New laws permit foreigners to invest directly instead of through joint ventures. Unlike most developing nations, China enjoyed the patronage of lots of rich Chinese living outside the country. They were either expats, many of whom had fled to Hong Kong in the 1950s and 1960s, or descendants of emigrants from earlier Chinese diasporas. Now that China has embraced the market, these ethnic Chinese have been eager to invest in the country and found ways to do so formally as well as informally through money clubs and shops. And they have very deep pockets. In the Philippines ethnic Chinese represent 1 percent of the population and own close to 60 percent of the wealth. In Indonesia their wealth is greater with 1 percent of the population controlling some 70 percent of the country’s private economy, including its largest conglomerates. The Burmese economy is even more dominated by ethnic Chinese.24 Backed by this wealth, foreign capital and foreign companies flooded into China. A new profit tax replaced the system of profit retention.
China has found its best customers in Japan and the United States, but it is now embarking on a program to make its Tibetan cities nexuses of commerce with India. China’s premier Wen Jiabao visited India in 2005. His trip served as a catalyst in the process of building overland trade routes between the People’s Republic of China and India through Tibet. As with so many developments in China, this one is directed not so much to get the biggest bang from the yuan as to serve social and political needs. The Red Army of the People’s Republic of China invaded Tibet in 1951. Eight years later the Dalai Lama fled Tibet and began a global campaign to achieve more autonomy for his former country. China has encouraged its people to move to the region and would like now to accelerate the integration of Tibet into the nation proper, a move vigorously contested by native Tibetans.
Pouring resources into its poor western region serves other social and economic goals. The completion of a new railway from the Tibetan border makes it much easier to access Calcutta, which is 750 miles from the southwestern border of China. At the same time, China has built a blue water navy to patrol the Arabian Sea and Indian Ocean sea-lanes used to carry its oil. Border disputes have kept India and the PRC at arm’s length for half a century, but with both countries ready to exploit new economic opportunities, they may well want to bury the hatchet. The threat of declining sales in Europe and the United States makes this policy more attractive. Trader fervor has even extended to the violence-pocked frontier of Kashmir with trucks of apples and walnuts going from India and returning with rice and raisins.25
China’s exports exploded in the last decade of the twentieth century, those going to the United States alone doubling from $100 billion to $197 billion in the first four years of the twenty-first century. The wrenching contraction of demand for China’s exports during the economic downturn, off by 18 percent in the closing months of 2008, is testing the flexibility of its economic policy makers. At the same time, the sophistication of its exports increased with computer peripherals and consumer electronics joining footwear and toys. Exports include auto parts, as befits China’s robust automobile manufacturing sector.26 In 2004 China passed the United States as the world’s leading exporter of information and communications technology, a strong sign of its success in preparing a skilled labor force. Domestic spending absorbs little more than one-third of China’s annual production, compared with two-thirds in the United States.
Like its people, the government is cautious with its great wealth, stashing most of it away in U.S. Treasury notes. This is a boon for the American economy, but not necessarily good for the Chinese one. It leaves a great scope for continued economic growth in China if the party can find the means to turn its many savers into spenders. The economic downturn of 2008 makes such a campaign more imperative, but it won’t be simple. The Chinese save because they don’t have Social Security, so the government would have to expand pension programs. Manufacturing priorities would have to change. Chinese consumers would want a different range of items from the mini hi-fi systems and high-priced footwear Westerners cherish. Still, the effort is being made. The government is encouraging its banks to lend more and to lower down payments for house mortgages from the current 20 to 30 percent. Turning the Chinese into mall rats would have an impact on the entire global economy, for presumably there would follow more imports from abroad.
Economic development in China is coming along nicely, but social changes are proceeding more slowly. Chinese men and women must cross the Rubicon of privatization with the party sitting on their shoulders. Or to use a Chinese expression, they are crossing “the river by groping the stones.” Because the Communist Party maintains comprehensive control, it influences a range of what would be private, individual decisions elsewhere. A residents’ committee is responsible for everything that happens outside people’s work units, which have their own party committees monitoring behavior. The residents’ committee looks after housing but also arranges weekly political studies, operates day care centers, and distributes ration coupons.27 On top of this structure rides the party discipline committee, founded in the early 1980s to prevent and punish party members’ abuses of power. It is staffed by retired party members, as are various street patrols. This control mixes poorly with the free and easy communication introduced by information technology. The American search engines Google and Yahoo have repeatedly had to struggle against bouts of censorship imposed by the Chinese government, no friend to free speech.
The interconnectedness of the global economy and the world press that covers it guarantees that no bad deed will go unpublished, if not unpunished. Press coverage like that of the tainted milk scandal of 2008 could have been suppressed when Chinese leaders ran an autarkic economy. Those leaders who succeeded Deng have been willing to accept this tradeoff, recognizing that there is no development without closer and closer linkage to the world even though the global connectedness means that it cannot squash studies like the one the World Bank did in 1997, when it estimated that air pollution costs China 8 percent of its GDP.28 The world’s news media exhaustively covered the earthquake in May 2008 in Sichuan Province, where eighty-eight thousand died or were missing, and five million were made homeless. This natural disaster quickly became a political one when it became apparent that shoddily built schools accounted for an exaggerated death rate among children.
