Economic failure CCP-style

I’ve touched on this point in earlier posts, but since at present there are lots of new readers, it is worth revisiting, and re-illustrating, the point: the People’s Republic of China (and more specifically, the Chinese Communist Party, that our leaders are so keen to cosy up to) has overseen a really poor economic performance.  It is, more or less, what one might have expected knowing that the rule of law would be absent, markets wouldn’t be allowed to function effectively, state subsidies (of all sorts) would be rampant, and so on.  It could have been worse, of course –  there was the utter chaos, misery, and (for a time) mass starvation from the late 1950s to the mid 1970s.  The handful of other remaining Communist-ruled countries are worse.   But even having stopped doing so much active destruction, the PRC results are unimpressive.    Any other conclusion surely invites that American line about the soft bigotry of low expectations.

Of course, it isn’t the line the PRC would have one believe.  And it suits too many politicians in the West to talk up China as a stunning economic success story.  But it isn’t.  Development economists, left and right, will talk up the hundreds of millions of people who’ve moved above the poverty line.  And that is great, except that (a) it was the CCP that did its utmost (perhaps unintentionally) to put them back below the poverty line in the first place, and (b) getting above the poverty line is a pretty feeble standard against which to judge the economic performance of a country that for centuries matched or exceeded the best material living standards anywhere.

Angus Maddison’s great collection of historical GDP per capita estimates is a typical starting point for such comparisons.    He reports estimates for some countries every few hundred years from year 1 AD, and then more frequent (increasingly annual) estimates for more countries in more recent centuries.  In 1 AD the estimates he reports had Italy with the highest material living standards, followed by Greece.  China was about the level –  or a bit ahead –  of most other places in Europe.   In 1000 AD, China was top of the rankings –  not by much, but it was number 1.  That shouldn’t be any great surprise to anyone who recalls the various Chinese inventions ahead of the discoveries of such things (printing presses, paper money, even very big ships) in the West.   By 1500, China was a bit behind Italy and Belgium, but not much different to most of the rest of western Europe (all well ahead of what is now the United States).

Scholars spill a lot of ink debating why China went into such severe relative decline (Japan also fell well behind and I presume –  though Maddison doesn’t have estimates –  other east Asian places did too).    Whatever the precise mix of explanatory factors that slippage happened.   In 1850, Maddison’s estimates have Chinese GDP per capita at about a quarter of that in the UK and the Netherlands, and less than 40 per cent of his “Western European 12 countries” average.  By 1900, estimated per capita GDP was only about 15 per cent of that in the highest income countries.

But perhaps as importantly, in 1900 China’s GDP per capita is estimated to have been about half that in Japan, and just a bit behind that in Taiwan (by then a Japanese possession).   As late as 1870, China had been not far from the GDP per capita in a range of Asian countries/territories for which Maddison now has estimates –  about on par with Korea, Taiwan, and Thailand, and a bit behind Japan, Hong Kong and Singapore.

And this is what they’d been further reduced to by 1976, the year Mao died.  I’m using the Conference Board’s PPP estimates, and have shown a mix of countries –  mostly east Asian and European, but with a few other interesting cases (eg Israel –  brand new in 1948) thrown in.

china 1

Such utter self-destruction and failure.  It wasn’t done by outsiders.  It wasn’t as if the PRC had faced uniquely bad external threats.  It was like economic suttee, with the depraved indifference of mass starvation thrown into the mix.

And how does the picture look today, with the Conference Board’s 2017 estimates.

china 2

The PRC has rocketed past the Philippines and Sri Lanka, and still trails the rest of this pack rather badly.   And this isn’t Tanzania or Rwanda, but a country that was once –  for centuries –  among the highest living standards anywhere in the world.  A country in a region where South Korea, Japan, Taiwan, and Singapore now manage advanced country living standards –  one of those a country that struggles to get international recognition and under constant threat from the PRC.

From the Maddison estimates, in 1980 the Soviet Union –  a region never at the forefront of material living standards –  had GDP per capita about the same ratio to that in the western European countries that China has today.  In fact, about where China was –  in relative terms –  in 1850 (see above).  It is a simply dismal economic failure in a country –  by a Party –  that would have so much potential were its people ever to be free, to ever be properly governed with the rule of law rather than the rule of Xi.

