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Robert Gmeiner
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How Trade with
China Threatens
Western Institutions
The Economic Roots
of a Political Crisis
robe rt gm e i n e r
How Trade with China Threatens Western
Institutions
Robert Gmeiner
How Trade
with China Threatens
Western Institutions
The Economic Roots of a Political Crisis
Robert Gmeiner
Methodist University
Fayetteville, NC, USA
ISBN 978-3-030-74708-4 ISBN 978-3-030-74709-1 (eBook)

https://doi.org/10.1007/978-3-030-74709-1
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
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Preface
China’s perception among Western countries has changed much in recent

years. China itself, however, has been remarkably consistent in its goals
and aims. Views in the West have begun to change as China has become
more assertive. China’s assertiveness is more of a reflection of its growth
and newfound stature than any change of policy or attitudes of its leaders.
It was once commonly believed that trade between China and the West
would help China liberalize. Few major Western leaders seem to believe
that anymore, although there is no clear consensus on what should be
done. This book makes the case that, instead of causing China to adopt
the West’s model, trade has caused Chinese influence to grow in the West
to the detriment of deeply held Western ideals of free markets, freedom of
expression, property rights, and democratic political institutions. In addi-
tion to chronicling the rise of Chinese influence in the West, this book
explains the reasons why it has happened, which are inextricably linked to
the welfare gains from trade.
Fayetteville, USA Robert Gmeiner
vii
Contents
1 Introduction 1
References 6
2 China’s Economy and Success Without Freedom 7
From Starvation to Superpower: Evolution of China’s
Overall Economic Approach 7
Decentralization of State Economic Control 8
Economic Incentives and Outcomes under Decentralized
Planning 9
The Sino-Soviet Split: A Harbinger of China’s Intentions 10
Illusory Reforms Under Deng Xiaoping 11
Socialism Without Soviet Characteristics 12
Rapprochement with the United States 13
Freedom? Just Economic Incentives and Political
Repression 14
Incomplete Nature of Reforms 16
The Tiananmen Square Massacre and a New Era
of Repression 19
Naivete of the West—Trade and Political Freedom 20
The Current Economic Landscape of China 22
State Planning—Still an Integral Part of China’s
Economy 25
What Do “Property Rights” Entail in China? 26
Foreign Direct Investment—One Part of the Growth Strategy 28
ix
x CONTENTS
Currency and Banking 31

Debt and Asset Bubbles 35
Intellectual Property, Innovation, and Technological
Advance 36
Mercantilism with Chinese Characteristics 36
The Chinese Approach to Intellectual Property 38
A Traditionalist and Socialist Aversion to IPRs 38
IPR Enforcement—A Persistent Challenge 39
Development of IP Law in China 41
The Belt and Road 44
What Is Not to Like About China’s Economic Model? 45
References 48
3 The American Economy and Institutions with Sino-US
Trade 55
Intellectual Property Rights and Other Economic Institutions 55
Comparative Advantage Differences 59
America—Still a Manufacturing Powerhouse 61
The United States Is Still a Leading Manufacturer 61
Output and Employment—A Major Divergence 62
American Monetary Policy: Creating and Exacerbating
Problems 63
Asset Bubbles and Supply-Side Deflationary Pressures 64
Monetary Expansion—A “Cure” That Becomes a Problem 66
Currency Devaluation—Not Just a Chinese Issue 67
China’s Currency Manipulation—A Response
to America’s 67
Direct Domestic Harm of Easy Money 68
Macroeconomic Economic Accounts 68
Whence the Capital Surplus? Imprudent Domestic Policies
or Good Investment Climate 69
A Net Debtor that Earns Net Income 71
Chinese Investment in Foreign Assets 72
The Avoidable Current Account Deficit—A Symptom,
Not a Problem 73
Bilateral Balance with China 73
Trade Balance in Intellectual Property—A Declining
Surplus 74
American Vulnerabilities 75
CONTENTS xi
Institutions in Models of International Trade 76

Economic Surplus from Many Different Institutions 78
Spillovers of the Economic Value of Institutions 79
Excludability of Institutional Value 80
Institutional Interaction Between the United States
and China 81
Trade Policy and Macroeconomic Accounts 82
The Structure of American Trade Policymaking 84
The United States Trade Representative 84
Relationship Between the USTR and Industry 85
Special 301 Report 88
Committee on Foreign Investment in the United States 90
Other Policymaking Entities 91
The Structure of Chinese Trade Policymaking 92
Comparison of US and Chinese Policymaking Structures 93
References 94
4 Specific Problems in the US-China Trade Relationship 99
Intellectual Property 99
Intellectual Property Theft—Quantifying the Problem 100
The Economics of Intellectual Property: Reasons
for a Dispute 103
Intellectual Property and Trade 105
Specifics of IP Misappropriation—Theft, Infringement,
and Extortion 105
Disguising Extortion: Joint Venture Requirements 106
Economic Espionage 108
Academia—The Source of Unsuspecting Threats 110
Talent Acquisition Programs 111
Civil-Military Integration 115
Global Advance of China’s Domestic Repression 123
Noncommercial Motives of Theft 123
Exporting Surveillance and Repression 129
Conclusion 131
References 132
5 Institutional Free Riding 141
The Source of Advantages for Countries and Firms 141
Institutions: The Root of Economic Advantage 143
xii CONTENTS
“Unfair Competition” or Natural Comparative

Advantage? 144
Institutional Differences and Nonexcludability 146
Institutional Free Riding 147
Prior Research on Trade, Institutions, and Free Riding 148
Overview of Institutional Free Riding 150
Free Riding: What It Is and What It Is Not 151
History and Examples 152
Harmless and Beneficial Free Riding 154
Multinationals: They Belong to No Single Country 154
Opportunistic Institutions 155
Feasibility of and Susceptibility to Institutional Free Riding 156
Domestic Know-How 157
Ability to Entice Acquiescence 157
Why Do Firms Acquiesce to Foreign Free Riding? 158
The Prisoner’s Dilemma 159
Market Size and Desirability for Investment 160
The Role of Trade Policy 161
Institutional Free Riding and Innovation 162
Innovation in the United States and the West 165
Economic Incentives for Continued Innovation 166
Chinese Acquisition of Innovative Firms 167
Innovation in China 169
Institutional Free Riding and Production 172
Market Structure 172
Effects on Output 173
Institutional Degeneration 174
References 175
6 Institutional Change in the West 181
Institutional Change and Pressure from China 181
Espionage Against Government and Business 183
State and Local Governments 185
The Chinese Diaspora 189
Repressed Minorities 189
Extraordinary Renditions 191
Chinese Global Soft Power 193
Political Influence in the West 194
Military Power and Territorial Expansion 195
CONTENTS xiii
Potential Claims to the West 197

China’s Economic Threats Are not Idle 199
Belt and Road Colonialism 200
Chinese Censorship in Western Countries 201
Censorship of Foreign Corporations 202
Chinese Students in the West 204
Censorship of Academia 206
Censorship of Media 211
Censorship of Western Governments 212
Censorship of Religion 213
Pollution and the Censorship of Information 216
References 218
7 Confronting the Threat 231
Domestic Policy Options 233
A Coalition of Diverse Interests 234
Monetary Policy 235
Ease the Regulatory Burden 236
Restrict Trade with China 239
Security Reasons 239
Other Export Controls 241
Strategic Advantage 243
Constrain the Subnational Governments 243
Limits on Foreign Investment 244
Boycotts and Embargoes 246
Academia 247
Internet 249
Reform American Patent Law 250
Protect Western Institutions at Home 252
Conspiracy Against Rights 253
Strengthen Poorer Communities 253
Multilateral Approaches 254
Hong Kong: A Lost Opportunity 255
International Treaties and Organizations 261
Pivot to the Asia-Pacific Region 262
A NATO for the Asia-Pacific? 263
xiv CONTENTS
Military Superiority and Alliances 264

Trade Liberalization and the Trans-Pacific Partnership 266
Alternatives to the Belt and Road Initiative 269
Caution and Unintended Consequences 270
References 270
8 Conclusion 277
The Choice Confronting the West 277
Why Did This Choice Come About? 278
The Urgency of Decision 279
Consequences 280
Index 283
Abbreviations
AIA Leahy-Smith America Invents Act of 2011

AmCham American Chamber of Commerce (in a Foreign
Country)
ASD Australian Signals Directorate
ASEAN Association of Southeast Asian Nations
ASPI Australian Strategic Policy Institute
BRI Belt and Road Initiative (China)
CAFC Court of Appeals of the Federal Circuit (United States)
CCP Chinese Communist Party
CFIUS Committee on Foreign Investment in the United States
CMC Central Military Commission (China)
CMI Civil-Military Integration (China)
CPI Consumer Price Index
CPPCC Chinese People’s Political Consultative Conference
CSAIL Computer Science and Artificial Intelligence Laboratory
(Massachusetts Institute of Technology)
CSSA Chinese Students and Scholars Association
DoD U.S. Department of Defense
DOJ U.S. Department of Justice
EFW Economic Freedom of the World Index
EU European Union
FBI U.S. Federal Bureau of Investigation
FCC U.S. Federal Communications Commission
FDI Foreign Direct Investment
FROCA Federation of Returned Overseas Chinese Associations
(China)
xv
xvi ABBREVIATIONS
GDP Gross Domestic Product

IJOP Integrated Joint Operations Platform (China)
IP Intellectual Property
IPR Intellectual Property Rights
IPRWC IPR Working Conference (China)
MIT Massachusetts Institute of Technology
MITI Ministry of International Trade and Industry (Japan)
MOFCOM Ministry of Commerce (China)
MOFTEC Ministry of Foreign Trade and Economic Cooperation
(China)
MOU Memorandum of Understanding
NATO North Atlantic Treaty Organization
NBA National Basketball Association
NDRC National Development and Reform Commission
(China)
NIPA National Intellectual Property Administration (China)
OCAO Overseas Chinese Affairs Office (China)
OECD Organization for Economic Cooperation and Develop-
ment
PBOC People’s Bank of China (China)
PLA People’s Liberation Army (China)
PTAB Patent Trial and Appeal Board (United States)
Quad Quadrilateral Security Dialogue
R&D Research and Development
SAFE State Administration for Foreign Exchange (China)
SAR Special Administrative Region (SAR)
SASAC State-Owned Assets Supervision and Administration
Committee (China)
SIPO State Intellectual Property Office (China)
SOE State-Owned Enterprise
SPC State Planning Commission (China)
THAAD Terminal High Altitude Area Defense (United States)
TPP Trans-Pacific Partnership
TRIPS Agreement on Trade-Related Aspects of Intellectual
Property
UFWD/United Front United Front Work Department (China)
UNCLOS United Nations Convention on the Law of the Sea
USPTO United States Patent and Trademark Office
USTR Office of the United States Trade Representative (U.S.)
WIPO World Intellectual Property Organization
WIV Wuhan Institute of Virology
WTO World Trade Organization
CHAPTER 1
Introduction
Now that China is a major trading nation with the world’s second-
largest economy, most if not all of the world must confront the reality
that China’s actions affect the global economy and that of many indi-
vidual countries. This necessitates economic and political decisions by
firms and governments. These decisions are made with a view toward
economic gain, political expediency, and moral philosophy. This book
highlights the ramifications of trade between China and the West that go
far beyond economic welfare gains and specifically focuses on institutions.
Succinctly, institutions are arrangements and structures that undergird
culture and society. In the West, institutions include the free market, rule
of law, freedom of expression, property rights, constitutionally limited
government, and many others.
When rapprochement began between China and the West, it was
thought that China could become a valuable counterweight to the Soviet
Union that might eventually become a free and prosperous country.
Since that time, the Soviet Union has collapsed under the weight of
economic stagnation and China has become increasingly powerful on the
global stage and repressive at home. As economic links grew between
China and the United States and other Western countries, many hoped
that China would embrace the successful Western order and liberalize
its economy and political system. Shortly after the collapse of the Soviet
Union, democratic and capitalist countries led by the United States almost
© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2021
R. Gmeiner, How Trade with China Threatens Western Institutions,
https://doi.org/10.1007/978-3-030-74709-1_1
2 R. GMEINER
completely dominated the world economy and its geopolitical order. It

seemed reasonable that trade and openness would allow other countries
to taste the prosperity and success of the West and that China would
inevitably realize the superiority of its system.
The tacit assumption in this line of thinking was that Western institu-
tions would spread along with trade and openness. It was complemented
by the notion that economic and political freedom naturally go together
with economic freedom being a starting point for eventual political liber-
alization. This view was advanced by Friedman (1962) and shared by
many prominent Western politicians after the end of the Cold War, espe-
cially concerning China. Friedman’s work was authored in the same year
that James Buchanan and Gordon Tullock published The Calculus of
Consent (1962), which became a seminal early work in public choice
theory. Buchanan and Tullock correctly pointed out that politicians act
rationally in response to incentives just like market participants, and that
special interests can exert outsized influence opposing the public interest.
These interests can be foreign or domestic, and international trade always
introduces foreign pressures into the political system. Before Friedman,
Schumpeter (1942) argued that capitalism held the seeds of its own
destruction because it would nourish an intellectual class that opposed
it. This may be the case, but the view taken in this book is that global
capitalism may carry the seeds of the destruction or erosion of free and
democratic institutions by introducing illiberal foreign influence.
There are elements of truth in what Friedman wrote, but China’s expe-
rience raises questions. It is tenuous to call China a counterexample to
Friedman’s hypothesis because China lacks both economic and political
freedom, although it has achieved economic growth. Rapid economic
growth without economic freedom counters much modern economic
thought. The reasons why it has worked are outlined in Chapter 2 of
this book. The remainder of the book focuses on the dangers that the
success of China’s approach poses for the West. Capitalism in the West
has not collapsed because of an intellectual class as Schumpeter predicted
(although many of them do oppose capitalism), but it has degenerated
because of populism and corporate rent seeking. Buchanan and Tullock
offered less in the way of predictions than observations and a theory
to explain their observations, leaving little to challenge and much room
for further thought. Their insights explain well why China’s leaders have
pursued the policies they have, why those policies have produced substan-
tial economic growth, and why Western countries have supported them
1 INTRODUCTION 3
through trade. Despite rhetorical Western opposition to China’s repres-

