Any opinion on comments from Greenspan on China?
theglobeandmail.com
While amazed at China's new prosperity, Greenspan doubts it has legs
MARCUS GEE
September 19, 2007
Alan Greenspan is not what you would call a cheery person. His demeanour is often so gloomy that Ayn Rand nicknamed him "The Undertaker" in the days when they used to debate the Big Questions in her New York salon.
Appearances can be deceiving. In his new memoir The Age of Turbulence, he comes across as an all-American optimist, convinced that, despite its troubles, the United States has a sunny future. Through all the crises he saw in 18 years as chairman of the Federal Reserve Board, from Black Monday on the stock market to the savings-and-loan debacle to 9/11, the United States economy always came back.
One reason, he argues, is that the United States has a secret economic weapon: the Constitution. "I do not believe most Americans are aware of how critical the Constitution of the United States has been, and will continue to be, to the prosperity of our nation," he writes. "To have had, for more than two centuries, unrivalled protection of individual rights, for all the participants in our economy, both native-born and immigrant, is a profoundly important contributor to our adventuresomeness and prosperity."
With their property protected from arbitrary confiscation, he argues, Americans have had the confidence to take the risks that make a capitalist economy thrive. Many other countries lack that protection, or enjoy it to a lesser degree, and that makes their economic progress less certain.
Consider China. Like so many other visitors, Mr. Greenspan is impressed and even amazed by the remarkable changes that have come over the People's Republic since Deng Xiaoping launched economic reforms in 1978. The Chinese, he notes, have seen their per capita gross domestic product rise by eight times in the reform era. The country's exports have risen from $18-billion (U.S.) in 1980 to $970-billion in 2006, or about 17 per cent a year. But will it last?
Mr. Greenspan thinks that China's economic future is threatened by the lack of what guarantees Americans' prosperity: secure property rights and the democratic system that underpins them. "Property rights require not only a statute but an administrative and judicial system that enforces the law," he writes. "In this regard, China lags."
That matters. For one thing, foreign investors sometimes find that the technology they bring to their joint-venture factories in China mysteriously shows up in the Chinese-owned factories next door. With shaky property rights and dubious courts, there's not much they can do.
For the Chinese, the effects are much more serious. Mr. Greenspan notes that despite three decades of reform, Chinese farmers still do not own the land they till. They can lease it and take their produce to market, a huge improvement over the days of Mao-era collective farms, but they cannot buy or sell it or use it as collateral to secure a loan.
This handicap - a lack of access to capital - keeps hundreds of millions of peasants trapped in poverty on the farm while the urban middle-class thrives. "Granting legal title to peasant land could, with the stroke of the pen, substantially narrow the wealth gap between urban and rural residents," Mr. Greenspan writes. As it is, there are thousands of protests in China every year, many of them by peasants evicted from their land for urban expansion or factory construction.
Mr. Greenspan has other worries about China. One is an undervalued, artificially suppressed Chinese currency and a huge expansion of monetary supply that is "tinder for inflation." Another is an "inchoate" banking system, with banks whose liabilities are guaranteed by the government and that responds far too slowly to changing economic conditions. Rather than basing their lending decisions on an assessment of risk, as Western banks do, Chinese banks lend it to projects and enterprises favoured by the government. The result: lots of "bum investments."
In the end, all of these problems have the same underlying cause: the absence of a firm, democratically guaranteed rule of law. "I have no doubt that the Communist Party of China can maintain an authoritarian, quasi-capitalist, relatively prosperous regime for a time," Mr. Greenspan writes. "But without the political safety valve of the democratic process, I doubt the long-term success of such a regime."
Take that, Beijing.
mgee@globeandmail.com |
