Thoughts on China in 2017
The most desired thing in the world is respect. Everyone wants to be respected and to be proud of who they are and what they have done. This is what drives us to spend most of our money on a variety of goods we do not really need, it is what pushes some to spend great sums on weddings and it is what leads countries to war. Respect and the desire for it are a principal driving force at all levels of society. As Aretha Franklin said, “R-E-S-P-E-C-T, it’s what I want!”
I lived in Beijing in 2006 and returned in 2010 and now 2017, the changes are staggering. I write this post from a bullet train travelling at 303 km/h on a high speed rail network that is larger than the rest of the world’s combined. There was no high speed train in China in 2006. When I left Beijing, there were three subway lines, there are now 18. Shanghai moves 3 Billion people a year on its subway system. China has built a giant canal from the south to the north to bring fresh water, it has built thousands of kilometres of the most advanced rail system in the world and it is installing more solar panels every year than all other nations combined! China has achieved change on a scale few could have imagined. Alain Peyfritte, the French Sinologist wrote a book in 1973 titled “Quand la Chine s’éveillera, le monde tremblera” – translated to “When China wakes up, the world will shake”. The world is shaking.
On my most recent trip I met with lawyers, bankers, entrepreneurs, environmental and safety consultants, business owners and ordinary folks on trains. Many voiced criticisms of China and showed a real frustration with corruption in government and a lack of individual freedom, yet the general mood is extremely optimistic. Nearly everyone felt that China would continue to develop and it would turn a corner on environmental issues and transition to a consumer economy. They felt that the ship had so much momentum and the leaders, though not perfect, had a genuine and indomitable desire to make China a world power – that nearly nothing could stop China ascendancy.
Air quality in the major cities is a big problem. While I was in Beijing, the Communist Party had its annual gathering and magically, the air cleared up thanks to the shutdown of certain coal fired power plants and other factories.
The good news is that Beijing continued to operate and the economy was not harmed despite the plant shutdowns – meaning that China could likely safely shutdown many of its coal power plants and continue to operate. In fact, China plans to reduce its coal consumption by 800 million tonnes by 2020 (from about 3.4 billion) and install 103 GW of new solar power capacity (they currently have 74 GW). In 2017, Beijing announced that all city taxis that are bought or changed must now be electric, Shanghai has offered free licence plates for electric cars, and during the annual Communist Party meeting this weekend, Chinese leaders declared war on air pollution and promised a blue sky for all Chinese. China also introduced a much improved environmental law in 2015 that is progressively starting to take effect. China is poised to shift into a new greener gear that will firmly place it as a world leader. Already, five of the world’s six largest solar panel producers are Chinese.
Poverty remains very real in China, but we can find poverty everywhere and any visit to parts of the US will remind you that you can be both a Global Superpower and have tremendous poverty and exclusion. China may only have one aircraft carrier (a Russian one at that), but it is building up its military and the announcement by Trump that the US is scaling up their military does not sound good. Let’s be frank, China and the US are unlikely to go to war – at least not directly and if they did both parties would have major casualties. However, a critical part of establishing a sustainable world order that is beneficial to most people must include a newfound respect by the West for China. During the first League of Nations, the predecessor to the United Nations, the Japanese delegation and Asian people were not accorded the same rights as people of the western nations. This lack of respect for Japan and the Japanese led to a shift towards militarism and isolationism that contributed to the second world war.
The West is used to being in charge. This is despite the fact that China was the most advanced nation for most of human history. We will need to learn to live with a powerful China and to respect it or we will be doomed to conflict. This transition will be very difficult. It is one thing to tolerate a person or a nation, it is entirely different to treat them as an equal. Can the United States treat China as an equal? Or, is their pride and self confidence so high that they cannot consider China to be a true partner?
If you read western media, especially US, about China, there is often a very condescending tone. This is also true of coverage of countries such as France, the US is always better and the other countries are either too lazy, too corrupt, or cheating in some way. I recall reading an article a few years ago about how GE had re-engineered a water heater they made and was going to onshore production back to the US. The article implied that the Chinese did not understand great engineering and that these brilliant US engineers were able to outsmart the Chinese, simplify production and bring it back to America! There are great American engineers of course, but there are equally great Chinese engineers. To say otherwise comes close to racism. Regardless, GE sold its household appliance division to Chinese firm Haeir in 2016 for 5.4 Billion. Thinking you can outsmart China is a very dangerous position to have.
