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An Age of Paradoxes

by Mable-Ann Chang

November 3, 2020

Book cover of China's Gilded Age, by Yuen Yuen AngYuen Yuen Ang, author of China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, looks at the global impact of China’s rise and how corruption has evolved over time

How has China managed to grow so fast for so long despite corruption on a large scale? That is the question Yuen Yuen Ang has addressed in her latest book, and her answer is that while all corruption is harmful, not all types of corruption impede growth.

Ang, a political scientist and expert on China and emerging economies, is also the author of the award-winning book, How China Escaped the Poverty Trap, which challenged conventional linear models on the development of China’s political economy after the implementation of market reforms in 1978. She has been an adviser to the United Nations Development Programme (UNDP) and several governments on innovation and inclusive development, as well as China’s Belt and Road Initiative. She has recently been examining the impact of China’s rise on the global order and international development.

In this interview, Ang reflects on what “the China model” really is, how China’s gilded age compares to America’s gilded age, and whether China is “winning” in the post-COVID era.

Your last book was about how China escaped the poverty trap. Could you summarize how China did it, and whether it is sustainable?

How China Escaped the Poverty Trap is often misunderstood to be a book on poverty alleviation policies—but it isn’t. China achieved its accomplishment of lifting 700 million people out of poverty since market opening in 1978 through rapid capitalist growth, accompanied by inequality and corruption. President Xi’s poverty alleviation policies only came after 2012, when China was already a middle-income economy.

My book tells a historical story from 1978-2012. Those were the critical 35 years that took China from a closed, impoverished and communist society to the world’s second largest economy—one that is now integrated into the global capitalist economy. While there are many factors behind this tectonic process, my book focuses on its political foundations. Simply put, I examine what changed inside the government that enabled China’s economic rise. And this change can be captured in two words: directed improvisation.

First, the word ‘directed’ captures the fact that the central government changed its role from dictating to directing. It provided guidance and a conducive environment for local actors to experiment and find local solutions to local problems, instead of telling them exactly what to do. That was a big movement away from central planning.

The second word, ‘improvise,’ implies adapting by ‘using what you have.’ If you look at the cases in this book, you’ll find that solutions are locally specific. Local officials made best use of particular advantages in their jurisdiction. Localization is familiar to Chinese culture and thinking. It is more foreign to Western culture, which values standardization and universal best practices. It is the reinvention of governance along this line of directed improvisation that provided the political foundation for the extraordinary dynamism that we saw in China from 1978 onward.

“Directed improvisation” is enduring, even timeless. Its lessons will always be relevant for China, because at any point in time, and particularly in a context of tremendous uncertainty, societies need an adaptive and flexible governing system. But over the past few years, China has regressed toward a more controlling and top-down approach. This in part has to do with misunderstanding within China of how China rose. There is a predominant opinion that it was autocracy that made China great again. That it was centralized rule and conformity around a single ideology that made China great again. Many have failed to see that it was actually an adaptive, flexible and pragmatic governing system that enabled China’s rise.

What lessons from the “China model” of economic growth are transferable to other societies?

The country that most needs to learn from China’s reform history is China itself. In recent years, China has been eager to share lessons with other countries but first, China must learn what it did right and wrong in the past before it can teach other developing countries.

To date, there has not been an official consensus on what the “China model” is. One common narrative is that the China model is centralized authoritarian rule plus large infrastructure investment. This is misleading. Under Chairman Mao, China was a highly centralized authoritarian regime, and yet it failed miserably. We also learn from the Maoist period that although centralized authoritarian power has certain advantages in mass mobilization, which we have seen during the COVID-19 pandemic, it also has some fatal flaws. When power is highly centralized, the nation’s fate is completely dependent upon the personality of the top leader. As for the infrastructure boom, this came late, in the 2000s. Before this, China’s economy did not take off by splurging on grand infrastructure projects—it began with rural industrialization and liberalizing small private businesses.

