Floru 's Blog

HOW CAPITALIST IS CHINA ?

I visited China twenty years ago, as a backpacker. I had an awful time: everything was grubby, people were rude, food was poor. But on every pavement men and women in blue mao suits were trading. Day and night. Their wares were often exhibited on not much more than a handkerchief. A few lighters. Five cabbages. There was private banking, too. Out of nowhere somebody would turn up to offer you a quick mutually beneficial illegal currency exchange in sign language. The hard currency allowed them to buy Western products. Evidence of a strong mercantile instinct was everywhere. I remember thinking that if they were ever allowed capitalism they would grow very rich, indeed.

A few weeks ago I went back: what a change. Will they overtake us economically ? Many think so. I don't. At least not with their present political system. They are missing out in one vital aspect. The People's Republic of China was a communist tyranny. Now it is just a tyranny. The growth in prosperity created by capitalism is seriously hampered by bureaucracy and bribes.

The Chinese are free to trade. The welfare state is very limited: according to the state Xinhua News Agency China plans to spend £25 billion on its safety net in 2009, that is £18 per person. In comparison, the UK spends £164 billion, or £2,645 per person. Before privatisations, state owned companies and agricultural communes often provided cradle-to-grave healthcare, education, pensions, and healthcare. Now 300 million Chinese have no health plan whatsoever, with most others having to foot substantial percentages of every medical bill themselves. Corporation tax is 25 % or less (Hong Kong 16.5 %).

Free trade. A limited welfare state. Low tax. It is a textbook formula for economic success. With one caveat : one's legal position depends upon the whim of bureaucrats. Hence massive corruption. Hence massive abuse of power. Legal uncertainty which is a huge drain upon the economic potential of that great people. In the (outside China) recently published book China Cuckoo entrepreneur Mark Kitto gives a vivid description of how the company he set up in Shanghai was stolen overnight by the local tyrants. With no independent legal recourse.

So it looks as if the Chinese and the Western systems may even each other out. Our economy is seriously hampered by the cost of the ever expanding state sector and the ever expanding welfare costs; China's economy is hampered by whims and bribes. The actual cost of both jokes and whether they actually even each other out is difficult to assess.

But there is one vital difference. Because their welfare state is limited, the Chinese get on their bikes. China has the highest labour force as percentage of the population in the world. Where we enjoy a safety hammock, most Chinese do not even have a net. And with 1.4 billion individuals, that is a lot of activity and wealth creation.

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Filed 17 November 2009

THE LADY WHO ACCUSES THE EU OF SOVIET STYLE PRACTICES SHOULD BE EU PRESIDENT

Vaira Vike-Freiberga has compared the selection process of an EU President to the secrecy of the Soviet era. Indeed, Eurology is the new Kremlinology. Many months of guesswork by the media have resulted in the naming of the Seven Dwarfs - but what Snow White will look like we do not know. The Public will of course have no say in the matter. This is now customary in the EU. Why bother with democracy if Wise Men and Mandarins do it so much better ? Ah. The D-word (disapproving glances from Eurocrats and statists) - the D-word is not to be mentioned. After all, we all know that if we'd had a democratic say, the EU would be a free trade zone and not much else. The Wise Men and Mandarins would simply not have been there.

Quick highly scientific research on Wikipedia taught me that Ms. Vike-Freiberga's family fled Latvia after the communist takeover. She was a professor at Montreal University. She was Latvian president twice, with very high approval ratings. She apparently liked to meet her constituents in person (eyebrows go up in Brussels). She is outspoken on moral values and democracy (eyebrows in Brussels go even higher, accompanied by frowning). Like every female top politician abroad since The Original she has been called The (Latvian) Iron Lady. Of her views little is said though The Daily Telegraph reports that she is seen as centre right.

So yesterday she lamented the secrecy in Brussels... That lowers the odds of her getting the job to something like one million-to-one. Even Brown may stand a greater chance. I think her utterance shows that she is perfectly qualified for the job. Personally I would of course prefer to remain a subject of Her Majesty the Queen, rather than a president. But Labour and LibDems decided otherwise.

Filed 13 November 2009

BROWN’S BRITISH DREAM : MORE ON THE DOLE

Brown has reduced the competitiveness of the UK’s labour market. This means less investment and less employment by companies in the UK.

The government’s labour flexibility measure ILMA shows rising flexibility until 2000, and stagnation after that. A key flexibility component which rose was supply of labour (immigration). Working time, pay and employment flexibility declined. The balance shows a neutral - but will go down as immigration slows. The IoD Index of Labour Flexibility shows that Denmark and Ireland are more flexible than the UK and others catch up.

Growing inflexibility stems from the deluge of UK and EU employment regulations: minimum wage; parental pay and leave, part-time and short-term workers enjoying full benefits, etc. More is coming: the Revised Working Time Directive; the Temporary Agency Workers Directive, etc. Link to IoD

Filed 24 March 2009

Copyright Floru 2007