On the military front, the US actions in the South China Sea seem excessively arrogant and dangerous. The US has claimed certain islands to not be Chinese territory and they regularly navigate war vessels near Chinese territory, this cannot continue. Imagine if China had war ships, destroyers and aircraft carriers a couple hundred miles off the California Coast or near New York City, would the US tolerate that? As the golden rule says, “Do unto others as you would have them do unto you”. This is especially true when the person you are treating is growing in power and strength. Who wants China to come back in 25 years and say, “remember how you treated us in 2017, now it is our turn”. If the US and the west cannot implement the golden rule with China, we will be in for a big, complicated and unpleasant situation.
The West often criticizes China for human rights abuses and indeed there is much room for improvement. However, we should not forget that over 2.2 million people are in jail in the US, much of western wealth was built on extreme violence, expropriation of ressources and slavery, and the second world war led to the mass extermination of 6 million innocent jews, communists and other dissidents. So human rights is something the West has had to invent and adapt to over the course of the past 60 years or so – not exactly ancient history. The West does have a right to criticize China for human rights abuses, but we should perhaps look at the situation in a broader context. China’s priority is peace, stability and prosperity. This unfortunately probably requires some forms of coercion that are not ideal. To grow the economy in China, avoid mass uprisings, maintain some form of environmental progress, somewhat control corruption and keep the various political and financial interests satisfied is a task with a complexity that is hard to measure.
Where will the world go from here? With Trump in the US, Brexit in Europe, Xi Jiping in China and general economic stagnation in the West it is very hard to say. One thing is certain, if the West does not begin to treat China as an equal and with the same respect they offer other western countries, we will have a problem. China may indeed want to dominate their sphere of influence in Asia, but that is no different from the Monroe doctrine the the US domination of the Americas for most of the 20th century. Frankly, China has been far less active at organizing coups and propping up dictators than the US – yet. As a Canadian, I think there is an important potential role for Canada to play a peacemaking, educational and conciliatory role between China and the United States. This must be done if we are to avoid the words outcomes of a growing power that hits a wall set by the established power structure. We all want respect, China, Canada, the US included – if we can offer genuine respect for each other there is hope for a strong and prosperous future. Without respect, we are lost.Published on March 25, 2017
Published on February 13, 2017
Basic Income as a Solution to Capitalism’s Structural Problems
Thomas Picketty’s seminal book Capital in the 21st Century outlined some of the underlining principles of capitalism. His main thesis is that if the return on capital is greater than economic growth, wealth inequality grows. The rich get richer because they can earn a greater return on their investments than the growth of wages. This ensures that those without capital cannot catch up to those with.
This is a critical and structural problem of our current capitalist system and if left uncorrected, it will lead us back to an aristocratic world with elites too powerful to touch. The gap between return on capital and economic growth must be closed to ensure a level playing field for all.
Capitalism is fantastic. It has brought tremendous material prosperity, advances in science and technology and a general security to the world. While it is a great system, it needs adjustments, like any machine might. One adjustment that could very well save it from its own destruction is the institution of a basic income. A basic income in and of itself is not the solution, it is rather the effect it will have on the economy and the change to society’s power structure.
A principal cause of the post-war economic prosperity identified by Picketty was the destruction of capital during the wars. During WW1 and WW2, capital to income ratios – that is the amount of capital in society to the income of society – went from 8 to 1 to 3 to 1. The subsequent growth and accumulation of wealth at the top of the ladder has led us back to a world where capital to income in society is back at the dangerous levels of 8 to 1. The last time this happened, we had demagogues, fascists and dictators take over the most prosperous countries in the world.
There are other ways to destroy capital: inflation, a tax on capital or through economic growth that is greater than return on capital. All three of these would reduce the relative weight of current capital in society and thus encourage individuals and corporations to invest in productive assets – factories and such. One interesting analysis of this situation was presented by Oliver Heydorn at the 2015 North American Basic Income Guarantee (NABIG) conference in New York city. He explained how the difference in accounting practices for capital expenditures and operational expenditures (where you can depreciate capital expenditures) leads to the same gap between the return on capital and wages that we see with Picketty. Oliver is a social creditist and their political theories merit a closer look. Social Creditists stipulate that due to certain accounting practices and monetary policy, we inevitably obtain a growing gap between the revenues from labour (salaries) and the return on capital investments. This leads to a labour force with less and less purchasing power as the costs of goods increase faster than their wages do. This loss in purchasing power leads to less consumption which compounds into less jobs and a stagnant economy. We are living in that world now.
Social Creditists promote the idea of a central authority that monitors prices and cost of living and wages and issues currency in concordance with the gaps. Specifically, they advocate that “The solution to these problems is to create and issue a sufficient volume of debt-free money in the form of the compensated price and the National Dividend to equate the rate of flow of final prices with the rate of flow of consumer purchasing power.”
