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Today I want to present a political economy model to guide what we do in this class. This model
looks at the distribution of political power within the system and the role of the market. Versus
regulations, administrators and the plant economy, that China remains a very political economy.
So understand it, we must include both political and economic aspects in our model. A second
point I would add, though, is the China really is a moving target. If we go back even to the 1970,
when the reforms really began, things have changed very quickly. And so to teach this kind, of
course, I really need to adapt my notes and my ideas towards that, for example, in the 1980s,
the private sector was very small, but then beginning in the 1990s, we get the middle of 1990s,
we really get the emergence of the private sector becoming a key component of the of the of the
economy. And so you could ask today really is China now a market economy? Now one
element of any political system is how much power is in the hands of the citizens versus how
much power is in the hands of the state. Now, here, in this model, we have a continuum,
running from the power of the state here at a maximum level, all the way down to where you
would have the maximum power for society. Locus of Power really means the location of power.
And so at the top level here, at this end of the continuum, we would see total power in the hands
of the state. Government officials, bureaucrats, police and ministry and administrators, for
example, and at the other end, we really would have total control by society. And totalitarianism.
The term that I use here really carries this idea of massive state power. For those of you who
may know George Orwell's 1984. In it, there's this idea that Big Brother is always watching. So
that's sort of the idea of totalitarianism. On the other hand, if we get society if the society is more
powerful, we could see society as a watchdog. We could see courts limiting government abuse,
we would ask whether people can form autonomous organizations vote for their leaders, and
then they can monitor the leaders in the press also can monitor the behavior of those leaders.
Now, most societies have some balance between these two. And so they may be sort of in this
section over here.
Now, and that that balance, sort of figuring out where that balance is an important part of
comparative politics. Now in most political systems, there's also a spatial component, a central
local component, where the central government and the local governments may negotiate over
which level of government has which powers. which level of government has controls, how
much of the GDP, who gets the taxes and what kind of taxes? Who gets the taxes from the
sales of natural resources, which level of government controls education, and you may know in
your own countries, if you think about this, that there are some powers that are clearly in the
hands of the central government, and there are some powers that are clearly in the hands of the
local government. Now in China before 1994, the local government controlled most of the funds
more of the funds much more of the funds in the central government. In fact, we know that
maybe around by the end of the 1980s, the central government only controlled about 8% of the
total investment in in China, which is a very, very small percentage. Now, we move to the
second dimension, right and the second dimension is how resources are allocated in the
economy. And are they allocated by the plan? Or are they allocated by a market mechanism?
Now, we do assume that the more market the more the market allocates, the resources or the
goods in the system, the power of the state will decline. So there is a sense if you move along
here, to a certain extent, the power of the state will also declined. So the question becomes do
officials do their preferences or do consumers preferences, determine the quantity, the quality,
the price of goods, the flow of capital? The movement of labor, all of these questions. And
again, we get a continuum running from a fully planned economy to a free market economy with
no regulations, and that would be over here. And that, in fact, is a highly dangerous situation.
Where there would be no constraints, no limitations, no oversight on the qualities of food,
alcohol, and the goods that are being produced.
There's no list Christof a, a journalist for The New York Times used to call market Leninism.
Right. So here in this quadrant here, the party and the state are still powerful, they still have a
great deal of authority in the final allocation of goods in the system. And and China in some
ways has very special conditions, right, even though you get the growth of the market and as I
said 95% of the goods now are allocated by the market and there has been a significant growth
in the private sector, you still get a large amount of interference by central and local
governments. And that has not that has really stopped the strengthening of society. You don't
get NGOs you don't get a lot of popular organization. You don't get powerful consumer
Association, these and non governmental organizations. Okay, now, under this concept of
market Leninism, the CCP keeps China that keeps China under its control. And can hold China
up into this upper right hand quadrant. Administrators can manipulate the market, private
businesses and governments can collude, they can work together, the state owned enterprises
are run by members of the Central Committee, the top one of the top party organizations, and
they want promotions to government or party posts. So they'll listen to the officials rather than
necessarily just listen to consumers. And what we then have is in a market economy, which is
highly influenced by the Chinese Communist Party. Now, as we move from totalitarianism to
market Leninism, it's really important to first set the base as to what totalitarian society was all
about. And then we can see the extent to which China has moved away from that model.
