July 7th 2007

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Articles from this issue:

COVER STORY: Who remembers the victims of communism?

HUMAN RIGHTS: Canberra's silence about Chinese organ-harvesting

EDITORIAL: Trade talks: Australia still 'flogging a dead horse'

CANBERRA OBSERVED: Howard's action on Aborigines long overdue

STRAWS IN THE WIND: Saving Howard's bacon / What Arabs and Jews need most / Tony Blair's legacy

SPECIAL FEATURE: Keeping Australia a great nation

RELIGION: Call to reform and modernise Islam

CHINA: Will capitalism prop up or undermine communism?

INTERNET: Risks in personal Web pages

MEDICAL: Homosexual activists attack medical profession

CLIMATE CHANGE: Scientists now warn of global cooling

Why housing is too dear(letter)

Value of the 'food-bowl' rail route (letter)

Dams needed, not desalination plants (letter)

Kevin Rudd's insult to stay-at-home wives (letter)

CINEMA: The gentle art of making enemies - As It Is in Heaven

BOOKS: LEFT TO TELL: Discovering God Amidst the Rwandan Holocaust, by Immaculée Ilibagiza

Books promotion page

Will capitalism prop up or undermine communism?

by Patrick J. Byrne

News Weekly, July 7, 2007
China has a blend of a planned economy and unbridled capitalism that you won't find mentioned in any textbook, writes Patrick J. Byrne.

An intriguing question was raised recently in Der Spiegel magazine: "Hardly a day goes by on which Asia's giant Red corporation does not report new and dazzling business figures. And the more helplessly Western heads of state … attempt to reform their traditional market economies, the more enviously the capitalist world eyes China's frenzied growth, all the while asking itself: Does communism work after all?"

China's economic growth has been astronomical. China is set to overtake Germany as the world's third-biggest economy in only two years, possibly rivaling the United States one day.

According to a recent McKinsey Consulting report, 95 per cent of China's population was poor in 1985. By 2025, the upper middle-class will number 520 million, "with staggering disposable wealth" and less than 3 per cent of the population will be classified as poor.

Driving growth

The collapse of the Soviet Union was said to have proved that planned economies were a failure and that market forces alone could drive economic growth.

The Soviet system failed, yet as Der Spiegel notes, "China is flourishing. With a blend of a planned economy and unbridled capitalism that you won't find mentioned in any textbook, the country is capturing world markets and achieving double-digit growth year after year. …

"Do China's successes fly in the face of every critic and sceptic who believes that Marxism-Leninism and capitalism are as incompatible as the devil and holy water?"

After Mao's economic disasters, Deng Xiaoping aimed to restore China as the Middle Kingdom (between heaven and earth). Borrowing from a variety of foreign models to develop a "social market economy with Chinese characteristics", Beijing built the economy with the help of Western capitalism, while entrenching the Chinese Communist Party in power.

China opened up to foreign capitalists, allowing "one barbarian to compete against another" over which of them would enjoy the privilege of transferring modern technology to China's state-owned enterprises.

Wanting to build its own large-capacity jet, Beijing forced Boeing and Airbus to produce their parts in the same factory in Xi'an. Then, "in return for agreeing to purchase new aircraft from Airbus, the Chinese convinced the European consortium to assemble its A320 model in China in the future. Airbus's savings as a result of the deal are minimal, but the know-how China will acquire in return is likely to be phenomenal".

In strategically important industries - cars, steel mills and power plants - laws compel foreigners to train their future Chinese competitors and essentially render themselves redundant in the long term.

Question: why were multinationals attracted to China rather than India, which has a huge market, English as a second language and a large workforce of low-wage, skilled and professional workers? Answer: India has trade unions; China doesn't. The right to strike was removed from China's constitution.

The synergy between leading capitalist corporations and Chinese communism raises other issues. Economists and political scientists have long supposed that the more a country (like China) adopts capitalism, the more it moves towards democracy. Will this happen with China?

Currently, "the rich are among the Communist Party's most loyal supporters because it protects their affluence. And the army of migrant workers moving from the countryside to construction sites in the cities is also unlikely to rise up against the Communist Party. As long as life improves by a fraction each year for every Chinese citizen, the Mandarins will continue to enjoy the mandate of heaven."

The Communist Party has about 30,000 censors blocking access to potentially threatening internet sites, notes Der Spiegel.

China was a totalitarian state when it was unified 2,200 years ago. About one million died in the process, around the time when Hannibal scarred the Roman psyche by killing a mere 50,000 Roman troops at the Battle of Cannae.

China has no history of democratic institutions. Indeed, as Der Spiegel notes, China is the land of extremes: "The determining factor is either the law of the party or the anarchy of the market - but hardly anything in between."

Certainly, rapid growth has made it more difficult for the Communist Party leadership "to enforce their decisions against the interests of powerful state-owned enterprises and provincial fiefs".

However, this is no indication of a move towards democracy. It is more likely to mean shared power with the regions or effective regional autonomy down the track. A lot will depend on the military, China's real political force, to hold the country unified.

For Western economists, China's extraordinary growth under central planning defies free-market theories.

Politically, the question remains: will capitalism transform backward China into a totalitarian superpower and restore the Middle Kingdom, or will China evolve into something more benign?

- Patrick J. Byrne

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