Will Hutton: “You can't do it in a communist system”
VIRGINIA TRIOLI: As you would have heard from one of our commentators in that report, Will Hutton, that person is calling for a multilateral agreement between the US, Australia, Japan, to join with India in that agreement and to put aside whether that disturbs China or not. Do you agree with that? Should we not be perturbed about the reaction that might provoke from China?
WILL HUTTON: I think you should not be disturbed by the reaction of China. I think there is a big internal debate inside China. One of Hu Jintao's three closest advisers has recently written a paper, it’s not widely known about in the West but he’s written a paper arguing China has internally to start migrating to more democratic structures and that the party should start preparing for that, and that is actually congruent with a position internationally in which China upholds the rule of international law. There is a debate inside China. It isn't all about the conservatives in the regime having the whip hand. There are voices very sympathetic to the kind of politics, the kind of institutions we have in Asia generally, and they want to migrate in that direction. So, you know, you want to help them, I think, in the internal debate inside Beijing.
VIRGINIA TRIOLI: Did we see that today with the legal recognition of private property in (China)?
WILL HUTTON: ...In China it is a big moment, although the devil's in the detail with everything in China. My understanding of that is it now makes private property co-equal with state property. Of course, for some years now you've been able to hold property on leaseholds in China. There's been 30-year leases, 50-year leases and 70-year leases in some of the peasant farms. The difficulty has been what happens as you move to the end of the lease, will you get it renewed, can you be certain it will be renewed? Now there will be that certainty. There will also be certainty about being compensated if land is taken off you.
Of course, the downside is... it also means people who have been engaging in, frankly, outright corrupt land grabs - many officials in many of the provinces are not compensating villagers and peasants for what they've done – can now can say, "It's mine, private property rules in China" but, be careful, everything in China dances to the tune ultimately of the party. The state remains in control of everything, and this private property law, although it's an advance, is still very constrained. We're not talking about private property as you understand it in Australia.
VIRGINIA TRIOLI: Will Hutton, given you mentioned before that China won't want to feel left out of this regional move towards democracy, do you care to speculate about a time frame of the shift in that direction?
WILL HUTTON: Yeah. I think that what happened in the Soviet Union was when the fifth generation of leaders came into power, that was Gorbachev – I mean, it wasn’t just Gorbachev, but none of the Soviet Union’s nomenclature believed in the system anymore. It was so dysfunctional that they knew they couldn’t make it work. And the fifth generation of Communist Party leaders, in China, come to power in 2012, when Hu Jintao steps down. Hu Jintao was anointed by Jiang Zemin, and he in turn was anointed by Dang, who was one of the so-called immortals and trustees of the revolution. I mean, Dang was there on October 1, 1949, when Mao took the salute in Tiananmen Square in front of the Forbidden City and proclaimed the People's Republic of China a Communist state, a Communist policy. That kind of handing the baton on kind of weakens. When Hu Jintao hands the baton on to his successor in 2012, he’s going to have none of that legitimacy, and I think the fifth generation, the fifth generation of Communist Party leaders in China are going to look at the system and just say, "This is dysfunctional. It doesn't work. We have simply got to change it." I think that is coming from the top.
I think the nomenclature, if you like, in China, the senior officials around the place, don't really believe any longer in the rhetoric of communism, and they don’t really believe that actually they’ve got the techniques available to run this economy properly. There is a lot of inflationary pressure underneath in China, a lot of inflationary pressure in China. Never forget, it was a hyper-inflation in 1948 that provoked the nationalists losing the civil war with the communists. It was inflation moving upwards that was one of the causes of Tiananmen, one of the most important causes of Tiananmen. The savings are so high in China that, the minute people think it is threatened by inflation, you get political instability. I don’t think they have got the techniques available to them to control the enormous inflationary pressures that are building up. I suspect there will change in 2012 and 2020, and I’m prepared to have a small bet on it.
VIRGINIA TRIOLI: That’s right. Will, a key question in your book, The Writing on the Wall, is whether the baton of global leadership is going to pass from Anglo-Saxon hands, which holds so many values in common, to Chinese hands. Do you mean by this simply economic supremacy or something more?