Right so five characteristics of a totalitarian system. First would be what we call a total issed
ideology, a total ideology that explains the past, the present and the future very much like
Marxism Leninism does that second is a single party, usually led by one man so for example,
the Soviet Union was led by Stalin, the Nazi Party was led by Hitler, right and there was only
this one party. Third, a centrally planned economy as I showed you in that model, right. Fourth
is a terroristic police where the camera the police could just interfere as it whenever it wanted,
just break into people's homes and take them away at will. And the fifth is a communications
monopoly that the state really controlled communications within people among people and
across national boundaries. Now the real question is, as we think about the shifts within China,
what components remain today? Right and you can think about that. Now. First of all, ideology,
right. That is a total list ideology will Marxism Leninism is still the official ideology, but it's really
not a motivating force for the Communist Party. And it's certainly not a motivating force for
society. And it's not some prediction of where China is going to go to some communist utopia,
which probably back in the Mao era was much stronger. Third, a second is a single party.
Right? But we've seen it's a single still a single party system, but it's not necessarily led by one
man. Today, it seems to be again led by one man but over time, after in the 90s and the 2000s.
There was much more of a collective leadership. Third component the planned economy, a
centrally planned economy now, what we find is there are five year plans. I think, going to the
third game, they're getting ready for the 14 plan. And but it's really indicative, what we call an
indicative plan, which sort of says if you invest in this sector, you're more likely to get loans
rather than the state coming down and sending directives straight to the enterprises and telling
them what to do. In terms of a terroristic police. If you are a citizen of China and you don't get
involved in challenging the state you're okay. The police won't bother you. They won't arrest
you. In under Maoism or totalitarianism the ordinary citizen was really at Target. And fifth, the
communications monopoly. Now this is where I would say the real war is going on here. We still
we talked about the great the Great Firewall. Here the Communist Party is still fighting very,
very hard to keep control over the flow of information among people within the society and
across the border. The borders of China.
Another way to look at the Chinese system is to emphasize its bureaucratic nature. Many years
ago, a Western scholar wrote an article called China as a permanent bureaucratic society,
arguing that the goal of officials consolidate their position in the bureaucracy and expand the
resources flowing into their bureau. Anthony Downes, author of a book called on bureaucracy,
treats bureaucrats as a highly rational as highly rational people, but they kill could still have very
different goals. Some are entrepreneurial, and they just they want to climb up the ladder of
success. Some of them are cautious and want to maintain their position they're they're very
careful. They don't want to make a mistake. Others are predatory, meaning that they want to go
out and steal what they can from society. And really, those people are often involved in
corruption, and some may just do their job well. And those are the kinds of that contribute to
society. Those are precisely the kinds of leaders or kinds of bureaucrats the leaders really like.
