How firm will hand on the tiller be?
Updated: 2012-10-18 08:07
By Robert Blohm (China Daily)
The outcome of the presidential election in the United States will determine whether the US has a more government-led or market-led economy, commonly seen as a struggle between the left and right of the US' political spectrum.
Those voting for US President Barack Obama will attribute the slow US economic growth to the recession and the constraints, by debt and too-low upper-income tax rates, on government spending.
Those voting for Republican candidate Mitt Romney will attribute the US' slow economic growth to the government's share of the economy, which has dramatically increased since the financial crisis to a percentage unseen since World War II, as reflected in four years of federal deficits that have doubled their pre-recession level. They will also believe the slow economic growth has been used as a pretext to increase the government's role in the economy, as evidenced by "Obamacare".
Two days later, the 18th National Congress of the Communist Party of China, which will usher in the country's new leaders, will also signal if the Chinese economy will be led more by the government or the market.
China's new leadership will need to decide which direction best provides for China's social economic future. In particular, which direction will provide the sustainable economic growth that can raise personal incomes to developed-country level within the next 10 to 15 years and prevent China from falling into a no-economic-growth syndrome as experienced by Japan.
More importantly, which direction can improve the efficiency of the Chinese economy in a way that provides normal economic growth afterward. Wealth distribution, fairness, transparency, and institutionalization will also have to be taken into consideration as the government decides how much and what kind of intervention is needed in the economy, increasingly important as China is decreasingly free to be arbitrary or secretive as a leading participant in the global economy.
The migration of the rural population to urban areas, which has been the driver of China's economic super-growth, is likely to come to an end in the next 15 years. And unlike the US, where population growth as a driver of economic growth is both guaranteed and adjustable, because of its ability to absorb immigrants, the population of China's youngest workers has already stopped growing and growth in the overall population is expected to stop as soon as 10 years from now.
The immediate upside of this, however, is that job-creation pressure has subsided, compared to the job crisis in the US, which has been such a prominent theme in the race for the White House, and a slower-growing and more State-weighted economy has relieved inflationary wage pressure.
China is faced with a State sector, empowered since the financial crisis and a favored vehicle for direct investment abroad, that is not a stellar provider of new jobs, and a private sector, which, although a creator of jobs -much like the small business sector is in the US economy - has been hobbled by overseas export markets weakened by the recession and a lack of access to the low-cost credit available to State-owned enterprises.
The so-called China Model that is often held up as a State-driven alternative to the private sector-driven economy, is one that includes an environment that keeps private companies in a regulatory embrace with government officials. It's actually a version of a state-interventionist market economy, such as the one embedded in European social democracy that has ended up being financed by an unsustainable amount of government indebtedness.
Even prior to the 2008 financial crisis, the European social-democratic model was being promoted in China as an alternative to a less interventionist and taxed economy and as a template for increased welfare expenditure that would promote a reduction in saving. However, it has rubbed against Asian values in the form of China's unique family law that legally obligates family members to take care of each other, and the traditional shame of welfare dependency historically most evident in countries like Japan.
The same core issues that have been at the heart of the US election will be discussed during China's Party congress, and the decisions arrived at will certainly inform the two governments' future interactions.
The author is a Beijing-based economic commentator.