Civil War in China (Part III)
- Jun 10, 2011
- admin
- Investing
Adam Smith, the famous economist who wrote the “Wealth of Nations” wrote of a “system of natural liberty” where individual effort was the producer of social good.
What he was suggesting is that if everyone if free to pursue their own interests the society will benefit as a whole. The problem in China is that everyone is not able to pursue their own self-interest: they’re only able to pursue what the State approves. And the only way a population will pursue the self-interest of the State is if its directed by the State.
And that’s been great for the short-term. Twenty years ago the government of China owned every economic asset in the country. In the past twenty years they’ve been selling off those assets which has given them tremendous economic growth.
While the transition is far from over, one thing is clear – the old guard is retiring and a new group of fully Western-trained capitalists have been brought in to run these companies. And there’s one thing they know for sure – there is no way they’ll be able to compete internationally unless their able to make investment decisions without interference from the government.
Unfortunately for the central government, that means that Chinese business owners are going to want a greater say in the decisions that are being made by the central government. And for business owners to have a greater say in those decisions that means the government has to share power with them by allowing them into the decision-making process.
For example, let’s say that right now 100 people currently make all the key decisions about how China is governed. At some point China’s business community is going to demand representation among those 100 decision makers.
Doesn’t it seem reasonable that they would demand representation considering that its their companies that are generating the jobs that are keeping China’s bureaucrats in power?
Initially, China’s business community may accept 10 or 20 of the 100 governing slots of power. Or they may demand more. But the bottom line is at some point in time the government is going to have to share more power with big business. The only question really is how much power to share and when to start sharing it.
For those of you who think that China may be different, a “new way of doing things,” let me remind you that this is how all revolutions start: one group of people has a monopoly on power and another group of people wants to share it. From the Roman Republic to the American Revolution, they all started because power was perceived to be held by too few people.
What I find so fascinating about China’s situation is in guessing how long they can keep a lid on the inherent conflict built into their system. History does not suggest that these situations end well for the party in power.
At some point China’s business leaders will begin to question the wisdom of putting the governments interest ahead of their own (This is already happening, as evidenced by the electric company I mentioned last week that’s refusing to follow the governments orders to sell electricity to consumers for less then it costs to make it).
When that happens, China’s business leaders are going to begin thinking, correctly, that they need a greater say in how decisions are made in the central government because the government doesn’t really understand its needs.
And when that happens, China’s political leaders are going to have to decide just how much power to share. And that’s when it will get difficult. That’s when the old expression “give them an inch and they’ll take a yard” will come into play and they’ll likely fight to hold onto power at least and until they can disperse it under their terms.
Ultimately, whatever side controls the military is the side that will win the power grab in China. And since the current leadership seems to have to direct control over the military, it’s fair to say that the military will be up for sale to the highest bidder. And since militaries tend to back whatever group can insure its funding needs the odds are good that they’ll back big business.
It’s sad to say but when all is said and done China may look very familiar to Americans: a government dominated by big business.