Alternatives International

The Uncertainty of China's Political and Economic Future

Kevin Kaczmara — 2011-09-01T23:28:35Z

At first glance, the Chinese developmental model appears to be moving forward, with China recently surpassing Japan for the title of the world's second largest economy. Chinese business certainly deserves some credit, as the number of Chinese firms to make it onto the world's Fortune 500 list has increased more than tenfold in the last fifteen years, and currently sits at forty-two.

At the same time, the remarkably high growth rate per capita, averaging 8.1% between 1978 and 2002, has lifted more than a hundred million Chinese out of poverty. Most Chinese citizens are now able to indulge in activities that many in the West take for granted, such as eating Big Macs and surfing the Internet. As China ascends to the status of a middle-income country, we may perhaps expect its blossoming middle class to push for democratic reforms in this still authoritarian country. The fact that the people want more democratic freedoms, though, does not in the slightest mean that they will receive them. Chinese bloggers would ‘lol'—laugh out loud— at the idea of a possible democratic opening being initiated by officials in Beijing…if the government's censorship of Internet blogs did not exist, that is. It seems that the Chinese Communist Party is not very fond of Google and Twitter, to name only a few.

Of course there are those who, appealing to the familiar tale of South Korea, Singapore, Taiwan, and Hong Kong, argue that some great democratizing wave will soon sweep through China. The four aforementioned countries, named the Asian Tigers experienced three consecutive decades of economic growth rates above seven percent between the 1960s and 1990s. First, we must concede that the Tigers' unprecedented economic growth is rightly credited to the countries' highly (yet selectively) interventionist governments, whose authoritarian structures facilitated what would have otherwise been difficult political decisions such as suppressing worker unrest. The same goes for China, where workers were willing to sacrifice certain political freedoms in exchange for their growing prosperity. But, unlike the Asian Tigers, whose prosperous economic growth ran parallel with the four governments' gradual democratization, China is not yet rich. Of the four Tigers, Taiwan has the lowest GNP per capita, at $18,458. Not only is that figure more than four times greater than China's GNP per capita, but China's economic growth appears to have major obstacles to overcome in the foreseeable future.

Chinese march against the Communist Party of China (CCP) in response to the party's human rights abuses.

Being a socialist country (at least in name), the Chinese government has been keen on emphasizing the interests of the nation above those of the individual. That seems to be the rationale behind arrests of political dissenters such as artists and outspoken lawyers, which the Chinese Communist Party justifies by appealing to the collective prosperity of the nation. Looking past the sharp regional economic inequalities (which surely favour the coastal cities), the government invokes the image of shared prosperity of all citizens alike. It would be foolish, however, to claim that even the middle class in China lives very comfortably. Especially now, after reforms in the 1990s ensured that state-owned enterprises were no longer burdened by providing social services such as old-age pensions and health care, the typical Chinese citizen is being forced to allocate a larger share of their disposable income on what was previously a secure social safety net. Since the 1990s, the amount of government transfers as a percentage of GDP has been steadily decreasing, and currently sits very low at 0.5%.

What's more, China has a rapidly ageing population and is expected to become the world's oldest country in about a decade. Consequently, most Chinese citizens (many of whom lack siblings because of the famous one-child policy instituted in 1978 to curb population growth) will have two parents that require financial assistance. An elderly population also equates with a shrinking supply of labour, something that undeniably contributed to the success of China's export-led growth model, whereby an abundance of cheap labour helped to make them globally competitive. Likewise, the central bank's devaluation of the Yuan ensures that Chinese goods remain relatively inexpensive, yet it has the ill-effect of simultaneously decreasing the purchasing power of more than a billion people who are still unable to reap the full benefits of China's high economic growth. The diminishing labour supply should, in theory, lead workers to demand higher wages. However, suppressing these wage demands , is a task made much simpler when the party in power has no political opposition.

