A Moneyless Civilization

Inka Quipu for record-keeping.
A quipu – the Inka method for keeping accounts and records. Wikimedia Commons

A Civilisation Without Money

Money and markets are as ubiquitous to us as water is to a fish. As a fish can’t imagine a world without water, we can’t imagine one without money. Surprisingly, a moneyless civilisation encompassing tens of millions of well-nourished people did exist. Stretching from Colombia to Argentina and Chile, the Inka empire covered much of South America. It might still be there today had it not been felled by disease.

The Importance of Bureaucracy to the Inka

The Inka not only survived without money and markets; they prospered. Not only were the Inka people well-nourished and sheltered; they produced a significant surplus. That surplus made it possible to support a large bureaucracy and a privileged class.
We tend to think of the bureaucracies of “primative” cultures such as the Inka in terms of religion and ceremony. However, in the Inka empire they were largely engineers and planners. It was these engineers and planners who made possible the feeding and sheltering of an empire in some of the world’s most difficult terrain.

Geography Matters

Because of their location in the rugged Andes, the Inka focused on travelling up and down. After that, they thought of North and South and finally East and West. Verticality was important because it was possible for the Inka to traverse agricultural zones from the ocean through tropical, temperate and sub-arctic conditions in a very short distance. The Inka, combined the compressed zones with engineering and agricultural techniques provided the bounty that fed a nation and fed it well. It also provided the surplus they needed to support a gold and silver industry, provide for the independent invention of writing, books and calendars.

So how did they manage all of this without money or markets?

Perhaps their biggest secret was that taxation was in the form of labor. Through this method terraces for farming, raised-bed fields, roads running thousands of miles and cities of stone were built. Fish and tropical foods were brought to the mountains. Maize and beans were transported to the lowlands. Gold, tin and copper were mined. Beautiful artificts were created and robust tools manufactured.

Today’s Problem Isn’t Bureaucracy – It’s Self-Serving Bureaucrats

Lenin despaired of communism’s ability to centrally control Russia’s economy and so introduced his New Economic Policy. By doing so he thought that he could allow capitalism to proceed to its natural self-destruction after which communism would result. I wonder what he would have thought if he was aware that nearly a thousand years before the Incas had pretty much worked out the elements of central planning needed for a civilisation.In the event, Lenin died and Stalin impatiently implemented his five year plans. Ambition, impatience, self-serving and incompetence led to failure after failure. In the end, the idea of extreme central planning fell into disrepute. We should not forget that the Inka proved that in the right circumstances, it can work.

Is Xi’s Move a Bad Thing for China?

China GDP Change (PPP)

Recent History Isn’t Encouraging

By now it is a well-known fact that Xi Jinping will be in charge in China until he decides to step down. Dictators don’t often do so voluntarily; they are usually the last to figure out that their time is past. Robert Mugabe is the prime example of a dictator who could have left behind an increasingly prosperous nation.  Instead he chose to hang on, seemingly forever, and bring his country to ruin. Closer to home we saw Ferdinand Marcos subvert the blossoming Philippine economy for his own gains.

In Singapore Lee Kuan Yew orchestrated slow progress toward democracy while keeping a firm hand on the economic tiller. While Singapore is not a liberal democracy, its widely shared prosperity means that relatively few Singaporeans are complaining. Furthermore, its relative openness allows its citizens free interchange with the outside world.

And Then There’s China

China is a different case. Its immense size and recent backwardness, made it seem to be a hopeless basket case. The rise of Deng Xiao Ping and then his insistance on term limits for his successors has underpinned the steady growth of China. That spectacular growth is unaparalleled in history for a large country. Even with those gains, though, China still remains far behind the developed world. Glitzy skyscrapers, high-speed trains and car-filled highways are signs of progress. However, they aren’t by themselves indicators of the well-being of its people.

Let’s compare. The IMF ranks the following six countries as indicated by GDP (PPP) per person:

  • 1 – Macau ($96,100)
  • 3 – Singapore ($87,100)
  • 9 – Hong Kong ($58,100)
  • 11 – United States ($57,300)
  • 19 – Taiwan ($47,800)
  • 79 – China ($15,400)

Small economies specialize and can grow to phenomenal levels very quickly. It is much harder for a broadly-based, large economy such as that of China. But the difference between the U.S. and China shows that China still has a long way to go. China will never be a Singapore or a Macau, but attaining parity with the U.S. should be feasible. The question is, can that be done in an economy that is largely controlled by a single person? Or even one party?