sive regime, trade with the West has facilitated much of the growth that
has legitimized China’s government.
China has shown that economic growth and economic freedom need
not go together, and that economic growth need not lead to political
liberalization. Trade with China has not brought freedom to China, but it
has brought illiberal influences to the West. This book looks at the reasons
for this and develops a contrary view, namely that trade with China can
lead to institutional degeneration and loss of freedom in the West. There
is no imminent risk that the United States and other Western countries
will fall prey to Chinese oppression, but trade with China can facilitate
China’s own repression, strengthen its hand globally, and lead to slow
erosion of freedom in the West.
When China began opening up to the world, it was still an industrial
backwater with little influence on the global stage, so there was no a
priori reason to think that its own institutional structure would eventu-
ally challenge the West’s. International trade has contributed to economic
development in China and material prosperity for both China and its
trading partners, but the idea that China will liberalize politically seems
far-fetched. Instead, its influence seems to be spreading in its near abroad
and on the global stage more generally. The story of China’s “opening
up” to the world is a continuing narrative of using any and all means,
ideological or not, to achieve economic growth, establish global power,
and maintain Communist Party dominance. As China’s global influence
has grown at the expense of the West’s, many countries have hesitated to
take a strong line on China for fear of losing gains from trade. Insofar
as China poses a threat to the liberal order among developed, wealthy
countries, continuing this trade only let the threat grow.
Economic literature on international trade recognizes the benefits of
trade so plainly that support of free trade is one of the issues on which
very diverse economists are most united. The mutual gains from trade
between China and the West are equally plain—Westerners (and people
all over the world) can now buy cheaper products from China, living stan-
dards in China have risen dramatically, and there is now an export market
in China for many Western products. In this context, it is worth asking
why China has not embraced a liberal democratic system like those of
the West, which are more appealing to many people than oppression. To
go further, one could question whether this liberal system is the key to
Western success and prosperity, which it may not be. These questions are
4 R. GMEINER
very reasonable given China’s continued growth and the fact that its insti-
tutions and global worldview now challenge the once-dominant liberal
Western hegemony.
Institutions undoubtedly determine a country’s trading position
because things such as the rule of law, sound monetary policy, property
rights, and ease of starting a business all affect incentives for economic
activity. Countries with these good institutional characteristics can have a
comparative advantage in producing goods and services that rely on them
(Nunn and Trefler 2014). It was once easy to think that institutional
structures common in the West were the basis for economic prosperity.
They undoubtedly facilitate the West’s prosperity, but China has shown
that although they may be a sufficient condition, they are not a neces-
sary condition. China’s novel contribution was to plainly demonstrate
that incentives for economic production and activity are what matter for
growth and development, and that these incentives can exist without the
market-oriented institutions of the West. China has created incentives for
economic activity without using Western institutional structures.
Scholarship on international trade has not looked extensively at
economic institutions and the ways in which international trade in
goods and services influences the political pressures that shape institu-
tions, although there is some mention. Likewise, economic research on
economic and political institutions has paid little, but not zero, atten-
tion to the role of international trade. The focus on static, or even
dynamic, welfare gains without looking at economic institutions and the
mutual effects of trade and institutions on each other obscures the insti-
tutional harm that can result from trading with countries that lack good
institutions. Institutional quality is not always reflected in the quantified
welfare gains from trade. This book explains why trade with China is
harmful to Western institutions and why it is difficult or impossible for the
West to have unfettered trade with China without suffering institutional
degeneration.
Economic gains from trade always exist; that is a point that has been
repeatedly demonstrated both theoretically and empirically. This book
makes no attempt to dispute that point, but instead looks at the harm that
this trade can inflict on free and inclusive institutions. This harm results
in large measure because of the economic gains from trade, not in spite of
them. Even if Western countries can avoid this harm, continued Chinese
economic growth that is facilitated by trade with the West leads to a
1 INTRODUCTION 5
growing Chinese sphere of influence, bringing others within its repressive

reach, as discussed in Chapters 4 and 6.
China is a unique country because it has economic characteristics
(outlined in Chapter 2) that make it more of a threat to Western insti-
tutions than other repressive countries. Chapters 2 and 3 are a prelude
to this book’s theoretical arguments and are vital for understanding the
danger to American and Western institutions that results from trade with
China. These two chapters lay out the institutional characteristics of the
China and the United States, respectively. China’s characteristics could
make it a strong force for liberty and pluralism if its government had those
priorities. China’s economic characteristics are what causes its influence
to spread, and this is only problematic because of the specific institu-
tions its leaders have embraced. There is no reason why trade with China
must be detrimental; it is only so because its institutional and economic
characteristics combine in a way that threatens Western innovation and
pluralistic values. In reading Chapters 2 and 3, it is essential to remember
that China as a country is distinct from its government. China’s govern-
ment is controlled by the Chinese Communist Party (CCP) and has an
agenda that is antithetical to Western values. All of the harmful things
that its government does are by choice; China’s people have a tremendous
potential for good just like the people of any other country. Nothing in
this book should be taken as a disparagement of the Chinese people or
their culture. As is common practice, this book often uses “China” as a
metonym for its government, but this is always clear from the context.
Chapter 4 follows with a discussion of specific problems in the US-
China trading relationship, showing the specific harm that trade with
China causes. In many cases, this harm differs from what is heard in Amer-
ican political rhetoric; it involves a loss of both freedom and innovative
advantage in the United States and other Western countries and growing
dominance of China in its near abroad and elsewhere.
This discussion is followed by Chapter 5, which presents a theory of
“international free riding on institutions,” or “institutional free riding.”
This theory stands apart from the discussion of the institutional char-
acteristics of the United States and China, but it is an essential part of
the book. This chapter draws on the discussion of the preceding chapters
to present a mechanism by which trade with China causes institutional
degeneration in the West. This mechanism relies on economic ideas of
rivalry and excludability from public goods theory to show why an open
trading regime allows other countries, especially China, to “free ride” on
6 R. GMEINER
their economic surplus. This free riding is distinct from trade in goods and
services that is facilitated by comparative advantage that stems from inclu-
sive institutions. The institutions that make the United States and other
Western countries innovative and successful are the same institutions that
make international trade easy. This trade is accompanied by free riding
which leads to the degeneration of economic and political institutions.
Chapter 6 validates the theory from Chapter 5 that describes instances of
this institutional degeneration. Potential policy responses are outlined in
Chapter 7.
References
Buchanan, James M., and Gordon Tullock. 1962. The Calculus of Consent:
Logical Foundations of Constitutional Democracy. Ann Arbor, MI: University
of Michigan Press.
Friedman, Milton. 1962. Capitalism and Freedom. Chicago: University of
Chicago Press.
Nunn, Nathan, and Daniel Treffler. 2014. Domestic Institutions as a Source of
Comparative Advantage. Handbook of International Economics. 4: 263–315.
Schumpeter, Joseph A. 1942. Capitalism, Socialism, and Democracy. New York:
Harper and Brothers.
CHAPTER 2
China’s Economy and Success Without

Freedom
From Starvation to Superpower: Evolution

of China’s Overall Economic Approach
China’s government structure is fundamentally different from that of any
developed Western nation and is completely dominated by the Chinese
Communist Party (CCP). The incentives for economic activity differ
sharply between China and the United States and the West. Although
China has a much freer economy than it once did, it is far from having
a traditionally capitalist structure. State-owned firms are a major part of
its business landscape (Coase and Wang 2012; Huang 2017; Univer-
sity of Alberta China Institute 2019; Yu 2019). Because the relationship
between firms and government is less clear-cut, there is more room for
a state industrial policy, which China has (GB Times 2015; Jones and
Zou 2017). Even those firms that are not state-owned are subject to
considerable state oversight, which comes in many more forms than just
command and control rules. In China, government policies in many areas
(financial system, exchange rates, FDI rules) can be shaped to suit the
interest of state-owned firms and Chinese domestic firms more generally.
A unified strategy pervades China’s economy. Although the line between
the state and the firm is blurred in China, China’s economy is about as
far from being centrally planned, at least in the Soviet model, as it is from
being a capitalist free market. An overview of the structure of China’s
economy is essential in this chapter because it is very different from both
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Switzerland AG 2021
R. Gmeiner, How Trade with China Threatens Western Institutions,
https://doi.org/10.1007/978-3-030-74709-1_2
8 R. GMEINER
a traditional capitalist structure and a centrally planned socialist economy.

China’s economic institutions are anything but similar to those of the
West.
Decentralization of State Economic Control

Even in the time of Mao Zedong, China’s economy was never as centrally
planned as the Soviet Union. Under Mao, private enterprise was harshly
repressed, but state enterprises were locally administered. The market
reforms after Mao further decreased centralization in some but not
all respects and introduced more market-type incentives. Although the
government tightly controlled the poor and deteriorating economy, Mao
never tried to copy the Soviet model. Mao wished for local self-sufficiency
without horizontal dependence among localities, eschewing Soviet inno-
vations like monotowns. Although locally administered, state-owned
enterprises (SOEs) worked toward goals set by the central government
but enjoyed autonomy in doing so. Despite this autonomy, Mao toler-
ated even less of a private sector than the Soviet Union, which at least
permitted some agriculture on private plots. Mao’s policy of decentraliza-
tion and self-sufficiency left a legacy that would be harnessed when Deng
Xiaoping began his economic reforms as it provided a mechanism through
which competition could be facilitated. Decentralization continues to be a
hallmark of state oversight of China’s economy (Coase and Wang 2012).
For China’s economy and governance structure more generally, decen-
tralization means geographic decentralization of administrative decision
making. There is absolutely no separation of powers. At all levels of
government, China is a one-party state that the CCP tightly controls.
Local officials have considerable autonomy but may not do anything
contrary to the wishes of the CCP. China’s economic planning approach
should be thought of as a centralized strategy with decentralized imple-
mentation. Overarching strategy permeates China’s socioeconomic plan-
ning at all levels. This stands in sharp contrast to the United States and
other decentralized Western nations such as Australia and Canada; these
countries lack an overarching economic strategy that has the force of state
planning. The degree of decentralization has varied over time, but the
major evolution of China’s approach has been to introduce accountability
and incentives at subnational levels of government to encourage economic
growth.
2 CHINA’S ECONOMY AND SUCCESS WITHOUT FREEDOM 9
Economic Incentives and Outcomes under Decentralized Planning

Under Mao, decentralization meant that local authorities had control
without responsibility for failures or credit for successes, and they didn’t
set their own goals. This culminated in the disaster of the Great Leap
Forward in which an estimated 30 million peasants died, most as a result
of a man-made famine. Local authorities did not want to displease their
overlords, so they inflated grain production totals and tried to cover
up starvation and population exodus. In the aftermath, some centraliza-
tion ensued, but it never approached the Soviet extent of the practice.
The Cultural Revolution, another atrocity of monumental proportions,
followed (Coase and Wang 2012). During this time, legal scholars were
among the persecuted groups; not only were legal institutions completely
upended during this time, but those with knowledge of law and the
functioning of such institutions were sent away for re-education (Willard
1995). The post-Mao era would involve building new legal institutions
and a new legal profession almost completely from scratch.
The mismatch between incentives of local governments and the central
government still exists today for information reporting. China is a noto-
riously difficult country for economic research. Although it is easy in the
West to attribute it to the motives of central government, the extent
of the central government’s own knowledge is questionable. Economic
growth has clearly been positive and rapid, but its precise level and distri-
bution throughout the country are not fully known; summing economic
growth figures reported by provinces produces a total that consistently
exceeds the central government’s own figure by a substantial margin
(Wang 2018). The conclusions of this book are not solely based on unre-
liable Chinese information. Much of the information used in this book
comes from the trading relationship between the American and Chinese
governments and firms and from what has been reported by foreign
journalists.
The economic stagnation of the Mao years of China’s government
can be attributed to planning, but not to central planning because
central planning was not comprehensive. Much government planning
local, which destroyed incentives for production, but it was not central-
ized. Importantly, the poor outcomes ought not to be linked to a lack
of private property because China’s subsequent economic boom under
Deng Xiaoping and his successors did not involve private property, yet
economic output and living standards rose dramatically. Although private
10 R. GMEINER
property exists to a greater extent in China that it once did, it is still a far
cry from the standards of developed Western countries. Rather, the stag-
nation can simply be linked to a lack of incentives for economic growth.
During the Mao years, one problem was that the local leaders were not
rewarded or punished for successes or failures. Not only did workers and
managers lack meaningful incentives to produce (the primary problem in
the Soviet Union), local government leaders who did the planning and
reporting lacked incentives for honesty. Lack of incentives for productive
activity is a broader, more comprehensive reason for economic stagnation
than just a lack of private property rights. In this chapter’s analysis of
the institutional characteristics of the United States and China and how
they pertain to international trade, it is critical to separate incentives from
the institution that generally creates the incentives. There are ways to
facilitate economic growth without private property, as China has shown.
Whether these are as good as the incentives generated by private prop-
erty is a debatable matter, but it is now an empirical fact that economic
growth can be generated with little private property.
The Sino-Soviet Split: A Harbinger of China’s Intentions