These contacts will change China’s people and their relation to the world, even if we can’t predict exactly how. Foreign reporters now publish stories on the extent of corruption in China. Estimated to absorb between 3 and 15 percent of China’s seven-trillion-dollar economy, corruption takes many forms from inside trading and crony deals among local officials to shakedowns and counterfeit money in paychecks. The government punished more than five thousand local officials for corrupt practices in 2008, but party members form the backbone of its governance. Bribery to ensure a successful operation, entrance into a school, or to get a driver’s license is common. With more money sloshing through the society, opportunities for graft have escalated. Victims can and do post protests on the Internet, but they risk violent retribution.29
As the 2008 Summer Olympics in Beijing demonstrated, China is not only ready to be a world player but willing to spend billions to put on a global show of its talent, discipline, and creativity.30 Just how far China has come can be measured in little as well as big ways. In 1987, one flight arrived in Beijing every twenty-four hours from Tokyo’s Narita Airport, one daily flight between a city with some ten million people and another with twenty-nine million! Think how many flights crisscross the space between Los Angeles and San Francisco or New York City and Philadelphia or Boston. But that was then. Now there are many airlines and dozens of flights. Shanghai, for instance, has a 240 mph train taking passengers to its airport. From Hong Kong ships carrying those boxes that revolutionized cargo shipping leave at the rate of one per second, year round, the equivalent of forty million standard containers. Confronted with worldwide recession in 2009, China slowed down, but the pace before had been hectic.
> Shock without Therapy in Eastern Europe
China’s reforms, though profound, were gradual, unlike those in Eastern Europe, where as one commentator said of Poland, we underwent “shock without therapy.”31 Simultaneously Russians embarked on perestroika, economic restructuring, and glasnost, creating transparency in the exercise of political power, in the 1980s. The peaceful collapse of the Soviet Union in 1991 came in the midst of this double effort to convert a party-dominated political order into a democracy and a command economy into a market-oriented one. In the early 1990s, exuding a bit of the triumphalism occasioned by “the fall of the Wall,” Western experts advised the former Communist nations to enter the market with a big bang. Speaking through the World Bank and the International Monetary Fund, these advisers recommended an immediate freeing of prices from all controls and a selling off of state-owned properties to private parties. They expected that the economies would tank for a short while, then quickly recover. Instead production took a long slide, and prices rose to inflationary rates.
Russia saw its so-called Soviet nomenklatura grab everything of value they could lay their hands on in a hasty privatization of state property. Criminal organizations formed faster than government’s capacity to control them. There was too quick a selloff of state properties, too large a gap yawning between the newly rich and the remaining poor, too tense a relationship between civil society with its pesky organizations and the nation’s testy authoritarian leaders, not to mention the rivalry with upstart billionaires. It’s always difficult to analyze what didn’t happen, but the comparison with China and India suggests that Russia lacked leaders knowledgeable about modern economics and a people capable of slipping into the rhythm of working in order to spend. Nor was its legal system up to the task of reining in the Russian mobs and criminals that took advantage of the weakened state of the transition government. Another problem plagues Russia. Unlike the most populous countries of China, India, and the United States, it is losing population at the staggering clip of half a million persons each year. In fifteen years it will drop from the ninth-largest country in the world to fifteenth or sixteenth, close to Turkey in size.32
At this point it remains a question whether Russia’s development will add an arrow to capitalism’s quiver. The resumption of sovereignty among the old Eastern European bloc nations, which are also experiencing population declines, led to similar dual efforts to democratize the political order and dismantle the old command economy simultaneously. Poland, Hungary, and the Czech Republic have done this with a bit more success, though their neighbor Bulgaria was named the most corrupt nation in 2008. Russia enjoys the clout of being an oil-exporting country, a fact that stays the hand of the European Union when faced with Russian intransigence on certain issues. But natural resources work in many places to embarrass development. Their revenues relieve leaders from gaining popular support; their “quick riches” fix encourages the postponement of the more strenuous tasks of building a strong economy.
Britain’s Complex Legacy in India
India has developed even more slowly than China, but much more promisingly than the Eastern European economies. Its vibrant political and intellectual life may yet prove more of an asset than China’s authoritarian system. For three hundred years before it achieved independence, India had been a colonial possession of Great Britain, the trailblazer for capitalism—and not just any colony but a uniquely important one given its culture, population, size, textile manufacturing, and strategic location. In the late seventeenth century, the English East India Company began bringing home printed calicoes and striped ginghams from India. These colorful cottons caused an instant sensation with the English, who could now adorn their bodies, their windows, or divans with light and bright fabrics. At the height of the calico craze, the company carried the designs for favorite English patterns like paisleys to Indian weavers to copy. Pretty quickly, English clothiers summoned their political clout and got laws passed to reduce these imports to a trickle. Thus began Britain’s deindustrialization of India, whose fabrics had been famous since the time of Heroditus. The East India Company stopped buying finished cloth and instead imported raw materials for English clothiers to work up. Indian cloth manufacturers confined themselves to nearby markets that didn’t interest the English.
