Yesterday I lead you through a crash course in Economics, and showed you that China’s GDP doesn’t mean that it’s a developed country, I would suggest reading that first.
I think for many American’s (and probably many Europeans) China’s rise is met with mixed feelings. On my recent trip to the States something felt different this time when I told people I lived in China. It seems that China has moved from being seen as the place where people carry little red books, make our cheap socks, and fawn over baby pandas, to being the country that is on track to unseat us as number one.
For my Chinese readers, just so it’s clear, this scares the heck out of practically every American born before 1980.
The question that seems to be on the tip of everyone’s tongue is:
Does China’s GDP mean that Communism works?
Quick Note: Here Communism refers to China’s version of rule, not the economic system
I’m going to answer this question in two short parts, since “kind of” isn’t a very satisfying answer.
Communism works at some stages of development.
China’s impressive growth is definitely a result of their strict government system, and no one is denying the fact that China’s communist gov’t has lifted more people out of poverty in such a short time than any other in the world.
I have heard development described as climbing a ladder, and that the poorest countries are struggling to reach the first rung. I think in some ways China’s version of gov’t provides a model for dictatorships for reaching that first rung (this isn’t a good model for democracies to switch to).
China’s system is essentially a dictatorship that rules at the consent of the people, which is more or less unseen in the rest of the world. The Chinese model provides the stability needed to develop the infrastructure to support an active economy. For example: imagine if Gadhafi had spent less time designing his snappy outfits, and more time building freeways, factories and schools that move people out of poverty.
With that being said, I don’t think it is a system that will let China (or any other country) reach the top rung of the development ladder.
Communism still leads to wasteful production
Like I mentioned in yesterday’s post, GDP measures all economic transactions in a country, but it doesn’t measure whether or not those transactions are useful.
One of the major problems now facing China is that gov’t positions are based on growing GDP, which has led to some incredibly wasteful practices.
A common trick for “creating” GDP is (note: each step is GDP): 1. Buy land from farmers 2. Sell land to developers 3.Tear down old houses 4. Build new condos 5. Sell condos to investors.
The issue here is nobody even has to need a condo for it to create impressive statistics for the local bureaucrats.
This is something I have seen first hand when I was living in Longzhou, a farming town of 50,000. In this backwater, there were literally hundreds of apartments being built, that no one was able to afford.