Confessions from China II

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I just had lunch at the local food court in Guangzhou, a city of 1.3 million people in southern China. The price of the regular meal was 25 Yuan. I did not want rice, so they politely returned 10 Yuan, despite the fact that I didn’t ask for it. My meal cost me about $2.25. This is my sixth visit to China over the past three years; each one has been for about a month. I have traveled to many cities. While I have not been to many rural places, I have travelled enough to have my own views on China.

My experience of the food vendor returning me 10 Yuan no longer surprises me. I cannot think of a time when I have been cheated in China. I speak no Chinese. When I am stuck at restaurants, I am often offered eager translation help by other guests. Success in business is evidently exerting a strong influence, making people civil, honest, and compassionate.

I indulge in haggling at local shops and manage to pay what a regular Chinese would. Were I not to haggle, I would leave the shopkeeper dissatisfied. Taxis seldom overcharge me. When a shop is open, the well-dressed shop-assistant comes to me to get my business. She smiles and greets me. If her shop isn’t open, she ignores me and sometimes waves me off, a bit rudely.

People in many parts of the world refuse to acknowledge the rapid progress of China, because they see it as a communist country. Libertarians and those with free-market inclinations are particularly prone to this. They don’t want to accept the idea that an officially communist country has achieved human progress at a combined scale and rate that is unprecedented. But ignoring something does not change the reality.

Although China is a dictatorship of the “Communist Party,” that does not make it economically communist. No, China is not a democracy. People have a habit of imagining “democracy” as synonymous with “freedom,” but these are totally separate concepts. “Democracy” is a form of government, and government is by definition anti-freedom. “Freedom” is a word that applies to what is allowed by the institutions and culture of a country.

Libertarians and those with free-market inclinations don’t want to accept the idea that an officially communist country has achieved human progress at a combined scale and rate that is unprecedented.

I actually find myself very free in China. You can drink openly in public (as you can in most of Asia). You can trade, and even scam people, right in front of the police, who are not trained to be busybodies. In many places cute girls approach you with scams, offering to take you to bars. They talk openly within hearing distance of the police. In major cities, there is a rampant market in fake diplomas or ID cards. At night, I often saw several business cards shoved under the door of my hotel room, offering the service of an evening rendezvous.

Chinese traders always seem to say, “Yes, I have what you want. Now, tell me: what do you want?”

There has been much talk about the X-ray machines that check your bags at Chinese subways and at the entrance to Tiananmen Square. In my experience, the authorities are never serious about checking your bags.

“But you can’t protest against the government in China.” There are hundreds of thousands of recorded protests every year in China. You ought to see the Chinese protesting. I have seen them hurling abuse at policemen, shouting and screaming, throwing their arms and legs around. Yes, they can’t make a democratic change in China. But in Canada, my vote — one among millions of other votes — wasn’t worth spare change. In my view, “democracy” is a farce at best. It has a strong tendency to degenerate into the dictatorship of the masses. Compared with that, Chinese protest is real. People who protest in Canada mostly lobby for government favors — they protest to steal from me. And people like me are always on the sidelines, refusing to make jackasses of themselves, worried about any inconvenience their protests might cause to others.

Every time I deal with a bureaucrat in China, I am offered the chance to participate in a quick electronic assessment of his performance: Was he courteous and efficient? Where else in the world are you asked to evaluate a public servant? When I don’t care to participate in the survey, I often see the hand of the bureaucrat himself coming out of the window to do the assessment on my behalf — ironic proof that the surveys have real value.

Having been in Guangzhou for a week, I have seen virtually no foreign tourists. Yet downtown Guangzhou is among the most modern cities I know. Its skyline competes with the very best in Hong Kong, New York, and Singapore. Yet a closer inspection of those modern buildings shows that a lot of them are partially or fully empty. And the quality of buildings falls off rapidly once you are outside the downtown area. BMWs and Audis parked outside the grim apartment buildings in the outskirts show how important the public face is for many Chinese. The hazy air, the expensive shops, where rich people likely won’t shop unless they overpay, and the massive Pearl River, which for all practical purposes is the main sewage and industrial-waste artery, all remind me that I am in China.

Chinese women have probably shed their clothes faster than any other women in history, so much so that during my initial visits I thought more than once of asking them if they had forgotten something. Yet ugly buildings are often hidden behind massive posters or some other kind of façade. Packaging is more important than substance in China. The well-dressed people on the streets often share a room with several others — no air-conditioning, and the bathing facility in an adjoining building, with hot water carefully rationed.

The ultra-modern subway systems and extremely modern buildings calibrate people’s thinking, leading them to assess China as if it were a fully modern economy. Alas, China is still a developing economy, which can best be judged by comparison with where it was (a mere) two decades ago.

