Markets without states--in China!

The ugly consequences of having only a weak state in the face of opportunistic behavior by producers are exemplified in a news story reported in today's NYT. David Barboza, a business writer for the Times, reports how he was detained for nine hours in a Chinese factory supplying the Thomas & Friends train sets.

“You’ve intruded on our property,” one factory boss shouted at me. “Tell me, what exactly is the purpose of this visit?” When I answered that I had come to meet the maker of a toy that had recently been recalled in the United States because it contained lead paint, he suggested I was really a commercial spy intent on stealing the secrets to the factory’s toy manufacturing process.

“How do I know you’re really from The New York Times?” he said. “Anyone can fake a name card.”

Thus began our interrogation, which was followed by hours of negotiations, the partial closing of the factory complex and the arrival of several police cars, a handful of helmet-wearing security officers and some government officials, all trying to free an American journalist and his colleagues from a toy factory.

Factory bosses, I would discover, can overrule the police, and Chinese government officials are not as powerful as you might suspect in a country addicted to foreign investment.

Read the last sentence again and again.

What is striking is not that this kind of thing happens, but that it happens in a place like China, which is still nominally a socialist country.

Comments

[mik]

"What is striking is not that this kind of thing happens, but that it happens in a place like China, which is still nominally a socialist country."

Anyone with a freshman knowledge of communist countries, say SU, would not be surprised at all by this story.

A manager of an important interprise is a powerful man in his locality. If interprise is important enough, he even may outrank a local party boss.

[Gonzalo Salinas]

"Factory bosses, I would discover, can overrule the police, and Chinese government officials are not as powerful as you might suspect in a country addicted to foreign investment."
Such has endlessly been the case in our Latin American "banana" republics and this has been at the center of our discontent with globalization in the 20th century and even now. We experimented for decades enlarging our states and giving them more power, but "pigs" became the new exploiters, as in Orwell's story. We then embraced free markets just to face again the ugly realities of global capitalism. Somehow I am more hopeful that this time most of our region will react more smartly, not through purely anti-system alternatives (fashionable in some countries), but by implementing marginal reforms in a similar way as the US and Western Europe created their relatively strong welfare institutions that have made capitalism viable.

[Bogdan]

Well if China is a capitalist country now the so was Nazi Germany !

[Justin Rietz]

Dani,

I believe in fact that this is a problem caused by a powerful, yet corrupt, central government. First, how was the factory manager able to keep the police at bay when the police had the advantage of physical power on their side? I think the answer is quite obvious - the factory manager has connections, explicit or implicit, with a more powerful state authority (at the national level) that would punish the local police for interfering.

Salinas,

I hope that you could be convinced otherwise that what has been attempted in Latin America was capitalism or a move to a free market society. If Orwell's pigs exist, you don't have a free market, you have a mercantilist state, at best. In a true free market, the government grants no special privileges to businesses, specific individuals, or groups of individuals.

[Gabriel M.]

Quality matters... In China there are markets and there is plenty of State. (Wow, Prof. Rodrik makes me say the most obvious things! :-)) It's the quality of that State which is the issue, not its absence. Tienanmen was not caused by a missing State.

China proves another lesson... and that is that when you have a powerful state, that power won't be used for safety nets, Pigovian taxation, patronage of the arts and painting rainbows. It will be used for control of business, control of industry, control of media, etc. for political purposes. This is why party officials get "promoted" to factory managers, etc. -- A worrying fusion of political power, military power, market power (State-granted monopolies and other facilities).

The US does not have a strong or big State. It has a high-quality, highly restrained constitutional republic. Or at least it used to, before Bush Jr.

It's not the size of the State, it's what you do with it.

[Christopher]

So... Was he a spy?

[paine]

salinas

"the US and Western Europe created their relatively strong welfare institutions that have made capitalism viable "

this has an eery
time capsule from 1965 feel to it

never has the notion of internal contradiction
come more readily to mind
then in tracing the course of the last 60 years or so
up north here

from de facto
social class contract
thru the revocation
of same
to what next ??

