China’s Economic Reckoning
The Price of Failed Reforms
When the Soviet Union launched Sputnik, the world’s first artificial satellite, in October 1957, Washington finally understood that the Soviet Union was not solely a formidable ideological antagonist but also a technological and military rival. Sputnik briefly put the Soviet Union ahead of the United States in a crucial technological area, with vast ramifications for its ability to communicate and to wage war.
Sputnik changed not only the way the United States saw the Soviet Union but also the way it understood its own priorities. In response to the Soviet achievement, the United States invested in space technology and sought to better understand (and undermine) communist ideology. Universities expanded their Russian-language programs. Ultimately, some three decades later, a modernized U.S. version of the Sputnik program, the Strategic Defense Initiative, was credited with contributing to the breakup of the Soviet Union and the end of communism—a kind of Sputnik moment in reverse.
The COVID-19 pandemic may be China’s unlikely Sputnik moment. With its swift and effective response to the pandemic; the revelation of the world’s dependency on its production of medical materiel; and the clear global necessity of its economic recovery, China has come of age in the eyes of the U.S. bipartisan elite and the world public. The view of China in the United States and the world will never be the same after this crisis as it was before.
For this reason among others, the divergent responses of the United States and China to the pandemic threat have served to throw the two countries’ competing political systems into sharp relief. The two superpowers already vied for global influence, so the success of one system compared with the other is not a matter of trivial importance. Writing for this magazine, I described the Chinese and U.S. approaches to the market as political and liberal capitalism, respectively. Each has exhibited strengths and frailties in the current crucible.
The Chinese government’s greatest asset in the management of the crisis has been the centralization of its power and its ability to control vast resources. Because of this top-down structure, China was able to impose draconian policies extraordinarily quickly and to shift assets (including human assets, such as doctors and nurses) to the areas where they were needed most. Without these measures, China could not have achieved such remarkable results: Shanghai, a city 24 million strong, experienced coronavirus deaths only in two digits, and just three months after its quarantine was imposed, Wuhan is now mostly free of new infections.
China has come of age in the eyes of the U.S. bipartisan elite and the world public.
But a centralized political system also has vulnerabilities. The economist Xu Chenggang has described the Chinese system as one of regionally decentralized authoritarianism, in which provincial authorities have broad powers, so long as they deploy them in the pursuit of objectives determined by the center. The central government’s priorities include maximizing economic growth, attracting foreign investors, and, sometimes, controlling pollution. The system is efficient in allowing provincial and local authorities to pursue these objectives using the means they know best and deem most appropriate. But central authorities reward local ones based on how they perceive their management, so local authorities also have an incentive to hide undesirable developments.
The fateful response of the local authorities in Hubei Province to the first cases of COVID-19 was not an anomaly, then, but part and parcel of the Chinese system of regionally decentralized authoritarianism. The provincial authorities reacted with hesitation—and even denial—because they did not want to create an impression of lack of control or of poor management. They relayed as little information as possible to the center about the mysterious infections, even as the seeds of the pandemic were sown. Only when the problem was too obvious to conceal was the truth allowed to flow upstream. At that point, China’s central government responded with an efficiency and professionalism that made up for some lost ground.
The American political system has reacted to the virus in a manner exactly opposite to that of China. The central authorities—the U.S. federal government and its agencies—have presented a picture of disarray and amateurism. In the pandemic’s first moments, the federal government was absent altogether, and so it has more or less remained. But American federalism assigns a role to the states that has helped compensate for the weakness of the center.
China’s central government responded with an efficiency and professionalism that made up for some lost ground.
When the U.S. federal government disappeared, consumed by meaningless press conferences, the states took over management of the crisis. In doing so, they showcased the power and resilience of federalism, which, unlike “regionally decentralized authoritarianism,” devolves real powers to the states even when they may conflict with federal priorities. States, variously, adopted social-distancing measures, ordered closures, shored up health-care systems, procured personal protective equipment for doctors and nurses, and developed their own regimes of testing and contact tracing. Some took these measures even against the advice or the timetable issued by the federal government.
Whether the resilience of American federalism alone can overcome the pandemic—or whether the cacophony of approaches and priorities among the different state governments will contribute to its continuation—remains to be seen. The nature of contagion is such that in an integrated country such as the United States, the very best efforts by one state can be undermined by bad decisions or irresponsible behavior next door.
Many people will overlook the origin of the crisis and compare the Chinese response favorably to the American one.
The world is carefully watching two systems—political and liberal capitalism, decentralized authoritarianism and federalism—respond to an identical crisis. Many people will overlook the origin of the crisis and compare the Chinese response favorably to the American one. China, after all, is returning to a normal life that stirs envy and longing: companies back at work, retail stores open, relaxed Starbucks patrons sipping coffee.
So far, political capitalism is winning. But the Soviet Union’s Sputnik moment proved fleeting, and so might China’s, if the other side chooses to tap into its significant advantages, such as flexibility of decision-making, accountability of local governments, and transparency. The benefit of the latter is reflected, for example, in the fact that Americans have access to several alternative counts of casualties, whereas only one, of dubious credibility, exists in China. These U.S. advantages closely match the differences in the internal organization of the two countries—namely, whether the state-level or provincial powers are granted by the center or naturally belong to the second-tier administrative units. And that difference in turn arises from defining features of political versus liberal capitalism. The race between the United States and China, and between the two capitalisms, was only adumbrated before the crisis, but now it lies in the open.
As the Global Economy Comes Apart, Societies May, Too