Now, some of these outcomes may differ, as it says from personality sector regents, but one of
the key variables also could be age, and the graduate students in our social science division
created a dataset of local officials that when they were promoted their age, their education, the
spending that they did, the projects that they ran, and what they found was that younger officials
who want to get promoted, try to run really big projects to prove to the Communist Party officials
above them that they're able to design and run projects, that's really an important criteria for
being promoted. And in the end, they actually don't care if the project succeeds, because even if
it falls apart 234 years later, after they're gone, they've already moved on to their next post. So
most officials, if you're successful, you really don't stay in a place for much longer than two to
three years. So you've moved on, but older officials who have been in office starting to get three
years, four years this is what the data show, that they start to feel that they may remain in a
location for forever. They may have to retire there. And so we find that they in fact, invest in
public goods, like schools, roads, clean environment. Now, when political scientists want to see
want to use bureaucracy as a key part of their model
they've come up with a concept that they call fragmented authoritarianism. And rather than
seeing power unified, as in the totalitarian model, they see power diffused among officials who
run competing bureaucracies. And what you often find is that bureaucracies have overlapping
authority over resources or permits. So here, what we find, in fact is if this would be the Chinese
system, right what you see is the arrows going down, say that the inflammation information is
flowing down the system. Interestingly, there's very little information traveling across the main
competition is among these different ministries and what they're often fighting over would be
something that we would say would be in between the bureaucracies or the bureaus. It's a
resource, let's say, such as land, who really controls land, well, there could be competition
between these different bureaus over the land. And what happens is they can't move forward.
Let's say they want to do a project and they can't move forward on the project, because the two
bureaus are fighting over who really controls the land and who can allocate it. So what happens
is, the decision gets kicked up to the next level. And now that official then comes down much
like an icebreaker in the North Pole, who will come down and break up the ice and force these
two bureaus to make some kind of concession so that the project can can move forward. And as
I said, information then travels really vertically up and down, but not horizontally. And with this
bureaucratic perspective, we're really looking for struggles within the government between
bureaus and that that's really an important part of this political system and of this model, the
outcomes that we get under market Leninism are our key to some of the problems that exist
within the system. We've talked about some of the advantages, and people often know about
the advantages of market lenders and because you get the government driving growth, but
they're also serious problems that can exist with this model. And the first one really is one of
corruption, which historically, traditionally, is a real threat to the regime and it's clear that C
Jinping. Today the leader of China sees corruption as the major threat to the regime and has
been going around arresting people for now, close to two years. Now, from a bureaucrats
perspective. There's also ways that you can make money without really doing things that are
illegal. And this is what we call rent seeking. And in rent seeking Eurocrats will create rules or
regulations to decrease the number of producers of a product, which thereby increasing the
demand for the product. Therefore, the price of the product going up. And if I'm a bureaucrat,
and I've got a factory that I work closely with, and that fact I can create a rule that makes it
harder for competition, and that specific factory can make a lot of money. They can pay me a
kickback for helping them get a larger, a larger profit, get a higher price for their goods, and we
talked about that as being rent seeking. Now we can also charge fees for these access to these
semi closed markets. This often happens internationally, where a good may want people they
want to import a good I can block that if I'm an official, and then I say, Well, you can't bring it in,
but I guess you can. If you give me some kind of payment now that's really more corruption. But
the price of that good if it can't flow easily into the country will go up and that's really an
opportunity for Rex.
Now another characteristic that we find of market Leninism is the high transaction costs of doing
business. If you have to make deals with all kinds of bureaucrats, you know that then that's
really time consuming. At one point I remember that an efficient there was a report of a saw a
foreigner who was trying to set up a joint venture in China's ne and to set up that joint venture
he needed 135 stamps 135 chops, right and each chop could have maybe cost him a dinner is
to take some official out to dinner. So you can imagine how many dinners It must take. It would
have to take in those days to close a deal. Right? Also, you get under market Leninism you can
get not too many regulations, but too few good regulations. Now, what you find that particularly
in sectors such as health care, pharmaceuticals, poorly regulated sectors, that that there's a lot
of problems, a lot of health problems and we've seen this internationally. Where and here where
I live in Hong Kong with food, food, nope. Milk powder for babies. We've seen all these kinds of
problems where the products produced in China are simply not high enough quality. And so
even though you think there's too many regulations, the fact is there's just too few good
regulations. And one of the characteristics of a bureaucratic model will highlight and make you
pay attention to the fact that the government business relationship is very tight. And a lot of this
is related, again, to what I said about laying off bureaucrats. It's really hard to lay off bureaucrats
in a system like China. And when you do that, you really have to figure out a strategy where
they can make a living. Now what happened in 1982, there were a lot of officials. This was the
first big movement to lay off officials back in 1982. By then premier jobs. And the response was
that the officials who got retired in 82 that opened up what we call briefcase companies, right?