In 1950, Mao and Soviet leader Joseph Stalin signed the Sino-Soviet
Treaty of Friendship, Alliance, and Mutual Assistance. After Nikita
Khrushchev succeeded Stalin, Sino-Soviet relations slowly began to dete-
riorate. Stalin and Mao were eager to confront the West, but Khrushchev
quickly denounced Stalin and chose to pursue peaceful coexistence with
the West. The 1956 crackdown in Hungary showed the Khrushchev had
no plans for real liberalization, but he was not eager for armed conflict
with the West, especially in the newly inaugurated nuclear age. Mao’s
rhetoric, in contrast, became increasingly bellicose, much to Moscow’s
alarm (Pillsbury 2016). Unlike China, the Soviets continued to project
military power around the world at high cost as part of their competi-
tion with the West. The Soviets were interested in preventing expansion
of American military dominance, but not in violent, presumably nuclear,
conflict.
In September 1958, American intelligence informants (CG-5824-S,
later revealed to be two brothers, Morris Childs and Jack Childs) reported
that, concerning the ideological struggle with the West, the Chinese took
the lead, as opposed to the Soviets. The informants did not, however,
believe that the Chinese could do without Soviet help. They viewed China
as an equal partner to the USSR, which was stunning given the Soviets’
vast military and economic superiority, although Mao personally bragged
about stopping the Americans militarily in Korea. China’s leaders, led
by Mao, insisted on a tough policy toward the West, and this is evident
throughout the informants’ reports (U.S. Federal Bureau of Investigation
2011).
The Soviets perceived that China’s goal was to replace the USSR as
the dominant socialist country and then to achieve dominance over the
West. Sensing the Mao’s grandiose ambitions, which were widely held
among China’s top leaders, the Soviets became more hesitant to build
up a potential rival. This Sino-Soviet split culminated when the Chinese
double-crossed their Soviet benefactors in 1969 in a series of armed
border clashes. China’s intentions were clear to the Soviets, but less so to
the Americans. At the time, the United States viewed China as a bulwark
against the Soviet Union. China’s quest for dominance has unfolded and
become clearer over several decades, presumably because its leaders did
not want to alienate the United States as they had the Soviets by revealing
their intentions too plainly and too soon. Trade with the West, after
all, was essential to its economic growth and expanding military power
(Pillsbury 2016).
Throughout this book, it is essential to keep in mind China’s leaders’
goal of global domination. This discussion of China’s economic reforms,
its current economic landscape, and the subsequent chapters should all
be read in this context. China’s goal is not just economic gain, but domi-
nance. Economic prosperity and global trade are just steps along the
way.
Illusory Reforms Under Deng Xiaoping

Following a brief power struggle after Mao’s death, Deng Xiaoping
emerged as the paramount leader of China and ushered in a series of
reforms which shaped China’s economic development. Traces of current
allegations of China’s underhanded behavior concerning its international
trade and economic growth have their roots in Deng’s reforms. It was
easy to see that market economies outperformed socialist economies
by looking at East and West Germany or North and South Korea.
Compounding this was Deng’s acute awareness that China had been on
a path that was not leading to any semblance of a prosperous socialist
utopia. Deng’s strategy could be summarized as a cafeteria-style approach
12 R. GMEINER
to taking some things that worked from market economies and harnessing
them to advance state goals and raise living standards, while preserving his
own rule and quest for dominance. The “Leap Outward” began late in
1977 and involved many goals, some good and some bad. One that has
had a lasting impact was a new strategy to borrow money from the West
to acquire and implement new technology (Coase and Wang 2012).
Socialism Without Soviet Characteristics

After Mao, China’s government remained committed to the ideal of
socialism despite Deng’s reforms. This ideal remained in principle and
theory, but under Deng’s leadership a somewhat pragmatic approach
was adopted with a view toward ameliorating the living standards of
the population. Although becoming more open toward the West and
willing to coexist, China had still rejected the Soviet model. Under Mao,
China opposed the Soviet system as a betrayal of Marxism-Leninism after
Khrushchev denounced Stalin. By Deng’s time, China embraced some
market-oriented reforms but retained an economic structure distinct from
both the Soviet and Western models. Coexistence with the West was
part of Deng’s strategy of biding time and persisting in its ambitions
for dominance; limited market reforms served these ends. Mao cate-
gorically rejected Josip Broz Tito’s anti-Stalinist approach in Yugoslavia,
saying that he too had betrayed Marxism-Leninism by abandoning class
struggle (U.S. Federal Bureau of Investigation 2011). Deng, however,
eventually borrowed a fair amount from Tito’s playbook. State capi-
talism and the exploitation of market-type incentives were prominent
aspects of Tito’s rule which China would later borrow. Yugoslavia’s prac-
tice of organizational self-management in which workers played a role in
the management of state-owned enterprises influenced Deng and others
(Coase and Wang 2012). Despite granting autonomy to firm managers,
Yugoslavia’s economic system, which wasn’t very successful, and from
which China borrowed, did not have any meaningful private property
rights. The economic reforms were a slow process that allowed time to
test what works and learn from mistakes (Woo 1999).
The goal of acquiring advanced technology by borrowing from the
West did not last long, and China’s leaders developed some aversion to
borrowing. After a state visit to Singapore, which was populated largely
by exiled Chinese from earlier generations, Deng embraced the Singa-
porean strategy of inviting foreign direct investment (macroeconomically
similar to borrowing), setting the stage for current IP theft issues. FDI
was a better strategy for inviting growth because it facilitated knowledge
transfers to make use of foreign technology, which debt-based acquisition
did not do. Despite this increasing openness, FDI did not substantially
increase until the mid-1990s and only in the mid-2000s, after China
acceded to the World Trade Organization (WTO) in 2001, did it increase
dramatically (Coase and Wang 2012; Huang 2017).
Rapprochement with the United States

Relations between the United States and the People’s Republic of China
(hereafter referred to as China in contrast to the Republic of China which
is referred to hereafter as Taiwan) were normalized in 1976 under Pres-
ident Jimmy Carter. Early on in his tenure as president, US President
Richard Nixon viewed China as more dangerous than the Soviet Union
(Pillsbury 2016). During his 1971 meeting with Mao, Nixon said, “We,
for example, must ask ourselves—again in the confines of this room—
why the Soviets have more forces on the border facing you than on
the border facing Western Europe” (U.S. Department of State 1976).
He later came to view China as a bulwark against the Soviet Union,
a view that would persist in American administrations until the Soviet
Union collapsed. Nixon’s rapprochement with China began after what
was thought to be the height of the Sino-Soviet split when fighting had
erupted along the border. The tension between the Soviet Union and
China had not eased, and it would later emerge that the Soviet Union
considered a nuclear strike on China, only to be dissuaded by Nixon
(O’Neill 2010; Osborn and Foster 2010).
It was China, which also wanted an alliance against the Soviets,
that initiated the rapprochement, not the United States. As revealed by
declassified Central Intelligence Agency reports, the Chinese viewed the
trilateral Sino-Soviet-American hostility as an opportunity to maneuver to
their own advantage. At the time, the United States maintained diplo-
matic relations with Taiwan (which was not a democracy) and the PRC
was unwilling to negotiate until the United States supported the reunifi-
cation of Taiwan with the mainland. Realizing the usefulness of an alliance
against the Soviets, China relented on this insistence (Pillsbury 2016;
U.S. Central Intelligence Agency 1971). The CCP did not forget about
Taiwan but chose to let the matter alone for the time being. Until quite
recently, Taiwan was very safe from an invasion from the mainland because
14 R. GMEINER
of an American-equipped military and the fact that it is easier to defend

an island than to capture it. Concerning trade, former Chinese President
Hu Jintao remarked that it is cheaper to buy Taiwan though trade and
influence than to conquer it militarily (Pillsbury 2016).
Freedom? Just Economic Incentives and Political Repression

Although never tightly controlled by the central government, the power
exercised by government departments over SOEs was diminished and
firm managers were more empowered. Critical among these reforms
were the ability of firms to retain some profits and to increase produc-
tion beyond state mandates. These reforms began in Sichuan province
and were spearheaded by Zhao Ziyang, who later became the premier
of China. Remembered in the West for supporting the pro-democracy
student protestors in Tiananmen Square, for which he was purged, Zhao
was an advocate for economic freedom as well as political freedom.
Though his support for political liberalization cost him his position, his
economic reforms have had a lasting impact in China (Coase and Wang
2012; Paterson 2018). At the time of these reforms, the Soviet Union
had not yet collapsed, although it was stagnating under the weight of an
arms race. The USSR’s failure to become competitive with the West was
a final warning for the CCP that a sustainable economic structure was
needed if it was to preserve and expand its power.
Zhao’s reforms gave new incentives for productive growth to local
governments and firm managers. They could “grow out of the plan” by
producing what the central government requisitioned and then operate
in somewhat of a market environment with any remaining capacity
(Naughton 1995). This cemented the central government’s power by
entrenching support among local administrators, obtaining what it
wanted, and permitted living standards to increase through market-type
incentives. Although not privately owned and managed, these state-
owned firms had an incentive structure that did not exist in the failed
socialist economies that existed in the Soviet bloc. In time, enterprises
that were owned and operated by local governments overtook those that
were centrally owned (and still required to meet the central government’s
production goals), but locally managed. Private property was absent,
but local governments controlled the property and the firms and got to
keep income from it, thus allowing property to fulfill its market function
without private ownership. The market that developed was one in which
local governments “competed” with each other economically. Within

and among China’s local governments, the line between government
and market activity was blurred, unlike in the United States. Socialism
remained (and still remains) the stated ideal of the Chinese government,
which viewed its actions as borrowing some positive characteristics from
capitalism to save socialism from stagnation and poverty.
By the 1980s, many bright Chinese had been able to study overseas,
but very few of them returned to China. The Ministry of Education was
embarrassed by this; many officials worried that China was losing essen-
tial talent. Deng wanted to convince them to return. The Overseas Affairs
Commission of the State Council saw a chance to gradually build influ-
ence abroad. Zhao Ziyang, an economic and political liberal, suggested
that China was not losing talent when its bright citizens left, but was
just letting potential grow abroad which would be available for future
use, referring to it as “storing brain power abroad” (Zweig and Rosen
2003). The Chinese government finally came around to Zhao’s view in
the early 2000s and fully embraced it (U.S. Senate Permanent Subcom-
mittee on Investigations 2019). Zhao proved prescient, and this policy
has had powerful effects which are elaborated in Chapter 6.
During this time, most of China was still a backwater even as growth
was starting. Growth rates appeared high, and they were, but this was
not overly difficult to achieve given the low starting point that resulted
from recent decimation and a lack of growth and development before the
Second World War. Seeing greater prosperity next door in stridently capi-
talist Hong Kong, then a British colony, many Chinese illegally emigrated.
Some local leaders on the mainland near the border with Hong Kong
desired a violent crackdown, but Deng worried that this would alienate
the West. He realized that the exodus reflected a failure of the main-
land’s governance to make it a desirable place to live and saw fixing that
problem as the solution. Showing remarkable restraint and pragmatism
for an ostensibly socialist leader, Deng instead began to develop China’s
Special Economic Zones. The first of these would be in Shenzhen, adja-
cent to Hong Kong (Coase and Wang 2012). Although PRC would
assume sovereignty over Hong Kong in 1997 and retain its free market
and pluralistic political system (at least for a couple of decades), the estab-
lishment of Special Economic Zones would ultimately serve to reduce
Hong Kong’s importance to China (see Chapter 7). China’s decentral-
ized structure has encouraged local officials to attempt to develop their
own local economies and establish regional power bases at the expense
16 R. GMEINER
of other localities and the central government. Although China’s central

government is in no visible danger, this has made it more difficult for the
central government to pursue policies that are at odds with those favored
by local officials, leading to “trade wars” within China (Willard 1995).
Deng’s goal of ameliorating living standards, while undoubtedly doing
good for many people, was surely accompanied by a fair amount of self-
interest as it preserved his and his party’s position in government. This
assertion is part of basic economic theory that people, including political
officials, act in their own rational self-interest. As the 1989 Tiananmen
Square massacre would show, China’s rulers were not about to tolerate
challenges to their rule or give the people more political freedom even as
they eased their economic hardship. They did recognize, however, that
economic growth was critical to expanding their influence.
Trade between China and the United States began to grow noticeably
after 1984 when China implemented additional economic reforms and
after Deng visited President Ronald Reagan in Washington. It is not coin-
cidental that this increase in trade occurred when the Special Economic
Zones were established as they provided a desirable place for foreign
investment to take root, thus bringing more Western economic activity
under the umbrella of the CCP. This increase in trade was noticeable but
much slower than what would come later after WTO accession in 2001.
Incomplete Nature of Reforms

