- One of Max’s more Thomas Friedman-ish habits (something we say with nothing but respect for our opinion columnist colleague) is telling the same anecdote about China’s political system over and over, every time the subject comes up, to try to give people a useful way to think about it.
China’s political system is again the focus of global attention as the world waits to see whether the country can manage the worsening outbreak of a disease called coronavirus, and Max is once more trotting out his decade-old anecdote. But we think you’ll find it’s actually pretty helpful for understanding today’s crisis.
Ten years ago, China announced it would slash the steel exports that it had been pumping into the global economy for decades. Max, new to the beat, called up an expert and asked whether he was right to see this as a sign of something important: that China was finally transitioning from an export-driven economy, which relies on cheap labor and a cheap renminbi, to a middle-income economy based on domestic consumption.
Economists had always said that China would have to make that transition; it was getting too wealthy to keep its currency and labor so cheap. Political scientists had said it would be essential for the country’s long-term political stability, bringing higher wages and standards of living. But it would also require downgrading the export-driven industries, like steel, that had long fueled growth. And it would mean taking on the politically powerful people who benefited from those industries.
And now it was happening! What great news — right?
The expert laughed at Max’s question (that happens when you’re new to a beat). China had been announcing cuts to its steel production for years, the expert said. And, every year, steel production went up.
China’s central leadership could demand steel cuts until their faces were blue. Out in the provinces, the officials who actually oversaw steel production were going to do no such thing. Pumping out steel was how they grew their provincial economies.
And while it’s true that their bosses had demanded steel cuts, they had also always made economic growth the top priority. Rising G.D.P. figures would be rewarded, but stalls would be punished. Better to take a small hit for overproducing.
And there was also a collective action problem. All of China might be better off if steel production dropped, sure. But officials in individual provinces could only control their little corner of the economy. And if they believed that every other province was going to continue overproducing steel, then cutting back would change nothing.
That expert, of course, was right. The announcement changed nothing: China’s steel production continued to rise.
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