WILL HUTTON: You know, I think, that quadrilateral deal - India, Japan, Australia and the United States are actually very different cultures, but actually the four states would all sign up to the UN Declaration of Human Rights, all have forms of functioning democracy, all have relatively free media, all have a court system that is not controlled by the state, all have – science, for example, in all four countries, peer review, tremendous sense that actually if you publish a scientific extract you better correspond to truth - all of that is what those countries share. I call that enlightenment values. That's not true in China. China - no checks and balances, no rule of law. The court system is fixed, the police is run by the party, the media's under control. Even science is actually a bit corrupt in China. There’s a lot of counterfeit and intellectual copying going on. This is the counterfeit capital of the world, China. It is the environmental kind of sink of the world and the reason is the lack of checks and balances and all the constitutional things we take for granted in the four countries that are the signatories of that pact.
What I'm trying to say in the book is that I think that, whether you're Asian, like Japan or India, whether you’re Anglo Saxon, like Australia and the United States and Britain, those values are actually universal, and they don't have them in China. A lot of people in China want them and I think, over the next 20 years, China will move in this direction, and we have to handle this with great care.
VIRGINIA TRIOLI: In fact, Will Hutton you go further in the book and argue the lack of these enlightenment values - not only is it sad and bad that they're not there, that stands in the way of China actually developing as it should financially. You say it's unsustainable because it doesn't have these values.
WILL HUTTON: That’s exactly right. People don't really understand how dysfunctional China really is. It is growing very rapidly. We all know the numbers. You know them better than I do, in Australia...
VIRGINIA TRIOLI: It's managed pretty well so far.
WILL HUTTON: It's done the easy bit, and that's actually what a lot of people in the party think. The next bit is the hard bit. For example, in ‘95 they set the target of having 50 private companies in the world's top 500 by 2010. They'll be lucky to have two and you have to ask why have they failed? Here they are, next year they'll be the world's biggest exporter, why are there no great Chinese companies? Why haven't they built the equivalent of Toyota or Sony, as the Japanese did? The answer is that actually you can't do it in a communist system, in which everything is second guessed by the party. Every company in China has a Communist Party committee sitting under the management board, and they will fix you - if they think there's a way of maintaining employment, or something, your fast-growing company is forced to merge with a loss-making company. There’s a long list of companies that have been kind of mismanaged in that way.
Productivity, state and enterprise is one-third of Chinese GDP. Wait for this. Productivity, state enterprise in China is lower now than it was under Mao Zedong. In fact, the productivity in the whole economy is lower now than it was under Mao Zedong. It takes more investment to get an incremental additional dollar increase in output than it did 30 years ago. It is unbelievably inefficient, unbelievably inefficient. The foreign-owned sector and private sector in China is really doing the business, the rest of it is actually in the dark ages. You need whistleblowers, you need to hold managements to account, you need shareholders that hold managements to account, you need unions to hold managements to account. You need innovation that is rewarded by having property rights that allow you to get the return from what you've invented. You need a media to hold you to account. One of the reasons why the environment is such a disaster in China is whistle blowing. Who is going to take any notice if you pollute a river?
VIRGINIA TRIOLI: But, Will Hutton, if China made this transition and adopted those values, and had the accountability and checks and balances, and, presumably, then, following your argument, continued to boom even more greatly in an economic sense, could the world stand it? Would that be a good thing, an even more strong financial powerhouse called China?
WILL HUTTON: I think that China is – it’s a continent the same size as the United States of America. It has 1.3 billion people. In fact, some demographers in China think there's another 150 million that they've lost, and - that the number is actually 159. I think if they champion this kind of process, yes, and I think China will meet the promise that Napoleon made 200 years ago, that when China wakes it will really wake up the world. But, actually, as matters stand, it’s essentially a subcontractor to the west, it is a dysfunctional society. Unemployment in China is over 25 per cent. The country has to create 24 million jobs a year just to maintain social stability. Twenty-four million jobs a year, that's twice Australia's working population, for God’s sake, and that’s every year.
The Ministry of Labour is on record as saying that, actually, by 2010, they can't promise social stability, unless there's a change in the way the whole place functions. We tend to think of China as this unstoppable tsunami that's going to sweep us all away. We must think of it instead as - it has done very well, it has got profound dysfunctions and problems that root ultimately, back to this system of what I call in the book “Leninist corporatism”, ruled by the party, that actually they're going to have to join in and start developing the same kinds of structures that other countries in Asia have, that that is where history is taking us, and I think China will join in that grace force of history.
China Blog
Monday, 19 March 2007