Government planning of the economy, whether local or central, and a
lack of property rights are not the best ways to run an economy. This
has been repeatedly demonstrated by the failures of countries that have
done it, and by the successes of those that have not. Property rights, the
rule of law, and a free market system are good ideas not because of their
intrinsic value as ideas, but because they create incentives for productive
activity. China’s government has shown its ability to create and main-
tain incentives that have caused rapid, sustained economic growth. It has
adopted neither a Western-style free market nor any of the failed models
of socialism. Termed “socialism with Chinese characteristics,” China’s
strategy maintained the ideal of socialism, at least in rhetoric, but paid
close attention to incentives for economic activity that could raise living
standards. All large-scale economic activity was and still is directed toward
achieving CCP goals. Socialism, both as an economic system and philos-
ophy, lacks a theory of wealth creation. The “Chinese characteristics” can
be thought of as the CCP’s introduction of incentives for production and

exchange, and their uniqueness is in their success, standing in contrast to
the abysmal failures of Soviet-led Eastern bloc.
Although far better than a comprehensively centrally planned system,
China’s system still did not have fully functional price signals into the
1990s because of local government involvement in the economy and the
earlier philosophy of avoiding horizontal interdependence. Through the
setting of state goals, local autonomy with responsibility, and a recog-
nition of the need to participate in the global order, China developed
a mix of incentives that could encourage economic activity without a
free market. Rather than serving individual interests like a market does,
China’s system works toward state goals and produces a surplus (or
a subservient market) to meet the wishes of the population for living
standards.
China did make some market-oriented reforms, but its rhetoric about
moving toward capitalism far exceeded its material steps to do so. Its
leaders emulated market economic incentives, but SOEs continued to play
a major role in the economy, which they still have. Government plan-
ning is still an important part of China’s modern economy. The World
Bank provided much of the expertise that informed the structuring of
the Chinese economy under Deng. Justin Lin, who served as the World
Bank’s chief economist from 2008 to 2012 and was also an economic
advisor to the Chinese Government, described the World Bank’s preem-
inent role in developing China’s economy. Despite publicly encouraging
China to adopt a free market, World Bank economists recommended that
China exploit its high savings rate and achieve productivity growth to
surpass the United States. The Bank recommended a focus on exports
(mercantilism), avoiding excessive foreign borrowing (also mercantilism),
encouraging FDI in advanced technology sectors, expanding the prac-
tices of the Special Economic Zones, and regular state planning (Lim
1985; Pillsbury 2016; Roach 2014). The World Bank is thought of as a
free market institution, and the American president traditionally appoints
its president. Its stated goal is to reduce extreme poverty (Clemens and
Kremer 2016). China, with the World Bank’s help, has shown that a free
market is not needed to achieve this goal, and has simultaneously shown
that the World Bank is not always fond of the free market.
The World Bank’s role in China’s economic development came in the
mid-1980s, shortly before the power struggle between the free market
reformers and hawks. China’s 2001 accession to the WTO was preceded
18 R. GMEINER
by fifteen years of negotiations that began in the 1980s. Many promises

that China made to win support, such as not influencing the commercial
decisions of SOEs, were hollow. At this time, however, the beginnings
of China’s intellectual property rights regime began to take shape and its
first patent law was promulgated in 1984. During this time, its interna-
tional trade was growing, but nowhere near as fast as would happen after
accession in 2001.
To put this timeframe in perspective, the 1989 Tiananmen Square
massacre took place after WTO accession negotiations were underway,
causing many other countries to question whether China could be a
decent player on the global stage (Mertha 2005; Paterson 2018). Shortly
before that, political reforms were being debated by top CCP officials
along with economic liberalization. Deng, despite some economic liberal-
ization, did not implement a free market and he was not about to tolerate
challenges to his rule and ordered a military crackdown that slaugh-
tered thousands of protestors. Following the massacre, the government
continued to carry out violent reprisals against groups associated with the
protests (Mertha 2005).
The Soviet Union collapsed shortly after Tiananmen, assuring the
Chinese that they had made a good choice by not following the Soviet
model. Western powers, led by the United States, maintained complete
hegemony over the global order for a time. Although the hawks had won
China’s power struggle, ensuring that there would be no political liber-
alization, there was still debate about China’s economic direction. Some
wanted China to privatize its SOEs like Russia did. Again, the hawks won,
and economic liberalization did not advance. The outcome would have
been starkly different had China done what Russia did, although it is
difficult to take Russia as a model for handling the post-socialist transi-
tion well given that it sold off state assets for a pittance, creating a class of
oligarchs that still dominate the Russian economy. The same likely would
have happened in China, given that according to World Bank estimates,
China’s SOEs were worth around 2 trillion yuan, but the population had
only around 1 trillion in savings. The World Bank’s recommendations
were to preserve the socialist economy and introduce the right incentives
for economic growth (Pillsbury 2016).
After somewhat of a lull, the market-oriented reforms picked up again
in 1992. Private property (real and intellectual) or other Western market
characteristics were not established, but private ownership of firms was
tolerated, and state enterprises had to operate completely under market-

type incentives. Perhaps this was viewed somewhat as a necessity as they
had been overtaken in efficiency by local governments’ enterprises and
the private businesses that already existed.
The Tiananmen Square Massacre and a New Era of Repression

To curry favor with the West and win economic and military help, Deng
had courted pro-American sentiment and his regime did liberalize things
somewhat. This culminated in the pro-democracy protests at Tiananmen
Square in Beijing and numerous smaller protests in other areas. These
protests came extremely close to destabilizing the CCP regime and nearly
led to real democratic reforms. Deng even believed that the United States
had encouraged the protests. A Chinese defector with ties to the Polit-
buro later revealed to American authorities that there had been a power
struggle within the CCP from 1986 until 1989. Officials at the highest
levels sincerely debated meaningful democratic reforms. The hawkish
elements of the CCP won by causing Deng, known to be paranoid, to
panic. Deng fully embraced the hawkish elements of his party and ordered
the military to brutally crush the protests. He subsequently purged CCP
leaders in support of reform, even consigning Zhao Ziyang (who had
been General Secretary of the CCP) to house arrest, where he remained
until his death in 2005 (Pillsbury 2016). Wen Jiabao, the future premier
of China from 2003 to 2013 under President Hu Jintao, was close to
Zhao and was perceived as a liberal but survived the post-Tiananmen
purges because of his loyalty to Deng. Later, as premier, he read Adam
Smith and seriously contemplated political reforms, even advocating for
them in the People’s Daily. After a stern reprimand, he backed down
(Roach 2014). The CCP has no tolerance for political reform, even when
there is mild support from a high-ranking, popular leader.
China’s surveillance state is now a well-known fact along with its
history of repression of dissidents, even those who pose little threat.
Against this backdrop, it may surprise Western readers to know that
China’s government tacitly allowed many student protestors to come
to Beijing to join the large protests at Tiananmen Square. It made no
effort to stop them. The government controlled the railways and allowed
students to travel for free (Coase and Wang 2012). This would be
unthinkable in China today. To maintain power and send a clear signal,
20 R. GMEINER
a violent crackdown made political sense despite its moral reprehensi-

bility. Western leaders condemned the crackdown, but ultimately took no
substantive action toward China.
China focused inward, restricting freedom and activities that could
lead to political unrest, which include the successful erasure and preven-
tion of any mention of the public mention of the massacre. Although
China’s government does not actively use physical violence against most
of its population outside certain areas, it maintains its grip on power
through the threat of force, like all governments. It is very willing to
use this violent power, like all governments, but differs in its ability
to control domestic dissemination of knowledge about its use. The full
extent of China’s repression is not known inside or outside of China. This
inward focus and restriction of personal and political freedom designed
to complement the economic that would mitigate a desire to protest. It
is little wonder that the hukou registration system, which had its roots
before the communist revolution, has survived even as most policies from
the Mao era have been jettisoned. Combined with China’s other repres-
sive tactics, the necessity of the hukou system for preventing protests and
uprisings may be lacking, but it remains in force.
Naivete of the West—Trade and Political Freedom

Many liberal Western leaders expressed clear hopes and expectations that
China’s increasing involvement in global trade, which would accom-
pany WTO accession, would result in political liberalization. This was
one stated reason for supporting China’s accession. Such sentiments
were echoed by US Presidents Bill Clinton and George W. Bush, Secre-
tary of State Madeleine Albright, and Mike Jendrzejczsyk of Human
Rights Watch (Albright 2000; Bush 2001; Clinton 2000; Jendrzejczsyk
2000). Clinton stated, “Now of course, bringing China into the WTO
doesn’t guarantee that it will choose political reform. But accelerating the
progress — the process of economic change will force China to confront
that choice sooner, and it will make the imperative for the right choice
stronger.”
Chinese leaders made no effort publicly to contradict these sentiments,
but experience has shown that they had other things in mind. Jendrze-
jczsyk had the foresight to see that WTO membership and increasing
trade would not change China’s human rights record by themselves.
He thought they were an important step when combined with pres-

sure from outside China and thought that there should be meaningful
reforms before normalizing trade with China. His recommendations
went unheeded. Jendrzejczsyk also recognized China’s desire for Amer-
ican technology. Naturally, those with economic interests in more trade
with China (multinational corporations) and in less (organized labor)
pushed for their respective desired outcomes, often invoking human rights
justifications for their views (Jendrzejczsyk 2000).
No political liberalization ensued. It is probably true that increasing
prosperity gave rise to demands for political freedom culminating in the
student protests of 1989, but China has plainly shown that it is a mistake
to believe economic prosperity must result in political freedom. Indeed,
China has shown incredible capacity to contain and repress dissent while
still facilitating more economic growth. From a public choice perspec-
tive, this is a shrewd, effective calculus. Economic prosperity generates a
desire for political freedom, but if it can effectively be repressed and the
prosperity is great enough (or increasing fast enough), those who desire
freedom may reasonably conclude that they are better off pursuing apolit-
ical economic activity and thus taking the rising living standards instead
of fighting for political rights.
China’s rulers understand this need for prosperity very well. The
success of their strategy ought not to be underestimated, especially when
combined with extensive surveillance capacities and control over social
and political activity. The substantial economic growth coupled with an
ability to stop political dissent before it takes root has proven so potent
at maintaining the Chinese regime’s power that it does not even have to
use Tiananmen as a reminder to prospective dissidents and even officially
denies the occurrence of the massacre and suppresses information about
it. This threat of violence is realized in the parts of China where political
dissent arises or is perceived to arise, like Xinjiang and Tibet.
It would be a mistake summarily to discredit Clinton, Bush, Albright,
and many others for their view that increased global trade would lead
to political liberalization in China. Given Friedman’s (1962) analysis
and the recent history of the fall of socialism in eastern Europe, these
views seemed reasonable. In hindsight, these leaders were mistaken and
Jendrzejczsyk seems quite prescient. A major premise of this book—
which could not have been written without observing China’s very recent
history—is that international trade when institutions differ can cause
degeneration of liberal, free market institutions, and it certainly will not
22 R. GMEINER
single-handedly reform a repressive country’s institutional structure. If a

country views its institutions as important, as the West hopefully does, it is
important to stand on principle and protect them even at the expense of
some welfare gains from international trade. Whether this can be done
is a complicated public choice problem. China’s rulers have carefully
structured their country’s trading relationships to maintain its institutions.
China’s leaders attempted to give the impression that economic liberal-
ization would continue, but they never embraced the free market. China
is no test of Friedman’s argument. China ought to be contrasted with
Chile during this same time period. In 1973, Augusto Pinochet led a
military coup that overthrew Marxist Chilean President Salvador Allende.
While the World Bank was encouraging China to keep a socialist economy
and make strategic decisions to grow economically while remaining a one-
party state, Pinochet listened to the Chicago Boys and implemented many
free market reforms. He violently repressed dissent, but he brought about
the freest market economy in Latin America. In 1990, he cooperated
with the transition to democracy (but never faced justice for his atrocities)
while China’s post-Tiananmen repression was in full swing. Chile provides
a validation of Friedman’s argument that China’s leaders have made no
effort to refute. Geographically closer to China, both Taiwan and South
Korea both transitioned to democracy after developing market economies.
Singapore has not, however, despite having a market economy.
The Current Economic Landscape of China

After WTO accession, changes to economic institutions in China
continued. Many smaller SOEs were sold off, but tightened control over
those that remained, showing the CCP’s hollow commitment to keeping
the promises it made to join the WTO. The bigger SOEs were overseen
by the newly created State-Owned Assets Supervision and Administra-
tion Committee (SASAC). These SOEs competed in private markets,
responding to price signals and owned in part by foreign investors,
although the SASAC retained majority control. SASAC had the power to
hire and fire executives at these companies, which were the most impor-
tant in China’s economy (Wu 2016). Through the SASAC, the Central
Committee of the CCP selects SOE managers. Many of them are part
of the intelligence apparatus or military and they retain these affiliations
while managing SOEs (Pillsbury 2016).
Although state control over firms is a degree of socialism, it is impor-

tant to keep in mind that in many countries traditionally thought to have
free market economies, sectors such as transportation, energy, utilities,
and telecommunications are owned or controlled by the government, and
these enterprises are often statutory monopolies. Because China’s SOEs
operate in an environment with market incentives and have international
operations, the SASAC is subject to market incentives. It is not just that
these SOEs must compete with foreign companies operating on other
territory, which may not be meaningful, but that SOEs in China must
compete with other SOEs in the same sector, providing market discipline.
China’s SOEs are not state monopolies. By operating multiple firms in the
same sector on the same territory and needing to maximize shareholder
value (of the SASAC and foreign investors) as well as meet state goals, the
state disciplines its own firms with market incentives (Wu 2016). SOEs
in China are not immune to bankruptcy. Bankruptcy law has been and
at times still is very favorable to SOEs to the detriment of their credi-
tors, most of whom are state-owned banks (World Bank 2000). To some
extent, this is still true, although in 2015 Xiao Yaqing, the chairman of
the SASAC, outlined the government’s commitment to reform the SOEs
and stated that mergers and bankruptcies would be an important part of
this process (Kim and Bansal 2018). In 2020, default rates among SOEs
increased, sparking concerns of economic turmoil and speculation about
how the government will respond (He 2020). Although the government
can steer the economy, it cannot guarantee the best returns when market
pressures are present.
Through control of finance, major business deals, and bankruptcy law,
the government can tilt the playing field as it sees fit, but generally lets
many market forces operate. As a result, SASAC has been described as a
private equity fund that owns a majority stake of the economy’s largest
companies and actively controls their management. Despite the power
wielded by SASAC, privately owned firms do contribute substantially to
China’s economic growth (Lardy 2014).
The SASAC was created to consolidate control over critical economic
sectors and maintaining market discipline, but it did not substantially
renege on the long history of decentralization. Lower levels of govern-
ment have their own SASACs that report to the central government’s
SASAC. Corporate boards in the West control their companies’ major
decisions and overall direction but do not micromanage local affairs. The
SASAC is much the same in this regard, but its focus is on meeting state
24 R. GMEINER
goals as well as maximizing shareholder value. It is not fully autonomous

but is very much subservient to the CCP. The critical differences between
China’s SOEs and those of ostensibly free market countries are that there
is an SASAC to oversee China’s, which other countries lack, and that
China’s SOEs compete with other SOEs in the same sector, mimicking
market incentives (Wu 2016). These practices are ingredients in China’s
recipe for economic growth with political control and the peddling of
global influence.
China has long been accused of playing unfairly in international trade
and the existence of dispute resolution mechanisms at the WTO was
viewed as a good reason to support China’s accession. These mecha-
nisms are said to be quite effective, and US President Barack Obama
claimed during his re-election campaign that his administration had filed
more disputes against China in four years than his predecessor, President
George W. Bush, had done in two full terms. Of interest, however, is
that before 2009, developed trading countries such as the United States,
Japan, and the European Union tended to dispute with each other. Since
that time, these countries have mostly stopped disputing among them-
selves, and China is their common trade adversary and is the target of all
of these countries at the WTO (Wu 2016).
Some grievances against China, such as poor environmental and labor
standards, are real problems, but these are not the cause of an unfair
advantage, and certainly not for the long term. For unfair advantage,
issues such as IP theft are far more pressing than wages (Gan et al.
2016; Yang et al. 2010). The United States and the capitalist countries of
western Europe and east Asia (e.g., Japan and South Korea) also once had
severe problems with environmental and labor standards. A clear trend has
been observed that, as countries become more productive and wealthier,
wages tend to rise, labor standards improve, and environmental pollution
decreases. There is no a priori reason to think China will be any different.
Wages have already risen noticeably in China in real terms, and this
has caused its current account surplus to decline. This increase in wages
and living standards is arguably the primary reason that socialist revo-
lutions did not take root in industrial capitalist countries, contrary to
Karl Marx’s expectations. The high living standards enjoyed by workers in
Great Britain shocked Wang Zhen, the vice premier of China for indus-
trial development when he visited that country in 1978 expecting to find
the exploitation depicted by Marx. The increase of living standards in
China may be one reason why its government, which does not practice
free market principles, has remained in power; the CCP certainly banks
on it. After his visit to Britain, Wang advocated for a society like Britain’s,
but ruled by a communist party (Coase and Wang 2012).
State Planning—Still an Integral Part of China’s Economy

Although never strongly centralized, state planning has been a part of
China’s economy since the CCP came to power in 1949. The State Plan-
ning Commission (SPC), which existed in Mao’s time, was rechristened
the National Development and Reform Commission (NDRC) in 2003
around the same time that SASAC was created. The NDRC is responsible
for the Five-Year Plan, something common to many socialist countries.
In addition to a long and detailed overall plan, ministries, industries, and
lower levels of government have their own plans (Paterson 2018; Wu
2016). The NDRC, through the Five-Year Plan, coordinates levels of
government, sectors of the economy, and government bodies including
the SASAC, to realize central government objectives; it has not central-
ized the economic planning. Complementing the emphasis on market
competition combined with meeting government goals, the structure of
corporate conglomerates in China is designed for efficiency gains that do
not stifle competition.
China’s conglomerates tend to be vertically, not horizontally, inte-
grated and they lack the massive size of South Korea’s chaebol or Japan’s
keiretsu, at least relative to China’s entire economy. Moreover, owner-
ship links are structured so that upstream firms tend to own downstream
firms, but not vice versa. This enables entities controlling raw materials
and resources to project their influence further into the economy, and
this is by design. In instances in which one of these upstream firms is
controlled by the SASAC, the SASAC generally does not exercise direct
control over that firm’s downstream subsidiaries (Lin and Milhaupt 2013;
Wu 2016). Beyond that, the SASAC often shows considerable deference
to talented managers of SOEs. The state and the CCP exert consider-
able control, but do not micromanage. At each step of control—CCP,
the SASAC, directly controlled firm, downstream subsidiaries—the higher
step wants results from the lower step, but not necessarily specific actions
unless those actions are integral to a result. Additionally, these interde-
pendent groups of companies often include research institutes, offering
considerable efficiency gains as research that benefits one company in
26 R. GMEINER
the group likely benefits others in similar downstream industries or the

common upstream industry (Lin and Milhaupt 2013).
The state’s role in planning, ownership, and direction of important
firms exists alongside private enterprises that dominate many sectors and
it is visibly limited to ensuring that market forces (or rather, market
discipline) lead the economy to support the aims of the CCP. China’s
government has succeeded tremendously at taking useful aspects free
market system and using them to appease its population with higher living
standards while strengthening its own grip on power. The CCP’s work-
ings are not transparent, but it clearly controls the government and, by
extension SOEs and important bodies like the SASAC and NDRC. More-
over, all organizations involving more than three party members must
have a Party Committee, including private businesses and foreign-owned
firms (Wu 2016). The wishes of the CCP prevail in these places where it
has influence, but it does permit some market forces to operate.
In some cases, private companies, though the good market sense of
their managers, effectively compete with SOEs in the sectors that SASAC
controls. A few companies that are fast becoming household names in the
West like Lenovo, Huawei, and Alibaba are not SOEs. The fact that Party
Committees exist in these companies shows that the line between private
ownership and state control is very much blurred, with informal state or
party influence going far beyond formal control and ownership. It is not
reasonable in China’s current economy to assume that a firm can grow to
a large size without at least passively supporting the CCP, if not actively.
In SOEs, the Party Committee secretary and chairman of the board of
directors must be the same person (Wang and Huang 2018).
What Do “Property Rights” Entail in China?

In American jurisprudence, property rights are thought of as a bundle
of rights, typically including to varying degrees the rights to use, earn
income from, exclude from, and dispose of the property. Property
encompasses the ideas of real and intellectual property.
Property markets, or markets for these limited aspects of property
rights, were slow to develop in China. As industrialization began in the
1980s and Special Economic Zones were established, rural collective-
owned land that had been used for agriculture was taken for industrial
development. Before the market reforms, use rights to state-owned non-
agricultural land had been granted to SOEs for free. It was increases in
foreign investment that led to the development of allocation of land use

rights to foreign firms. Use rights, not complete title, to the land were
granted, but they were not indefinite and still are not. Early in this alloca-
tion process, local governments were eager to develop economically and
negotiated directly with investors instead of allowing market processes
like auctions and bidding, keeping prices low for sales that would serve
government aims. This practice lasted until 2003, although prices are
often still low because of local government intervention. Influence from
firms on local governments, which is possible because of their close links,
causes an oversupply of industrial land (Huang et al. 2019).
China has proven highly effective at harnessing some market incentives
while maintaining state control and guiding a rapidly growing economy
toward the achievement of state goals. Property rights, which are gener-
ally thought to be a sine qua non of a functioning economy, are not well
respected in China. This necessitates a division of the idea of property
into its constituent attributes relevant for economic production, essen-
tially splitting the bundle into its constituent twigs. The right to control
something and use it for production without interference is one of these
and is clearly possible in China. This is one of the “economic rights” of
property and only materially involves the concept of possession guaran-
teed by the coercive power of the state for as long as the state chooses.
Legal rights beyond economic rights are lacking in China. Whether a
property can be repurposed, used for aims contrary to those of the state,
or transferred to another entity without state approval involve rights that
encompass more than just economic use rights.
The limited role of property in China can facilitate economic growth,
according to state aims, if the government behaves consistently so that
rational economic actors have clear expectations. The government does
this, and the result is the economic activity that the CCP wants. This
view of property applies both to real and intellectual property, which are
respected to varying degrees in China. The common thread is that the
concept of property is respected insofar as it serves the state. Foreign
investors who acquire property in China must also work toward state
economic goals. The government sets these goals and implements rules
in a way that encourages FDI, thus luring foreign firms into working for
it. These rules often spread CCP influence into these foreign firms and
into their home countries.
Property rights in the West are a bulwark against state interference
because they constrain the government as much as they constrain any
28 R. GMEINER
other non-owner. English statesman William Pitt stated, “The poorest

man may in his cottage, bid defiance to all the forces of the Crown. It
may be frail, its roof may shake; the wind may blow through it; the storm
may enter; the rain may enter; but the King of England may not enter; all
his force dares not cross the threshold of the ruined tenement.”1 Property
rights in the West, especially in countries of British legal origin, allow
decentralized, individual aims to be pursued in an economy.
Treating property like China does instead of viewing it as a bundle of
legal rights as in the West presents a major public choice problem. In
China, they exist at the whim of the state and serve state goals. To realize
the economic benefit that the West enjoys from property rights, China’s
rulers need to act with consistency, which they have evidently done. The
public choice problem is in the incentives faced beyond the need to be
consistent. By deciding what property may be used for, manipulating its
prices, and facilitating purchase or use by favored parties, China’s govern-
ment exercises far more power over the direction of economic production
than any Western government. This is a mechanism by which China
implements its unified economic strategy. This level of power creates
incentives that do not exist in the West, which are compounded by the
fact that Chinese officials are accountable internally to the CCP and
higher officials, but not externally to voters. As Western firms trade with
China, and as Western governments encourage this trade, this point must
be kept in mind. Trade offers mutual benefits to the parties to a transac-
tion; any trade involving China invariably benefits the CCP and supports
its policies that are hostile to Western values.
Foreign Direct Investment---One

Part of the Growth Strategy
The FDI-focused policy of growth that replaced the earlier approach that
emphasized borrowing was complemented by export promotion. FDI can
only be attracted if there is a market for output, which means either
a large market at home, which China did not have at the time, or an
export market. At around this time in the late 1970s and 1980s, the class
struggle doctrine, common to many varieties of socialism including that
espoused by Mao, declined in popularity among China’s rulers, making
it more politically palatable to trade with foreign capitalist countries and
1 Speech in the House of Lords, in opposition to Excise Bill on perry and cider, 1763.
invite them to establish operations in China. Export promotion was not

emphasized before this time. During these years of increasing openness
and noticeable growth, but before the post-2001 takeoff, China’s rulers
focused on productivity growth as an economic goal, which visibly paid
off later (Coase and Wang 2012).
Foreign investment is a capital export that gives foreigners control over
a country’s assets. This should be an anathema to any country that wishes
to maintain state control of the economy, which is one reason why the
Eastern bloc was not very open to it. Given China’s approach, it seems like
it ought to be an anathema to its leaders as well, but as with so many traits
of their country’s economy, they have found ways to take what the market
can do and harness it to advance their own interests. A combination of
capital controls and rules that maintain broad, although not detailed, state
control and CCP influence have mitigated these problems. Despite all
the economic liberalizations since the late 1970s, foreign investment in
China, although welcome, is tightly controlled. As of 2020, the OECD
FDI Regulatory Restrictiveness Index shows that China’s FDI restrictions
are more restrictive than the United States and the OECD average in
nearly all sectors and by a large margin in most sectors. Of 84 countries
in the index, China is ranked 74th with a score of 0.214 (0.00 is the
best and 1.00 is the worst). China’s score is nearly 2.5 times larger than
that of the United States, which ranks 52nd with a score of 0.089. These
restrictions are linked to China’s misappropriation of foreign IP and are
described in detail in Chapter 4.
A country that pursues export-led growth and invites much foreign
investment can fall into the middle-income trap in which competitive
advantage is lost as costs, particularly wages, rise. Along with the rising
wages, a lack of innovation because of a lack of organic domestic invest-
ment in higher value-added industries leads to stagnation. Whether China
will fall into this middle-income trap is still uncertain, but actions it
has undertaken indicate a recognition of this risk and an attempt to
avoid it. Domestic demand for consumption has increased faster than
other countries that have fallen into this trap, implying capacity to
continue growing even as international comparative advantages fade away
(Huang 2017). Avoiding the middle-income trap will require productivity
increases, which result from innovation, and an economic structure that
is conducive to implementing these gains (Cai 2012).
IP theft, or misappropriation of foreign technology and competitive
advantage, is one of technique to avoid the middle-income trap. Chinese
30 R. GMEINER
firms with state complicity have engaged in much IP theft and, although
this may increase productivity for the time being, it does not work once
a country reaches the technological frontier. Mitigating the foreign influ-
ence that comes from reliance on FDI is one benefit China’s rulers reap
from IP theft. A foreign firm may own assets and use them, provided it
satisfies CCP wishes, but it may not own the competitive advantage it
has from proprietary technology for very long because of IP theft. As
Chapter 4 indicates, what is commonly called “IP theft” in the West
is frequently closer to “IP extortion,” although theft does take place.
China’s government steals IP in a crafty way that is designed to give
enough incentives to foreigners to keep acquiescing. As long as foreigners
acquiesce, China’s leaders can add more and more conditions, often
bringing elements of its repression to these foreign firms and their home
countries.
China incentivizes foreign companies to be export oriented. These
incentives include permitting them to retain some foreign exchange earn-
ings and exchanging export earnings at a better rate than the official
exchange rate. Most foreign companies that invested in China were
exporters. These export promotion incentives have replaced formal export
targets by the central government in many instances, although some
local governments still issue targets (Prime and Park 1997). Much of the
economic liberalization had deliberately favored coastal regions (Coase
and Wang 2012), but this gradually started to change in the mid-1990s,
although the coast remains the most developed part of China (Prime and
Park 1997). Foreign investment was initially concentrated in the coastal
regions but has since spread to other areas in China.
Inviting foreign investment has the obvious beneficial effects of intro-
ducing and disseminating foreign technology and providing needed
capital. Encouraging foreign investors to focus on exporting seems some-
what counterproductive as it may not meet the needs of the domestic
population. This is especially noteworthy in China because the value
added in China’s exports historically has not been very high, indicating
that much of the value of these exports was added in other coun-
tries that exported intermediate inputs to China, although this has been
changing, especially in the electronics industry (Huang 2017; OECD
2018). Foreign investment in China amounts to considerably less than
domestic investment, but it has been estimated that about one-third
of China’s GDP between 2009 and 2013 was due to foreign invest-
ment, after accounting for multiplier effects and subsequent supporting
domestic investments (Enright 2017; Paterson 2018).
The focus on exports was prudent because foreign markets were
wealthier and larger than the domestic market when China first opened to
international trade. Moreover, demand in these foreign markets was for
more technologically advanced products, so an export focus would ensure
that, over time, more technology could be introduced into China. This
did not happen overnight; China’s technological rise has only recently
accelerated despite opening to FDI several decades ago. The efficiency
with which foreign enterprises operated allowed for productivity gains to
be dispersed throughout the country even in industries that were not
very technologically advanced (Coase and Wang 2012). China’s pursues
strategies, outlined in Chapter 4, designed to lure Western firms into
transferring technology.
Currency and Banking

