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.