There is much talk about increasing nationalism in China, yet it is hard to believe that a society that had grown as fast as China would not at the same time grow nationalistic. A local acquaintance tells me that a mere 15 years back there were cows roaming the streets of what is now the modern city of Guangzhou. You can see how Guangzhou changed over the last few decades using the time-function on Google Earth.

This is a society that thinks in herds, and I have had neither the occasion nor the courage to discuss these issues in a group.

Was there a lot of pain involved in these sweeping changes in the city? Yes. Of course. The property of poor people was confiscated for little or no compensation. Such people increasingly protest, sometimes with violence against public officials. And property confiscations can be worse in democratic countries, where short-term politicians have incentives to cater to their corrupt connections, fund-providers, and lobbies.

The Chinese do have a visceral anti-Japanese sentiment. They are heavily indoctrinated, through movies and the educational system, to hate Japan. But when I challenge people about their views, I have never seen an individual refuse to engage in a rational discussion. I say “individual,” because this is a society that thinks in herds, and I have had neither the occasion nor the courage to discuss these issues in a group.

The political systems of China, the Koreas, and Japan have been heavily influenced by Confucian culture. In these hierarchical societies, creative thinking doesn’t have much place. Their culture and social systems make people shining cogs in a big machine, the better for them to work diligently and unworryingly in their boring jobs and studies. Even in Vancouver, the library is packed with Chinese students, cramming away from books. Libraries in China are similar.

But one must take a walk to the multi-story bookstores in China. They have scores of self-improvement books, proving that Chinese people increasingly read outside assigned academic works. You see covers showing the faces of Warren Buffett, Steve Jobs, Dale Carnegie, and Stephen Covey. In a country where illegal copying is believed to be rampant, there must still be considerable profit from legally marketed translations. Could the Chinese be becoming more creative? I have no doubt they are. Even if you look through the lenses of “communism” (with all kinds of fancy connotations) that you might wear in China, you cannot ignore the fact that there are many modern, creative solutions to be found in predominantly Confucian countries.

People are forever comparing China with India. Thirty years ago, when China had a per capita GDP that was lower than India’s, this would have made sense. It no longer does. Today, an average Chinese is three times richer than an average Indian. And strangely, I find India a lot more expensive than China, and a lot less free. India is stagnating. China continues to grow. China wants to make money.

But am I not over-romanticising China? I witnessed an old lady, who was selling fruit at a corner in the small city of Lijiang, being hit hard on her stomach by Chengguan, government goons — a vivid reminder that all is not well. It is very hard to trust the quality of food in China. I love the 30 cent, nicely-cut pineapples, but I do ask myself if they are unnaturally sweetened. Cheap massages, usually for less than $10, are great for me. But what about the people who render those services? What about all the people who live in extremely congested spaces? What about all the people who work in extraordinarily exploitative situations under “greedy” businessmen? What about the sweatshops? What about the ruthless abortion of the second child?

Governments, irrespective of whether they are democracies or single-party dictatorships, are institutions of heartlessness, inhumanity, and freedom from accountability. State and nationhood are unnatural concepts, designed by crooks and sociopaths to control the sheeple. The smaller the state, the fewer the regulations, and the better the society. I am not in a situation to compare China with truly stateless societies, because today’s world offers no examples. But China has very little regulatory control — the biggest reason behind its low costs. And, yes, I do feel for small children living and working under tough situations, or my masseurs who work for a pittance. But I gladly use their services, for the choice they have is not between a good job and a bad job. If they had that option they would have chosen the good job. Their choice is between a bad job and hunger. Trading with them, I get my massage and they get food. China understands this concept well. And that is the only way to move up economically.

China has moved up. Chinese salaries are rising much faster than the nation’s growth rate or inflation rate, meaning that the benefits of continued growth are accruing increasingly to the workers. Workers are fighting for better conditions. People are increasingly resisting work in factories where other people have been used like automatons. In fact, the increasing worry is that as China becomes a more expensive place to operate, some manufacturing is moving back to the West. A lot of clothing factories have already moved to Vietnam and Bangladesh. This is how human conditions improve. Not by increasing demand, in the way that Keynesian Western governments think things happen, but by working hard, by slogging along and creating the supply first. Sweatshops then go away naturally.

Governments, irrespective of whether they are democracies or single-party dictatorships, are institutions of heartlessness, inhumanity, and freedom from accountability.

My guess is that manufacturing that is moving back to the US is not necessarily doing that for economic reasons but to keep Obama happy and possibly to access earmarked money. It would be erroneous to think that China had lost its competitive advantages and that the short-term, democratic Western world had learned anything, for that world continues to do more of what created its current problems. I continue to be bullish about the future in China.

