strategy professor

strategy professor, strategy, professor

This program is a follow-up on an earlier program we did. That program was devoted to the Soviet Union,that first example in the modern period of history of an attempt to build a socialistsociety. I built that program and the one today aroundthe following assumption; that in many conversations about capitalism and socialism as alternativesystems mention is made, particularly by the older generations, of the Soviet Union andtoday about the People’s Republic of China. These are looked at as examples (good, bador mixed) of what socialism is. They certainly are examples of what some ofthe early efforts at building socialism look like and because they’re spoken about so often,referred to and thought about, it seemed a reasonable time for me to devote some attentionto analyzing them. We did that with the Soviet Union in the earlierprogram and today we’re going to do it with the People’s Republic of China. Before I jump into it let me be really clearabout how we are going to do it. This is not an exercise in “we’re good. They’re bad. ” Either way that comes from the Cold Warwhich was supposed to have ended in 1989-90 but clearly hasn’t, or at least the Cold Waris alive and kicking in the minds of some of our fellow citizens. This is too bad because it prevents the kindof balanced approach of looking at the pros and the cons that a mature and intelligentconversation ought to be about. Capitalism has strengths and weaknesses. Socialism is an alternative and it has strengthsand weaknesses. We’d all be better off if we were able totalk about all of that without resorting to childish invocations of how “we’re goodand they’re bad”. You really ought to get over that at a certainpoint in your life or else something’s wrong. We’re not going to go there so let’s go. Let me begin by talking about what economistsoften talk about when comparing different kinds of societies andcomparing different countries. You might remember that Adam Smith’s greatwork “The Wealth of Nations” published back in 1776 was about explaining why someway nations are wealthy and some nations are not and to account for that, to understandit. Part of that was a very generous impulse Mr.Smith understood that poor countries would like to not be poor and wanted to learn whatthe rich countries might be able to teach them about how to get to that situation. China was one of the poor countries at thetime Adam Smith wrote and it got poorer after that. By the 20th century (the last hundred yearsor so) the Chinese people were not only the most numerous people of any country on earth(they remain today the most populous country on this planet by far) but also very poor. The capitalist part of the world had grownmuch richer in the intervening couple of centuries so they were even further behind as well asbeing absolutely poor. So, they were focused, like most of the peoplein the world are, on overcoming poverty. So that’s been their major goal and it’s areasonable place to start to assess how well they’ve done. If these numbers trouble you then please understandit’s because you did not know about them before, not because there’s anything wrong with thenumbers. Over the last 20 years the People’s Republicof China has increased its output of goods and services faster than any other countryon this planet. In the case of the comparison between thePeople’s Republic of China on the one hand and the United States of America on the otherthey’re not even close. Let me explain with some numbers. The rate of growth of output of goods andservices (the productivity of the economy, if you like) [for China] in 2005 was 11%. In 2017 it was 15%. In 2010 it was 12% and it has slowed downsince then. Over the last year it was a mere 6.4%. If you wanted to average it out it was probablyin the neighborhood of 10-11% over the last 10, 15, 20 years. By comparison, let me give you the numbersfor the United States of America.