For the same countries, here are the real GDP per hour worked estimates.

china 3

It really is an astonishingly poor performance.  Or at least it would be unless you’d been told in advance that Japan, Singapore, Taiwan, and South Korea would establish market economies with the rule of law, sound governance etc etc (and none of it perfect) and that the PRC would remain a land where the (Communist) Party actively rules.  Then, the outcomes are probably much as one might expect –  China lags very badly behind, to the disadvantage of its people, even if to the enrichment (power, money) of its rulers.

On the IMF’s full list of countries, the PRC now ranks 79th (out of 187) in the GDP per capita (PPP) stakes.  Average real GDP per capita is a touch behind that in Iraq (yes, I was surprised) and the Dominican Republic, and a little ahead of Brazil and Macedonia.  Perhaps China’s growth rates are faster than those places, at least if one (a) believes the official data for the Xi period, and (b) discounts the massive distortions and misallocations associated with one of the largest credit booms in history.      But there is no sign of Chinese per capita incomes catching those of the leading countries any decade soon (if things unwind nastily, the gaps would even widen a bit for some years).

Taiwan, Korea, Japan, and Singapore are genuine economic success stories –  catch-up and convergence more or less as the textbooks suggested was possible.  Cause for celebration in fact.   The PRC?  Anything but.  Being big doesn’t change that –  even if it gives geopolitical clout to a lagging middle income country –  it just means more people are failed by their rulers (and by those in countries such as ours who give the rulers aid and comfort, pander to them, or simply cower in a corner).

15 thoughts on “Economic failure CCP-style

  1. Yes, it’s interesting to hear some of the praises being sung of China’s economic performance and then see them in their stark, unvarnished form.

    There are some other interesting stories in those graphs, such as Hong Kong leaving Japan in its dust, even 17 years after returning to China; NZ staying in 8th place, and France taking off leaving NZ in its dust over the same period.

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  2. As I understand it, Singapore isn’t exactly a paragon of democratic freedom with a very large state interest in the economy.

    https://freedomhouse.org/report/freedom-world/2012/singapore

    Yet it has done very well by your own measures and state control of a lot of the economy hasn’t been a bad thing (Singapore Airlines for example is owned by the state and is a VERY good airline in my humble experience).

    Maybe Singapore is the model China is heading for with a late start. When I went there in 1992 it was literally horse and cart transportation compared to the wonder that is Singapore’s Changi Airport the same year. But today…..

    As much as I privilege freedom of speech and democracy as vital, these don’t necessarily determine economic success.

    As Ha Joon Chang says, if state control of the economy is always bad, you have to explain Singapore.

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    • Somewhere online Nassim Taleb says Singapore and China have the same form of government but the performance difference is a function of size (just as a mouse jumps better than an elephant for sound mathmatical reasons).

      My guess is the easy access to international media. “”Were it left to me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate a moment to prefer the latter.”” Thomas Jefferson

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    • And you’ll note that democracy wasn’t one of the features I listed China as lacking (in commenting on its relative economic failure. South Korea and Taiwan also weren’t democratic in the early post-war decades.

      Actually, I didn’t list state ownership either.

      But,yes, none of these countries are simple stories of a textbook laissez-faire economy. In SIngapore’s case being small (and v well located) helps, but so does an intense meritocratic focus on lifting performance, outward orientation, lack of corruption. In my book Singapore has probably done better than I might have expected – given the list of relevant factors I cite – although even now productivity levels haven’t quite caught up to world’s best.

      Perhaps if 15 years ago China had begun transitioning to an open-access, genuinely accountable, rule of law etc type of model, it might be on a path towards high first world incomes. After all, if no one supposed the PRC state/Party had leverage over Huawei, no doubt our 5G networks would be using their product.

      Each country’s story has its own idiosyncrasies, but China is a disappointing performer.

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  3. Politicians and most of the public do not take the long view. They hear that China is growing; they see more affluent Chinese tourists year by year and they find remarkable bargains from China at 2-Dollar stores in the mall (for example adequate dark glasses cost $2 whereas 50 years ago they cost more). We see success and assume success is ever-lasting. However isn’t attaching NZ’s economy to China’s as risky as for example buying houses in Auckland?

    China has grown; even with some skepticism about offical figures it has clearly boomed for years (I read somewhere the last time a country had 10% growth for so many consecutive years it was New Zealand in Victorian times). But has it grown evenly? Chatting to a Chinese aquaintence who has lived in NZ for about 15 years she said “you have to realise there are very poor people in China” – implying a different level of poverty to what we correctly call poverty in Auckland..

