China: Lessons for America and The West

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chinamap.gifEver heard of Vertical Democracy? Did you know America's democracy is termed a horizontal democracy? If not, you are missing out on world history in the making, as America will, by its political structure, lose ground against China. I highly recommend to those who wish to catch up on this history in the making, and peer into the future, John and Doris Naisbitt's new book, China's Megatrends, The 8 Pillars of a New Society.

The structural differences between these two nations lay down the clearest explanation of why and how China has risen in the last 30 years from the 137th economy in the world to the second largest in GDP, today. And why America's is ever more seriously challenged. First, two structural terms in the book, need definition.

'Horizontal democracy' in America is centered around the concept of a democratically elected two party system, dividing nation and future policy agenda. The two parties have fundamentally different ideologies and philosophies, which polarize the electorate and government. Because the people are roughly equally divided, the two parties regularly change dominant positions in government. With each swap of places, the long term direction and policy priorities for the nation also change. The result is an America absent any applied long term policy agenda, with each party canceling the other's policies at least once per decade. Continuity rests heavily on the business and corporate world, but, 470 of the Fortune 500 corporations now do business in China.

'Vertical Democracy' is a brand new form of Democracy in human history. It began with Deng Xiaoping. As Wikipedia states: "While Deng never held office as the head of state or the head of government, he nonetheless served as the Paramount leader of the People's Republic of China from 1978 to the early 1990s." Deng Xiaoping, after the Great Revolution, came to reject Mao Zedong's perpetual communist revolution (aka: Mao Tse Tung). Even as the head of the Communist Party, he opened the centralized government's door to bottom up initiatives, trial and error pragmatism, and bureaucratic rejection of ideology.

The Chinese say, there are no communists in China, today. It began with 18 farmers in a dirt poor village who, with the approval of local officials, rejected communal farming and gained approval to divide into 18 independent family farms. When Deng Xiaoping heard of this violation of government policy, he did his homework. He found the families were prospering far better under the new arrangement, increasing revenues to local government officials, and he changed Chinese government policy to accommodate this more effective bottom up initiative from the people.

It proved to be the overarching theme for changes in the Chinese government thereafter, which culminated in what the Naisbitt's term, 'Vertical Democracy'. The structure of this democracy is not centered on elections (though local officials are elected), nor on competing political party ideologies, as in Western democracies. It is centered on two basic premises central to Deng Xiaoping's approach.

First, revolution is to be avoided at all costs to ideology, (a complete rejection of Mao's communism). And therefore, the people must be united around a future of hope and progress which will endear the people toward their government.

And second, the nation's needs must be defined by the people, and the people must be entrusted to the extent possible, to devise the best solutions to meet their needs, which the government will promote, by force against opposition if necessary. As conditions change, and previous solutions fail to work or, are themselves improved upon, the government's role is to quickly and efficiently mandate policy changes to reflect these improved or better solutions to meet the people's needs.

The rejection of Mao Zedung's indoctrination camps, and purges of dissidents, appears to have occurred to Deng Xiaoping in a straight forward bit of logic. Suppression of the people by the government, and divisions amongst the people will, as occurred under the divided China and civil war of Chiang Kai-shek and Mao Zedung, result in one bloody, costly, and counterproductive revolution, after another. To remain in a stable government, Deng Xiaoping realized that government bureaucrats must address the needs of the people by freeing their minds to embrace practical and effective solutions and initiatives, which prove to work in their local provinces.

This led to China's current embrace of massive direct engagement with the free market world. The Communist policy was that all interaction with outside markets had to go through centralized Beijing government. Increasingly, however, this proved so inefficient and stifling, that many local merchant associations and businesses simply circumvented Beijing and established direct market relationships with international businesses with incredibly prosperous results. Still, the idea of China giving up government control of the nation's future direction to corporatism, was not where Deng Xiaoping was willing to go. Hence, a pragmatic solution in the form of a compromise was established, in which, Chinese business persons were free to engage international business relations up to 100 million dollars. Beyond that limit of trade, Chinese businesses would be required by force of law, to float their propositions through Beijing's central government to insure the government remained in control of the nation's future economic direction and objectives.

This kind of pragmatism in approach to China's policies and centralized control of the nation's future policy directions, in combination with the liberation of the people to invent, create, and compete in the world and within their own country, has allowed China's economic prospects and position to soar over the last 30 years. As Eric Margolis wrote: "Deng's innocuous-sounding dictum, 'it does not matter what color a cat is as long as it hunts mice', unleashed the greatest explosion of productivity and economic growth in history."

So, what does this mean for America and other Western democracies and economies? First, despite China's rise to the second largest GDP economy in the world to America's first position, China's GDP in 2009 stood at just shy 5 Trillion dollars. America's stood at 14 and a quarter trillion dollars. Whether China's economy overtakes America's as the greatest world economy sooner, or later, or at all, depends entirely upon the American people and their government.

