Corruption with Chinese characteristics

As it happened, I read Minxin Pei’s China’s Crony Capitalism in the couple of days after I’d written this article about the importance of property rights in the Financial Times. In this interesting short book, Pei links the emergence of the rampant corruption in today’s China to “partial and incremental reforms of property rights associated with nominally state owned assets in the post-Tiananmen era.” These changes decentralized control over the assets to regional and local officials, without clarifying the ownership rights. The incentive was there, from the early 1990s, to exploit the lack of clarity. At about the same time, a political decentralization created the opportunity. The appointment system went from one where senior officials appointed people one and two ranks down, to one where each layer appointed the next layer down. A market for patronage emerged, which encouraged corruption because officials needed deals with private business to make the money to pay for their jobs. Finally, a fiscal reform enabled local governments to keep the proceeds from land sales while re-centralizing tax revenues to Beijing.

The book concludes: “It is inconceivable that the CCP can reform the political and economic institutions of crony capitalism because these are the very foundations of the regimes monopoly of power.” Even if the corrupt authoritarian regime were to fall, the book argues, liberal democracy would not be the outcome. Something more like Russia’s kleptocracy would emerge. Or will, rather. “The fragility of the institutions of the party state … raies fears that even modest reform efforts could unleash a revolution. The prospect of genuine market-oriented reform is equally unpromising because such a change would eliminate the rents for the ruling autocratic elites.” Any kind of change seems to spell collapse.

In another coincidence, as I finished this book, the FT’s Jamil Anderlini (author of a brilliant e-book about the rise and fall of Bo Xilai) published a big feature on neo-Maoism in China, which he portrays as am anti-elite, anti-inequality, populist movement in the same spirit as Trumpism, Brexiteering and right-wing and left-wing populism around the continent. Sobering stuff.

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Google and growth

I was disappointed by Douglas Rushkoff’s [amazon_link id=”0241004411″ target=”_blank” ]Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity[/amazon_link], in the sense that my expectations were high and it didn’t live up to them. To start with the positives, it’s a  good read, and I share Rushkoff’s concerns about aspects of the ever-more-digital economy. There’s the inequality at self-destructive levels in many OECD countries. The obscene amounts of money many corporate execs pay themselves. The determination of some of the digital titans to entrench their monopoly power and indeed extend it to more markets. The intrusiveness of online surveillance for profit. The undermining of content creation in news and the creative sector as Google and Facebook vacuum up a large and growing proportion of the advertising revenue. All of that, yes.

[amazon_image id=”1617230170″ link=”true” target=”_blank” size=”medium” ]Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity[/amazon_image]

It is, though, all familiar and Rushkoff doesn’t offer much that seems either new or practical to combat it. In terms of policies, he advocates a sub-40 hour work week and a universal basic income. Both have supporters, both are problematic. He also advocates new, community currencies, enabled by blockchain. Technology might be making it more feasible (although I’m a blockchain sceptic because of the energy requirement), but people have been writing about local and community currenies for decades.

Above all, though, Rushkoff wants companies to change their behaviour, treat workers well, and focus less on ‘growth’. And this was my biggest frustration with the book. He makes no distinction between financial ‘growth’ in the sense of short term profits and share price (so VCs can get their money out, shareholders get their returns and execs cash in their options), and economic growth in the sense of goods and services, often innovative, valued by consumers. Heaven knows, that needs to be sustainable too. But there is a difference between, say, changing corporate law to ban quarterly reporting or share option schemes, and limit financial short termism, and the changes in behavior and policy that would ensure sustainable economic growth. Of course they are linked, including throuhg corporate behaviour. But while bringing about an end to the financialisation would be desirable indeed, bringing about an end to economic growth would be very undesirable. After all, for many people in the western economies, there hasn’t been any economic growth for a decade or so, and the results are not pretty.

I also disagree on one other key point. Rushkoff writes: “The economy is less like a forest or weather system than it is like a technology or a medium. It was created not by God but by people.” Leaving aside divine agency, I’d argue the economy is both – both a natural system of creatures (us) acting in accord with our biological nature, and a system we have some ability to change. It is therefore incredibly complex (in both normal and technical senses). While possible to change its course, this is not as straightforward as saying ‘we’ need to do this or that – adopt the blockchain, introduce a minimum income, report on long term rather than short term profits – and all will be well. Google’s monopoly power is a good place to start, but I’d place more of my hopes on Margarethe Vestager’s use of competition powers than on Google’s executives following this book’s advice to act sustainably.

So in short, a book whose heart is in the right place, but too garbled in its analysis to appeal to me.

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‘Commoditised’ services?

I’ve been pondering my recent conversation with Branko Milanovic about ‘commodification’ and whether or not it’s a good thing. As he says in his reply on the subject, it is happening as a matter of definition. He puts this in terms of the formalization of economic activity as economies grow richer. I’d express it as the increasing share of services in economies as they grow richer. Goods have been largely commoditized (as it were) in the west for aeons and nobody really thinks there’s any social problem with buying your shoes and fridges in the market. As the growth process continues, the division of labour and specialization extend into areas of services.