[paine]

when i read justin r
i think
its we humans that fail markets not markets
that fail we humans

[paine]

gabriel
do u rX marginal change for china ???
why do i doubt that
russia circa 1991 was not marginal change eh ??

marginal change has its errr limitations

notice the meme

crack pot realism
its a caution to the over cautious burkeanites
if you don't look down
you might just
tip toe over the edge
of the intstitutional abyss

libertarian maxim
associations become real problems only
when they
attempt to self immortalize

ie become institutions

markets have more then just states to fear

self perpetuating
special purpose groups are a problem in themselves too

live atomize and crusoeize
or die

down with association
its step one in a glass slipper
that leads by lock in
to big brother

[Mike Huben]

I think there is some rather simple confusion here.

The questions are: (1) who owns the state and (2) who owns the means of production?

China's state is owned by the communist party and its officials. It is not a liberal state, with competing political parties that check each other. This is an example of private ownership of a state, as much as if a royal family and other aristocracy owned the state.

China is becoming capitalist in that private ownership of the means of production is expanding. There is also substantial state ownership, but since the state is privately owned and those owners are "corrupt" (operating in a non-liberal, self-serving way that may be traditional), we have profit incentive and thus substantial capitalist behavior by government (excepting perhaps competition.)

Centrality of the government isn't the problem, contrary to Justin. The problem is that citizens (and others) do not even have enforceable liberal rights of habeas corpus, nor effective commonlaw rights to sue for false imprisonment or other offenses against individual rights.

Gabriel is also mistaken: about the power of states. Both the US and China are very powerful states. The difference is that we have liberal regulation of our state to help constrain it to serving the public. China has private ownership of the state, which operates in service of the communist party.

[Barkley Rosser]

The Chinese economy is very hard to classify at this time. So, the state is run by the Communist Party without competition. But there are at least three broadly identifiable sectors in the economy. One is a shrinking sector still owned directly by the central government, much of that in heavy manufacturing.

The largest sector is the so-called Town and Village Enterprise (TVE) sector, much of which descends from the communes and brigades enterprises of the Maoist era. That is mostly technically owned by local governments while operating in an essentially free market context, more or less. However, the ownership structures in this sector are complicated and undergoing change, with a gradual drift towards something that more resembles some kind of private ownership, at least four different forms.

Finally, there is an out and out privately owned sector, which is expanding, with much of that foreign-owned in the Special Enterprise Zones (SEZs) on the coast, such as Shenzhen, often by diaspora Chinese. However, the strictly privately owned sector is spreading into the rest of the country as well, with sometimes the owners being high Party members or their relatives.

So, it would have been nice to know in which of these categories this particular factory/firm fit.

Regarding the comment about Nazi Germany, it was capitalist by the strict definition of the term, where that means that a majority of the means of production is privately owned. Yes, it was a command economy with central planning. Yes, the name of the Nazi Party had "Socialist" in it. But when they came to power the first purge within the party was of its socialist faction that wanted to nationalize industries and land. Strictly speaking, Nazi Germany was the classic example of a command capitalist economy.

[chris]

you have to distinguish central & local govt very carefully when you are looking at a developing country with such huge area. the fact is local govt gets revenues to run the province from the local enterprises (the sharing system has improved though still lots of room for improvement), so the local govt is always acting in favor of the enterprises.

thus to most chinese, i am from hong kong, the story goes as expected. once i have a short conversation with a canadian who has been doing business around asia for a decade, he also agrees that china is the most capitalist ard the world. everything is about money, especially at local level, & so many things(like health services) got privatized at local level is directly attributed to recently increasing protests & demonstration. the central govt is trying to make a halt on reckless privatization, yet facing strong backlash from local govt. to many chinese, the mentality btw the central & local govt is very different & its actually hard to describe the whole picture to you while wrong depiction is everywhere. it is evidenced by the fact that the citizens hates many local officials but very few of them want the communist down.

[Lester Hunt]

I am stunned that someone would take it as obvious -- ovbvious! -- that China is a place with "only a weak state."

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