China’s economy is controlled by the state, but the control is mostly
indirect. The central government leaves much to firm managers and
local governments, with the proviso that they work toward the central
government’s goals, which are set by the CCP. The banking sector is no
exception, although the control is somewhat tighter. Regarding currency,
China is a standout exception to the norm of central bank independence
in developed economies. The People’s Bank of China (PBOC) is just as
subservient to the CCP as any government body and plays an active role
in maintaining CCP control.
China has abundant domestic capacity for investment because of a high
domestic savings rate. In 2018, China’s savings totaled 46% of GDP,
spread across households, corporations, and government, compared to
a global average of 25% and 19% in the United States (World Bank Data
2019). Setting aside the issue of whether investment causes saving or
vice versa, a high level of domestic saving means large domestic capacity
for investment, especially when there are capital controls that restrict
the outflow of money. Technology can be pirated, but it only results in
economic growth when it is accompanied by capital investment, which
cannot be pirated. Because of abundant domestic savings, China can
invest without foreign credit.
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"Yes," said Dorothy, a curious mixture of satisfaction and glumness in her
tones; "she did, with her own lips. I didn't say a word, and Lewis wasn't there;
he was talking with Deacon Spalding, just behind us; and John didn't speak, of
course, till he spoke to him."
"Well, I never!" said Mrs. Morgan; then, after a somewhat lengthy pause,
"Seems to me she is taking things into her own hands most amazing fast:
nothing but a stranger herself, and gone to inviting company! Without even
waiting to see if it would be convenient, either! There's extra work, too. I
suppose, though, she thinks she can sit in the front room and entertain him,
and we can do the work."
"I s'pose she is so used to company that she don't think anything about it, and
doesn't know that other folks do. It isn't a dreadful thing to have the minister
come to tea; for my part, I'm glad he is coming."
After this sudden marvellous outburst from Dorothy, her mother turned and
surveyed her again, in bewildered fashion. Who had ever before heard
Dorothy express an outright opinion contrary to her mother's? While she was
meditating how to treat this strange development, the hall door opened, and
Louise, broom and dust-pan in hand, a quaint little sweeping-cap set on her
head, appeared on the scene. She dashed into the subject in mind at once:—
"Mother, has Dorothy mentioned that Mr. Butler is coming to tea? We didn't
think about the extra ironing or we might have chosen some other night.—
Why didn't you remind me, Dorrie?—You must let me do all the extra work, to
pay for my carelessness. I have come down now to put the front room in
order; or shall I help in the kitchen first?"
What was a woman to do who had managed her own household with a high
hand for more than thirty years, thus unceremoniously taken by storm? She
turned her gaze from Dorothy to Louise, and stood regarding her for a second,
as if in no doubt what to say; then, with a bitterness of tone that Louise did not
in the least understand, said—
"Do just exactly what you please; which I guess is what you are in the habit of
doing, without asking permission."
Then she dashed into the outer kitchen, and set up such a clatter with the pots
and kettles there that she surely could not have overheard a word had many
been said.
Louise, with honest heart, desiring to do what was right, was by no means
infallible, and yet was quick-witted she discovered that she had blundered. It
flashed before her that Mother Morgan thought she was trying to rule the
household and reorganize the home society—trying, indeed, to put her, the
mother, aside. Nothing had been further from her thoughts. She stood
transfixed for a moment, the rich blood rolling in waves over her fair face at
thought of this rude repulse of her cheery effort to play that she was at home
and act accordingly. It was as Dorothy said: she was so accustomed to the
familiar sentence, "Come in and take tea," that it fell from her lips as a matter
of course; especially had she been one of those trained to a cordial heartiness
as regarded her pastor. Her invitation to Mr. Butler had been unpremeditated,
and, she now believed, unwise. Yet how strange a sense of loneliness and
actual homesickness swept over her as she realized this. How difficult it was
to step at all! How she must guard her words and her ways; how sure she
might be of giving offence when nothing in her past experience could
foreshadow such an idea to her! Was it possible that in her husband's home
she was not to feel free to extend hospitalities when and where she chose?
Could she ever hope to grow accustomed to such a trammelled life? She
stood still in the spot where her mother-in-law had transfixed her—the dust-
pan balanced nicely, that none of its contents might escape; the broom being
swayed back and forth slowly by a hand that trembled a little; the fair, pink-
trimmed cambric sweeping-cap, that was so becoming to her, and so useful in
shielding her hair from dust, heightening now the flush on her face. If she had
but known it, in the new mother's eyes that sweeping-cap was one of her
many sins.
"The idea of prinking up in a frilled cap to sweep!" had that lady exclaimed, the
first time she saw it, and she drove the coarse comb through her thin gray hair
as she spoke, regardless of the fact that much dust had settled in it from that
very morning's sweeping.
"It keeps her hair clean, I'm sure," had Dorothy interposed; "and you are
always for keeping things most dreadfully clean."
"Clean!" had the mother exclaimed, vexed again, at she hardly knew what; "so
will a good washing in soap and water, and look less ridiculous besides. What
do you catch me up in that way for whenever I say anything? Attend to the
dishes, and don't waste your time talking about hair; and if you ever stick such
a prinked-up thing on your head as that, I'll box your ears."
What could there have been in the little pink cap to have driven the mother
into such a state? She rarely indulged in loud-voiced sentences. It was
unfortunate for Louise that this episode had occurred but a short time before;
and it was fortunate for her that she did not and could not guess what the
innocent cap, made by Estelle's deft fingers, had to do with Mrs. Morgan's
state of mind. Had she known that such a very trifle had power over the new
mother's nerves, it might have appalled her. We grieve sometimes that we
cannot know other people's hearts, and foresee what would please and what
would irritate. Sometimes in our blindness we feel as if that certainly would
have been the wiser way; yet I doubt if Louise's courage would not have
utterly forsaken her could she have seen the heart of her husband's mother as
she rattled the pots and kettles in the outer kitchen. Hearts calm down
wonderfully sometimes; what need then to know of their depths while at
boiling-point? But what sights must the all-seeing God look down upon—
sights, in tenderness, shut away from the gaze of his weak children.
Poor Louise! It was such a little thing, and she felt so ashamed for allowing
herself to be ruffled. Several states of feeling seemed knocking for
admittance. She almost wished that she could go to that outer kitchen and
slam the door after her, and set the dust-pan down hard before the cross lady,
and say to her,—
"There! take your broom and your dust-pan, and do your own sweeping up in
John's room after this, and let Lewis and me go home to mother. You are not a
mother at all; the name does not fit you. I know what the word means; I have
had a mother all my life, and I begin to think Lewis has never had."
What if she should say something like that? What a commotion she could
make! It was not that she had the least idea of saying it; it was simply that she
felt, "What if I should?"—Satan's earliest and most specious form, oftentimes,
of presenting a temptation. Also, there was that unaccountable tendency to a
burst of tears; she felt as though she could hardly keep them back, even with
Dorothy's gray eyes looking keenly at her. Just a little minute served for all
these states of feeling to surge by; then Dorothy broke the silence, roused out
of her timidity by a struggling sense of injustice.
"You mustn't mind what mother says; she speaks out sometimes sharp.
Anybody who didn't know her would think she was angry, but she isn't; it is just
her way. She isn't used to company either, and it kind of flurries her; but she
will be real glad to have had Mr. Butler here after it is all over."
Such a sudden rush of feeling as came to Louise, borne on the current of

these words—words which she knew cost Dorothy an effort, for she had been
with her long enough, and watched her closely enough, to realize what a
painful hold timidity had gotten on her. But these eager, swiftly-spoken words,
so unlike her usual hesitation, evinced a kindly tenderness of feeling for
Louise herself that the lonely young wife reached after and treasured
gratefully. The tears rolled down her cheeks, it is true—they had gotten too
near the surface to control, and were determined for once to have their way;
but she looked through them with a smile at Dorothy, nay, she set down her
dust-pan suddenly and dropped her broom, and went over to the astonished
girl and kissed her heartily.
"Thank you," she said brightly, "you good sister Dorrie; you have helped me
ever so much. Of course mother doesn't mean to scold me; and if she did,
mothers are privileged, and should be loved so much that little scoldings can
be taken gratefully, especially when they are deserved, as mine is. I ought to
have asked her whether it would be convenient to have company. But never
mind; we'll make the best of it, and have a good time all round. And, Dorothy,
let us be real true sisters, and help each other, and lore each other. I miss my
sister Estelle."
It was the last word she dared trust herself to speak; those treacherous tears
desired again to choke her. She turned abruptly from Dorothy and ran
upstairs, leaving the dust-pan a central ornament of the kitchen floor. Hidden
in the privacy of her own room, the door locked on the world below, Louise sat
down in the little home-rocker and did what would have thoroughly alarmed
her own mother because of its unusualness—buried her head in her hands
and let the tears have their way.
She had managed to control herself before Dorothy, to smile brightly on her,
and to feel a thrill of joy over the thought that she had touched that young
person's heart. But all this did not keep her from being thoroughly roused and
indignant toward her mother-in-law. What right had she to treat her as though
she were an interloper? Was not she the wife of the eldest son, who toiled
early and late, bearing burdens at least equal to, if not greater than, his
father? "What that woman needs," said a strong, decided voice in her ear, "is
to realize that there are other people in this world beside herself. She has
been a tyrant all her life. She manages everybody; she thinks she can
manage you. It is for her good as well as your own that you undeceive her.
You owe it to your self-respect to go directly down to that outer kitchen, where
she is banging the kettles around, and say to her that you must have an
understanding. Are you one of the family, with rights, as a married daughter, to
invite and receive guests as suits your pleasure, or are you a boarder simply?
—in which case you are entirely willing to pay for the trouble which your
guests may make."
Every nerve in Louise's body seemed to be throbbing with the desire to help
her carry out this advice. It was not merely the sting of the morning, but an
accumulation of stings which she felt had been gathering ever since she came
into the house. But who was the bold adviser? It startled this young woman
not a little to realize that her heart was wonderfully in accord with his
suggestions. As usual, there was war between him and another unseen force.
Said that other,—
"It is a trying position, to be sure. You have many little things to bear, and it is
quite probable, your life having been so shielded heretofore, that they seem to
you great trials. But, you will remember, I never promised you should not be
tried; I only pledged myself that your strength should be equal to your day.
And, really, there has no temptation taken you but such as is common to men.
And I am faithful: I will not suffer you to be tempted above that ye are able."
Surely she knew this voice, and recognized this message sent to her so long
ago, and proved true to her experience so many times.
"But," said that other one, "you really are not called upon to endure insults. It
is a perfectly absurd position. If you had gone out as a home missionary, or
were among uncouth people who had had no advantages, and to whom you
were not in any sense related, it would do to talk of bearing trials; but in this
case what right have your husband's family to put trials of this sort upon you?
You have a perfect right to please yourself, and they ought to know it."
"Yes," said that other voice, "there are undoubtedly some things that they
ought to know; but then 'even Christ pleased not himself.'"
"But it is so absurd! She is evidently vexed because you have invited her own
pastor to take tea with her—the most natural and reasonable thing in the
world. She ought to want him to come. The idea of having trouble over such a
trifle as that!"
"Yes; but, after all, are there not two sides to even that? How did you know but
it would be extremely inconvenient for your new mother to see her pastor just
at the time you set?"
"I never thought of such a thing. In our house it was always convenient to see
people."
"Why not tell her that you didn't think of it, omitting the reference to the
different conditions of your own home? Because, you know, you never like to
have people suggest uncomplimentary comparisons to you; therefore, by the
rule which you profess to have accepted, you must not hint them to others."
"But," said that other one, "it is an unnecessary humiliation for you to go to her
and apologize, as though you had done something wrong. The idea! You
should certainly have some regard to your position. Because you came here
full of schemes for usefulness, eager to do her good, is no reason why you
should tamely submit to such treatment as this—least of all, offer an apology
for what you had no idea would be disagreeable; besides, you almost
apologized, and how did she receive it?"
Then that other voice,—
"Remember the word that I said unto you—'The servant is not greater than his
lord.'"
And straightway there surged over Louise Morgan's soul such a sense of
"remembrance" of that other's patience, and meekness, and forgiveness, and
humiliation, such a remembrance of his thirty years of sorrowful cross-bearing
for her, that there surely was verified to her another of the promises: "He shall
bring all things to your remembrance." Moreover, her eyes being opened by
the searching Spirit, she saw who that counsellor was, with his suggestion of
self-respect and wounded dignity and position—always at variance with that
other one, always directly contradicting, always eagerly putting "self" between
Christ and his work. The tears came down in showers; but they were shed in a
lowly attitude, for this troubled young soul sank on her knees.
"O Christ," she said, "thou didst conquer him years ago. He desires to have
me; but, thou mighty One, bid him leave me, for thou art pledged that thou wilt
with the temptation provide a way of escape. And now, dear Christ, help me to
show such a spirit of meekness and unfaltering cheerfulness of spirit before
Lewis's mother that she shall be led, not to me, but to thyself."
It was a very peaceful face which presented itself in the kitchen not many
moments thereafter, and the voice that spoke seemed to Dorothy, who looked
on and listened, the very essence of the morning sunshine.
"Mother, it was certainly very careless in me to invite anybody to tea without