On the whole, I disagree with Branko that there is a tradeoff, that while people clearly value these market exchanges, they weakens social ties: “[W]hile in many cases, greater commodification has made our lives better and responds to a definite choice of people, it has also in many cases weakened personal ties and in some cases made us more callous because our knowledge that any pesky little problem can be solved by throwing money at it made us less concerned about our neighbors and family.” He links this to the emerging ‘gig’ economy.

For many or perhaps most services, I don’t see this. If I specialize in economic consultancy, my neighbour in translation, a friend in gardening, another in teaching in a gym, what’s the social problem that arises from these being market exchanges? Indeed, the argument that these sorts of monetary transactions undermines relationships seems demonstrably false: services of this kind require a high level of trust for transactions to occur because there is a huge asymmetry of information between the seller and the buyer. If Paola translates a paper into Italian for me, I have no idea how good it is. This asymmetry is why professional services are regulated and in some countries provided by the public sector, presumed to have an ethos of public service.

The social problems come with a particular category, the personal, labour intensive services often badly paid. This could be because they are paid for by squeezed public funds (hospital cleaners), or because they are jobs that might not exist if the pay had to be higher (supermarket checkouts – now getting automated – or domestic cleaners – some working women would do without if their pay doubled). One could argue that some of these activities should as a matter of ethics never be marketed, but this was my original challenge to Branko, as child care and cleaning are still typically mainly done by women. Barbara Ehernreich in her terrific book [amazon_link id=”1847082629″ target=”_blank” ]Nickel and Dimed[/amazon_link] argued that anyway nobody should be asked to clean somebody else’s toilet, as a matter of (self-)respect. I’m more interested in interventions in the market to ensure good pay and conditions, rather than – what? banning these transactions?

[amazon_image id=”1862075212″ link=”true” target=”_blank” size=”medium” ]Nickel and Dimed: Undercover in Low-wage USA[/amazon_image]

As for the ‘gig’ economy, this seems to me a question of how good or bad the workers’ outside options are (as well as the corporate behaviour). Nobody is forced to drive for Uber or ride for Deliveroo, so their other options are probably worse. This is an argument for a reasonable minimum wage properly enforced, and a legal framework that is updated to protect the rights of all individuals doing paid work – I’ve been arguing for this since [amazon_link id=”B019TLAJRO” target=”_blank” ]The Weightless World[/amazon_link] in 1997.

I’d go further and say there are areas where we need more market exchange. Like many economists, I’d like to see more market instruments used to serve the interests of environmental protection and the safeguarding of natural capital. I admire Al Roth’s work on bringing a market-type (but non-monetary) exchange process to kidney donations, literally life saving work.

PS Apologies about the ongoing tech problems with the blog. I keep thinking it’s fixed. The fix is short term but hopefully it will be sorted long term within a week or two. This is a problem of success, with more traffic and an accumulation of posts, so I hope regular readers will be patient with the tech issues.

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Markets and humans

Brank Milanovic has an interesting post on what he decries as the commodification of life by markets, something that will surely strike a chord with the many fans of Michael Sandel’s [amazon_link id=”0241954487″ target=”_blank” ]What Money Can’t Buy: The Moral Limits of Markets[/amazon_link] and others. While I absolutely agree that there ought to be limits to what resources are allocated by markets as opposed to other means, Branko lost me in this early paragraph: “The most obvious case is commodification of activities that used to be conducted within extended families and then, as we became richer and more individualistic within nuclear families. Cooking has now become out-sourced and families often do not eat meals together. Cleaning and child-rearing have become more commercialized than before or ever.”

The trend towards buying ‘domestic’ services outside the home dates back decades now, linked to urbanisation and women’s participation in the paid workforce. The switch from home cooking to ‘outsourced’ meals, and similar market activities, has saved women millions of hours of labour in the home. I’m all for it.

Indeed, one of the social advantages in general of a switch toward markets (or ‘commodification’) is precisely the anonymity of the market as compared with the personal (patriarchal) power relations involved in from home production and household/village economic activity. Robert Putnam’s classic [amazon_link id=”0691037388″ target=”_blank” ]Making Democracy Work: Civic Traditions in Modern Italy[/amazon_link] touches on this in its contrast of northern and southern Italy – the south being more family-centred, with ‘strong ties’, in all sense of the word family, the north more oriented toward ‘weak ties’ in the wider urban community. Partha Dasgupta’s Economics of Social Capital is very good on this tension.

Branko’s post goes on to criticize the so-called ‘gig’ economy. Again, I think this isn’t so straightforward. Some of the ‘gig’ corporations are deeply unpleasant and the conditions of work unsatisfactory. However, those conditions are determined by workers’ outside options in the job market, so corporations’ behaviour to these workers can be improved by the framework of labour law and its enforcement. There is every reason to believe – from the numbers participating if nothing else – that very many people appreciate the opportunity to make money from participating in this segment of the economy; and indeed that it offers a route into the formal job market for people who otherwise find it hard to participate (see for example this on Uber in France by Anne-Sylvaine Chassany).