Unlike the Asian Tigers, who strategically targeted appropriate amounts of investment in both human and working capital, China follows a much more substantial, yet ineffective, investment pattern. State control of the media prevents the disclosure of the true inefficiencies of massive investments that attempt to showcase China's strength, such as the $44 billion Beijing Olympics. The recent tragedy on the $30 billion, 1,320 km bullet-train railway between Beijing and Shanghai, has actually reversed the typical fear that the media exhibits in regards of revealing the government's faults. After a preventable train crash on the railway killed at least thirty-nine people, even the state-controlled media began to criticize the government, in particular the railway ministry. On the one hand, some claim that this investment in infrastructure was indeed necessary despite the accident. On the other hand, in reference to China, economists (most notably Nouriel Roubini from New York University's Stern School of Business) note the absurdity of any country being productive enough to invest half of their GDP in new fixed capital without eventually facing “immense overcapacity.” Bringing in too much capital will inevitably produce decreasing returns, but the Chinese government has yet to adjust away from this investment-driven model of economic growth towards a consumer-demand driven model.

On July 1st, the Economist published an article in which they specified the choice that the Chinese government is currently facing: “to liberalize or to step up repression.” At the same time, we can expect Chinese citizens to ask for more democratic freedoms as their economic freedoms wane. Unfortunately, though, due to certain awkward economic circumstances that the Chinese government will have to confront in the near future, and with the Arab Revolutions still fresh in mind, it seems likely that Chinese citizens will not only be denied new democratic freedoms, but may actually be stripped of some old ones. Granted we should not try to compare the very personalistic, dictatorial rule of the Arab countries that succumbed to revolution with the non-personal state ‘socialist' government such as that in China. That being said, the Communist Party of China may nonetheless step up its repression before any popular discontent surfaces, as happened recently when thousands of police were deployed on the streets of Beijing following word of an Arab-like revolution spreading in China. The Chinese government, thus far, appears more confident in its ability to reinforce political stability than it is with economic stability.

Photos: William Murphy, dawvon (Flickr)

March of the Penguins

Kevin Kaczmara — 2011-08-02T17:14:58Z

Ranked number forty-five on the United Nations Human Development Index, Chile finds itself ahead of all of its Latin American counterparts, and understandably so. The two decades since the end of Augusto Pinochet's brutal dictatorship in 1990 have seen Chilean GDP per capita increase by 4.3% per year.

Additionally, millions of Chileans have been lifted out of poverty. The Chileans even elected a woman, Michelle Bachelet, as their president, a feat which many developed countries cannot even claim on their CVs. Less quantifiable accomplishments, such as Chile's effective display of disaster relief management, were also witnessed during the 8.8 magnitude earthquake in January of 2010. But behind the resume-building rhetoric of Chilean development lie some less optimistic evidence which speaks to certain obstacles that Chile still faces in its ascent to the status of a developed nation. One of these developmental obstacles is education, which, along with the population's standard of living and health, is one of the three dimensions used to categorize nations according to their human development.

Reiterating some of the demands of the so-called Penguin Revolution of 2006 that saw Chilean students assemble in solidarity and march in protest of great inefficiencies within the education system, a similar social movement has once again surfaced in all regions of this South American nation of seventeen million inhabitants. What began in May of 2011 as several scattered protests has recently garnered a more radical tone, with students effectively occupying more than one hundred schools. Foreign media has even been covering the hunger strike of eight Chilean students. Coming from Ontario, where my only hiccup with education was a two-week teacher strike which temporarily forced students out of school, I was determined to discover what, exactly, was the problem with education in Chile.
Professor Philip Oxhorn, founding director of McGill University's Institute for the Study of International Development, acknowledges Chile's continued struggle with what he labels “one of the most authoritarian constitutions in Latin America.” Even though the 1988 national plebiscite in Chile ensured the abdication of Pinochet from his position as the head of state, the dictator managed to leave his footprint in Chilean politics via a constitution drafted by the military. Cinderella did not fit into her slipper nearly as well as Pinochet fit into the neo-liberal model. Its undemocratic elements, in addition to granting more bargaining power to the armed forces vis-à-vis the ministry of defence, imposed a three-tiered education system made up of private schools, private schools that receive state subsidies and lastly, public schools. This system, known as Ley Orgánica Constitucional de Enseñanza (LOCE), reflected the market-oriented strategy which would define the Chilean education system for years to come.

