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Adam Smith In Beijing

13 Apr

A sophisticated insight into historical cycles, original interpretations of Adam Smith and Karl Marx, a breadth of foreign policy knowledge, and a knack for understanding human motivation. Late John Hopkins professor of sociology Giovanni Arrighi weaves these threads in his work Adam Smith in Beijing, and presents a case for the rise of East over West in the coming decades.

Arrighi opens by discussing the battle between capital and labour through the prisms of Smith and Marx. Smith differentiates between the natural and the unnatural path of economic development.  These two paths are best understood in Smith’s own words:

” According to the natural course of things, therefore, the greater part of the capital of every growing society is, first, directed to agriculture, afterwards to manufactures, and last of all to foreign commerce.  This order of things is so very natural, that in every society that had any territory, it has always, I believe, been in some degree observed…. But though this natural order of things must have taken place in some degree in every such society, it has, in all the modern states of Europe, been, in many respects, entirely inverted. The foreign commerce of some of their cities has introduced all their finer manufactures, or such as were fit for distant sale; and manufactures and foreign commerce together, have given birth to the principal improvements of agriculture. The manners and customs which the nature of their original government introduced, and which remained after that government was greatly altered, necessarily forced them into this unnatural and retrograde order. ”

Arrighi contends that the unnatural path leads to class conflicts as outlined by Marx, in which a relatively small class  gain control/ownership over production and financing, resulting in the creation of industrial states. To ensure a fresh supply of markets, and returns above the costs of capital, such industrial states are incentivised to military build up and imperialistic action. Concurrently, the flow of capital from lower return areas to areas with lower competitive forces leads to a wave of create destruction. Eventually, accumulation collapses under the stress of administrative costs, most notably military spending, and the state suffers a decline.

Arrighi argues that President Bush’s economic and foreign policy aims were the culmination of a neoliberal attempt at world domination, akin to the adventures of previously fallen empires (such as the British).  However the escalating cost of the Iraqi war/occupation, as well as loss of perceived total dominance on the battlefield in effect led to the unravelling of American hegemony. The point about costs is all important, as hegemony requires hegeMONEY. I was particularly struck by the differences the author highlights between the “US Empire” and the British. While the sun did eventually set on the British Empire they were able to prolong their rule by balancing their current account through raping overseas resources (primarily Indian), and using non-UK residents as army fodder (again primarily Indian). The US in contrast has no such resources.

An overextended US has left space for the East, notably China, to continue its steady rise. China by contrast followed Smith’s natural path of development – a large market economy managed by an active government. Some term this an industrious revolution, which leads to a large internal market, good supply of labour leading to a diverse skill base and economy, in which wealth is more widely dispersed. Natural development avoids the class distortions described by Marx.

It is this diverse and educated labour base that are well placed to continue a path of internal growth. Through China’s relatively stable/broader wealth creation and her influence on global financing, investment decisions and global power will continue to move from West to East.

I am not an economist by trade, but with a little effort, I found Adam Smith in Beijing very accessible. I’m sure an economist could find what to criticise, though from the point of view of a laymen I found the themes made common sense, appeared coherent, and provided me a valuable set of tools to judge global economics and its relation to foreign policy and power. From a layperson’s perspective my only criticism would be the one sided nature of the arguments. While I am also a sino-phile, I’m not blinded enough by my passion to assume that the road to greatness is inevitable. China will have to contend with other emerging powers (notably India), and will have to face issues such as human rights and democracy as well as environmental coherence.

All in all an intelligent and thought provoking read – go read it!


Country Driving – Peter Hessler

13 Jul

Peter Hessler was the New Yorker’s correspondent in Beijing.  You might have read his first book, River Town, his two year diary detailing his experiences volunteering for the US Peace Corp in Chongqing in the mid-90s.  His latest missive is called “Country Driving: A Journey through China from Farm to Factory”.  The middle of three sections focuses on the dramatic changes in a country village in the early years of the 21st century, and the massive impact on the lives of one particular family: the Wei’s.

The changes and their impact come quickly and highlight China as a country of perpetual motion – it’s like an industrial revolution on crack for want of a better phrase. Hessler’s writing has significantly improved my understanding of the internal and external dynamics of change in modern Chinese culture, and for this I recommend his book.

Within in the space of a few short years the village is impacted by a new road, cars, tourists, growth of a tourist industry, the increase in salaries and reduced reliance on agriculture as a source of income.  This is turn impacts the diets of all the members of the family, their health, their clothing, drinking and smoking habits. The roles of the husband and wife are called into question, with the husband enjoying the social benefits and freedom associated with economic prosperity, while the wife takes the brunt of the work. This is all set against the backdrop of a search for meaning beyond the mundane accumulation of wealth, and how the fractures bought on by such change can be damaging to the psyche and relationships.

And of course – with access to instant noodles…there’s now a lot more garbage pilling up in the village.

Capitalism with Chinese characteristics

23 Jul

I do believe that buying China in 2009 is like buying America in 1909.  So it was with some trepidation that I began reading Yasheng Huang’s Capitalism with Chinese Characteristics, expecting to have my bullish beliefs shattered.  Why did I expect as such? A number of fellow China enthusiasts had warned me off the book, claiming it would be nothing but anti-Sino propaganda.  As far as I was concerned their claim was like a red rag to a bull – I love having my assumptions challenged.  However,  Huang’s detractors were simply wrong!

If anything Professor Huang has provided a subtle, intelligent and nuanced account of Chinese growth since 1978.  The book’s subtitle says it all: “Entrepreneurship and the State”.  Throughout his work, Huang stresses the grass roots entrepreneurial spirit of the Chinese population as one of the main drivers of Chinese economic development.

The author dispels the myth that growth and entrepreneurship can be nurtured without protection of property (and body), and ease of access to capital. He highlights the 80s as the decade in which these characteristics persisted and allowed rural entrepreneurs to grow their businesses in China, as opposed to the commonly held myth that Chinese growth was primarily driven by the mass urbanization of the 90’s, and directed from above.  If anything, there is nothing ‘magical’ or unique about the framework surrounding China’s success – those years in which the state provided breathing space for individuals and their businesses together with ‘hints’ of legal protection were the most fruitful.

Huang considers China’s current leadership more likely than any since 1990 poised to foster policies and rhetoric likely to re-kindle the spirit of the 80’s grass root growth.    However only time will tell.

One more thought – as a professional equity research analyst I appreciated the imaginative, innovative, and non-dogmatic approach with which Huang approaches the data and subject of Chinese market reforms.  In addition, I believe one must question the impact the Government’s stimulus package is likely to have in the long-term if policies are not in place to capitalize on such spending at the grass roots.

Link to the book on amazon: