Why is this interesting? - The China Edition

On economic models, competition, and the realignment of the world

Noah here. Back in 2016, I listened to a podcast about China that has rattled around my brain ever since. The episode of Sinica with journalist and researcher Arthur Kroeber is still one of the most informative things I’ve read or heard about the country. Most notably, it argues that the economic system China operates is one that was practiced by the United States over 100 years ago. “One of the things that you don't learn typically as a student in American elementary or high school,” Kroeber explains, “is that in the early 20th century, the United States had a very strong state-led development ethos. It was called the American system.”

The American System (a version of the “national system”) was championed by Kentucky Senator Henry Clay in the 1800s. As the US Senate website explains, “This ‘System’ consisted of three mutually reinforcing parts: a tariff to protect and promote American industry; a national bank to foster commerce; and federal subsidies for roads, canals, and other ‘internal improvements’ to develop profitable markets for agriculture. Funds for these subsidies would be obtained from tariffs and sales of public lands.” Kroeber points out that it also included a lot of intellectual property theft. “The United States,” he says, “was one of the most notorious pirates of intellectual property from Europe through much of the 19th century.”

Henry Clay campaign medal from 1824

If this sounds pretty antithetical to our view of how economies should work today, it’s because it is. As James Fallows wrote in a piece for The Atlantic almost thirty years ago, we’ve done everything we can to erase this history. “While American industry was developing, the country had no time for laissez-faire. After it had grown strong, the United States began preaching laissez-faire to the rest of the world—and began to kid itself about its own history, believing its slogans about laissez-faire as the secret of its success.”

Why is this interesting?

The approach works. In fact, it might be the only thing that does. Germany used a variation successfully under Bismarck, which, according to Kroeber, eventually inspired the Japanese. “Japan, when it opened up in the late 1860s, sent a delegation of people around the world to see what's the best way to industrialize really, really quickly,” Kroeber explains. “They went to Germany, and they said, ‘Oh, this looks like it's working really well, let's try that.’ And so the Japanese development model, in the late-19th, early-20th centuries, was copied from the [German] program.” Taiwan, Korea, and eventually China have all practiced some version to rapidly build up their economies.

Here’s Kroeber one more time: 

… the reality is that you cannot find a single example of a country that's gone from being poor to being one of the rich countries in the world, that has not followed this playbook. It's the only one that we know works. So when the Chinese came along in the early 1980s, they looked around and said, "Okay, what works?" And what works was this … It's a very old recipe. A lot of countries have used it. It's extraordinarily successful. And the only unusual thing about China is that they're a) the most recent and b) the biggest country to employ this recipe, which is why it's had such a huge impact. But it's really nothing new.

I don’t think it’s a stretch to suggest that America’s relationship with China is going to be the biggest geopolitical conversation over the next year (particularly considering it already was over the previous twelve months). Despite the shifting dynamics as a result of the coronavirus and its global economic fallout, there’s still a lot of value in understanding what’s going on at deeper levels. While this particular view is obviously focused on the country’s economy, it’s not unreasonable to suggest that lots of cultural and political realities flow from there. The fundamental question that has been at the center of US/China relations for some time is whether China will open up (economically and politically). For a long time, there was a belief we were on the precipice, and now, it seems, folks on both sides of the aisle are far less sure. 

The argument from Kroeber and Fallows is, essentially, that we should see China’s approach within the broader history of economy-building over the last two centuries. That doesn’t answer the question at the center of the relationship, but hopefully, it offers a bit more context for thinking about it. (NRB)

Map of the Day:

From a recent paper that estimates 37% of jobs can be done at home. (NRB)

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Thanks for reading,

Noah (NRB) & Colin (CJN)

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