Democracy, Meritocracy and corruption

Watching the U.S. election and the Chinese transition of power, my friend John has come up with the second guest post to share with us on this blog.

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Democracy, Meritocracy and corruption.

Watching the elections in the U.S. and the transition of power in China, it crystallized the thought I had for a while about the current government structure in China and how they compared to the Western democracies.

My understanding of the U.S. government is rudimentary. My understanding of the Chinese government even less. So my observations and analysis are based on information that could be readily obtained from the West. Nevertheless, many experts have done a lot worse over the years. One in particular, Gordon Chang, have been predicting the coming collapse of China since 2001! In fact, he thought China would go down by 2011! Yet, in spite of his records, he still is publishing in Major publications.

I believe that the China model of selecting leaders could have the potential to be far superior to the way the West selects them.

Let me first lay out my understanding of how the Chinese government works. The Chinese government is based on patronage. Officials enter the system of government either recruited from top colleges due to their outstanding performances, or, equally likely, they enter government services by their heritage. Their parents were also communist officials. Once they are in the system, their boss decide where they will go. If they perform well(or if they also have connections from higher up), they rapidly move up. While there are many considerations for a candidate to move up, competency is a major component for moving up. It is based on performance like in a corporation.

So one can think of this as performance based with heavy legacy considerations. Even for those with legacy, rising to the top requires competence. There are many people with fairly ordinary background which were elevated to the top due to their performance. For example, Shen Yueyue, one of the handful of the “sixth generation” leaders, has the following bio from one of the U.S. government reports

“Although she began her career as a shop assistant, she later earned a degree in mathematics and rose to prominence as Vice-Secretary of the Communist Youth League in her native Ningbo. She served as Deputy Secretary and Secretary of the Zhejiang Youth League from 1986 to 1993 and attended the Central Party School in 1996. When she was appointed Vice-Secretary of the Anhui Party Committee in 2001, she was 44 years of age. Long affiliated with the CCYL, she is thought to be aligned with Hu Jintao’s Tuanpai faction.”

She was a shop keeper when she started out! and she may rise to the very top of the Chinese power structure. But she was not someone who was just a community organizer or a junior senator with little achievement to show for. She took various posts in the government and gave an outstanding performance. That is how she moved up. That is how all others moved up.

So, we have a system where some of the people are recruited and promoted based strictly on merit, others are brought in through family background, but at the end, still promoted based on merit as they compete with other princelings for a spot towards the top. The higher they climb, the  more competitive it gets, even if it were just all the princelings competing with each other. In fact, the princelings are not the only ones made it to the top.  If you read the bios, there are many who rise to the top without a pedigree. The current leader, Hu Jintao is one of those. Most likely, he got to the top based on his performance. Near the top, the people are not only capable, they are also seasoned at what they do as they gained various experience.

In the West, we have a case where a man is elected and re-elected to be the president of the United States, yet, by the account of Bill Clinton, someone who had served as a president himself, this person is an “amateur”. Further, he was picked not because of the achievements that he has made, but because he can talk, and a large swath of the population identifies with him.

I am not saying democracy is a failure. It has served this country well over the years. However, democracy succeeds and fails based on the quality of the constituents. Without a quality constituency, the structures of the government matters little. Just take a look at Liberia to see how democracy is working. Liberia was founded by some ex-slaves from the United States. Liberia and the U.S. share very similar governments structures, constitutions and even down to the design of their flags. Yet, unlike the U.S., Liberia is in shambles. The latest CIA report indicated that the per capita GDP is $500. One of the lowest in the world.

There are many arguments against the China meritocracy model. Some say that the endemic corruption represents a failure in their system. Some pointed to the incident with Bo Xilai and the discovery of billions belonging to the current leader Wen Jiaboa as proof that the very top is rotten. Others are says that the Chinese system is not inclusive, that they should promote more women and minorities( yes, there are minorities in China just as there are in the U.,S.). Still others say that the past represented the low hanging fruit and the performance of the past will never be repeated again.

To me, the saga of Bo Xilai shows that the system works. You see, after decades of explosive growth, there are huge dislocation amongst the Chinese today. Many are dissatisfied with their lives and long for a simpler life of the Mao era, especially for many who either have forgotten how bad those years were, or were too young to know first hand. So in a democracy, Bo would still be in power representing these people. It is his base of power. The corruption of the party members also create more people who are not happy. The fact that the system can purge him represent a triumph of the reform ideas over the group that wanted to go back to the past.

While it is true that it is easier to start off growth from a low base, it is never the less very tough to change a large system going in a different direction. The Chinese joined the WTO  in 2001. While there are many ways to shield competition and favor the state sector, it still represented a major jolt to the system. Many of the decrepit state firms were going to be put out of business. Millions would lose their jobs. Imagine Detroit, in the seventies and eighties, with the Japanese invasion in full swing, sign a treaty to open the city to more competition from Japan instead of smashing Hondas in front of reporters. China joining WTO was a far-sighted decision that entails a great deal of pain. Something that the West would have a hard time executing.  Many China hands pointed out the big problems that China is facing today. I would argue that the problems that China faced twenty years ago were much more severe compared to the ones they face today. The fact that they managed to navigate through so many crisis which might sink a lesser government says something about the quality of the people running the show there.