The LOCE system was based on the sound economic theory claiming that competition among schools would ensure the allocation of resources to precisely those schools which met the educational quality standards, conversely closing those schools which fell below the educational standards. Despite its theoretical efficiency, in practice LOCE proved to have disastrous effects on public education. For example, state subsidies to private schools were equated with the amount the government spent per public school student, a sharp increase from previous levels. LOCE also allowed both private and public schools receiving government subsidies to charge co-payments, further driving up the costs for parents to send their students to private schools, of which 72% began to charge such co-payments. Parents who could not afford to send their children to the subsidized private schools, not to mention the non-subsidized private schools (attended solely by wealthy children), inevitably sent their children to public schools. Simultaneously, lacking the co-payments necessary to attract better-qualified teachers, education began to lag in public schools.

As if the echoes of Chile's dramatic level of social stratification were not yet heard, Mr. Oxhorn also brings our attention to the geographical aspect of the educational inequality—the public schools tend to be located in very poor regions, whereas the subsidized private schools are found in only 6% of the low income zones. Distance, thus, provides low-income students with yet another barrier to the attainment of private school education, which caters discriminately towards high income students. The slippery slope on which the three-tiered Chilean education system was founded ensures that the University entry exam, the Prueba de Selección Universitaria, is simply too difficult for most public school students. A recent survey uncovered the sad truth that the greater portion of the exam material was simply never covered in the public schools, predisposing the poorer, and therefore public school students, with a much narrower chance of being admitted into post-secondary institutions. For this reason, it seems rather counterintuitive, or perhaps clever, that President Sebastián Piñera initially resolved to implement changes to the tertiary school system, before coming to terms with the fact that more equality in higher education will only be realized if funding for primary and secondary school is restructured first.

The pitfalls of Chilean education are statistically captured in that the government spends only 4.4% of its GDP on education, well short of the 7% that the United Nations recommends for developed nations. The resolution of this problem, which could have otherwise been rather easily resolved at this moment in time, when rising copper prices (Chile's main export) provide a lucrative source of funds for social projects, is further hindered by the privatization of the copper industry, which keeps a majority of potential revenues away from Chilean pockets. Not surprisingly, the privatization of the copper industry was yet another aspect of Pinochet's neo-liberal growth strategy, which has stayed in place even long after his official departure from Chilean politics. Interestingly, the seventeen thousand workers at Codelco, Chile's National Copper Corporation, who went on strike in early July to protest the company's privatization, have been joined by both the teachers' union and the student federation. The fact that the demands of such diverse social groups seem to coincide with one another may hopefully provide the necessary pressure needed for Sebastián Piñera to reform both the education system and the copper industry.

A closer look at Chile, as well as many other developing nations, provides us with the grim conclusion that resolving a malfunctioning part, in this case education, requires us to first resolve a much more complex broken whole, in this case a market-oriented growth strategy which is too far rooted in the authoritarian ideals of a dictator whose presence continues to haunt Chilean development. It appears that removing a single person from a government position is not enough to redefine a nation's politics. Thus, even though Sebastián Piñera responded to the protests by replacing Minister of Education Joaquin Lavin with a new face, Felipe Bulnes, it will most likely do very little to alleviate the perverse inequalities in the Chilean education system. Mr. Piñera has, however, promised a US$300 million per year fund for public education in an attempt to reverse Chile's historically low levels of expenditure per student. Once again though, an annual injection of money fails to confront the structural problems facing the Chilean education system, which denies low-income students the opportunity to climb the social ladder by acquiring much needed literary skills and technological know-how.

Photo: Miradas.com.br (flickr)

Kevin Marcin Kaczmara currently studies at McGill University. He enjoys writing nearly as much as the British enjoy tea-time.