strategy professorBy comparison, let me give you the numbersfor the United States of America. Its average growth rate in the 1950s and 60swas 4%. In the 70s and 80s it fell to 3% and in thelast 10 years it has averaged 2%. In the latest year it was 3.2%; half of whatit was in China, but for most of the last 20 years the rate of growth of China has been2 to 3 to 4 times that of the United States. That, in a simple way, tells us something. Number one it explains why we’re reading andhearing so much about China; because they have become the second most important economyin the world because they have achieved these extraordinary rates of economic growth. Number two it will help you understand somethingelse about the people of China: they are not about to be pushed around, neither by Mr.Trump nor anybody else because they have the economic strengthto resist. Number three, if you’re the government ofthe People’s Republic of China (and that is a government in which the Communist Partyof China is dominant) you are hardly about to change the way you organize your economygiven how well it has been doing. Governments change either willingly or underpressure when they’re doing badly for their people. It makes people bitter, angry, critical, andliable to push for change. This is something Americans no doubt understandssince it’s a situation we face here in American capitalism, or in Europe withtheir capitalism that’s not doing really well for an enormous number of people. As a consequence, criticisms are rising. You see a rediscovery of socialism, for example,here in the United States, you see the yellow vest movement demanding fundamental changesin France and you see all kinds of other movements we don’t have the time, today, to go into. I like to deal with them occasionally, atleast, in other programs. This is already enough to explain to you whythe People’s Republic of China is the economic phenomena of our time. Let me turn next to the second most typicalstatistic to look at if you’re comparing countries and you’re trying to understand what’s goingon with the development or not, of wealth and poverty. This number is called the “real wage”. Here’s what it means: how much can peopleafford to buy with the average wages they get. To understand that we look at two numbers. First, how much money is given to people perhour for the work they do and on the other hand what are the prices of the things theybuy with the wages they get. In other words, if your wage goes up by 10percent but so do all the prices you face, you’re not one bit better off. You got 10 percent more money but it doesn’tbuy you anything but the same quantity of things it bought you before. When we adjust the wages workers get for theprices they have to pay, we get what’s called the “average real wage”. What you can afford with the money you get. Let’s compare the last 20 years in the UnitedStates that is this century so far in the United States with that in China. In the United States real wages (the averagewage of the American worker) has stagnated. It has gone nowhere. That’s true not only for the 20 years we’retalking about of this century, it’s true for the last 25 years of the 20th century. Here’s a statistic for you to think aboutas an American if you’re watching this program from the United States or listening to iton the radio here. In 1973 the wage of the United States, theaverage wage of an American, was able to buy (here we go now) MORE things than it was in2018. The real wage in the United States is lesstoday than it was then. It’s not less by a lot but it means that overthe last 40 to 45 years Americans who have worked harder than ever, who have been moreproductive than they ever were across that time, have not shared in their greater productivity. Their real income, their real wages have notgone up.

strategy professorTheir real income, their real wages have notgone up. The real hourly wage in the United Statesis lower today than it was in 1973 and that is something to think about. But now comes the Chinese story. Over the same period of time, the last 20-25years, real wages in the People’s Republic of China have quadrupled. Let me tell you that again. The basket of goods and services that an averageworker gets in China for an average hour of his or her work is four times greater todaythan it was 25 years ago. Yes, Chinese wages remain below the averagein the United States because they were and they still are a poor country when you dividetheir total economy by the enormous number of people that live in that country. But if you want to understand why the peopleof China support their government here’s a clue: their real wages went up four timesover the last 25 years in a society led by a government in which the Communist Partyis the dominant political force. Let me pause to let all of this sink in. This is not about whether you like these numbersor don’t this is not about whether you’re critical of many aspects of Chinese societyor you’re not. I myself find things in China I admire andthings in China I would like to avoid. I try to look at the strengths and weaknesses. But when it comes to the economics of theirsocialist system and I compare its performance over decades to this moment, there is no contestabout which system has served its people better in terms of economic growth of output. The economy as a whole and the real wagesof the average worker in that society. Is China an example of equality? No. It has a great deal of inequality. There the United States and China have somethingin common; high inequality that’s actually getting worse. We will continue after the mid program breakto talk about what’s going on in China so that we understand what the internalmechanisms are that explain this performance. Before breaking let me remind you, please,to make use of our websites: and Please subscribe to our YouTube channel. Just go to And finally I want to thank our Patreon communityfor the support it continues to provide. We are grateful and appreciative. We’ll be right back. Welcome back friends to the second half oftoday’s economic update. We’ve been talking about the People’s Republicof China. In the first half today we spoke particularlyabout its performance as an economy: its rate of growth in production of goods and serviceson the one hand and the rate of growth of the average real wage of a Chinese workingperson on the other. Having shown the remarkable success of theireconomic growth program in both those ways I want to turn now to how they did that. How do they organize their economy and particularlyin what ways differently from that of the United States or Western Europe that mighthelp us account for their extraordinary performance? First, and perhaps most important for manyof you that are watching and listening, is to understand that the Chinese economy forquite some time now has had a mixture of privately-owned enterprises and state-owned enterprises. wYou might think of it as a mixed economybetween private and state. It is also true over the last 2025 years thatthe role of the private sector has been enlarged, relative to the role of the state sector. However, that has to be made a little morecomplicated by noting that the Chinese, in managing this balance between the state andthe private, give the dominance to the state. They say that the state-owned enterpriseswill always be the leading sectors, the main industrial groups within the Chinese economy. There’s plenty of room for private enterprisesbut the leading part of the economy will be the state.