Branko writes: “The problem with this kind of commodification and flexibilization is that it undermines human relations and trust that are needed for the smooth functioning of an economy. ” This seems obviously true, and indeed the tension was identified by Daniel Bell in his [amazon_link id=”B0028QL03K” target=”_blank” ]The Cultural Contradictions of Capitalism[/amazon_link], and all its forerunners.

I’d certainly agree that western economies are not in a good place in terms of this balance now. But to illustrate this, I wouldn’t pick on the exactly the examples of markets that empower women and marginalized workers.

[amazon_image id=”184614471X” link=”true” target=”_blank” size=”medium” ]What Money Can’t Buy: The Moral Limits of Markets[/amazon_image] [amazon_image id=”0691037388″ link=”true” target=”_blank” size=”medium” ]Making Democracy Work: Civic Traditions in Modern Italy (Princeton Paperbacks)[/amazon_image] [amazon_image id=”B0028QL03K” link=”true” target=”_blank” size=”medium” ]By Daniel Bell – The Cultural Contradictions Of Capitalism (20th Anniversary Ed)[/amazon_image]

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Big books on the big question

I’ve nearly finished reading Deirdre McCloskey’s [amazon_link id=”022633399X” target=”_blank” ]Bourgeois Equality: How ideas, not capital or institutions, enriched the world[/amazon_link] – it’s out next month and I will be reviewing it elsewhere. This is of course the latest in her grand project, The Bourgeois Era, the first two being [amazon_link id=”0226556646″ target=”_blank” ]The Bourgeois Virtues[/amazon_link] and [amazon_link id=”0226556743″ target=”_blank” ]Bourgeois Dignity[/amazon_link]. (I reviewed the latter in The New Statesman at the time.) McCloskey originally planned six volumes, but it seems three might now be the total. As each is over 600 pages long, this is already quite a lot.

[amazon_image id=”022633399X” link=”true” target=”_blank” size=”medium” ]Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World[/amazon_image] [amazon_image id=”0226556743″ link=”true” target=”_blank” size=”medium” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_image] [amazon_image id=”0226556646″ link=”true” target=”_blank” size=”medium” ]The Bourgeois Virtues: Ethics for an Age of Commerce[/amazon_image]

Anyway, this isn’t a spoiler – I’ll save up my thoughts on [amazon_link id=”022633399X” target=”_blank” ]Bourgeois Equality.[/amazon_link] But reading it set me thinking about what other books one ought to have read to evaluate properly this series about the history and dynamics of capitalism (although McCloskey doesn’t like the word). These are the ones that came to mind first – and clearly this is a question that inspires BIG books.

David Landes, [amazon_link id=”0349111669″ target=”_blank” ]The Wealth and Poverty of Nations[/amazon_link].

Kenneth Pomeranz, [amazon_link id=”0691090106″ target=”_blank” ]The Great Divergence[/amazon_link] [amazon_image id=”0691090106″ link=”true” target=”_blank” size=”medium” ]The Great Divergence: China, Europe, and the Making of the Modern World Economy (The Princeton Economic History of the Western World)[/amazon_image]

Joel Mokyr, [amazon_link id=”0195074777″ target=”_blank” ]The Lever of Riches[/amazon_link]; [amazon_link id=”0691120137″ target=”_blank” ]The Gifts of Athena[/amazon_link]; [amazon_link id=”0140278176″ target=”_blank” ]The Enlightened Economy[/amazon_link]

[amazon_image id=”0140278176″ link=”true” target=”_blank” size=”medium” ]The Enlightened Economy: Britain and the Industrial Revolution, 1700-1850[/amazon_image] [amazon_image id=”0195074777″ link=”true” target=”_blank” size=”medium” ]The Lever of Riches: Technological Creativity and Economic Progress[/amazon_image] [amazon_image id=”0691120137″ link=”true” target=”_blank” size=”medium” ]The Gifts of Athena: Historical Origins of the Knowledge Economy[/amazon_image]

Robert Allen, [amazon_link id=”0521687853″ target=”_blank” ]The British Industrial Revolution in Global Perspective[/amazon_link]

Jared Diamond, [amazon_link id=”0099302780″ target=”_blank” ]Guns, Germs and Steel[/amazon_link]

Ian Morris, [amazon_link id=”1846682088″ target=”_blank” ]Why the West Rules – For Now[/amazon_link]

Acemoglu and Robinson, [amazon_link id=”1846684307″ target=”_blank” ]Why Nations Fail[/amazon_link]

Douglass North, [amazon_link id=”0521290996″ target=”_blank” ]The Rise of the Western World[/amazon_link]  [amazon_image id=”B00HQ18ICI” link=”true” target=”_blank” size=”medium” ]The Rise of the Western World: A New Economic History by North, Douglass C. Published by Cambridge University Press (1976) Paperback[/amazon_image]

Joseph Tainter, [amazon_link id=”052138673X” target=”_blank” ]The Collapse of Complex Societies[/amazon_link]

I’m sure there are tons more – McCloskey’s bibliography alone is 50 pages long. But anything essential left off this list?

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