Decentralizing the Effects of the Earthquake in Japan

Kevin Kaczmara — 2011-06-30T14:28:28Z

While natural disasters are intrinsically unavoidable, the aftermath of such catastrophes is, to an extent, predetermined by a country's stage of development. As far as the unofficial hierarchy goes, the more developed the nation, the better prepared they seem to be when dealing with natural disasters such as earthquakes, hurricanes, or tsunamis. The recent earthquake and tsunami which hit Japan in the spring enable us to bring forth a superficial comparison between the aftermath of disaster in Japan versus that in Haiti. Do these case studies render true the notion that developed countries are better equipped to self-recuperate and absorb the consequences of a disaster?

In Japan, a 9.0 magnitude earthquake hit on March 11, 2011, causing the death of approximately 24,000 people. Haiti, which suffered an earthquake fourteen months earlier, saw the death of over 200,000 people from a 7.0 magnitude earthquake. To its partial defense, the epicenter of the Haitian earthquake was much closer to the densely populated capital of Port-au-Prince than the Japanese earthquake's epicenter several hundred kilometers north of Tokyo. It is generally accepted that the Haitian earthquake's exponentially greater human toll is attributable to the country's poor infrastructure with buildings constructed according to little or no oversight and regulations. Japanese infrastructure, on the other hand, is engineered to withstand significant shocks. Thus Tokyo, unlike Port-au-Prince, did not begin to resemble Sodom and Gomorrah after Japan experienced the recent earthquake. At the same time, the Japanese would be misled by simply viewing this evidence as confirmation that they are a superior world power always capable of being thrown out of a tree and landing on their feet, as certain elusive creatures are said to do.

Although certain natural occurrences are simply outside direct human control, a country's political strengths and weaknesses are clearly exposed in the aftermath of a disasters such as those that hit Haiti in 2010, and Japan four months ago. Interestingly however, not even in the latter case can we claim that the country was completely ‘disaster-proof', as variables which greatly determine the rate of recovery and rebuilding from a disaster are not independent of the political climate of the given country. The consequences of the Japanese earthquake, and the tsunami which soon followed, are a clear indication that Japan requires a significant decentralization of political and economic structures.

The natural disaster in Japan was compounded by the meltdown in the Fukushima Dai-ichi nuclear power plant. Japan is located close to tectonic plates which renders the Fukushima reactor plant particularly vulnerable (due to its proximity to the water) when underwater fault lines create tsunamis such as those that hit Japan's coast after the earthquake. The meltdown in Fukushima has drawn increased attention and criticism to Japan's nuclear-power industry. Though opposition to Japanese nuclear-power is not a recent phenomenon, there has been insufficient policy debate on the subject due to the political stalemate in Japan. One-party rule dominated the political scene for fifty-five years prior to the election of Naoto Kan in 2010. The government's idleness in bringing the question of nuclear-power regulation to the forefront (or even background) of debate had afforded the Tokyo Electric Power Company (TEPCO), the owner of the Fukushima Dai-ichi power plant, the ability to evolve into a monopolistic power. As TEPCO illustrates, whenever a market lacks sufficient competition, the regulatory framework tends to deteriorate, permitting the desires of the regulators and the economic profiteers to intimately coincide with one another. This process in turn allows large corporations such as TEPCO to increase political leverage vis-à-vis the government while circumventing certain safety regulations. Paradoxically, TEPCO itself was nominated as chief of the crisis committee following the nuclear meltdown.

Given the complexity surrounding nuclear energy, a debate addressing both the trade-offs and implications of nuclear power must be held. For instance, to lessen Japan's dependence on nuclear energy means increasing dependence on more environmentally degrading sources of energy, such as natural gas and coal. But in the context of the Japanese economy, the third-largest in the world, one must remember that one shoe does not necessarily fit all. In the Hokkaido region in the north of Japan, energy needs are different than those of the more densely populated Kanto region that is home to Tokyo's 35 million inhabitants. With such a wide spectrum of regional conditions, Japan may, and should, diversify its energy needs to reflect local demand. Though the economic output of each of Japan's regions should, in theory, enable a degree of self-sufficiency and increase the ability to make regional demands known, the centralization of Japanese politics, resulting from either an inability or unwillingness to erase the footprint of one-party rule, continues to deprive these regions of economic decision-making autonomy.

