“Responding to Chinese challenge with democratic socialism“ by Thomas Piketty, 13 July 2021.
In a recent blog post, Piketty argues that the most salient way for the West to address the supposed “Chinese challenge” is to be honest about chronic shortfalls at home and launch big investments into human capital and physical infrastructure. This will be the most effective way to raise the substantive nature and global reputation of many faltering Western democracies today. While he calls this solution as democratic socialism, the US is undergoing “Bidenomics” that perhaps share Piketty’s emphasis on improving its domestic standing to face up with China. Bidenomics is marked by repeated condemnations of “trickle-down economics” (laissez-faire philosophy that had until recently penetrated on a global scale since the 1980s) and using China as a justification to increase investments in human capital and physical infrastructure.
However, upon reading this post, one may rather think that this should be a momentum to reach a truly global pareto efficient outcome (everyone benefits without anyone left worse off) in terms of the Chinese themselves respond to the challenge it poses to the rest of the world by adopting more egalitarian approaches to its own growth, development, and distribution. That was my instant thought upon finishing this reading. The economists Michael Pettis and Yasheng Huang, for instance, have long called out that the household income share of China’s GDP (around 50%) remains among the lowest in the world, further worsened by a reality that a tiny minority of households owns much of that 50% of household income. Moreover, the household consumption share of China’s GDP at 37% also remains among the lowest in the world (the normal rage is 70-80% among countries in similar or higher development level as China). This is nothing but a repressive state of affairs for ordinary Chinese households. Structural transformation in China is therefore an urgent matter of redistribution, and hence above anything else politics. But for now, “the signals so far do not suggest that a radical reordering of the government’s taxing and spending priorities is on the way“, according to Andrew Batson.
Nonetheless, what Piketty correctly highlights is that, unlike many Western countries today, the legacy of public property ownership remains to some extent maintained in China and the latter still has the necessary financial arsenal to change the trend of declining public property ownership for itself. This legacy is due to historically conscious politics.
Recently, a new book “Norwegian politics” was published, in which the authors suggest that “big capital never had the room to dominate in Norway due to its sheer market size” as an explanation for the historically omnipresent feature of state ownership in the Norwegian economy at levels unseen in other advanced countries. The authors claim that this book was written precisely because Norway’s experience, in particular in the realms of public policy and the egalitarian values underpinning it, is not widely understood and summarized yet. At present, the public sector accounts for over 50% of Norway’s GDP, the highest within the OECD. The Norwegian state owns around 37% of the Oslo Stock Exchange, while retaining public ownership in strategic sectors via its 70 state-owned enterprises valued at almost 90% of Norway’s GDP (in 2012). “We invented the Chinese way of doing things before the Chinese”, says Torger Reve of the Norwegian Business School.
Given the vast market size of China and the lucrativeness it brings to private property owners, it is still more or less a miraculous struggle that the Chinese state has still managed to retain some degree of public property ownership (though declining) till this date. The point is not to maintain or increase public property ownership for the sake of it, but leveraging it for the necessary political will and power to allocate public finances towards investments in education, health, and infrastructure. This is the essence of “democratic socialism” that Piketty is calling for Western countries to embark on, which however currently remain hindered by the state’s fiscal dearth facilitated by a lack of political will to prioritize public investments into education, health, and infrastructure. For some advanced countries, public assets even have a negative net worth while private property owners continue to see skyrocketing wealth growth. However, China is no exception, as it’s development model is still run on public investments that go largely into extravagant infrastructure projects, even overseas, with questionable productivity gains compared to if such amount of state finances could also go towards public health and education. 12-year public education has yet to be universalized, while government spending into public health has been on decline for decades.
Obviously, “state capitalism” in the form of considerable role of public property ownership in Norway and China are not the same. While many Norwegian SOEs manage to both upheld social welfare mandates and remain competitive in efficiency terms in the domestic and international markets, this is not necessarily the case for many Chinese SOEs. The low levels of corruption and high degree of professionalism of many Norwegian SOEs are what contribute to popular support and trust for their extensive role in the national economy among the broader Norwegian public. The case is often the opposite in China. Moreover, it is still a reality that much of wealth creation behind China’s vast state assets comes from its dynamic and innovative private sector. In the long term, it will be difficult for the Chinese state to transform China into a (basic) welfare state without appreciating the role of the private sector. Nonetheless, similar as in Norway, the Chinese state must take the lead because the private sector by itself will never be inclined to take China down the road towards basic welfare and more institutionalized dignity (in the form of better labour protection enforcement) for every citizen and rebuilding egalitarian norms. The Chinese state and it’s SOEs remain as corrupt as ever, but the opportunity to change that tide still exists as long as China retains a high enough level of public property ownership to make such change possible. From the Norwegian experience, such process entails a lengthy process of institutionalization of norms behind egalitarian public and corporate governance rather than an over-reliance on the will of any supreme figurehead. I echo the following observations made in the World Inequality Report 2018:
“Public property in China today is a different reality from public property in this country forty years earlier, or in the context of Norway’s public sovereign fund today, and so on. Understanding the details of the legal, political, and governance system is important to understanding the interplay between property structure and power relations between social groups. The study of private and public wealth cannot be limited to the analysis of trends and levels; it must be grounded in a deeper understanding of the countries’ institutions and how these affect political and social inequality, as well.”
“It is interesting to compare the evolution of the public share in national wealth in China and a resource-rich country with a large sovereign wealth fund such as Norway. These two countries have essentially switched positions: the public share in Chinese national declined from 70% to 30% between 1978 and 2015, while it rose from 30% to 60% in Norway over the same period. A key difference between public wealth in Norway and China is that most of Norway’s public wealth is invested abroad. Norway’s large positive net public wealth generates capital income that is mostly used to finance further foreign capital accumulation, which in the long-run can be used to reduce taxes and to finance more public spending. In that sense, it is a very different form of public property than in China. Norwegian public property has therefore largely been accumulated for fiscal and financial purposes, rather than for industrial development and retaining a measure of control over the economy as seen in China. Norway’s sovereign fund has, however, also been used at times to promote certain policies, for example, regarding social and environmental objectives.”
I believe that China will also benefit from adopting the call given by Piketty to Western countries on moving towards democratic socialism. “On inequality in China” by Thomas Piketty, 14 February 2017, provides a very brief background for the challenges of structural transformation in China and elsewhere that Piketty depicts in the previous article. However, I believe we must also avoid the temptation of interpreting “democratic socialism” as another form of end of history, because such may ill-prepare us for what will come next once problems with democratic socialism erupt in the long future. My point is to be ready for unexpected change and address them with honesty while adhering to the principles of egalitarianism: equality of opportunity, social mobility, and the perseverance of human dignity. Nothing is permanent, except for humanity’s moral compass to make flexible judgements whenever any problems occur across and irrespective of ideologies.
I wished that I could reflect more on this important topic by having more time. I have blogged much less than in previous years. This is mainly because I spend more time reading on certain topics for more learning, including egalitarianism, social democracy, internationalism, humanism, and Vietnamese Zen Buddhism (this is only for nurturing my personal faith and practice counting 7 years now, and not meant to translate into any political conviction). I don’t think that I took a single weekend off throughout 2020, a crazily busy year (ever) with many moments of burnouts. I still don’t know how I survived that year. One can say that I am recharging myself?