Daily Archives: July 12, 2011

As the debt negotiators square off in Congress, much attention will focus on the size of the 10-year budget deal they come up with. As almost everyone agrees, there is much more risk of doing too little than too much given the scale of America’s fiscal challenge.

The truth is that the expected impact of the deal over a 10-year period will not be its most important aspect except in the context of the current media cycle. Very little hinges on whether the deal picks up the low-hanging fruit with respect to entitlements and revenues – or even breaks some new ground – this year or in the next couple of years.

Agreements reached now are subject to revision, potentially radical revision following next year’s election. Businesses are basing their investment decisions on the size of their current order books, not their guesses of fiscal policy in 2015. Consumers are deciding whether or not to spend based on how confident they are that they can hold on to their jobs.

Here is what is not getting its due attention. Decisions about spending and taxing over the next year or two will have a significant impact on job creation over the next year, the economy over the next decade and on the path of US national debt over an even longer horizon.

Suppose any proposed deal could be adjusted, thereby adding an extra one per cent to gross domestic product growth over the next year. A reasonable assumption is that the increase in output might not be sustained as inflation slows down, investment is increased, fewer workers abandon the search for jobs, and so forth.

Assume the impact falls from 1 per cent to zero over the course of a decade. The consequence would be an increment to GDP of 0.5 per cent or about $1,000bn over the period. That would represent close to 4m job years. And it would reduce deficits by about $400bn – more than it looks like Democrats will be able to come up with in revenue raising or Republicans in cuts to the cost of healthcare.

Is there scope for adding fiscal measures that would contribute 1 per cent of GDP or more over the next year and a half? Absolutely. With economic demand constrained and in a liquidity trap where interest rates cannot fall further, fiscal policies have larger than normal effects. With even very conservative estimates of multiplier effects, a combination of continuing payroll tax cuts, maintaining support for unemployed workers, and accelerating infrastructure maintenance could add closer to 2 per cent of GDP growth over the next year and a half.

Usually the media and Washington take too short a view. Now is the rare time when all need to remember that you only get to the long run through the short run. Given the current weakness of the US economy what is most important is that any budget deal be pushed forward as soon as possible.

The writer is Charles W. Eliot university professor and president emeritus at Harvard University. He was Treasury secretary under President Bill Clinton

The Chinese Communist party celebrated its 90th birthday on July 1. In the days before this event, the airwaves were full of historical dramas depicting heroic People’s Liberation Army soldiers and party cadres struggling against a variety of enemies. There is a new, neo-Maoist faction within the party led by Bo Xilai, the party chief of the western city of Chongqing, who began promoting the singing of classic Communist songs such as “The East is Red” in workplaces and schools throughout the country. Henry Kissinger, in China for a book tour, managed to attend a sing-along there with some 70,000 other people.

This “red culture” revival has nothing to do with the Communist party’s original ideals of equality and social justice. Rather, it is being promoted by national party leaders as a means of strengthening stability in a country that has seen a massive rise in inequality in recent years. One of the songs not being promoted is the Marxist “Internationale”, with its call for revolution, lest this suggest the need for an Arab spring in China.

The older Chinese who lived through the Cultural Revolution understand its horrors, and how much the new China is dependent on their generation’s determination never to let something like that happen again. The term limits imposed on party leaders and their need for collective decision-making are practices designed to prevent another Mao Zedong from arising. But because the party has never permitted an honest accounting of Mao’s real legacy, it is possible for younger Chinese to look back on that era today with nostalgia, and to imagine it as a time of stability and community.

Chinese history did not, of course, begin with the Communist victory in 1949. In a fascinating turn, an older alternative historical narrative is being formulated alongside the Communist one through a revival of the serious study of classical Chinese philosophy, literature and history. Mao attacked Confucius as a reactionary, but today academics such as Zhao Tingyang and Yan Xuetong have tried to revive a Confucian approach to international relations. The American scholar Tu Weiming left his position as director of the Harvard-Yenching Institute in 2009 to take up a post at Beijing University promoting the study of Confucianism as a serious ethical system on a par with western philosophy. Chinese dynastic history is once again being regularly taught in the school system and there is renewed interest in traditional Chinese medicine, music and art.

The government has permitted, and even encouraged, this revival of Confucianism in order to provide a justification for a modern, authoritarian China that does not depend on western theories of history. The latter necessarily see China as an uncompleted project: while the Chinese may have developed a strong, bureaucratic state already by the time of the Qin unification in 221BC, the country never evolved a rule of law or democratic accountability. After the fall of the last Chinese dynasty in 1911, many Chinese lost faith in their own institutions and believed they would have to be replaced by western ones. Only now, with the emergence in the early 21st century of a powerful China, is there an effort to recover this disrupted historical tradition. Best-selling authors such as Zhang Wei Wei are able to argue that China is not a democracy manqué, but rather a separate civilisation founded on different but equally valid principles from the west.