Though America's economy is still shakily recovering from this Great Recession, another large and expensive hit on the economy with compensating government spending in the next couple years, could result in America's GDP dropping like a stone in another Great Depression. The simple fact is, America is running out of its historical ability to borrow its way through difficult times, without seriously impacting the quality of life of Americans, especially in the future, and sowing the seeds of another civil war or revolution.

America desperately needs to forge a long term strategy and develop the means to maintain a commitment to a long term strategy to effectively deal with its rapidly growing federal debt, as well as the coinciding conversion to a dichotomous economy of low wage service employment and super wealthy corporate and fame oriented elites, effectively diminishing the breadth of the consumer middle class. The shrinking of the middle class will inevitably impact the consumer based economic activity going forward, placing increased demands on government spending and reducing government revenues, exacerbating the debt and deficit threat.

Despite this need, America's political system continues to become more polarized around the two party system, which portends the continued rotation of parties in power. In turn, this assures a rotation of ideologies and strategies, resulting in a failure of the United States to apply itself consistently to long term solutions resolving growing challenges of fiscal and economic threats. This is a stark contrast to China's capacity to stick to long term objectives and strategies, while retaining the flexibility to adjust and adapt those policies for effectiveness as conditions change. Western democracies lack this kind of timely flexibility and increasingly, the ability to stick to long term strategy. In other words, to paraphrase Xiaoping, for Americans, it matters more whether the cat is Red or Blue, than whether it succeeds in hunting mice.
This contrast however, does not necessarily result in China becoming the big winner and champion of the world's economic future. The simple fact is, China's economic growth is increasingly dependent upon the consumerism of Western nation's. If Western nation's economies, or government fiscal conditions fail, China's economy will be negatively impacted as well. The CIA World Fact Book states: "Throughout 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years." So, China has a vested interest in the future of the world's other nations.

China is not without its own significant looming challenges. The CIA Factbook reports:

The Chinese government faces numerous economic development challenges, including: (a) strengthening its social safety net, including pension and health system reform, to counteract a high domestic savings rate and correspondingly low domestic demand; (b) sustaining adequate job growth for tens of millions of migrants, new entrants to the work force, and workers laid off from state-owned enterprises deemed not worth saving; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation.

Economic development has been more rapid in coastal provinces than in the interior, and approximately 200 million rural laborers and their dependents have relocated to urban areas to find work - in recent years many have returned to their villages. One demographic consequence of the "one child" policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the north - is another long-term problem.

China continues to lose arable land because of erosion and economic development. In 2006, China announced that by 2010 it would decrease energy intensity 20% from 2005 levels. In 2009, China announced that by 2020 it would reduce carbon intensity 40% from 2005 levels. The Chinese government seeks to add energy production capacity from sources other than coal and oil, and is focusing on nuclear energy development.

China is developing long term trade and contractual agreements with many other nations, especially African and S. American. China will require natural resource imports to continue its economic growth. To the extent that China can assist, through trade, to develop these third world nation economies and growing their middle class consumers, China can lessen its dependence upon Western nation economies and consumers as needed. This again reflects China's long term survival strategy, which embraces the reality of the present and potential realities of the future. A strong central government capable of consistent focus on the future and present at the same time, and consistent application of future oriented strategies is essential. In conjunction with a rapidly growing innovative private sector in new areas of science and technology, and confidence of the Chinese people in their government, China is capable of creating an enviable competitive advantage in the world marketplace.

Evidence of these themes can be found in China's approach to auto manufacturing. China chose not to compete with Western auto manufacturers in the area of combustion engines, where Westerners had 100 years of experience. They chose instead to enter the auto manufacturing marketplace where everyone has the same level of experience, the Hybrid and all electric automobile. A few years ago, China laid plans to export such vehicles to the U.S. in anticipation of a growing need for such vehicles by American consumers, partly due to China's competition for oil resources and subsequent sustained higher fuel prices in America.

They bought facilities in Northern Mexico, just across the U.S. border a few years ago, and erected an auto manufacturing plant that will begin exporting their cars into the U.S. market later this year. This kind of cooperative effort and partnership between the Chinese people's private sector and China's government in exploiting economic opportunities in a timely fashion, is a relationship that is fading in Western societies, whose democracies are horizontally divided by political ideology playing musical chairs with government control and interfering with effective governance of their nation's future.

China has found a way to unite its vast nation and diverse people's around a growing and promising economic future. While Western societies like the United States increasingly make the word 'United' a practical misnomer in light of growing political extremism and non-cooperative political parties, whose focus and energies are increasingly limited to short term election cycle political gains and losses. There is a brand new form of democracy emerging in the world today, whose model may well become the adopted paradigm for failed Western nations in the future.

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This page contains a single entry by David R. Remer published on March 6, 2010 2:35 PM.

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