Is China’s Capitalism Better than America’s? Why Minxin Pei Will Argue “No” at the Slate/Intelligence Squared Live Debate on…

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March 7 2012 6:18 AM

A Pox on Both Your Houses

Why Minxin Pei will argue that America does capitalism better than China—barely—at the Slate/Intelligence Squared live debate on March 13.

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Slate: You’ve written that China’s economic growth has unleashed social forces that might destabilize the Communist Party.

Pei: There’s a good reason that very wealthy countries today, except for the oil- producing ones, all have democratic systems. The social culture in nations that achieve a high level of income is very different. They have a more diverse and highly educated society, more access to information, and it’s a lot easier to organize political activities, to challenge those in power. Economic growth produces social forces that are fundamentally incompatible with non-democratic political systems.

You see, the main driver of China’s modernization is education. China produces 7 million college graduates every year. Meanwhile, urbanization in China is rising at 1 percent per year—and 51 percent of the Chinese people are already living in urban areas. So 1 percent: We’re talking about 7 to 8 million people becoming urban residents every year. Let’s project this trend out and look at what the situation in China would be in 2030. We’d see a net increase of college graduates in the neighborhood of 70-80 million, assuming no increase in the capacity of China’s universities. We’d see another 80 million people moving to cities. That’s a lot of people. And not all of them are going to be members of the Communist Party; many of them will find their political system distasteful.

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Slate: What will be China’s biggest challenge going forward?

Pei: Their biggest challenge is not in the economic realm. They will need to make a smooth transition to democratic governance. This process is going to happen in the next 20 years, regardless of the wishes of the ruling party. There is a historical rule: No one-party system has survived beyond the age of 74. The Chinese Communist Party has been in power for 62 years. So we’re talking about breaking a historical record within the next 15 years.

Slate: Given all this potential instability, should the United States explore ways to reduce its economic ties to China?

Pei: That will be very difficult. The two economies have become interdependent. American firms rely on Chinese workers to produce their goods and American service sectors count on the Chinese market to generate demand. What the U.S. really needs to do is clean up its own act. We need a better tax system, so that the government can finance its basic functions; human capital investments; and more social services for the poor. We need to reduce inequality.

Over the past 15 years, executives in America’s Capitalist Party have become almost indistinguishable from Communist Party members. They’ve used their power to give themselves absurdly high pay; they have no accountability to shareholders; and they’ve created a new caste, which is now exercising enormous political power. The American Capitalist Party is very worrisome.

Slate: How do you think China and U.S.-China relations will look in 20 years?

Pei: If China remains under one-party rule, the relations cannot be good. The question is, how bad will they get? The United States and China have a deep strategic distrust of each other. I can imagine more competition, and not necessarily economically, but definitely in terms of military power.

Slate: Should we be worried that China is financing such a large share [$2 trillion] of our debt?

Pei: No, we should welcome it, because the U.S. needs cheap capital and China can supply that, for now. China will probably start losing money soon. But we should encourage them to lend money to us, and no one should lose sleep over how much they lend.

Slate: Your debate partner, Ian Bremmer, suggested earlier that the Chinese are proud of their economic system and have a favorable view of state capitalism. Do you agree with him?

Pei: No. I hate to challenge my debate partner, but the Chinese prime minister himself, the chief economic officer of the government, says, “The Chinese economy is unbalanced, inefficient, and unsustainable.” You cannot characterize those words as “proud.”

Slate: What are your hopes for China?

Pei: My hopes are fairly straightforward. I hope its economic growth will continue, albeit with higher quality goods, less pollution, and more social justice. I hope for more implementation of individual welfare. Most importantly, I hope that China will become a democratic country. China is an outlier in the world—it is even less democratic than Russia! With the Arab Spring, it stands among a dwindling group of one-party regimes and dictatorships. I don’t think that’s right. A country with such a rich ancient history and civilization should not remain the odd man out. 

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