They just had this briefcase, right and what they would do is they would go to bureaucrats that
they had known and take some resources from those guys and then ship it move it over
somewhere else. And they would charge a fee for doing that. And that's why they were called
briefcase companies. They never took control of the goods. Now, in fact, in 1986 89, there was
a lot of inflation in China. And part of the inflation was really due to the fact that these briefcase
companies were charging fees after 1998 There was another in 1998 there was really another
very big reform Jurong G carried out cut. Some people would say close to 50% of the
bureaucrats. And in those days, people started to talk about bureaucrats jumping into the sea of
business. And so a lot of people 2000 2001 In those days went off and started their own
companies as well. Today's businessman because of businessmen and women, because of all
these earlier, earlier movements into the private sector by officials. Today, many of the people in
business have long standing ties to officials with whom they have worked. Now, one of the key
points that's really absolutely critical for understanding China's development and I made it
before if you can go back in your mind and sort of see the four boxes right? Well the box down
here was the box of civil society. Right. And I had a small subtitle that said political
development, and Westerners have long believed that economic growth, marketization, private
privatization, the rise of a middle class, greater education, the flow of information, all of this will
lead to democracy and the emergence of what we call civil society. But, in fact, the Communist
Party has been quite effective. This is again keeping up in the market Leninism framework of
the market Leninism quarter of that two by two table. The CCP has done an amazing job really
weakening society, organizing it, pulling it into common Communist Party institutions.
It also refuses the party and this is my biggest complaint. If I were to have a chance to go talk to
China's leaders, my biggest complaint is that the party just doesn't create new political
institutions to to manage societal demand. We'll talk about this later on in the in the last class in
this course. But but you know, there really are a lot of problems in Chinese society. And and
people want to be able to express those problems and and get response society wants. It has
lots of demands, but the state being so powerful just does not want to give into those societal
demands. It mistrusts civil society, and therefore, it insists that society play by its rules, and
does not give the society the kind of autonomy that would allow it to put greater pressure on the
state. So the CCP just does not want to give that kind of autonomy to society. Now, it also does
this. It's partly convinced of this that that the West wants to overthrow the CCP drew civil society
through these non governmental organizations. So what the party wants to do is it emphasizes
good governance, the rule of law. Currently, we see that the Prime Minister is putting forward a
program for reform of the administrative review and approval system, sort of kind of de
regularization, making it easier to get approval for projects. But all of this without all this
improvement of the governance without really ceding power to society. Now the last model that I
would suggest that we could look at is really a model that puts the state and society at some
degree of loggerheads against each other. Now, it's very clear that state power is important. It's
important for taxation. It's important for boundary control. So much of today we hear the stories
of migrants and states need to control their boundaries. They need to control domestic security,
to prevent terrorism, national security, defending territories against external forces or the need
to develop a navy or a military resource extraction. They have to pull resources out of society
out of out of the the earth to enrich the society. We need regulations, we need legal decisions.
But in China, much of the conflict when we have social scientists look at China, we actually see
a lot of the conflict, the result of the state effort to penetrate and dominate. Society, and that
society itself tries to resist those state agents drew protests and the local state in China is
extremely powerful. You have the local territorial Party Committee, and they could dominate
politics. They can dominate the courts, the police control participation, and in fact, extract a lot
of resources that may try to control land. And we often can separate out sort of this local state
authority from the central government. And if you ask an average peasant in China, who who's
more predatory, which level of state is taking more who is more oppressive to him? Most
villagers, most local people would say that it's the local state. And they only wish that the
Central State knew what the local guys were doing, because then they would stop them and life
would be a lot better.