first learning whether it would be convenient for you. If you will forgive me this
time I won't do it a 'bit more.' That is what my little sister says when she gets
into trouble. Now, I want to know if you will let me hang some of my pictures in
the parlour; I've been unpacking them, and I don't know what to do with half of
them."
"Of course," said Mother Morgan. "Fix the parlour as you want it. It never was
called a parlour before in its life; but I daresay that is as good a name as any.
The extra ironing is no consequence anyhow; we always have enough to eat.
He might as well come to-day as any time, for all I know."
Then she dashed out at that end door again, and set the outer kitchen door
open, and stood in it looking off toward the snowy hills. Nobody over
apologized to her before; it gave her a queer feeling.
"Well," said Dorothy, addressing the dust-pan after Louise had vanished
again, "I never could have said that in the world. After what mother said to her
too. I don't care; I like her first-rate. There now."
CHAPTER XII.
DIFFERENT SHADES.
THAT front room was square and bare; at least that last word expresses the
impression which it made upon Louise as she stood surveying it. There were
several things that she felt sure she could do to brighten it, but the question
turned on expediency. How much would it be wise to undertake?
It is a curious fact that the people who, from choice or necessity, have
contented themselves with paper window-shades, have also been the people
fated to choose for these ungainly creations colours that would fight with the
shades of carpet and wall-paper. Those in the Morgan household were the
ugliest of their kind, and the initiated know that is saying a great deal. The
ground-work was blue. Who ever saw a tint of blue that would harmonize with
a cheap ingrain carpet? They were embellished by corner pieces, done in
dingy brown, with streaks of red here and there; the design looking like
nothing with sufficient distinctness to be named—the whole being grotesque;
while in the centre was a bouquet of flowers so ugly that it was a positive relief
to remember that nature never produced anything in the least like them. An
old-fashioned piece of furniture, known as a settle, suggested possibilities of
comfort if it had not been pushed into the coldest corner of the room and been
disfigured by a frayed binding and a broken spring. The chairs, of course,
were straight-backed and stiff; and set in solemn rows. But the table, with its
curious clawed legs and antique shape, filled Louise's heart with delight.
"What a pity," she said aloud, "that they couldn't have put some of the grace
into the old-fashioned chairs which they lavished on those delightful old
tables! How that bit of artistic twisting would delight Estelle's heart!"
This deliberate survey of her present field of operations was being taken after
the sweeping and dusting were over, and she was trying to settle the
momentous question of "What next?"
The door leading into the kitchen was swung open, and Mother Morgan
presented herself in the doorway, her arms still in their favourite reflective
attitude, holding to her sides.
"The curtains do look scandalous," she said, her eyes lighting on them at
once. "I've been going, for I don't know how long, to get new ones, but I never
seem to get at such things. I declare I didn't know they was so cracked."
Instantly Louise's wits sprang to grasp this opportunity. Who could have
expected such an opening in accord with her present thoughts?
"Oh, I hope you won't get new ones. I have a set of curtains that my mother
gave me for my room, so I might have a reminder of home, and they are
altogether too long for my windows; but I think they will just fit here. I should
so like to see them in use. May I put them up?"
What was the mother to say? She possessed that unfortunate sort of pride
which is always hurt with the suggestion of using other people's things. Yet
she had herself opened the door to this very suggestion. How was she to
close it?
"Oh, it isn't necessary to bring your curtains down here. I mean to get new
ones, of course. I've just neglected it, that's all; there's been no need for it."
"I'm so glad then that you have neglected it," Louise said quickly. "It has made
me feel sort of lonely to see those curtains lying idle in my trunk. I wanted to
put them somewhere. How fortunate it is that they are just the right colour to
match nicely with the carpet. You are really good to let me have them up
here."
Whereupon Mrs. Morgan, with a vague feeling that she had been "good"
without in the least intending it, kept silence.
Louise gave her little chance for reflection.
"You can't think how much I like that sofa. Wouldn't it be nice if they made
such shaped ones nowadays, so long and wide? It suggests rest to me right
away. I can't think of anything more comfortable than this corner when the fire
is made, with that nice, hospitable sofa wheeled into it."
This sentence brought Dorothy from the kitchen, to gaze, with wide-eyed
wonder, first at the lounge and then at the speaker. The object of her
intensified hatred, for many a day, had been that old, widespread, claw-footed
settle. Not being accustomed to seeing such an article of furniture anywhere
else, and being keenly alive to the difference between her home and that of
the few other homes into which she had occasionally penetrated, she had,
unconsciously to herself, singled out the old lounge and the old table, and
concentrated her aversion to the whole upon them.
There was something about Louise that gave to all she said the stamp of
sincerity. Dorothy found herself believing implicitly just what had been said;
therefore this surprising eulogy of the old settle was the more bewildering.
Louise's next sentence completed the mystification.
"But the prettiest thing in this room is that table. I never saw anything like that
before; it must be very old, isn't it? And it looks like solid mahogany."
There was no resisting the impulse. Mother Morgan's heart swelled with a
sense of gratified pride (if it were not a nobler feeling than pride).
"It is solid," she said quickly, "every inch of it; it belonged to my mother; it was
one of her wedding presents from my grandfather. There isn't another table in
the country as old as this."
"Isn't that delightful?" said Louise, genuine eagerness in tone and manner. "To
think of your having one of your own mother's wedding presents! My sister
Estelle would like to see that; she has such a wonderful feeling of reverence
for old things, especially when she can hear about the hands that have
touched them long ago. Did your mother die a good many years ago?"
"She died when I was a girl like Dorothy there," said Mrs. Morgan, her voice
subdued, and she gathered a corner of her large apron and carried it to her
eyes.
"I always set great store by that table. I've seen my mother rub it with an old
silk handkerchief by the half-hour, to make it shine. She thought a great deal
of it on grandfather's account, let alone its value, and it was thought to be a
very valuable table in those days. I have always thought I would keep it for
Dorothy. But she don't care for it; she thinks it is a horrid, old-fashioned thing.
She would have it put into the barn-loft, along with the spinning-wheel, if she
could. Your sister must be different from other girls, if she can stand anything
old."
Poor Dorothy, her cheeks aflame, stood with downcast eyes; too honest was
she to deny that she had hated the claw-footed table as one of the evidences
of the life to which she was shut up, different from others. Louise turned
toward her with a kindly smile.
"I think Estelle is different from most girls," she said gently. "Our grandmother
lived until a short time ago, and we loved her very clearly, and that made
Estelle like every old-fashioned thing more than she would. Mother says that
most girls have to get old and gray-haired before they prize their girlhood or
know what is valuable."
"That is true enough," said Mother Morgan emphatically.
Then Louise—
"I wonder if I can find John anywhere? I want him to help me to hang pictures
and curtains. Do you suppose father can spare him a little while?"
"John!" said the wondering mother. "Do you want his help? Why, yes, father
will spare him, I daresay, if he will do anything; but I don't suppose he will."
"Oh yes," said Louise gaily, "he promised to help me; and besides, he invited
the minister here himself, or at least seconded the invitation heartily, so of
course he will have to help to get ready for him."
"Well, there he is now, in the shed. You get him to help if you can; I'll risk his
father. And move things about where you would like to have them; I give this
room into your hands. If you can make it look as pleasant as the kitchen, I'll
wonder at it. It was always a dreadful dull-looking room, somehow."
And the mollified mother went her way. An apology was a soothing sort of
thing. It was very nice to have the long-despised old settle and table (dear to
her by a hundred associations, so dear that she would have felt it a weakness
to own it) not only tolerated but actually admired with bright eyes and eager
voice; but to engage, in any enterprise whatever, her youngest son, so that
there might be hope of his staying at home with the family the whole of
Tuesday evening—an evening when, by reason of the meeting of a certain
club in the village, he was more than at any other time exposed to temptation
and danger—was a thought to take deep root in this mother-heart. She did not
choose to let anybody know of her anxiety concerning this boy; but really and
truly it was the sore ache in her heart, and the thinking of the brightness of
Louise's care-free face in contrast with her own heavy-heartedness, that
developed the miseries of the morning. After all, to our limited sight, it would
seem well, once in a while, to have peeps into each other's hearts.
Greatly to his mother's surprise, and somewhat to his own, John strode at first
call into the front room, albeit he muttered as he went: "I don't know anything
about her gimcracks; why don't she call Lewis?"
"Are you good at driving nails?" Louise greeted him with; "Because Lewis isn't.
He nearly always drives one crooked."
"Humph!" said John disdainfully. "Yes, I can drive a nail as straight as any of
'em; and I haven't been to college either."
"Neither have I," said Louise, accepting his sentence in the spirit of banter;
"and I can drive nails, too. If I were only a little taller I'd show you. But how are
we going to reach away up to the ceiling? Is there a step-ladder anywhere?"
"Yes; make one out of the kitchen table and the wood-box."
And he went for them. Then the work went on steadily. John could not only
drive nails, but could measure distances with his eye almost as accurately as
with a rule, and could tell to the fraction of an inch whether the picture hung
"plum" or not. Louise, watching, noted these things, and freely commented
upon them, until, despite himself, John's habitual gruffness toned down.
"Who is this?" he asked, and he, perched on his table and wood-box, stopped
to look at the life-size photograph of a beautiful girl.
"That," said Louise, pride and pleasure in her voice, "is my sister Estelle; isn't
she pretty? With the first breath of spring I want her to come out here; and I
want you to get ready to be real good to her, and show her all the interesting
things in field and wood."
"I!"
"Yes, you. I look forward to your being excellent friends. There are a hundred
delightful things about nature and animal life of which she knows nothing, and
she is eager to see and hear and learn. I look to you for help."
At this astounding appeal for "help" John turned and hung the picture without
a word. What was there to say to one who actually expected help from him for
that radiant creature!
Louise, apparently busy in untangling cord and arranging tassels, watched

him furtively. He studied the picture after it was in place; he had difficulty in
getting it to just the right height, and tied and untied the crimson cord more
than once in his precision. The bright, beautiful, girlish figure, full of a
nameless witchery and grace that shone out at you from every curve! She
hardly knew how much she wished for the influence of the one over the other.
If Estelle could help, would help him in a hundred ways, as she could; and if
he would help her! Yes, Louise was honest; she saw ways in which this
solemn-faced boy could help her gay young sister, if he only would.
"Oh!" she said to herself, with great intensity of feeling, "if people only would
influence each other just as much as they could, and just as high as they
could, what a wonderful thing this living would be!"
It was for this reason among others that she had selected from her family
group, hanging in her room, this beautiful young sister, and sacrificed her to
hang between the windows in the front room. There were other pictures, many
of them selected with studied care, with an eye to their influence. Among
others, there was a brilliant illuminated text worked in blues and browns, and
the words were such as are rarely found in mottoes. In the centre was a great
gilt-edged Bible, and circling over it: "These are written that ye might believe
on the Son of God." Then underneath, in smaller letters: "And that believing,
ye might have life through his name."
"That is Estelle's work," his companion said. "Isn't it pretty?"
"I suppose so. I don't know anything about pretty things."
"Oh yes you do; you know perfectly well what you think is pretty. I venture to
say that you know what you like, and what you dislike, as well as any person
in this world."
He laughed, not ill pleased at this; and Louise, with no apparent connection,
branched into another subject.
"By the way, where is that church social that was announced for Friday night?
Far-away?"
"No; just on the other hill from us, about a mile, or a trifle more."
"Then we can walk, can't we? I'm a good walker, and if the evening is
moonlight, I should think it would be the most pleasant way of going."
And now John nearly lost his balance on the wood-box, because of the
suddenness with which he turned to bestow his astonished gaze on her.
"We never go," he said at last.
"Why not?"
"Well," with a short laugh, "that question might be hard to answer. I don't, I
suppose, because I don't want to."
"Why don't you want to? Aren't they pleasant gatherings?"
"Never went to see. I grew away from them before I was old enough to go.
Mother and father don't believe in them, among other things."
There was a suspicion of a sneer in his voice now. Louise was a persistent
questioner.
"Why don't they believe in them?"
"Various reasons. They dress, and mother doesn't believe in dressing. She
believes women ought to wear linsey-woolsey uniform the year round. And
they dance, and neither mother nor father believe in that; they think it is the
unpardonable sin mentioned in the Bible."
"Do they dance at the church socials?"
"Yes," an unmistakable sneer in his tones now, "I believe they do; we hear so
anyhow. You will look upon the institution with holy horror after this, I
suppose?"
"Does Mr. Butler dance?"
"Well, reports are contradictory. Some say he hops around with the little girls
before the older ones get there, and some have it that he only looks on and
admires. I don't know which list of sinners he is in, I'm sure. Do you think
dancing is wicked?"
"I think that picture is crooked," said Louise promptly; "isn't it? Doesn't it want
to be moved a trifle to the right? That is a special favourite of mine. Don't you
know the face? Longfellow's 'Evangeline.' Lewis don't like the picture nor the
poem; but I can't get away from my girlhood liking for both. Don't you know the
poem? I'll read it to you some time and see if you don't agree with me. Now,
about that social: let's go next Friday, and see if we can't have a good time—
you and Lewis, and Dorothy and I. It is quite time you introduced me to some
of your people, I think."
"You don't answer my question."
"What about? Oh, the dancing? Well, the truth is, though a short question, it
takes a very long answer, and it is so involved with other questions and
answers that I'm afraid if we should dip into it we shouldn't get the curtains
hung by tea-time. Let me just take a privilege and ask you a question. Do you
expect me to believe in it?"
"No."
"Why not?"
"Because—well—because you religionists are not apt to."
"Don't you know any religionists who seem to?"
"Yes; but they are the counterfeit sort."
"Then you think real, honest Christians ought not to believe in dancing?"
"I didn't say any such thing," returned John hotly; then, being quick-witted, he
realized his position, and despite his attempt not to, laughed. "I think we had
better go after those curtains now," he said, significantly. And they went.
CHAPTER XIII.
BUDS OF PROMISE.
"WELL," said Dorothy, and she folded her arms and looked up and down the
large room, a sense of great astonishment struggling with one of keen
satisfaction on her face, "who ever thought that she could make this look like
this!"
Which mixed and doubtful sentence indicates the bewilderment in Dorothy's

