Empire of Lies

by Guy Sorman

  To give the devil his due, the Party has contributed to Guangdong’s industrial prosperity by allying with entrepreneurs (a third of province Party bosses are big industrialists) and submitting to the dictates of the market economy. It has provided the necessary infrastructure. Roads, ports, and airports are built with foreign investors, local factories, and exports in mind. Though the electricity supply is still erratic, companies have started building captive thermal-power plants. They accept pollution as one of the necessary evils of growth. The Party ensures a steady supply of obedient workers. Little has been done, though, in the area of health care, and there are few hospitals. So the affluent go to Hong Kong for treatment. As for the poor workers, they are dispensable and easily replaced.

  The precedent of the Industrial Revolution

  Whenever the brutality of its methods is criticized, the Chinese leadership is quick to point out that all developed countries went through a stage of massive rural migration to urban industry. After all, the Europeans did the same thing not so long ago. With economic growth, the situation will automatically return to normal in China. This is what took place in the past in Europe. China is going through a phase of transition. In the long run, development will resolve all the uncertainties resulting from change. Wasn’t this a golden rule accepted first by the liberal economists of the eighteenth century and later by Karl Marx in the nineteenth? The question we need to ask is whether there can be any meaningful comparison between twenty-first century China and nineteenth-century Europe.

  It is true that whenever the traditional farmer has moved away from the land to work in a factory, quick growth has followed. A man with a machine is more productive than a man working with a sickle in his field. The so-called Chinese miracle is the automatic result of the migration from rural to urban areas. Chinese growth is higher than what it was in Europe at a comparable stage, because China has particularly low agricultural productivity, whereas her factories have benefited from Western technology. Like Korea, Japan, and Taiwan fifty years ago, China has taken advantage of technologies developed elsewhere and shortened its economic takeoff by 100 years. The last to join the growth bandwagon reaps the fruits of what came before. Thus economic growth in China is the product of its massive rural exodus and its late takeoff. The idea here is not to detract from its success but to put it into perspective.

  Pursuing further the comparison between Europe of the Industrial Revolution and today’s China, growth in China has been far more brutal than the European example and has exacted a much higher price in human terms. Both Christians and socialists condemned the human suffering caused by the Industrial Revolution in France and Great Britain, preparing the ground for Marx’s work. Is China, with its hundreds of millions of workers hovering at the outskirts of its cities, only different in terms of sheer numbers? The Party spokesmen tell us that everything is happening as it did in Europe but on a much larger scale and much faster. There is really nothing to worry about. Yet even a passing reference to issues such as pollution and poor working conditions is enough to brand one an enemy of Great China, jealous of its success. It needs to be stressed: the difference between China and Europe is not merely a question of numbers and speed.

  During Europe’s Industrial Revolution, there were social cushions—now forgotten or denigrated, such as the Church—and charitable organizations before public welfare institutions were put into place. China has no such buffer because the Revolution destroyed traditional support institutions, which are forbidden to this day. A few charitable organizations, trying to provide succor to the helpless, are islands of solidarity in an ocean of distress. They take their inspiration from the West and are financed by Westerners. The Communist authorities have started to take note of them. In the Sixties, the communists exterminated Buddhist associations. Now the very same communists are encouraging them to set up hospitals and old people’s homes. In Shanghai, the Catholic diocese has regained some influence. It provides medical assistance to the poor, many of whom are Christian, often peasants or fishermen, and helps in the education of their children.

  Yet institutional solidarity remains negligible. When all is said and done, the Chinese peasant who moves out of his village to work in a factory is at the mercy of the market in a way that the French and British worker never was. Were Engels alive today, he would see clearly what he only glimpsed in the England of his time. For the first time in the history of mankind, the Party has created a labor market not tempered by law, dissent, or collective bargaining. Economists had imagined such a scenario only on paper. Chinese leaders have shown that the classical economists were right: the less hampered the labor market, the greater the growth will be. But no economist ever had the kind of unlimited power that the leaders of China enjoy.

  Optimistic supporters of the transition theory feel that, while Chinese capitalism is savage at the moment, it will ultimately become civilized and embrace the rule of law. Indeed, the Chinese government promulgates many laws, not unlike those in force in Western countries. There are laws covering the right to property, contracts, accounting, safety, and protecting the rights of employees, but they exist only on paper, and their chief purpose is to help employers with political clout or eliminate foreign competitors. Eventually, under pressure from foreign investors, Chinese markets may start functioning according to a conventional set of laws. In Europe, the law preceded capitalism; in China, the opposite is true. From the very outset, the Industrial Revolution observed existing law, property rights, and contracts. In China, profit came first. Respect for property and contractual obligations has yet to follow. This is an unknown path that, though very desirable, is fraught with uncertainty.