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    • My recent October holiday in Shanghai and 5 provincial cities in China walking around everywhere for 3 weeks, I came across only 1 person sleeping in the streets. In Auckland I walk past a dozen homeless on the streets of Auckland within a half hour walk.

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      • In contrast, I was in Beijing for a month setting up a Beijing branch office of a NZ company in 2005 and the streets were littered with hundreds and hundreds of homeless workers who after the days work had no homes to go back to. They just slept on the pavements. China has come a long long way.

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      • It could just be a question of policy – Auckland, as I recall at one point evicted all the homeless from the CBD, whereupon they shifted to Parnell and Newmarket. China could be doing the same. I remember visiting Beijing in 2005, where they were building up to the Olympics in 2008. My lasting impression was the brand new apartment blocks going up. The new apartment blocks all lined the freeway, but they hadn’t finished the job – you could still see the awful slum-like tenements behind, the view of which would have been blocked by the new ones by 2008…

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  4. Having lived in Singapore twice (and seriously considering citizenship) and having been an economist covering EM Asia for 19 years (including China) I find any comparison of Singapore to China ridiculous.

    Singapore is a city-State and an entrepôt economy. It’s gross flows of business are much larger than its net. It doesn’t require a lot of infrastructure compared to say us, or China. It’s got a massive foreign multinational involvement in its economy and while they are interventionist, they are smart enough to know the difference between a free market and a competitive market. Finally, they’ve got a wild Gini coefficient. Their mean and median data is quite different.

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    • “When former deputy prime minister Dr Goh Keng Swee of Singapore retired in 1985, he was invited to be economic adviser to the state council on the development of China’s coastal areas and tourism.
      A few years later, during a 1992 tour of southern China, Mr Deng held Singapore up as an example, saying:
      ‘There is good social order in Singapore. They govern the place with discipline. We should draw from their experience, and do even better than them.’
      Later that year, vice-minister of propaganda Xu Weicheng led a delegation to Singapore. They stayed for 10 days. That marked the beginning. Since 1996, Singapore has trained more than 16,000 Chinese officials.
      China, a huge nation with an ancient history, was willing to learn from a tiny city-state.”

      https://sgkini090520f.wordpress.com/2009/04/11/mm-lee-china-learns-from-singapore/

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    • Israel is the second largest contributor of foreign direct investments in Singapore from the Middle East. They cooperate extensively in commerce and defense trade, and share a profound political alliance whose roots can be traced back to the founding of Singapore in 1965. Singapore is a strategic hub for Israeli business and regional trade.

      Israel continues to sell Singapore weapons including tanks, radars and drones, and the two nations’ military industries share a intelligence cooperation agreement. in 1965 Israel sent a military delegation to Singapore that included Gen. Rehavam “Gandhi” Ze’evi, Col. Yaakov Elazari, Col. Yehuda Golan and other officers to advise Singapore to form an army based on the IDF’s experience. Having helped oversee the establishment of the Singaporean army, Israel reportedly sent weapons shipments. Today Singapore’s army is one of Southeast Asia’s most powerful, and is still modeled on the IDF.

      https://www.jpost.com/Opinion/Israel-and-Singapore-out-of-the-shadows-456095

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    • Peter, you may want to reconsider migrating to Singapore.

      “Malaysia should “back off” and leave Singapore’s waters.

      Transport Minister Khaw Boon Wan revealed that in the past two weeks, there have been 14 incursions by Malaysian government vessels into Singapore’s waters. Singapore cannot allow a violation of sovereignty and will not hesitate to take firm actions against intrusions and unauthorised activities to protect territory and sovereignty.”

      https://www.straitstimes.com/politics/khaw-tells-malaysian-ships-to-back-off-as-spore-expands-port-limits

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  5. Two other points. Firstly, Singapore benefitted a LOT from the UK, including having LKY graduate in law from Cambridge. Secondly, while they’ve had an autocratic government and democracy is tightly managed, their government is highly responsive. Their senior civil servants and politicians are very much part of the community. In Beijing, not so much. The CPC officials stay in Zongnanhai and are cut off from the people.

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    • Najib Razak, ex prime minister if Malaysia attended Malvern College in Worcestershire, England, and subsequently went to the University of Nottingham, where he received a bachelor’s degree in industrial economics in 1974. Najib Razak returned to Malaysia in 1974 and entered the business world, serving briefly in Bank Negara Malaysia and later with Petronas (Malaysia’s national oil company) as a public affairs manager. Najib is currently facing corruption charges of a unprecedented scale in Malaysia through the 1MDB scandal.

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