Except in Beijing and Shanghai, I usually pay $10 for a hostel bed or $30 for a three-star hotel. My fabulous hotel in Guangzhou has a price tag of $30, but it does offer some kind of, I think very strange, cup of coffee for $30. Only a nouveau riche Chinese or someone with a company account will pay for this. I of course don’t abuse the latter. A full meal costs $10 or less. The subway, one of the best I have seen anywhere, costs between 50 cents and 75 cents. Unless I fall for the temptation to waste money, I can live a luxurious life here for less than $50 a day.

But China is not only a place for cheap goods. It is a treasure trove for anyone seeking an education in economics. Just be prepared to accept a few Chinese idiosyncrasies. And don’t let the “communist” tag on China stop you from going there.




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Asset-Backed Commercial Paper Syndrome

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Merely a few years back sophisticated investors in the Western world were obsessed with ABCP, which was designed on the premise that if you put a lot of risky investments together, whirl them together nicely — removing the need to see the actual ingredients — make them tradable and hence liquid, somehow the basic risk that was right at the core of the ABCP would disappear. Alas, as can be expected, ABCP actually worsened the risk-reward situation, for now broker commissions had to be paid and the lack of risk perception encouraged an increase in the size of the higher-risk ingredients of ABCP.

How did ABCP come to be acceptable by the very best in Western society? It was a result of an irrationality that has been creeping into the society, a result of the subservience of the individual and his thinking to the institutional order, and more importantly of a corruption of the feedback mechanism by the politicization and collectivization of every aspect of life.

By suffering or benefiting from the consequences of our actions, we are enabled to align actions and beliefs to what is best for our prosperity. This we often no longer do. Institutions have interfered to privatize profits and socialize costs. This is socialism. It is also the mysticism that constitutes the very essence of backward, poor societies. For all intents and purposes, mysticism is synonymous with socialism.

In the West, there has been a significant break from individual self-responsibility. It is no longer necessary to do productive work or look after for your health or have a husband to have babies or save for your old age. The nanny state promises to look after you. This has broken the feedback system. The result is that our thinking is no longer aligned to what is best for us, what is rational and what makes for a productive society.

In the West, people increasingly believe that something can be created from nothing, the magic that either the state or God will provide for you if you pray. Rhetoric and sound-bites, accepted as universal truths, allow people to avoid delving deeper. It is now believed possible that the inherent risks of life can be eliminated through top-down management by experts. You have the same vote in political space whether you understand the issues or not, and this means mediocrity in the intellectual space. No value is found in deep exploration of a subject. Meanwhile, mysticism produces a significantly reduced sense of causality. The passion to advance one’s life and explore its possibilities has little value in a mystical culture.

In the West, people increasingly believe that something can be created from nothing, the magic that either the state or God will provide for you if you pray.

The product is an increasingly superstitious society and confused, cloudy thinking. Increased crime and loss of prosperity are the obvious consequence, because self-responsibility has taken a back seat. Dependence on thinking driven by the media and whatever is in fashion makes superstitious beliefs spread very quickly. Not many question how the printing of currency can create prosperity. Who needs to work when wealth can be created by the magic wand? Why look after your health when ultra-high-tech medical technology can take care of all ailments, perhaps making a lot of people subliminally believe that mortality can be avoided. Not many question that the world can be changed by the heavy hand of the US military. Everyone seems to have an answer for how to get rid of poverty and crime.

ABCP thinking makes people in the West worry about such things as the possibility that a certain drug might kill one in a million users. This endless worry about the smallest harm that may come from anything creates terrible regulatory problems and cost increases. Delays in drug approval kill far more people than they were supposed to save.

When 9/11 happened, a lot of Americans shouted, “How could this happen here? This is America.” Alas, there is nothing about America that makes it immune to attacks. It was not just the deaths of 3,000 people that affected Americans but their nationalistic arrogance. The steps Americans took to deal with 9/11 damaged liberty and security instead of strengthening them. Now the equivalent of thousands of lives is wasted in lineups at American airports.

As heartless as it may sound, 20 children being killed by a gunman is not a world-changing event. Many more people are killed on the roads each day in the United States. Many more are murdered in other ways. Just because a certain crime is covered by major news channels does not meant that people have to do something in a kneejerk fashion. That is superstition. Of course, one might want to explore the various reasons behind violent crimes, but putting restrictions on society without a cost-benefit analysis only leaves people with a false sense of security.

Gun control, putting metal detectors in every school, making people to go through porno-scanners at airports, is a wrong reflex. People must get some perspective on life. They also need to develop, or redevelop, a sense of responsibility for themselves. Then, after a bit of thought they may realize that shooting massacres have a way of happening in areas where guns cannot be taken in by decent people. In the end, they may accept the fact that even after all proper actions are taken, bad things will happen. This is the nature of life.

Western society must find a way back to rationality and restore a social structure shaped so that a person faces the consequences of his actions. This will be the antidote to mysticism and will likely put the West back on the path to progress.




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