Reflections From China

How does the political system affect the global economy?

I’ve completed my third teaching tour in southwestern China’s Sichuan Province, home to the spicy Chinese food. My host city, Chengdu, is nestled up against the Tibetan plateau with 16,500-foot mountain peaks 100 miles to the west.

Between watching my Chinese neighborhood change as incomes rise and congestion grows, listening to students and Chinese Americans working in China, and watching the U.S. mid-term elections from afar, it was easy to reflect on many aspects of politics and economics facing our modern societies. The two things that struck me the most were how far China has come in recent decades and what sharing our hegemonic global role with China will look like in the future.

China’s growth rate settled down in the last five years from nearly 10 percent to less than 7 percent. What does such growth look like? Consider Colorado since 2010, and double or triple it to get a sense of pace. In terms of magnitude, we are talking about the most populous nation on earth with nearly 19 percent of the world’s population. As for history, our 400 years of European influence in America pales in comparison to China’s 5,000 years. In terms of the last 150 years, China reflects on a period of national humiliation (which they have no intention of repeating), while the U.S. worries whether our economic and political success will subside.

In economics, many have pointed to the fall of the Berlin Wall as the ultimate demonstration of capitalism’s superiority over command economies. President Ronald Reagan pitted our economic output against the Soviets, quickly ending the Cold War without direct military confrontation. But the real proof of market superiority comes from China’s transformation, which also began in the 1980s. The reforms put the hobbling nation on economic steroids after the command-driven policies of 1950s and 1960s under the post-revolution Communist Party.

While the economic explosion of China has ended the fundamental debate, many issues will persist in both countries. These include distributional equity and the respective roles of the private versus public sectors in housing, education, health care, environment, infrastructure, workforce and safety nets. Political processes are the arena for confronting these ongoing challenges.

Since beginning my educational sojourns to China, I increasingly get asked at presentations in the U.S. whether I think China’s single-party democracy is better positioned than our two-party democracy in responding to both national and global challenges in the coming decades.

As an economist, it’s hard not to reframe the question to: Which hinders social benefit more – monopolies or duopolies? These are nuanced versions of essentially the same thing. Both can benefit from competition, and both are worse if the focus is on self-protection and political infighting to the point of dysfunctional governance. Right now, China is clearly winning when it comes to decisive government making substantial infrastructure investment both at home and abroad.

I recently stumbled upon the work of a top business economist and an inspiring businesswoman. Michael Porter and Katherine Gehl have published a study through the Harvard Business School titled “Why Competition in the Politics Industry is Failing America.” In the study, they argue the industry of politics needs restructuring just like any private industry that has become noncompetitive. As economists, we know oligopolies, duopolies and monopolies can be problematic and less successful in serving the needs of the market and society.

As Porter and Gehl point out, the entire support system of consultants, pollsters, analysts, lobbyists and others who want to participate and benefit from this industry must do so through limited players – the Democrats and Republicans. The implicit goal of this duopoly is to gain market share at the margin to shift legislatures and executive branches from one party to the other, but beyond that they maintain the status quo to protect the structure – even going as far as legislating self-protectionism.

This could become a pretty depressing thesis if we are locked in such a future where real, impactful changes are not possible because of dysfunctional political systems. Gehl and Porter offer several restructuring initiatives to promote competition on the margin, including nonpartisan primaries, rank-choice voting, unbiased redistricting and presidential debate litigation.

Hopefully, small changes such as recent reforms to primaries in Colorado and congressional rank-order voting in Maine are early seeds of change in our democracy. If not, I fear the economic-driven human progress may be less enduring than we think.

Categories: Economy/Politics