A National Dividend could very well be seen as a basic income. It would provide more purchasing power to the average citizen and rebalance the relationship between capital and income, bringing us back to a better situation not unlike that of the 1950s, 1960s and early 70s.
On Trump and Revolution
Rome survived Caligula. Caligula, the roman emperor who named a horse senator, organized mass orgies and committed numerous atrocities and ruled over Rome from 37 AD to 41 AD. Rome, being a large and powerful empire with a bureaucratic system, survived and even grew under Caligula’s divine leadership. Similarly, America will continue to grow with Trump in power. The American Presidency, as Elon Musk said, is a captain-ship of a very large vessel with a small rudder. The impact of the president is completely blown out of proportion by the media. A good or a bad president has much smaller impact on American society than most think.
There has been more ink shed on Trump than perhaps on any other politician. I recognize the irony of my publication of year another blog post on the subject. Yet, his victory is a massive signal to those of use who are far removed from the reality of many blue and white collar workers. My brother lives in London and he was flabbergasted by Brexit. He and I had no clue of the levels of anger in the US or the UK that sent both countries down a path led by isolationist and nationalistic leads with dubious track records as members of the human race. People seem so fed up with the lack of progress by the establishment that they will overlook personal faults and outright lies. This is not the first time, nor will it be the last time that a person rises to power in an unexpected way. For a more in-depth analysis of the worldwide rise of populists and the actual electoral strategy of Donald Trump take a look at HyperNormalization by British documentarian, Adam Curtis.
An American colleague once told be a story. A private equity company bought a manufacturing company. The investors came out from New York to the plant and asked the workers to build a stage outside the factory for a big announcement. The staff built a big wooden stage, with a podium, and a staircase. The investors asked them to gather all the employees for an announcement. With the hundreds of staff gathered, the investors got up on the stage and promptly announced that the factory was being moved to Mexico and they were all fired.
This story is not uncommon. Part of the fault is our own, we want cheap products. Our societal dictate that the all powerful consumer must have a cheaper iPhone, a cheaper car, or a cheaper flight. Don’t get me wrong, who wants to spend more than they have to? But, the consequence of these moves to low cost countries is now truly hitting home. The people who worked at these factories, all across America, Canada and other developed countries are revolting. People who once had good unionized job with a good pension and a path to a home and two cars is working as a greater at Wal-Mart. Not only has this happened to line workers at a factory, it has happened to middle managers, executives and top earners who previously had a good quality of life and a path to success for their children. People are angry and rightfully so.
Some commentators said that Trump’s victory was Whitelash against progress on social and racial progress. They say that the vote for Trump was a vote against a black president and black lives matter. There is no doubt that the US is a very racist place, both in the north and the south. You can simply read books such as Between the World and Me, A Case for Reparations or The Arc of Justice to see how racism is very deeply embedded in US society (and most others too). The presidency tends to cycle between the left and the right, which is not surprising. One team wins, the other adjusts and comes back. Back and forth we go. The arc of history is long and may bend towards justice, but it is not straight. Southern pro-slavery president Hayes was a response to Lincoln and emancipation. Nixon was a response to Lindon B. Johnson and the Voting Rights Act and Trump is a response to Obama. However, I think that Trump was a response to the lack of change Obama brought, not the actual change that did occur. Obama did not get much done for black Americans, did not create high paying jobs or reduce the American deficit, or improve government services substantially. Many people who voted for the Hope of Obama, voted for the Greatness of Trump. People want progress and they will go where that is offered with honesty. Clinton represented nothing – just more of the same.
Trump, for all his numerous faults, really believes in himself and he makes a compelling case. I remember an interview during the primaries on Fox News where Trump really made an impact, he is an expert communicator – much like George W. Bush. He just speaks in a different tongue that the educated class, one that appeals to a significant portion of the US population who had to suffer through the US public school system. This video compilation, selectively chosen, certainly makes Trump look great and revolutionary.
Personally I am a horrible predictor of politics. I thought Clinton would win, that Trudeau had no chance and that George W. Bush would never win in 2004. So, my opinion is not exactly worth much. Will Trump be able to execute on his promises, such as his 100 day plan, unlikely. Congress, despite being Republican, is fundamentally pro-big business due to campaign finance laws. Corporations might bite on the tax cuts, the oil and gas exploration and other items, but it will be simply amazing if Congress goes along with term limits (an idea I actually agree with) or the destruction of NAFTA. I am sure they will work something out.