The ineffectiveness of Japan's centralized system of governance is reflected in disaster relief efforts; municipalities throughout the country complained of Naoto Kan's attempts to direct aid efforts several hundred kilometers away from areas of need, whilst not even having the decency to make the trip to these regions himself. As one could imagine, this had the effect of showcasing the Japanese government's inadequate knowledge of specific regional needs. Under such conditions, stories of Japanese communities and local leaders using the meager allotted budgets to finance creative rebuilding efforts must be considered all the more remarkable. Unfortunately, necessary finances are still largely concentrated in the hands of the centralized Japanese government. Whatever aid is delivered to communities such as Minamisoma—a community located close to the Fukushima Dai-ichi plant and severely affected by the disaster—does not involve consultation with locals on its management.

From this, we may draw an interesting parallel between the aid provision following Japan's earthquake, and that in Haiti. In the latter case, the aid comes from northern NGOs in the billions ($10.2 billion was promised) with the underlying hope of fixing Haiti, yet the direction of the rebuilding process is spearheaded largely by outside (albeit ‘sexy' personalities) such as Bill Clinton, in collaboration with international NGOs. Such outside instruction, while potentially helpful, will inevitably become dangerous once it transgresses into the realm of outside leadership. Similar to Japan, this “we know what you need better than you do” type of thinking can, at the very least, rebuild communities, but it cannot launch sustainable economic initiatives capable of withstanding future disasters. Should not those who inevitably suffer the consequences have a say in regard to the steps taken to prevent future disasters?

Of course, not all the Japanese are unaware of the possible benefits of economic decentralization. Take Nissan, a Japanese automaker, as a clear example. Nissan's strategy embodies the advantages of a decentralized model which could be applied to Japan's energy sector. Despite the destruction of the Nissan factory in Iwaki, the automaker plans to resume full production by the early autumn 2011. While car rivals such as Toyota continue to struggle with a lack of certain car parts, Nissan avoided this pitfall by adopting both the vertical and horizontal integration of production. Under this decentralized scheme of capital accumulation, Nissan ensured a back-up plan for situations such as March's disaster, when a Nissan plant that produces an essential car component is destroyed. Nissan is not dependent on one plant to produce all of its car parts. The company's partnerships with other automakers, notably the Nissan-Renault Alliance, enable access to auto parts beyond the sharing of technology and expertise. Following the earthquake, Nissan's local production was halted for a shorter period of time than its competitors whose supply chain is not decentralized, as missing parts were manufactured in partner factories abroad.

Nissan's ability to persevere through economic hardships is strikingly similar to the capabilities of the various Japanese regions. As evidenced by their creative, grassroots post-earthquake rebuilding efforts, these regions are certainly capable of assuming economic autonomy, but the central government, as evidenced by their recent actions, disagrees. Though the degrees of destruction may vary across a large spectrum, rebuilding after a natural disaster—whether in a so-called developed or developing country—can prove equally difficult and frustrating in the face of political obstacles that compromise a people's efforts towards repairing the damage wrought.

Cartoon: Adelle Archer

Photo: Kordian (Flickr)

The Search for a Socialist Smartphone

Kevin Kaczmara — 2011-06-01T14:00:46Z

It may take several more years before the average citizen of Cuba, a self-proclaimed socialist country, faces consumer decisions as critical as choosing between a BlackBerry and an iPhone. If Cuba is truly a socialist example, then how is it possible for its citizens to ever practice the capitalist power to choose between two different loaves of bread, let alone two different smartphones.