Many of the new Confucianists argue that in the Chinese tradition, political power is not limited by formal rules such as constitutions and multiparty elections as in the west. Rather, power was limited by Confucian morality, which required benevolence of emperors who had to act through a highly institutionalised Mandarinate. Ancient China did have a pure power doctrine in the form of the school known as Legalism, elaborated by the philosopher Han Feizi and ruthlessly implemented in the state of Qin that would ultimately unify China. It is perhaps not surprising that favoured Legalism and oversaw its revival. But just as Confucianism replaced Legalism as the dominant state ideology in early China, so too contemporary Confucianists see the present-day party as better grounded in moral terms than it was under Mao.

The Communist party is itself of two minds about this Confucian revival. It is eager to find alternative sources of legitimacy for itself in a world where liberal democracy is the default ideology, and it has established almost 300 Confucius Institutes in 78 countries. On the other hand, a modernised Confucianism is potentially threatening because it is, after all, a more genuinely indigenous Chinese product than Marxism-Leninism, the invention of some dead white European males. It is perhaps for this reason that a large statue of Confucius, erected earlier this year in Tiananmen Square, was suddenly dismantled a few months later.

Contemporary China thus has two alternative sources of tradition to look back on, a neo-Maoist one and a neo-Confucian one. Both are being promoted as alternatives to democracy. Neo-Maoism is purely retrograde and could easily erode what freedoms the Chinese have gained over the past generation. Neo-Confucianism is more complex: as Tu Weiming has argued, Confucianism can be interpreted in ways that support liberal democracy; on the other hand, it could become the basis for a narrow Chinese nationalism. That the Chinese need to find their own way to modernity seems incontrovertible. Whether either of these ideas will bear the weight of regime legitimation, or indeed whether they can ultimately co-exist with one another, is something yet to be seen.

The writer is a senior fellow at Stanford’s Freeman Spogli Institute and author of ‘The Origins of Political Order: From Prehuman Times to the French Revolution’

Response by Jonathan Fenby

Influence of the past tempered by a regime that prizes control above all else

The neo-Maoism and neo-Confucianism that Francis Fukuyama describes both need to be taken with a substantial dose of salt – or Sichuan pepper in the case of the former.

Bo Xilai has been doing his “red” thing for some time now, but it is for show and needs to be put in wider political context. The Communist party congress in next October will select a new standing committee of the Politburo. Mr Bo, party boss of the mega-municipality of Chongqing, is campaigning for promotion to the nine-person committee, which runs China, from the wider Politburo where he has sat since 2007. It is thought that perhaps he wants to take national responsibility for internal security.

His “red” campaign is part of this, not a sign that Maoism is back stalking the land. Mass performances of Mao-era songs, and a push to get convicts to study “red” poems, are aimed at burnishing Mr Bo’s credentials as a member of the party’s aristocracy. His father was Mao’s finance minister. That gives him, like Xi Jinping, the next party leader, credentials to rule that cannot be matched by mere bureaucrats such as Hu Jintao, who will step down as party leader next year, or Li Keqiang, the likely next premier.

The campaign, which Mr Xi has backed, does, indeed, include evocations of a supposedly purer era. But one may question how many young Chinese look back to the past they never knew with affection – most Chinese I have met who speak nostalgically of the old days are elderly folk who lost their Mao-era entitlements in the rush for material wealth. Anybody who has visited Chongqing will see instantly how far the place is from anything that could be defined as Maoism as it hooks into globalisation with a vengeance and spawns a class of upwardly-mobile consumers. Its high-technology park houses western companies attracted by cheap land and low labour costs. Ford has a big plant. Mr Bo himself burnished his credentials as commerce minister after China’s accession to the World Trade Organisation.

As for Confucianism, yes, there is a growing body of writing about its virtues by intellectuals. State television staged prime time lectures on its virtues. Yan Xuetong in particular has written much about the virtues of ethical behaviour as preached by the pre-Qing philosophers. But the basic appeal of the Confucian creed to rulers down the centuries remains – it is they who define the benevolence, in return for which the population owes them loyalty and obedience. Everybody knows their place and had better keep to it. Hardly a model likely to be embraced by today’s upwardly mobile society. The much tougher practice of Legalism lies behind the mask, as can be seen from the way in which a number of dissidents and human rights lawyers have “disappeared” in recent months. Nor, one may add, is Beijing’s current foreign policy much marked by qualities Mr Yan praises.

As Mr Fukuyama notes, the statues of the sage has been removed from Tiananmen Square and, this week, a plan for a theme park in Chongqing to celebrate the Mao era was abruptly abandoned. Both “neos” serve a purpose, but their influence is tempered by a regime that prizes control above everything else – in that it does, indeed, perpetuate the past.

The writer is head of China research at Trusted Sources

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