  A competitor hardly to be feared as yet

  Is there any reason for us in Europe and the United States to fear the “Chinese workshop”? Should Chinese goods be rejected out of hand? I see no reason for such hysteria. China is adding to our prosperity. The West is not compelled to buy clothes, shoes, toys, sporting goods, and electronic equipment from China. It does so because Chinese prices are consistently lower, which enhances Western purchasing power. Since the beginning of the Industrial Revolution in the early eighteenth century, economic development has hinged on the international division of labor. Yet any relocation of production to a more conducive environment has always given rise to heated debate, anguish, and the tendency to look inward. Until now, the most efficient solution has been to accept such division of labor and create new comparative advantages. Take the case of textiles. Even the most efficient Cantonese factory takes three months to send a new product to Europe, whereas some factories in France and Italy can do so in three days. But producing garments in Europe would not make much economic sense. Where could we get 10,000 workers at one’s beck and call? And why pay a hundred times more just for the “Made in Europe” tag? Ultimately, the real loser will be the Western consumer.

  As the Chinese purchase more goods from the West, the economic benefit we derive from China’s success will become clearer. Already the Chinese are buying our machines, airplanes, and cosmetics. It is in our interest that they prosper further, for we will become richer. Of course, observation is not going to matter much to a worker who has lost his job because labor in China is cheaper. The international division of labor is edging him out, he feels. Indeed, this may be the fate of countries unable to restructure their economies and give up the old for the new. But the issue is more complex than competition. Often it brings to the fore a process of decay that had set in much earlier.

  The enemies of the free market in Europe and the United States condemn economics as immoral. Of course, the definition of morality is related to geographical location. If we assume that the Chinese have as much of a right to development as anyone else, then economics merits being called a social science. But won’t such altruistic humanism and compassion be suicidal for the West? Aren’t we running the risk of being overtaken by China?

  This is hardly likely to happen. At present, China is an eco
nomic midget. Its per-capita income is twenty times lower than that of Europe, its GDP no more than that of Italy. Before the midget turns into a giant that can take on Europe, Japan, and America, it has to overcome several internal contradictions: unpredictable political institutions, the absence of the rule of law, mass poverty, an insufficient energy supply, banks on the verge of ruin, the flight of national capital, and the risk of epidemics. These are just a few of the imponderables that could derail the Chinese economy. We in the West can only be threatened if we choose to sit back and do nothing.

  No innovation, only imitation

  Given the low degree of innovation in China, the Chinese threat recedes even further. Chinese firms merely assemble or copy goods designed abroad. There were times in the past when China enjoyed a clear superiority—the “invasion” of Chinese silk 2,000 years ago, or porcelain in the eighteenth century. Chinese factories had mastered technologies the West did not have. Today, however, China has not created any brand, innovation, or manufacturing process of world standard. According to official figures, high-tech goods account for 50 percent of the country’s exports. This is wishful thinking on the part of the government: included in this category are household appliances and anything else with a bit of electronics. These, too, are rarely designed in China.

  Whether it’s electronics, garments, consumer durables, or cars, Chinese firms are content to assemble, subcontract, or recopy. At times, they respect intellectual property, though generally it is ignored. Piracy is the norm. Enter any shop in China and you can get the imitation of any Western luxury or electronic good at half the price. It is easy to visit a T-shirt factory, not so one producing pirated DVDs, imitation drugs, and refined chemicals. They are under the protection of gangs—the Triads. How much the Chinese counterfeit industry earns is anyone’s guess, but it is certainly substantial. The list of counterfeit goods includes pirated software sold via the Internet around the world. This has become a source of great concern for Western firms. Because this illegal trade is virtual, there is no way of controlling it. The ingenuity of Chinese piracy knows no bounds. In the summer of 2005, the bookstores of mainland China were selling the seventh volume of the Harry Potter series even before it had been written by its British author. In defense of the Chinese counterfeiter, imitation is part of a long tradition. As far back as the 1660s, the Spanish missionary Navarrete had observed that the Cantonese artisans were “past masters in the art of counterfeiting, selling in China as the genuine article the fakes they had copied from the West.”

  These days, to show the world that it means business, the government occasionally arrests copyright violators. As the adage goes, it “kills a chicken to frighten the monkeys.” Since piracy forms one of the main planks of the economic system, however, it cannot be eliminated. The concept of intellectual property has no meaning for Chinese producers, who see it as yet another form of Western protectionism. There is a School of Intellectual Property at the University of Shanghai. Its director, responsible for educating future Chinese entrepreneurs, says: “International brands are far too expensive. Their high price excludes most of mankind from the benefits of the world economy.” In other words, intellectual property is theft, and pirates are philanthropists.

  Now that “Made in China” goods are flooding the world, we need to understand what the label means. Most exported goods are only assembled in China, not designed there. To take up the Man Sum example once again, the Guangdong factory buys its cloth from the Philippines and accessories from Korea to reproduce models designed by its American and European clients. The international division of labor is a common feature of industry around the world, but industrial production in China is particularly dependent on decisions taken elsewhere and on capital and goods from abroad. In most Chinese firms, labor, not creativity, constitutes the local value added, which is not a winning formula in the long run.