strategy professor the state.

strategy professorthe state. Why are the Chinese doing that? First and foremost, they are doing it becauseit’s their way of learning from the experience of the Soviet Union. When the Soviet Union’s kind of socialism(in which the state was overwhelmingly dominant and the private sectorwas really quite restricted), when the Soviet Union collapsed in on itself in 1989 it wentthrough an extremely quick transition from an overwhelmingly state industrial sectorto an overwhelmingly private one. This was pushed by the folks in Russia whowanted these changes, it was pushed by foreign advisers led by Jeffrey Sachs now of ColumbiaUniversity. It was called a kind of “cold shower treatment”or sometimes “shock therapy” as a way of fixing what was understood to be wrong. The Chinese analysis is that the sufferingof the Russian people in the 30 years since then (the failures of the Russian economyin the 30 years since then) had largely to do with the excessive speed and the excessiveextent of what happened in the Soviet Union. They have been determined not to repeat thatmistake. In other words, their communist party’s planis to make the transition slow and limited. Yes, foreign enterprises can come in if they’reprivate capitalist enterprises, and many have. Yes, Chinese people can set up private enterprisesas many have. But the leading sectors of the economy willremain state-owned enterprises running the program of economic development that the stateorganizes under the leadership of the Chinese Communist Party. It’s important to understand that the Chinesekind of socialism is itself a learning process in which what happened to the Soviet systemis playing a major role, in this case of what not to do in the way that happened in theSoviet Union. But it is not the only factor that’s involved. To continue the comparison with the SovietUnion, because the Soviet Union was the first socialist country and completely isolatedafter the 1920s, surrounded by a world that hated what they were doing, they couldn’tand didn’t find a way to build their economy by exporting. They could not produce for therest of the world, make a lot of money that way and use it to develop their own economy. They had to do it pretty much on their own. The Chinese have taken a different path thereas well. Early on the Chinese decided (at the end ofthe last century the beginning of this one) to hitch their economic wagon to the worldmarket, to become the producer of goods and services for sale around the world. In order to do that they had to build industriesthat produced what the rest of the world did either at a higher quality or at a lower priceor both. Basically, they’ve done that which is whyChinese automobiles join Chinese appliances, Chinese clothing, Chinese you-fill-in-the-blankis everywhere. Most of what you will see in an average Walmartis made in China and there’s a reason why Walmart stocks up on Chinese goods, and they’renot the only company of course. So, they hitched their wagon to the worldmarket and they’ve done very, very well because of it. The Russians couldn’t do that and the Chinesecould and they did. Here’s another thing: private capitalistsdidn’t go into Russia hardly at all but they have been rushing, stumbling all over themselvesto get into China. The Chinese understand that and they offeredWestern capitalist enterprises the following deal. We need your technology, the Chinese said. We need your money, your capital to be invested. So here’s the deal. We offer you, we will provide you with welldisciplined, efficient, hard-working workers at a very low wage (the one that we have herein our poor country) and we will build the roads and provide the supports for you tobe able to make a lot of money producing here in China more cheaply than you could everproduce in America, or Western Europe, or Japan etc. All we ask in exchange is that you share youradvanced technology because that’s why we’re