This story bears heavily on the colonial history of India. Attached to the British economic behemoth, India became the recipient of millions of English pounds sterling in public works, but they were directed to benefiting the empire, not India per se. After 1830, British officials began promoting production over trade. In mid-century they started to build offices and residences for their many officials, along with canals, roads, lighthouses, postal services, telegraph lines, and irrigation projects. Laying railroads across India became crucial to the consolidation of British political and military domination. For the sixty years between 1860 and 1920, British engineers constructed nearly six hundred miles year in and year out. By 1900 India had the fourth-largest railroad system in the world.33
Great Britain looked upon this investment as a great civilizing effort for which the Indians should be thankful. As Queen Victoria memorably said when announcing her kingdom’s desire to stimulate the peaceful industry of India, “their contentment [will be] our security, their gratitude our best reward.” But the wretched poverty of the Indian people and the sight of the fruits of their labor stacked on the decks of home-bound British freighters animated a core of critics and activists. One of them, Dadabhai Naoroji, became the first Indian to win a seat in the British Parliament, from which he attempted to educate the English about their oppressive regime. The British raj, he said, was bleeding India for “a cannibalistic imperial economy.” A gifted mathematician, Naoroji developed statistics to prove his case, estimating that England was taking 200 million pounds sterling from India, where per capita income, measured in rupees, was 20, compared with 450 in Great Britain. The British reaction was to form a commission to study the issue, a classic delaying tactic. In 1885 Naoroji participated in the formation of the Indian National Congress. He also became the mentor of a young admirer named Mahatma Gandhi. At first working within the British system for reforms, the INC later led the anticolonial movement that achieved independence in 1947.34
From the perspective of capitalism’s history, India’s critics are significant for two reasons. They astutely perceived that British officials treated economics as though it were a natural system like physics instead of a social system created by human beings for their purposes. Maintaining that economics is natural is politically useful. It reduces railing against the workings of the economy to cursing the rain clouds. If instead the market were seen as a set of social practices and institutions, patriotic Indian reformers could reasonably agitate for change. Exposing the ideological basis of the convenient fiction that natural laws govern economic relations became essential for the Indians if they were to get outside the mind-set of their British rulers. They needed to understand why India’s integration as a producer of raw materials within the global economy led to their impoverishment.
Even more important, the Indian critique of capitalism predisposed Indian leaders, after independence, to pull away as much as possible from the global commerce centered in Western Europe and the United States. Instead they promoted cottage industries, handicrafts, cooperative banks, and credit societies that would ground their economy in the traditions of the rural communities where most Indians lived. Even now corporations with global connections employ only 7 percent of India’s workers.35 In the late 1940s, when the Western world was on the cusp of its greatest period of economic expansion, the leaders of both India and China crafted self-sufficient economies to match their new political autonomy. The Indian one was socialist and democratic; the Chinese, Communist and authoritarian. Perhaps as important, India maintained intellectual contact with the Western world while China became as isolated from Western influences as possible. Most educated Indians continued to speak English; Chinese Eng
lish speakers got older with every year as the prerevolutionary elite aged.
The fact that in 1820 China and India contributed nearly half of the world’s output is a good reminder that they had been prosperous countries earlier. Unlike many emerging markets in the contemporary scene, they had historical roots much deeper than those in the West, giving their people a strong sense of identity as Indians or Chinese. Their cultural traditions were not weathercocks but deep-harbor anchors. They also carried with them a heavy burden from the past. One of the most distinctive features of Indian society is its castes, those inherited statuses that have long defined privileges and prescribed behavior and occupations.
Literally hundreds of castes exist in India, arranged in a hierarchy with the untouchables, who make up 16 percent of the Indian population, at the bottom. The highest caste, the Brahmins, gave its name to an English word for “a highly cultured or intellectual person,” as in “the Brahmins of Boston.” In 1973, a bus carrying eighty-six persons was trapped in floodwaters southwest of New Delhi. A passerby waded out to the bus with a rope that he had tied to a truck, asking the passengers to haul themselves to safety. But since the passengers belonged to two different castes, they refused to share the same rope, preferring to stay in the bus as it was swept away.36 A little-recognized feature of capitalism is its impatience with such distinctions. For example, the economic stagnation of the American South after the Civil War persisted in part because of the legal system of segregating African Americans in public places.
The relentless revolution: a history of capitalism Page 46