Normal is, well, normal

There is a statistical phenomenon known as “reversion to the mean”. Simply put, it means that, in general, exceptional performances don’t stay exceptional. Managers of investment funds can be stars one year but they are unlikely to stay stars. Football teams may have one or two or three good years but they’ll move back into the pack. The exceptional performer turns out to be pretty normal over the long term. Politicians may make a few good decisions and those may carry them through an entire career, but the countries they lead would be better off replacing them with new leaders who have a better chance of making good decisions.

Which brings us to Mr. Xi. In terms of growth, China has certainly done well under Xi, most countries would be ecstatic to have growth as robust as China. However, there’s been nothing exceptional about the rate of growth under Xi. That isn’t necessarily bad as Mr. Xi has taken some positive steps to reduce corruption and to reduce China’s fouling of its own nest with industrial pollution. On the other hand, there are still hundreds of millions of Chinese who are barely touched by the improvements in the economy but who are victims of the pollution. Is the answer for them, more of the same? If Xi extends his term beyond 2022 that is what they are likely to get, more of the same.

China’s Prosperity is Threatened… by China

China has prospered first because of cheap labour, then because of lax environmental regulations and increasingly, because of its growing intellectual prowress. However, both labour and intellect are increasingly under threat from the one-two punch of robotics and artificial intelligence (AI) China has declared that it wants to lead the world in AI. Fair enough. But the better and more ubiquitous AI becomes, the less need there is for the talented people that China is churning out of its universities. (That’s a global problem, of course, but every country needs to face this alone.) If Mr. Xi fosters an explosion in Chinese AI over the next four years, will he be the right person to fix the massive negative consequences that will result?

Xi Jinping is the beneficiary of the flexibility that term limits has provided. Now that he proposes to end term limits, he is proposing to end that flexibility as well. Reversion to the mean virtually guarantees that his third and successive terms are going to be mediocre no matter how successful he has been in the past.

Gleanings from the 19th CCP Congress

Xi Jin Ping addresses the 19th China National Congress

China gives Xi Jin Ping Five More Years

General Secretary Xi Jin Ping has virtually cemented his permanent position. Informed speculations is that he will continue in power long after 2022 when he is due to step down. By selecting Chen Min Er as his successor in 2022, he ensures that he will continue to be of consequence when he steps down. What does that mean for China, Asia and the world?

A Brief History of China’s Modern Leadership

After the Tian An Men demonstration and massacre in 1989, the Standing Committee of the Politburo came to an informal agreement. They would ensure both stability and an orderly transfer of power going forth through consensus agreements worked out well in advance. That worked for a while, but then in 2007 they tapped Xi Jin Ping to succeed Hu Jin Tao in 2012. Xi went to work to ensure not only the success of his forthcoming administration, but also its permanence.
Jiang Zi Min’s performance after vacating the General Secretary’s position had provided clues as to how it should be done. Jiang had retained enough power after he stepped down to hamstring Hu Jin Tao and render him relatively weak. Xi saw what was going on and would have none of that when he assumed power.

Enter Xi Jin Ping

His entry point was the rampant corruption under Jiang and Hu. Lip service had been paid to reforms but little concrete had been accomplished. Given the muck that adhered to Jiang and Hu, it was no wonder they did so little. Sure, 10,000 people were convicted of corruption each year, but that number was a thimble of water in a Yangtze-scale flood. Here was an opportunity to rid the country of corruption and himself of competitors.
During this time, China was becomingly increasingly open as a consequence of the relative freedom of social media. Corruption was on everyone’s mind because it was everywhere on-line. Then came the Arab Spring. The insanity of the Cultural Revolution and the danger of the Tian An Men square protests leapt to mind. The Party, the Politburo and the Standing Committee were worried. Internal calls for a “Jasmin Revolution”, the uncovering of a massive CIA network within the country and Edward Snowden’s revelations of U.S. capabilities turned worry to panic. Xi needed to prove that he was up to the task. If he did not, Bo Xi Lai, might sit in the chair of General Secretary.