  Some may argue that Korea and Japan experienced a similar phase before they managed to set up systems and produce brands of international repute. China, too, may replicate the same virtuous cycle. Such a development does not seem likely in the near future, however. China lacks innovation not because it is a new economy but because its institutions do not foster the innovative spirit.

  Clearly, the government’s economic strategy is to make quick money through the exploitation of the labor force. Wages remain low because the Party has curbed all forms of unionism and strengthened its nexus with firms, both domestic and foreign, to keep workers suppressed. In Korea and Japan, the reverse was true: trade-union demands and the end of the rural exodus forced entrepreneurs to mechanize and innovate. Nothing of the kind is happening in China: the Party’s labor pump is capable of drawing reserves for a long time to come. Firms will continue to reap the benefits of cheap labor without any impetus to innovate. Why innovate when there is no talk of sustained development? The emphasis is on getting rich fast. The complete indifference to the environment and public health reflects this preference for the short term. The government’s efforts to reduce pollution in Beijing are not motivated by any comprehensive policy on environment but rather to facilitate holding the Olympic Games in the city. Protecting the environment, as we all know, does not yield immediate returns.

  Furthermore, the regime, by its very nature, is incapable of long-term thinking. A precarious legal system, shaky intellectual property rights, unpredictable taxation, and the Party’s own capriciousness have created a climate of instability where everyone is out to make a fast buck and invest the proceeds abroad. It is pointless investing in research, for there are no immediate profits. Similarly, why respect trademarks when a cheaper solution is available? Researchers sent to the U.S. come back with innovations on which quick returns can be obtained. Whether this is legal hardly matters. It is also helpful to make the purchase of foreign goods contingent on the transfer of technology, as in the case of the Airbus. Such strategies are efficient if a country is content to imitate. In the long run, however, it means condemning China to follow rather than to lead.

  Once again, the Communist regime is being consistent. In the Sixties, Mao Zedong, in a hurry to acquire nuclear weapons, preferred copying Russian, American, and French technology, instead of promoting Chinese research. The country had good spies, and China was able to conduct its first nuclear test in 1964. Has China changed? The official statistics show a constant increase in the number of engineers. So much the better! It is heartening to learn that their ranks are swelling. What their training is worth is another matter altogether. Chinese universities do not encourage independent thinking: students are required to remain passive. Discussion is circumscribed by political taboos, and the best students go abroad to enhance their qualifications. Most of them stay on and become Americans. The few who return are lauded for their heroism.

  These are many reasons to minimize the supposed threat of a prosperous China. I am convinced that we are barking up the wrong tree. Semi-developed countries pose a far more serious challenge to the world order than nations content with their level of prosperity. And can one use the term “development” at all in the Chinese context? Instead of working toward national development, the Party is building a political and military power. To satisfy this ambition, 80 percent of the rural population is being exploited by 20 percent of the urban population. Some parts of Chinese society are getting rich. Yet the vast majority is being excluded from the development process.

  Shanghai: a failure in comparison with Hong Kong

  It is undeniable that some 200 million Chinese have become affluent. But will China gain the supremacy that its leaders are dreaming of, not just in Asia but across the world? If Shanghai is any indication, that prospect seems improbable.

  Shanghai, a failed city? Isn’t this flamboyant metropolis, with its elevated roadways and high-rise buildings, the symbol of China’s technological breakthrough? First and foremost, Shanghai is China’s display window to the rest of the world. The Shanghai and Beijing leadership designed the city to
be attractive to foreign capital and, if possible, to motivate Hong Kong to reinvest in the mainland.

  In the Nineties, while the Shanghai of rusty factories and decadent European palaces slept, the Shanghai plan’s stated objectives were to make the city a worthy competitor to Hong Kong and eventually supplant it. Hong Kong has always been the yardstick of success. Fifteen years later, Shanghai has lost out, and the question of competition does not even arise.

  Shanghai, the financial capital of Asia? Hardly. The stock market is weak and has ruined millions of small investors. Large Chinese firms prefer to have their shares listed on the Hong Kong stock exchange. Shanghai fares no better in the service sector. As in the rest of China, the service culture is conspicuously absent, whether the business is hotels, retailing, or something else. Town planning leaves much to be desired. There are a few achievements thanks mainly to foreign architects, but otherwise the city is unlivable. In their hurry to build, the local authorities completely neglected public health and communications. Half of the city’s 17 million inhabitants—the population of a fairly large European country—have no proper sanitation, as the color of the River Huangpu makes plain. What about art, fashion, design, and advertising? The few art galleries are meant to reassure us that the new generation of visual artists has not lost its creativity. Yet despite all the hype in the Western media about Shanghai giving rise to a new civilization, the city hardly creates anything. In support of their stories, foreign journalists actively promote a handful of stars, whose photographs are reproduced ad nauseam. As for cinema and music, the Shanghai opera, whose building was designed by a French architect and ignored for a long time, can only make ends meet by staging imported Broadway musicals.