In short, telling the story of China’s development is by itself a contested and politicized process. If people buy into the narrative that centralized control and mammoth state enterprises had led to China’s rise, then it justifies these policies domestically. It also gives foreign critics reasons to claim that the so-called “China model” is threatening.

People talk about the system that has allowed China to escape poverty as being state capitalism. What do you think of that characterization?

The term “state capitalism” is thrown about frequently but rarely defined. Most people associate state capitalism with two things. The first is a dominant public sector and big state-enterprises and the second is industrial policies. Thus, for many, the term “state capitalism” basically means a centrally planned economy. I have met Western business executives who are under the impression that China’s rise is the result of central planning.

The label of “state capitalism” is misleading because it ignores the fact that China’s economic boom was and is driven by the private sector. The private sector accounts for 60% of gross domestic product (GDP), 70% of innovation, 80% of urban employment, and 90% of new jobs. The most successful Chinese companies such as Alibaba and Hengli are private companies.

Another pattern to highlight is that from 2012, under President Xi, China has moved away from the private sector toward the state sector. Private entrepreneurs have become increasingly concerned that the political system is less welcoming of them than before, to the point where Xi held a symposium in 2018 to reassure them of the government’s support. That by itself indicates real concern on the part of the private sector. This shift reinforces the popular perception in the West that China is a centrally planned economy.

In your most recent book you talk about China’s “gilded age” and the paradox of economic boom and corruption. Has this age ended? What is its future trajectory?

First, it’s not clear when China’s gilded age began—this is a matter of interpretation. The American gilded age happened more than 100 years ago, so historians have already established its start and end dates. In China, however, the gilded age is recent, and perhaps still ongoing. Thus, there is no consensus yet on when it began and whether it has ended.

My interpretation is that the reform period, starting from 1978, is the gilded age because it fits the defining characteristics of what we understand to be gilded ages, namely rapid growth and transformation accompanied by crony capitalism, massive poverty reduction along with rising inequality and the creation of a new super-rich class. It’s an age of paradoxes. Has it ended? One interpretation is that it ended in 2012, with Xi’s administration. He has launched the Party’s most vigorous anti-corruption campaign, and to that extent we might say that it seems to be aligned with the American progressive era.

The future is hard to tell because of the pandemic and the China-US Cold War, but if we look at long-term trends, it is clear that China’s experience has been mirroring the American evolutionary path of moving away from petty bribery and embezzlement into a type of corruption that I call access money—elite exchanges of power and wealth. This form of corruption is also becoming more sophisticated in the way it is carried out.

How does China’s gilded age compare to the gilded ages that occurred in the US in the 20th century, particularly from a systemic perspective?

There are both similarities and differences. Both were periods of rebuilding after destruction. In the US, the gilded age followed the Civil War. In China, it was after the Cultural Revolution. Therefore, both were periods of reset, and in this period of reset, you see a new class of super rich being formed.

For thousands of years, China had a land-holding wealthy class, which was destroyed when the Communist Party took over. Under Mao, there was no growth for anyone. But after markets opened in 1978, a whole new class of rich arose. I’ve interviewed many successful entrepreneurs in China, and for those who are middle-aged, their stories are those of rags to riches. They were born into poverty or witnessed the confiscation of their family’s wealth. All of them experienced hunger under Mao. Then because of a combination of luck, hard work and connections, they managed to climb to the top. Their stories bear resemblance to the tycoons of America’s gilded age, many of whom also came from humble backgrounds. Both groups knew how to take advantage of an emerging economy that was chaotic but also full of opportunity.

When it comes to differences, there are a few that are worth noting. The key difference is that one is a democracy and the other is not. That means that these two societies had different reactions to corruption. In the American gilded age, democracy was mobilized to fight corruption whereas in China it has been the opposite. President Xi dealt with the corruption by employing the disciplinary arm of the party in a strictly top-down manner. It was an expansive campaign that has disciplined more than 1.5 million officials to date.

Most countries with high levels of corruption are poor. How was corruption in China different?

