Business Week has a great article this week on China's well-publicized environmental and product safety problems. In the 1980's, under the leadership of Deng Xiao Ping (鄧小平), the country unceremoniously ditched the Communist doctrine of Mao tse-Tung and Karl Marx and threw itself headlong into a furious burst of growth driven by market forces and the unleashed entrepreneurial spirit of its populace. Along the way, however, China failed to establish the effective "checks and balances" that the Western economies have established in order to protect the environment and ensure product safety:
The relentless headlines about unsafe products from China reveal a scary truth: Probe even a little into the Chinese economic miracle and glaring administrative failures abound. Product safety is just one aspect of Beijing's inability to enforce needed regulation in everything from manufacturing and the environment to copyrights and the capital markets.
China observers dismiss these flaws as the growing pains of a nation making a breathtakingly fast transition from a command economy to a free market. But now it's becoming clearer that these and other structural problems aren't being addressed. The same policies that have been so successful at boosting the gross domestic product by developing new export industries and public works projects, it turns out, undermine initiatives that might move China's economy to a higher level. In its pursuit of growth at all costs, China skimped on investments needed to provide basic affordable health care and the regulatory machinery that can enforce environmental, safety, and corporate governance regulations nationwide.
As we can see, China's problems have their root in the lack of regulation and government oversight of industry that we have taken for granted in the West for years. This problem is compounded by the fact that the Chinese central government has effectively lost control of social and economic affairs at the local level:
A more intractable problem is China's power structure itself. Although Beijing holds a monopoly on politics, local Communist Party officials enjoy wide latitude over social and economic affairs. They also have huge professional and financial incentives to spur GDP growth, which they often do by ignoring regulations or lavishing companies with perks.
China does have regulatory agencies and they have been making efforts to shut down food producers that violate safety standards, clamp down on software piracy, enforce environmental regulations and prosecute local officials for corruption. But in a land of 1.3 billion they are far too few and find themselves hampered by corrupt local officials. China has over 400,000 firms in the area of food production and most of those have small staffs with little understanding or knowledge of safety regulations. Contacting each one of these producers and ensuring that they follow regulations will be a monumental task indeed.
The challenges facing China right now are not unlike those faced by America at the turn of the 20th century that were illustrated in Upton Sinclair's novel The Jungle. America's response was a serious of social and governmental reforms that established the laws, administrative structure, and regulatory oversight now conducted by agencies like the Food and Drug Administration, the Environmental Protection Agency and others. If China fails to make similar reforms and gain control over the "Wild West" aspects of its economy, its long-term growth could be threatened. If Chinese goods gain a reputation for being safety the country's manufacturers could find their export markets turning away from their products.
The Business Week article sums up the questions all this raises about China's future:
After decades of efforts by reformers, why assume China will build the financial, legal, and administrative systems required to become a modern industrial society? The only way up is to tame the unregulated, raw self-interest that flows from Deng's historic compromise with the party and the people. That would require a legal system that doesn't let local cadres circumvent regulations, grading officials on metrics that go well beyond simple GDP growth, and capital markets that nurture and reward entrepreneurs. In short, it means getting the party out of business. At this stage, such revolutionary change seems politically impossible. So it's just as plausible that the flawed China we see today is basically what we will have a decade from now, after all.
China's problems essentially come down to the fact that they have loosed the forces of the marketplace while retaining the monopolistic control of the Communist Party over political and governmental institutions. This has led to the calcification of power and the spread of corruption and cronyism. Oversight and regulation needs to be greatly strengthened in China, but the country also needs oversight of the politicians who are charged with this task. A free press, competitive political parties, a functional legal system, and a fair electoral system are needed to accomplish that.
In summary, it's not the principles of Mao tse-Tung and Karl Marx that have created China's difficulties. It is the unrestrained marketplace governed by an oligarchy that is not accountable to the people.
Note: Wizbang Blue is now closed and our authors have moved on. Paul Hooson can now be found at Wizbang Pop!. Please come see him there!