With Brexit and Trump, one thing has become clear. Our societies have been cleaved in two – educated urbanites working in open-space offices with espresso machines (I plead guilty!) and a working class in lousy jobs, diminishing purchasing power and no prospect of measurable improvement. In many ways, this actually reflects the natural tendency of capitalist societies and has been thoroughly documented in Picketty’s book, Capital in the 21st Century. His research shows that the period after WW2 was an exception and what Trump supporters or Brits or even the French refer to as the 30 glorious years after the war, was a historical anomaly that was only possible due to the massive destruction of capital during the war and very high tax rates.
As soon as capital can earn money faster than a worker can, society dives back into a world of the haves and have-notes where it is nearly impossible to cross the chasm between the two. Can we go back in time to the boom years of the 50s- late 70s. Yes, it is possible, but it would take a worldwide war on the accumulation of capital at the top and a massive redistribution or quantitative easing for the people along with a revolution in the electoral system and a new division of power. How likely is that to happen without war? Not likely, but not impossible.
Also, this Munk Debate on the rise of Trump is pretty good.Published on November 27, 2016
Shifting the Narrative on Wealth, the State and Deserving People
In the excellent talk below, Yanis Varoufakis, Greece’s former Finance Minister lays out the compelling case for basic income. One of his key points, which basic income advocates should take to heart is the imperative to shift our social narrative on work, labour and the creation of wealth.
Yanis explains how we currently view the State and the private market as separate entities, when in fact they are one and the same. Without one, you cannot have the other. To convince people that a basic income is the logical and ethical thing for society to do, we must reframe the discussion as a dividend for the members of a society that produces wealth. There is no such thing as private wealth. All wealth is built upon the contributions of others – past and present. Without the invention of the internet and computers, I would not have my current job or company and without government, the internet would not exist – nor would the other private companies whose technology we use. Whether we like it or not, all wealth is communal. This point is also convincingly argued in Peter Barnes book, With Liberty and Dividend’s for All. If all wealth is created communally, then its benefits (or profits) should be distibuted to the community that created it. That is how dividend’s work for shareholder’s in a company and that is how a basic income could work.
Basic income advocates must also confront the other hard truth about a basic income: it is given to all and there are no deserving and undeserving members of a society. Not only is there no easy way to determine deserving vs. undeserving people, the very concept of designating some as deserving creates a power structure where bureaucrats can determine who is helped and who is not. I remember seeing a few years ago, in Toronto, a fantastic ad about why a punk on the street could not get a job. The ad was between the subway lines and about 10 ft from the viewer. It read, “Why can’t street kids get a life?” followed by large block of small text that could not be read from a distance, but presumably has a complex explanation, followed by “That’s why.” Life is complicated. A basic income would be a dividend for all members of a society to improve their chances in life – all while removing some of the arbitrary power government currently has.
Lastly, Vanis makes an excellent point that the wealthy already receive dividends and their children or relatives who did not earn the wealth are not terribly deserving of those dividends. Why does Paris Hilton deserve a dividend, but a kid from a working class family does not deserve one? In fact, both of them should have a dividend in the form of a Basic Income. I put this argument and others to a skeptical earner of a dividend, Stephen Bronfman who inherited money from his father’s business successes. Though he was unconvinced the beginning of the talk, he came around to being open to the idea by the end and I hope to fully convince him soon.
The time for basic income is coming, but to get us there we will need to shift the narrative we tell each other and our children about the origins of wealth and who deserves it. Wealth can only be created if there is a state and the rule of law and the more wealth we inherit, as a society or as an individual, the more wealth we can create. A society with inventions and discoveries to work off of, will create more wealth than a primitive society starting from scratch. Without calculus or antibiotics, today’s civilization cannot exist. A basic income is the fairest and simplest mechanism for us to create wealth while ensuring everyone can fully participate in society and reach their full potential.
On another note, Yanis Varoufakis book on the EU and the Greek crisis is fantastic : And the Weak shall Suffer what they must?. It provides clear (if opinionated) economic insights into the challenges of international monetary systems and the fundamental contradiction of a common currency between export nations (i.e. Germany) and import nations (i.e Italy). Canada overcame this challenge of export provinces and import provinces with a strong redistribution system between the provinces called ‘Equalization Payments‘. Québec has received about 5 billion dollars in annual transfers for the past decade, helping avoid the social and economic collapse as we see in Greece today. If you are interested in the history of the gold standard, Bretton Woods and the current impasse in the EU, the book is well worth the read. Also see his discussion with Chomsky on this topic and others.
Published on July 20, 2016