China’s corruption is different in that the most dominant type of corruption in China is access money—the exchange of power and wealth—rather than petty bribery, bureaucratic extortion or embezzlement. In my book, I created my own index of corruption that allows us to compare corruption structures between China and other developing countries. This index reveals stark differences. India and China are both perceived as corrupt. But in India, the most dominant type of corruption is petty bribery, whereas in China it is access money.

Different types of corruption have different economic consequences. I compare access money to steroids. In China, access money spurred economic growth and investment because it encouraged businesses to invest and rewarded politicians for promoting development. But this corruption also produces perverse outcomes: inequality, over-investment in real estate, and a movement away from manufacturing into speculation, to name just some. By understanding the type of corruption that prevails in China, we can better understand why China has a high growth but also distorted and unequal economy.

How would you rate the corruption level in China now compared to the pre-Xi Jinping era? Has it decreased or has it just become more discreet?

We don’t know for sure because measuring corruption is difficult, but Chinese officials are definitely more cautious than they were before. Xi’s corruption campaign has been so vigorous that it has produced a backlash, which is that officials are terrified of doing anything. That has led to a common Chinese term called ‘lazy governance.’ It remains to be seen how corruption will evolve in the coming years, especially given the global disruptions we’re facing.

Corruption will not be eradicated completely because as long as government officials have tremendous power over the economy and resources to distribute, there will be a demand to buy their favors. The question is whether it will evolve into different forms and migrate into different sectors, such as technology. Corruption used to be highly concentrated in land and real estate because those are the sectors where power is most easily monetized.

In your most recent article in Nature, you talk about how the political debate about whether autocracies or democracies are better at fighting epidemics is misguided. What do you mean by that statement?

During the COVID-19 pandemic, it has become popular to debate whether democracies or autocracies are better at fighting the outbreak. I say that this is misguided because the debate is framed to present a false choice, namely that if democracy is imperfect, then people should choose autocracy. The right question to ask is: What are the strengths and weaknesses of the two political systems in dealing with a pandemic?

Authoritarian regimes have certain advantages, particularly in mass mobilization, which we have seen in a dramatic fashion in China. When the president declared that the outbreak was a crisis, the government spared no expenses to curb infections and it was truly effective. But, on the other hand, there are weaknesses. In the absence of a vibrant civil society and a climate where ground level actors feel free to speak the truth, it is difficult to prevent epidemics from arising in the first place. The government, no matter how strong and powerful, cannot always detect every virus and every problem. When you have a highly centralized regime, where civil society is weak, what you often find is effective action at curbing a problem only after it has already been blown out of proportion.

By contrast, the key advantage of democracies is the strength of civil society, the bottom-up responses. Despite the failure of the federal government in the US, local governments and civil society have been stepping up every day. In New York City, when there was a call that went out for volunteers, tens of thousands of retired doctors and nurses stepped forward to essentially enter a battlefield. If we look at the discourses coming out of China, they tend to only talk about the ways in which democracies have failed, without talking about the ways in which voluntary civic actions can be empowering. It also does not mention examples of democracies that have combined freedom with state efficacy, such as New Zealand.

Thomas Piketty and others have pointed to the kind of global issues that are coming to the fore more and more often as examples for the need of greater international coordination. How do you envision the global balance of power in the decades to come?

Understandably, geopolitics has been getting a lot of attention lately. The hot debate is which nation will dominate in the 21st century, and whether China is “winning” in the post-pandemic world. This conversation is appealing but misleading.

It’s true that Western hegemony is diminishing relative to the past and we are moving toward a multipolar order. But it doesn’t mean that the 21st century will belong to China or to Asia in the same way that the 20th century belonged to the United States and the 19th century to the United Kingdom.

The truth is that nobody will win in the 21st century. People have been so fixated on “winning” that they’re not willing to see this obvious truth. The reality today is that we face existential crises shared by all of humanity, which were not salient in the 19th or 20th centuries. We’re facing climate change, rising seas, the pandemic and other transnational problems. Given these kinds of crises and disruptions, it just doesn’t make sense to fixate on who is going to win in this environment.

 

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