Tuesday, July 26, 2005

Scare Mongering?

I am not sure yet how to take finally the following article by Carlos Alberto Montaner on “China: Leaders still behave as communists”, in The Miami Herald, 26 July 2005.. It starts with the good news:

“Amazing. In the course of barely one decade, 300 million Chinese have risen from poverty thanks to globalization. The transfer of technology, foreign investment and an intense foreign trade accomplished the miracle. Humanity had not seen a similar phenomenon in all of its history. Never before has a human mass of such proportion gone from indigence to integration into the social middle class in such a brief period.”

This theme is becoming quite common now in western media – recently a journalist spoke about Vietnam being a country run by “Marxists and Adam Smith” (a wild exaggeration, of course; communist tyranny is not compatible with Adam Smith's decent society).

Next we get the first signs of concern:

“But China's spectacular development could end in the worst possible disaster if its top leaders -- who were, after all, brought up in a dogmatic Marxist rigidity -- persist on the huge mistake of producing as modern capitalists while behaving as old-fashioned communists.”

And then we get the nightmare stuff:

“It also explains why their military budget has risen to $90 billion a year, the result of an effort to create a dangerous offensive force replete with intercontinental missiles and long-range bombers.”

As a veteran of the Cold War (at the academic level from my interest in defence economics) I need no introduction to the dangers of Soviet and Chinese militarism. But I am worried slightly that this type of approach adds to the recent clamour from protectionists in the US legislature and government to ‘do something’ about Chinese exports before the US ‘goes bust’ school of economics (along with non-relevant quotations from Adam Smith from his lost legacy).

Now I am not accusing Carlos Alberto Montaner of crude scare-mongering. I do not yet know enough about his views. But the use to which his piece might be put by others, by lifting his ideas and theme to support their case against China’s export successes, which have created wealth for the 300 million mentioned above and increased living standards by raising the real wages of Americans, and everybody else with whom they trade.

The drum beats of hostile protectionism are muffled presently, but we can hear them nevertheless in the distance. Nothing is more likely to induce international conflict among countries that fall for the protectionist nonsense when hostile acts against China’s (or anybody else’s success) in exporting higher living standards to the rest of the world, are implied as being necessary in such articles as “CHINA: Leaders still behave as communists”.

Carlos Alberto Montaner ends his article with some sound advice, behind a barbed criticism:

“When China's engine of production was communism, it was natural for the leaders in Beijing to cling to Marx's absurdities. But if indeed the leaders have embraced capitalism, they should begin to read Adam Smith seriously before they needlessly destroy the planet on which we all live.”

It all depends on what version of Adam Smith are they going to read about: what he actually wrote in “Moral Sentiments” and “Wealth of Nations”, or what passes for Adam Smith’s economics in modern US academe (‘invisible hands’, ‘laissez faire’, ‘father of capitalism’, and so on as critiqued in “Adam Smith’s Lost Legacy’ (Palgrave 2005) and on this web site?

You cannot have Smithian markets without the rule of law, stable government, natural liberty and democratic institutions (including the separation of powers). Nor can Smithian markets operate in conditions where monopolies, intrusive regulations to protect special interests other than those of consumers, and alongside widespread fraud and protection t the highest levels in coporate America. In this regard, China (and Vietnam) is a long way from the necessary institutional changes (amounting to regime change) to embark on a Smithian economy.

For that matter, so is the USA in respect of agricultural protectionism, corporate monopolies, state assisted support and imbalanced defence preparedness. It would do the US political leaders good to read Adam Smith too and, like the Chinese, gradually change their stance in these areas. Unlike the Chinese communists, the US is more than half-way able to implement Adam Smith’s advice in support of its democratic constitution, the rule of law and the separation of powers.

Its other advantage is that the USA is more than strong enough economically to adapt to the presence of a new player in the global economic system without panicking over marginal adjustments to its present configuration of its allocation of factors of production and distribution.

Adam Smith understood that the prosperity of trading partners is never a cause of concern in an international trading system; it is the absence of prosperity of neighbours that poses problems for opulent countries like the USA. Hence, the hand wringing of some US legislators, labour unions and corporations over CAFTA and China is more worrying than China apparently wasting $90 billion on weaponry.

The article can be read at: www.miamiherald.com


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