest State

Edward Hadas
Jul 18, 2012 14:01 UTC

There is only one good, proven, way to organise a political economy in the modern world – and that’s via the Big Honest State. Right now, one key aspect of the BHS is under serious threat.

What is the BHS? As the name suggests, it is large. In quantity, the various organs of a BHS account for 30-60 percent of GDP. In quality, the state dominates education, health care, industrial policy and the financial system. The BHS is also trustworthy. Its official bureaucracies are expected to be, and mostly are, meritocratic and dedicated to the common good. A BHS, though, is far from the total government of fascists and communists. One of the defining facets of the BHS, indeed, is that it works alongside a vibrant non-state sector.

The basic BHS model has been adopted in all advanced economies and it is aspired to by most leaders in almost every developing country. Universal adoption is easy to explain: the BHS works well. It has delivered a reasonable mix of prosperity, protection and social support. It has proved remarkably sturdy. Since the Second World War, no BHS country has had collapsed into chaos, become impoverished or suffered fundamental social breakdown. The system is also popular with voters, even if many government-hating Americans hate to admit it.

The touchstones of Yap

Edward Hadas
Jul 11, 2012 15:17 UTC

Why has the recovery from the financial crisis of 2008 been so slow? To answer that question, it helps to reflect on two items in the newly opened Citi Money Gallery at London’s British Museum. The first is a photograph of a two-tonne carved stone which once served as money on the Pacific island of Yap. The second is the exhibit of counterfeit notes and coins.

Yap’s use of big rocks as currency poses some obvious problems, but the carved stones, known as rai or fei, did not actually pass from owner to owner. Possession was merely noted down by inscriptions. The economist Milton Friedman wrote an elegant paper about the Yap arrangement in 1991, explaining that the system worked because of the Yap residents’ “unquestioned belief” in it.

Friedman realised that modern monetary systems are also faith-based. The faith used to reside in the value of gold and silver, whether minted in coins or held in central bank vaults and represented by paper. Now people are asked to believe in the value of a currency which is almost entirely intangible and which can be created and destroyed by the fiat of central banks.

Market tantrums should be tamed

Edward Hadas
Jul 4, 2012 14:10 UTC

The headline could have come from a hundred places any time in the last hundred years. “Market has gone wild”, it read. The accompanying news report explains that the price of a crucial financial asset is in “free fall”. Traders and businessmen are calling on the government to step in.

The asset in question could be peripheral euro zone government debt today, global equity markets in early 2009. The wild market could have been soaring rather than falling: the stocks of 1929 and 1999, the house prices in Florida or London in the 2000s, or the supposedly safe government bonds today.

The actual headline comes from a Hong Kong newspaper in 1983, when investors in the then British colony began to fear the worst from a Chinese takeover. The UK’s Minister of State told the locals to “have confidence in yourselves”, but, as today’s Spanish and Italian politicians can ruefully confirm, such rhetoric is not enough to stop an investor stampede. A few weeks later, the Hong Kong authorities did indeed take the matter out of traders’ hands – they fixed the exchange rate between Hong Kong and U.S. dollars.

Both sides losing austerity fight

Edward Hadas
Jun 27, 2012 12:01 UTC

In one corner of the intellectual boxing ring is Stimulo. His fighting words: more economic stimulus. History and theory, he declaims, teach that governments should run much larger fiscal deficits in a downturn. In the other corner is the Cutback Kid, who delivers the opposite message: more austerity. He asserts that history and theory teach that governments should reduce their deficits. The two contestants for the Economic Policy Prize are in the midst of a long fight. Amazingly, they are both losing.

Stimulo has the open-hearted enthusiasm often associated with residents of the United States, for three decades known as the land of big fiscal deficits and small worries. His favourite example is the 1930s Great Depression, which only government spending could end. Now, almost four years after the collapse of Lehman Brothers, GDP growth remains slow and the unemployment rate high. The government deficit, he says, should be increased by as much as necessary to push the economy out of its current stagnation.

The Cutback Kid has a more restrained charm, the sort sometimes associated with suave European intellectuals. He praises the virtue of balanced government budgets: sound finances keep inflation far away, support the value of the currency and promote a strong economy by not stealing savings from the private sector, the source of durable growth. After four years of extraordinarily high government deficits, he says, it’s time to cut back.

Ethical economy: Of morals and markets

Edward Hadas
Jun 20, 2012 14:26 UTC

“Where all good things are bought and sold,” says Michael Sandel, “having money makes all the difference in the world”. And judging by the success of the book he has written based on the premise, the assertion is seductive.

In “What Money Can’t Buy: the Moral Limits of Markets”, the Harvard philosophy professor rails against “market reasoning” and its impact on modern societies. He says that justice suffers because money has become the predominant measure of social as well as economic value. He provides examples such as corporate life insurance policies on employees, advertising in bathrooms and payments for children’s academic success.

Sandel’s reading of contemporary society is wrong, and the examples he deploys are atypical. Overall, morals have been displacing markets, not the other way around. Considerations such as justice and the common good increasingly shape economic arrangements. Even where market reasoning does flourish, for example in the production of cars or food, the standards of social responsibility have steadily risen. Whether or not they are profitable, companies are expected to be good employers and good corporate citizens.

The euro crisis as family drama

Edward Hadas
Jun 13, 2012 15:09 UTC

Sometimes big news stories seem unbearably dull. The euro crisis is often presented as an apparently endless stream of technical titbits that only a financial geek could love: alchemical recapitalisations of possibly insolvent banks, and the subtle differences between the European Financial Stability Facility and the European Stability Mechanism. But the mind-numbing details hide an exciting drama about the dysfunctional European family of nations.

Think of Greece as the wayward uncle who never seems to settle down and who keeps asking for a little money to tide him over. Spain is a younger sibling, finally interested in school but still reluctant to admit that she needs to change her ways. Italy is a voluble middle child, talented but with a taste for mischief. Germany is the slightly priggish older brother, who has trouble sympathising with his relatives’ weaknesses – although he usually relents in the end.

As in some tribes, the European family has appointed various councils of elders to guide group decisions. For the most part, the central authorities have worked well, but they have to be careful not to anger big brother Germany. Then there is the European Central Bank. When it was set up, most family members thought it would be just another elder-group, but the monetary authority is increasingly behaving like a sort of powerful Godfather to the whole clan.

Depressions can be avoided

Edward Hadas
Jun 6, 2012 13:26 UTC

Stability has been one of the most elusive economic goods. Despite more than a century of effort, economies remain prone to downturns, which often come after booms that proved unsustainable. Rich countries are currently stuck in one of the down periods, a seemingly endless Lesser Depression.

Economists argue about the details of what went wrong, but they often miss something basic: persistent instability is surprising. Surely, societies which summon enough economic ingenuity and organisation to develop smart phones, manage global supply chains and pay for a dozen years of universal education can manage to maintain a steady pace of overall economic activity? All that is required is the identification and early correction of imbalances, in both the real economy and the financial system.

In the pre-industrial age, good macroeconomic management was all but impossible. As long as agricultural activity was the economic mainstay, a poor harvest led not only to less food but to less spending by farmers. Their purchases of ploughs and shoe leather declined, even though a temporary spell of bad weather had no effect on production capacity.

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