Bo Xi Lai’s Challenge

Bo had made himself a popular anti-corruption leader from his position as mayor of far-off Chongqing. His many popular reforms had made him a national figure and a likely challenger to Xi. But Bo had his own popularity problem; his police chief, Wang Li Jun, was rapidly becoming as popular as Bo at home. Bo’s answer was to demote him. Four days later Wang was at the U.S. Embassy asking for asylum and exposing Bo’s dirty underwear. The Americans didn’t take him in, but Bo’s fate was sealed. On March 15, 2012 he was stripped of his Party Chief. By April 10 he and his wife were under investigation. Finally, in 2013 he and his wife were put on trial. Xi’s purge of his rivals and potential rivals was underway using the Central Commission for Discipline Inspection (CCDI) as his tool.

The Purge Begins

Because government salaries had fallen far behind the cost of living, virtually everyone in the government was corrupt. If you weren’t corrupt, you led a pretty miserable life. So Xi had a wide open field – all he had to do is to name the individuals to be purged. Corruption would be found because it was there.

Social Media Tamed

As soon as he took office, Xi began to clamp down on the social media that were at the heart of dissent. Then human rights lawyers were shackled. Then NGOs were starved for funding. Foreign textbooks were removed from universities. And finally, in a move worthy of Donald Trump, territorial jingoism diverted attention from what was happening.
Merit no longer had as much a place in the Party as sycophantism. This most recent Congress is a testament to that. Who, other than a cadre of sycophants, would be willing to a droning three and one-half hour speech/lecture by their leader? But a
Xi has a tiger by the tail and he can ill-afford to let go in 2022. Chen Min Er is his response to that problem.

Chen Min Er

Few members of the Party know Xi as well as Chen. Chen was Xi’s head of propaganda in Zhejiang when they served there together for four years. During that time Chen worked closely with Xi to get his message out, helping Xi to write his weekly column in the Zhejiang party newspaper for four years until Xi was moved to Shanghai. After a couple of promotions, in 2012 when Xi was named as General Secretary, Chen was promoted to the Central Committee and made governor of Guizhou. Xi had already done the math and knew that if he appointed Chen as his successor, he’d be able to serve two full terms without having a problem with his age. (China has both a term limit and an age limit for the General Secretary.) In 2015 Xi promoted Chen to the position of Party Secretary in Guizhou. Chen delivered on Xi’s confidence with resounding economic growth. Now he’s in line for the top spot in five years.

Moving Forward

So where does that leave us today? The news coming out of the 19th Party Congress told us a lot. Knowing that can shape your decisions for the next several years.
For starts, the General Secretary set expectations in line with reality instead of opting for Trumpian layers of superlatives. Xi instead established the goal of a moderately prosperous society. That is sweet music to ears deafened with bombastic Trumpian braggadocio.

Growth is out. Quality is in.

Moderate prosperity has replaced a doubling of the GDP of China as the economic goal. Doubling by 2020 from 2012 may happen at the current rate of growth, but it is no longer the focus of economic policy. We’re unlikely to see steel production grow simply to support the production of more steel production facilities. The same is true in many other areas. What we are likely to see is an emphasis on decreasing income and wealth inequality and a consequent growth in the already vibrant consumer sector.

The Environment Is In.

During Xi’s marathon speech he mentioned the economy seventy times but eclipsed that with eighty-nine mentions of the environment. Coal-belching smokestacks and deadly foodstuffs will be a thing of the past by 2020 if Xi has his way.

Housing is a concern.

And rightly so, given their contribution to economic bubbles. Xi emphasised that houses are for living in, not for speculation. Whether he is willing to risk the unpopularity and possible unrest of instituting permanent controls remains to be seen. Popularity is a key element necessary to keep him in power after the end of this, his final term. For now Xi has the internal politics of the party under control. Losing his popularity with the people could quickly unravel that control.

Financial Risks to get More Attention.

The headlong push for growth has led not only to many failed projects, but to an inverted yield curve. Many, if not most, banks are insolvent and survive only on the largesse of the State. We expect to see this sector cleaned and consolidated over the next few years. It won’t be easy or quick because the problem is so big. But we can expect to see a start.

Xi’s plate is over-full. There’s no way to complete his work in the next five years. His selection of Chen as his replacement will ensure that a kindred spirit seeking to continue and improve on Xi’s reforms will be in place. Chen is likely to be more than a puppet but less than a free agent. That’s likely to make many people breathe easier.