At the heart of this question, as well as many (if not all) other issues of economic insecurity surrounding the small Caribbean island, lies the Cuban contradiction; socialism. After years of uncertainty and unfaithfulness, Cuba's relationship with socialism is drawing to an end. The divorce claim has been laid, but why is it only now that the unmet needs of the Cuban people are surfacing? Equally important, what is it that Cubans desire? The needs of the average Cuban today can be labelled simply as things. By things, do we mean an education system which grants Cuba the world's second-highest literacy rate? Surprisingly, no. Perhaps, then, Cubans desire a health care system that is comparable to that of OECD nations? Not quite…it seems that universal health care, too, does not justify the survival of Cuban socialism. First, we must looks at certain imperfections of Cuban socialism. Yes, one does not have to wait very long at the hospital if they contract the flu. But this, as well as other misleading statements about Cuba, must be viewed through an incriminating lens which reveals, for example, that it is virtually impossible for the average Cuban to find household products such as Tylenol at the store. At least Cubans live in a society where hard work in school affords even those of modest background the opportunity to pursue a career in law, or medicine…right? This, too, may be misleading, directing us to the contradiction found in Cuba's dual economy.

Cuba's first economy saw the birth of the peso, the currency with which 90% of public sector workers continue to be paid, and consequently use to purchase the few food rations available in stores. Since 1993, there exists the dollar economy, which allows those fortunate enough to have access to American dollars the ability to buy and receive goods such as designer clothing and cell phones from family members working abroad. American dollars can be acquired through these remittances from abroad or, increasingly, through tourism. Either way, it is not uncommon to find Cubans with law degrees working as bartenders at tourist resorts, or migrating overseas in search of higher incomes. The dual economy is not characteristic of the socialism originally prescribed by Fidel Castro. For most Cubans, socialism is no longer alive. The problem, however, is that neither is capitalism. In search of further explanations regarding Cubans' growing disenchantment with the government's provision of otherwise very desirable basic necessities, it is useful to take a historical perspective. It suffices to say that half a century later, Cuban children, teenagers, and even middle-aged men and women, are no longer ingrained with the harsh realities of life under Fulgencio Batista, whose dictatorial rule preceded that of Fidel Castro. After Castro's initial attempt to start a revolution in Cuba failed in 1953, he formulated his famous speech, “History Will Absolve Me,” wherein he outlines the human face of the socialist revolution, promising things like employment, food, housing, and electricity. Surprisingly, smart phones were not once mentioned in the speech. What we can conclude, here, is that the modern-day Cuban is preoccupied with different things than the Cuban for whom Castro spoke in 1953, as a remedy vis-à-vis the viral rule of Batista.

Now, more than at any moment during the last half-century, the opportunity for a capitalist transition is ripe in Cuba. Unlike the Soviet satellite states of Eastern Europe where the market-oriented reforms were greeted openly, older Cubans tend to have a softer spot for Fidel Castro's socialist ideology than, say, the Poles did for Vladimir Ilyich Lenin. This is understandable since the repressed Eastern Europeans were not nearly as eager as their Cuban counterparts (some of whom took up arms against the United States in 1961 during the Bay of Pigs invasion) to defend the name of the revolution. However, as the familiar faces of socialism grow old, the visibility of the revolution is dying. The generation of revolutionaries, the same ones who helped sustain the glorious Cuban Revolution, are now in their seventies. It is for this group of elderly revolutionary sympathizers, that the pragmatic changes implemented by Fidel's brother, Raúl, will be viewed as the most disgraceful. Although unfortunately for them, Raúl acknowledged the need for change in the Communist Party's Congress, held in April for the first time in fourteen years. Congressmen decided to allow the sale of Cuban real estate, indicating the regime's transition towards a market-oriented economy.

This is the type of change the younger Cuban generation desires. This generation wants Facebook. They want smartphones. Interestingly, they also stand against the ideals of perfect equality decreed by Fidel Castro's Revolution. It appears that Cubans have grown tired of being equally poor, and are more than willing to compromise the holy name of socialism in hopes of obtaining goods which, even as of a couple years ago, was unthinkable. Socialism is dead, but when will capitalism be born in Cuba?

Cartoon: Adelle Archer