strategy professorAll we ask in exchange is that you share youradvanced technology because that’s why we’re doing this with you. You will have access to our workers and youwill have access to our customers to sell your product, but we want your technologyand your capital. Nobody put a gun to any capitalist enterprises’head. They made the decision to accept the offerof the Chinese because it was profitable them for them to do so. If it meant that they laid off workers intheir home countries, these capitalist enterprises, they could care less. They did that. They abandon whole industries. They abandon whole communities. That’s how capitalism has always worked onlythis time, with this destruction of working people in the West there was a boon to theworkers of China, which is why I gave you the numbers about the average real wage. So, the Chinese used the world market. The deal they struck with private capitalistsand the lessons they learned from the Soviet Union to organize what they call a specialChinese kind of socialism that allows for private enterprise (a considerable amount),allows for market dealings (a considerable amount), but controls from the top throughthe state-owned enterprises the leading or dominant sectors of the Chinese economy. The last part of the show for today is togive a little historical context China is an old civilization and a quite homogeneouscivilization. The Han people are the dominant ethnic groupand other ethnicities are small and scattered. The Chinese are a proud people with a longhistory of a pretty well-developed civilization which at various times over the last coupleof thousand years was much more developed than civilizations in the West were. So for them it was doubly embarrassing, humiliatingis the word they used, to fall under the control of foreign colonialists in the 17th, 18th,19th century from Britain, from France, from Germany, from the United States. It culminated in a horrible moment of rebellioncalled the Boxer Rebellion at the end of the 19th century when a futile effort by the Chineseauthorities to push back against the Western imperialists was defeated. China was never made into a colony. They’re very proud of that. But they had to give away Hong Kong and partsof their country to the foreigner who controlled them, who settled their merchants and othercompanies in these special territories where they didn’t findthemselves subject to Chinese Authority or Chinese law. The Chinese, as a people, made a commitmentto find their own way, to break, led by Sun Yat-sen at the beginning of the 20th century. And when that wasn’t sufficient and when theywere added the humiliation of the invasion of their country by the Japanese in the 1930sa revolt of a much deeper sort took place in China. They were successful. At first it was an alliance between the nationalists,who wanted to build up a capitalist China. and the Communists, who wanted to build upa socialist China. But they worked together to push the Japaneseout. By 1945 they had done so, together with thefight of the United States and its allies against Japan. As soon as World War II was over the alliancebetween the capitalist / nationalist Chinese under their leader Chiang Kai-shek ended upin a civil war with the Communists, their former allies, led by Mao Zedong. A civil war broke out from 1945 to 1949 endingwith the decisive and complete victory of the Communist Red Army. The Chiang Kai-shek people left the mainlandof China and went to Taiwan where their descendants still live and still imagine that they, onthe little island, are China whereas the vast mass of people on the mainland are somethingelse. No one hardly is left in the world who sharesthis delusion. From 1949 to now, 70 years, is historicallynot a long time. But from a decimated, poor, colonialized countryChina is now the number two economy in the world. It is an incredible achievement. Not to understand that, not to understandwhat this means in the minds in the feelings and in the pocketbooks of the Chinese people,not to understand that it has involved moving four to five hundred million people off ofthe poverty-stricken countryside into the urban industrial jobs along the coast of China,these are misunderstandings that make no sense. You are not helped in understanding, let alonefixing the problems of the world, by living in the delusion that the things I’ve triedto get across today are not the case, don’t have to be taken into account and somehowdon’t matter. Unfortunately, in the mainstream media ofthe United States, and in other parts of the West, most of this is simply not reportedon, not covered, evaded. That doesn’t do anyone a service unless it’sthe people who run the kinds of society China isn’t, who are afraid of the model and theexample China offers. For my part it is our effort, here at economicupdate, to provide the kind of information on the basis of which rational decisions canbe made about making the world a better place. I hope you have found these in-depth analysesof the Soviet Union and China a useful part of the ongoing debate about capitalism andits alternatives, the number one of which is varieties of socialism. Thank you for your attention and I look forwardto speaking with you again next week.