mind. Yet there had been no wonderful thing done. But Dorothy belonged to
that class of people who do not see what effects little changes might produce.
Still, she belonged, let us be thankful, to that class of people who can see
effects when the changes have been produced. There are not a few in this
world who are as blind as bats about this latter matter.
The place in question was the large square front room of the Morgan family.
The heavy crimson curtains, of rare pattern and graceful finish, hung in rich
waves about the old-fashioned windows, falling to the very floor, and hiding
many a defect in their ample folds. The walls were hung with pictures and
brackets and text-cards. The brackets were furnished—one with a pretty
antique vase, hiding within itself a small bottle of prepared earth, which
nourished a thrifty ivy. One held a quaint old picture of Dorothy's mother's
mother, for which Louise's deft fingers had that morning fashioned a frame of
pressed leaves and ferns. The old-fashioned settee was drawn into exactly
the right angle between the fire and the windows. The torn braid had been
mended, and John, of his own will, had repaired the broken spring.
The heavy mahogany table rejoiced in a wealth of beautifully bound and most
attractive-looking books; while a little stand, brought from Louise's own room,
held a pot of budding and blossoming pinks, whose old-fashioned spicy breath
pervaded the room. Perhaps no one little thing contributed to the holiday air
which the room had taken on more than did the tidies of bright wools and clear
white, over which Estelle had wondered when they were being packed, Louise
thought of her and smiled, and wished she could have had a glimpse of them
as they adorned the two rounding pillow-like ends of the sofa, hung in graceful
folds from the small table that held the blossoming pinks, adorned the back
and cushioned seat and arms of the wooden rocking-chair in the fireplace
corner, and even lay smooth and white over the back of Father Morgan's old
chair, which Louise had begged for the other chimney-corner, and which Mrs.
Morgan, with a mixture of indifference and dimly-veiled pride, had allowed to
be taken thither.
Little things were these, every one, yet what a transformation they made to
Dorothy's eyes. The crowning beauty of the scene to Louise was the great
old-fashioned artistic-looking pile of hickory logs which John built up
scientifically in the chimney-corner, the blaze of which, when set on fire,
glowed and sparked and danced, and burnished with a weird flame every
picture and book, and played at light and shade among the heavy window
drapery in a way that was absolutely bewitching to the eyes of the new-comer.
"What a delightful room this is!" she said, standing with clasped hands and
radiant face, gazing with genuine satisfaction upon it when the fire was
lighted. "How I wish my mother could see that fire! She likes wood fires so
much, and she has had to depend on 'black holes in the floor' for so long a
time. I do think I never was in a more home-like spot."
It was fortunate for Louise that her education had been of that genuine kind
which discovers beauty in the rare blending of lights and shades and the
tasteful assimilation of furnishings, rather than in the richness of the carpet or
the cost of the furniture. It was genuine admiration which lighted her face. The
room had taken on a touch of home and home cheer. Mrs. Morgan, senior,
eying her closely, on the alert for shams, felt instinctively that none were veiled
behind those satisfied eyes, and thought more highly of her daughter-in-law
than she had before.
As for Dorothy, she was so sure that the fairies had been there and bewitched
the great dreary room that she yielded to the spell, nothing doubting.
It seemed almost strange to Louise herself that she was so deeply interested
in this prospective visit from the minister. She found herself planning eagerly
for the evening, wondering whether she could draw John into the
conversation, whether Dorothy would rally from her shyness sufficiently to
make a remark; wondering whether the bright-eyed young minister would
second her efforts for these two. During a bit of confidential chat which she
had with her husband at noon, she said,—
"I can't help feeling that there are serious interests at stake. Mr. Butler must
get hold of the hearts of these young people; there must be outside influences
to help us or we cannot accomplish much. I wonder if he has his young people
very much at heart?"
"I may misjudge the man," Lewis said, leisurely buttoning his collar and
speaking in an indifferent tone; "but I fancy he hasn't a very deep interest in
anything outside of having a really good comfortable time."
"O Lewis!" and his wife's note of dismay caused Lewis to turn from the mirror
and look at her inquiringly. "How can you think that of your pastor? How can
you pray for him when you are composedly saying such things?"
"Why," Lewis said, smiling a little, "I didn't say anything very dreadful, did I,
dear? He really doesn't impress me as being thoroughly in earnest. I didn't
mean, of course, that he is a hypocrite. I think him a good, honest-hearted
young man; but he hasn't that degree of earnestness that one expects in a
minister."
"What degree of earnestness should a minister have, Lewis?"
"More than he has," said her husband positively. "My dear wife, really you
have a mistaken sort of idea that because a man is a minister therefore he is
perfect. Don't you think they are men of like passions with ourselves?"
"Yes, I do; but from your remark I thought you were not of that opinion. No,
really, I think I am on the other side of the argument. I am trying to discover
how much more earnest a minister should be than you and I are, for instance."
"Rather more is expected of him by the Church," her husband answered,

moving cautiously, and becoming suddenly aware that he was on slippery
ground.
"By the Church possibly; but is more really expected of him by the Lord?
Sometimes I have heard persons talk as though they really thought there was
a different code of rules for a minister's life than for the ordinary Christian's.
But, after all, he has to be guided by the same Bible, led by the same Spirit."
"There's a bit of sophistry in that remark," her husband said laughing; "but I
shall not stay to hunt it up just now. I expect father is waiting for me to help
about matters that he considers more important."
"But, Lewis, wait a moment. I don't want to argue; I just want this: Will you this
afternoon pray a good deal about this visit? I do feel that it ought to be a
means of grace to our home and to the pastor; for there should certainly be a
reflex influence in visits between pastor and people. I have been for the last
two hours impressed to almost constant prayer for this, and I feel as though I
wanted to have a union of prayer."
Her husband lingered, regarding her with a half-troubled, half-curious
expression.
"Sometimes," he said slowly, "I am disposed to think that you have gone away
beyond me in these matters, so that I cannot understand you. Now, about this
visit. I can see nothing but an ordinary social cup of tea with the minister. He
will eat bread and butter, and the regulation number of sauces and cakes and
pickles, and we will keep up a flow of talk about something, it will not matter
much what to any of us, so we succeed in appearing social; then he will go
away, and the evening will be gone, and, so far as I can see, everything will be
precisely as it was before."
"No," she said, with a positive setting of her head. "You are ignoring entirely
the influence which one soul must have over another. Don't you believe that
all of our family, by this visit, will have been drawn either to respect religion
more, to feel its power more plainly, or else will have been repelled from the
subject? They may none of them be aware that such is the case, yet when
they come in contact with one so closely allied to the church and prayer-
meeting, I think, that either one influence or the other must have its way."
"New thought to me put on that broad ground. But if it is true, it proves, I think,
that the minister has more influence over the community than private
Christians have; because, certainly, it is possible for you and me to go out to
tea and have a pleasant social time, and not change any person's opinion of
religion one-half inch."
She shook her head. "It proves to me that the outward position helps the
minister by the law of association to make a more distinctly realized
impression; but, dear Lewis, the question is, is it right for any servant of the
King to mingle familiarly for an afternoon with others, who either are or should
be loyal subjects, and not make a definite impression for the King?"
"I don't know," he said slowly, gravely; "I don't believe I have thought of social
gatherings in that light."
And Louise, as he went away, realized, with a throb of pain, that she wanted
the minister to make a definite impression for good, not only on Dorothy and
John, but on her husband. Perhaps she never prayed more constantly for the
success of any apparently small matter than she did for this tea-drinking. Her
interest even extended to the dress that Dorothy wore. She knew well it would
be a somewhat rusty black one; but the door of that young lady's room being
ajar, and she being visible, in the act of adding to her toilet an ugly red necktie
that set her face aflame, Louise ventured a suggestion.
"O Dorrie, if you would wear some soft laces with that dress, how pretty it
would be!"
"I know it," said Dorothy, snatching off the red tie as she spoke. "But I haven't
any. I hate this necktie; I don't know why, but I just hate it. Mother bought it
because it was cheap!"—immense disgust expressed in tone and manner.
"That is surely the only recommendation it has."
"I have some soft laces that will be just the thing for you," Louise said in
eagerness, and she ran back to her room for them.
"These are cheap," returning with a box of fluffy ruchings. "They cost less than
ribbon in the first place, and will do up as well as linen collars."
New items these to Dorothy. The idea that anything so white and soft and
beautiful could also be cheap! A mistaken notion had this young woman that
everything beautiful was costly.
"Let me arrange them," Louise said in a flutter of satisfaction, lifting her heart
in prayer as she worked.
Praying about a lace ruffle! Oh yes, indeed; why not? If they are proper to
wear, why not proper to speak of to the Father who clothes the lilies and
numbers the very hairs of our head? Actually praying that the delicate laces
might aid in lifting Dorothy into a reasonable degree of self-appreciation, and
so relieve, somewhat, the excessive timidity which Satan was successfully
using against her. I wonder, has it ever occurred to young people that Satan
can make use of timidity as well as boldness?
"There," said Louise, as she arranged the puffy knots, giving those curious
little touches which the tasteful woman understands so well and finds so
impossible to teach.
"Aren't they pretty?" And she stood back to view the effect.
The pink glow on Dorothy's cheeks showed that she thought they were.
With the details of the supper Louise did not in the least concern herself; she
knew that food would be abundant and well prepared, and the linen would be
snowy, and the dishes shining. What more need mortal want?
As for the minister, truth to tell, he spent his leisure moments during the day in
dreading his visit. He had heard so much of the Morgans—of their coldness
and indifference, of their holding themselves aloof from every influence, either
social or spiritual. The few sentences that had ever passed between himself
and Farmer Morgan had been so tinged with sarcasm on the latter's part, and
had served to make him feel so thoroughly uncomfortable, that he shrank from
all contact with the entire family, always excepting the fair-faced, sweet-voiced
stranger; not her husband, for something about the grave, rather cold face of
Lewis Morgan made his young pastor pick him out as merciless intellectual
critic. However, it transpired that most of his forebodings were unrealized.
It suited Mrs. Morgan, senior, to array herself in a fresh calico, neatly made,
relieved from severe plainness by a very shining linen collar; and though her
manner was nearly as cold as the collar, yet there was a certain air of
hospitality about it that made the minister feel not unwelcome. Dorothy, under
the influence of her becoming laces, or some other influence, was certainly
less awkward than usual. And fair, curly-haired, sweet-faced Nellie caught the
young man's heart at once, and was enthroned upon his knee when Farmer
Morgan came to shake hands before proceeding to supper. If there was one
thing on earth more than another that Farmer Morgan did admire, it was his
own beautiful little Nellie. If the minister saw that she was an uncommon child,
why, in his heart, he believed it to be a proof positive that the minister was an
uncommon man. Altogether, Mr. Butler's opinion of the Morgan family was
very different by six o'clock from what it had been at four. Just a word alone
with him Louise had, when Farmer Morgan suddenly remembered an
unforgotten duty and went away, while Mrs. Morgan and Dorothy were putting
the finishing touches to the supper-table. Lewis was detained with a business
caller at one of the large barns, and John had not presented himself at all.
This was one of her present sources of anxiety. She turned to the minister the
moment they were alone.
"We need your help so much," she began eagerly. "My husband and I are the
only Christians in this family. I am specially and almost painfully interested in
both John and Dorothy; they need Christ so much, and apparently are so far
from him. Is the Christian influence of the young people decided in this
society?"
"I hardly know how to answer you," he said hesitatingly. "If I were to tell you
the simple truth, I seem better able to influence the young in almost any other
direction than I do in anything that pertains to religion." And if the poor young
man had but known it, he was more natural and winning in regard to any other
topic than he was with that one. "I have hardly a young man in my
congregation on whom I can depend in the least," he continued sadly, "and I
do not see any gain in this respect."

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How Trade With China Threatens Western Institutions The Economic Roots of A Political Crisis 1St Edition Robert Gmeiner Full Chapter

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How Trade with China Threatens

Western Institutions: The Economic

ISBN 978-3-030-74708-4 ISBN 978-3-030-74709-1 (eBook)

China’s perception among Western countries has changed much in recent

Fayetteville, USA Robert Gmeiner

Currency and Banking 31

Institutions in Models of International Trade 76

“Unfair Competition” or Natural Comparative

Potential Claims to the West 197

Military Superiority and Alliances 264

AIA Leahy-Smith America Invents Act of 2011

GDP Gross Domestic Product

© The Author(s), under exclusive license to Springer Nature 1

completely dominated the world economy and its geopolitical order. It

through trade. Despite rhetorical Western opposition to China’s repres-

growing Chinese sphere of influence, bringing others within its repressive

China’s Economy and Success Without

From Starvation to Superpower: Evolution

© The Author(s), under exclusive license to Springer Nature 7

a traditional capitalist structure and a centrally planned socialist economy.

Decentralization of State Economic Control

Economic Incentives and Outcomes under Decentralized Planning

The Sino-Soviet Split: A Harbinger of China’s Intentions

Illusory Reforms Under Deng Xiaoping

Socialism Without Soviet Characteristics

Rapprochement with the United States

of an American-equipped military and the fact that it is easier to defend

Freedom? Just Economic Incentives and Political Repression

local governments “competed” with each other economically. Within

of other localities and the central government. Although China’s central

Incomplete Nature of Reforms

be thought of as the CCP’s introduction of incentives for production and

by fifteen years of negotiations that began in the 1980s. Many promises

tolerated, and state enterprises had to operate completely under market-

The Tiananmen Square Massacre and a New Era of Repression

a violent crackdown made political sense despite its moral reprehensi-

Naivete of the West—Trade and Political Freedom

He thought they were an important step when combined with pres-

single-handedly reform a repressive country’s institutional structure. If a

The Current Economic Landscape of China

Although state control over firms is a degree of socialism, it is impor-

goals as well as maximizing shareholder value. It is not fully autonomous

State Planning—Still an Integral Part of China’s Economy

the group likely benefits others in similar downstream industries or the

What Do “Property Rights” Entail in China?

foreign investment that led to the development of allocation of land use

other non-owner. English statesman William Pitt stated, “The poorest

Foreign Direct Investment---One

invite them to establish operations in China. Export promotion was not

Currency and Banking

Such a sudden rush of feeling as came to Louise, borne on the current of

Then that other voice,—

"Mother, it was certainly very careless in me to invite anybody to tea without

"That is true enough," said Mother Morgan emphatically.

Louise, apparently busy in untangling cord and arranging tassels, watched

"That is Estelle's work," his companion said. "Isn't it pretty?"

"I suppose so. I don't know anything about pretty things."

"We never go," he said at last.

"Why don't you want to? Aren't they pleasant gatherings?"

"Why don't they believe in them?"

"Do they dance at the church socials?"

"Does Mr. Butler dance?"

"You don't answer my question."