Andy Stern and Steven Rattner Idolize the Chinese Bull
;In a startling one-two punch, China’s Communist regime won accolades last week from high-profile representatives of U.S. business and labor writing in America’s leading national newspapers. In the Wall Street Journal on December 1, former service workers’ union president Andy Stern touted China’s “superior economic model,” and in the New York Times on December 2, prominent Wall Street potentate Steven Rattner offered his guarantee that China’s speeding economic locomotive would remain firmly on track.
Both assessments, however, are dangerously misleading. Stern, fresh back from a junket to China, where he met with “high-ranking Chinese government officials,” holds up the Chinese model as a positive example of state economic planning, as opposed to the rigid free-market principles espoused by much of the U.S. establishment. He also sanguinely ignores the downsides of authoritarian rule, which may already be undermining China’s economic success. For his part, Rattner acknowledges China’s panoply of problems, perhaps anticipating the concerns of a well-informed audience, but then brushes them aside with a set of pat, contradictory assumptions, leaving an open path to steady growth and gradual reform.
The two men are strangely willing to take Chinese economic statistics and policy declarations at face value. Rattner notes the country’s “unsavory wild West flavor,” with problems ranging “from cronyism to fraudulent accounting,” but assures readers that the “evident stresses” in the Chinese economy, “like the indisputable property bubble, are manageable and far short of what brought down the American economy.” Stern praises past growth numbers and recites the admirable goals of Beijing’s next five-year plan, which include housing construction, “expanding next-generation IT,” and environmental protection.
But can one be so sure about past and future successes in what Rattner himself calls “an opaque political system, repressive and riddled with corruption”? Even in the United States, with its uncensored media and array of independent watchdog institutions, financial fraud and graft are resilient weeds. How vast then must be the hidden distortions in authoritarian China, where a multilayered censorship apparatus suppresses negative news, the rule of law is all but nonexistent, and subordinate officials are driven to deliver “success” to their superiors by any means necessary?
Stern and Rattner seem most confused about the extent to which ordinary Chinese are benefiting from the current system. The former labor boss hails rising wages and “China’s people-oriented development,” particularly in the western megacity of Chongqing. He does not mention how the local leader there, Bo Xilai, has championed a return to Maoist anthems, the wholesale replacement of commercial television ads with Communist propaganda clips, and the installation of half a million surveillance cameras across the city. Internet users who criticize him risk lengthy detention without trial.
In fact, despite vigorous censorship and regular incarcerations, the internet—with nearly 500 million Chinese users—has revealed palpable frustration with the Communist Party’s failure to deliver basic public goods like legal justice, workplace safety, property rights, clean air and water, and consumer protections. As Freedom House has observed for over a year through its weekly China Media Bulletin, scandal after scandal erupts online and is then quickly suppressed by the authorities. Similarly, in the offline world, tens of thousands of strikes and protests break out each year, but they are rapidly contained using brute force, limited concessions, and media blackouts.
This obvious public desire for the noneconomic benefits of good governance, and for democratic rights like free expression and due process, undercuts the core assumption with which Rattner dismisses China’s political flaws: that rising incomes are “satisfying a populace that appears more interested in economic advancement than in democracy.” It is not even clear from his analysis that rising incomes are compatible with China’s continued success. He describes China’s “great strength” as “its ability to relentlessly grind down costs by combining high labor efficiency with wages that remain extraordinarily low.” (Conditions at Foxconn, a manufacturer that Rattner singles out for its low wages, led to a series of employee suicides in 2010. One hopes Stern would agree that this does not sound like a workers’ paradise.)
Rattner also touts the high savings rate—nearly 40 percent of income—as a positive feature of the Chinese economy, but it hardly suggests public confidence in the system or the future. Moreover, recent reporting by the U.S. media has highlighted the fact that the interest rates on these savings are kept far below inflation, meaning wealth is constantly being funneled from ordinary people to state-run banks, state enterprises, and privileged elites.
All of this raises grave questions about the sustainability of China’s “unusual mix of authoritarianism and free enterprise,” as Rattner puts it. An economic setback is always a possibility in any country, but despite the image of technocratic self-assurance that it presents to the world, China’s opaque political system would seem especially prone to concealing enormous flaws until they are too big to manage. And although foreigners may find it convenient to view the Chinese people as reliably apolitical toilers, they evidently have other ideas. A disruption of either economic or noneconomic origin cannot be ruled out so easily, particularly given the potential consequences.
Stern and Rattner have different motivations for their willful blindness. The liberal former labor leader is interested in portraying faraway China in a certain light, so as to make a specific domestic policy argument from the relative comfort of the United States. The Wall Street veteran, meanwhile, may be trying to rally the bulls and keep the China bubble from bursting, as it is one of the few things keeping the global economy afloat. Both efforts are perfectly understandable, and terribly shortsighted. Such experienced men should know that planning for and confidence in the future require a clear, unobstructed view, however unpleasant it may be.