Finally, we come to the issue of corruption. There is no doubt in my mind that every single one of the leadership is on the take. However, there is corruption, then there is corruption. In China, things get done even in face of corruption. The right decisions are made by the leadership to move the country forward. Contrast this with the corruption in India, where the Common Wealth Games, an event that is a small fraction of the Olympics, was badly mishandled. In fact, many of the foreign contractors, who were brought in to help save the day, were not paid when they sent the bill. That is right, the government stiffed these guys. Something unimaginable either in the U.S. or in China. You can think of corruption as integral to the functioning of the Chinese system. In the private sector, the motivating force for someone to climb the corporate ladder is to be rewarded financially. If you are a stock boy at Waltmart, you are making $10 an hour. If you become a CEO of WaltMart, you make tens of millions a year. If you are highly capable and have a good shot at becoming the CEO of a company, making millions, why would you want to join the government? In China, apparently, you join the government because you can make a lot of money through corruption. This brings in more capable people who would otherwise stay in the private sector. As long as there is work to keep the corruption in check and a system to promote based on one’s performance, corruption should not impact progress. Each of the top leaders making a couple of billion here and there over a decade does not damage an economy which produced 11 Trillion a year.

In Singapore, Lee Kuan Yew instituted a system of salaries to the people running for public office based on their private sector pay. If you are a surgeon and wanted to run for an office, the office will pay you what an average surgeon would make. This way, you are not losing out financially if you wanted to serve the country. I think that corruption in China serves a similar goal.

In summary, I think that the Chinese way of selecting their leaders potentially are far superior to the way the U.S. select ours. They promote more competent people and give them the operational experience to succeed as they arrive at the top. Much like a corporation. Where as in a democracy, the leaders are as good as the constituents.

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16 comments

  1. Keep in mind that the USA is not very representative of Western Democracy. ;-) Everyone thinks that the US is nuts, including almost all Americans. But Americans have forgotten how to get rid of occupying governments.

    That said, Chinese leadership challenging, and perhaps even punishing, Bo and Wen is impressive – that’s a lot more than can be done in the US. The worst the US can do is to cause people like Clinton and Petraeus to step down with a deceptive “controlled burn” scandal, like a sexual affair.

    1. I think Petraeus was made the fall guy for the mess in Benghazi. There are many people in Washington with this offense, some how it took him down. Now, conveniently, they can have someone to blame for Benghazi.

  2. I think it’s not a problem of competence. It’s a problem of interests.

    Even in the West, the elected bodies of government don’t run the government, the bureaucracy does. And the bureaucracy works in a manner not dissimilar to that of the CCP, and is reasonably competent in many ways. They set up to get blacks into college, and they did that. They set up to promote gay rights all over the world; they have been quite successful.

    China works not because its government is more efficient. It works because its ruling class wants the country to work. If for some reason they realise that it’s on their best interest to wreck the economy and focus on gay marriage, they’ll do so.

    1. I agree that the U.S. bureaucracy allowed the government to work better than if we rely just on the elected ones, however, the strength of the leadership is still important. Just look at how one person like Lou Gershner managed to turned around IBM. Presumably, IBM, like other large corporations(or a nation), also have a bureaucracy that is fairly competent. Yet, they were floundering before Lou came on board.If you look at the salaries for a CEO and compared that to a senior officer, you will find a big difference. That is the premium the market place put on good leadership. A country should do the same.

      The gay marriage thing is exactly the reason I believe China has done a better job compared to the U.S. The whole reason to do the gay marriage is the democracy party pendering to one of their constituencies. The gays are significant in numbers, and they have vastly more influence on these issue then their number would suggest. In a democracy, the party in power penders to the group to maintain power. In China, the collective leadership, without the need to do this pendering, make a decision on where the priority of the government lies.

      I am not says one party system always works better then democracy. One need only to hop over to North Korea to see the other spectrum of the one party rule.but today, the collective leadership in China seems to be doing a good job.

  3. When growth slows down you start fighting over the pie more then growing the pie. This can feedback to making pie growth even slower.

    BTW, why shouldn’t we just look to Japan to see how China will end up once the catch up growth is over.

    1. It’s not that simple. Taiwan would be a better comparison. It’s never got to the level of Japan, and its way more homogeneous and easier to govern than mainland China. China will hardly ever get over 15k per capita gdp.

      1. Sure, I guess I concede this point. It doesn’t really matter though, does it? At some point, unless it destroys their entire ecology, China will have “modern” living standards where they live in apartments rather then shacks. 15k, 30k, it seems important but it really isn’t. Your just talking about how much discretionary income is laying around for amusements at that point.

      2. If you look at the latest CIA report, you will see that Taiwan has a per capita GDP of $38,200. Similar to Germany, slightly lower than Canada and Australia(resource countries). Higher than Japan with $35,200. I think China can approach this level of performance over longer period of time. In terms of economic rise, it has gone faster than every nation on earth thus far. There is no reason why it should stop at $15,000. I will bet that within 10 years time, it would get to or past $20,000.

    2. For Japan, somewhere along the way, the nature of the government changed. You can call it what name you want, but Japan was not much of a democracy post WWII, where one party ruled the country for over fifty years. Somehow, when they became more of a democracy, they have even more problems then the U.S. Maybe this genetic/cultural combination does not work well with democracy, or at least the current format.

      1. Eh, the LDP pretty much ruled Japan until the financial crisis. And their economic situation has been going on since 1990. Moreover, like here it seems that the beauracracy really runs things not the politicians, perhaps even more so in Japan.

        I agree Asians are probably less suited for democracy. Japan had a hard time even introducing jury trial because they couldn’t find people capable of being jurors.

        Democracy is something that only works well for property owning white men.

  4. Lol, that’s PPP. Please.
    Have you been to Taiwan? It’s not richer than Japan.
    It’s distinctly more backward than South Korea.

    Japan invents billions each year in Taiwan. Not the other way around.

    1. Noted. Your ranking of Japan > South Korea > Taiwan is probably correct. However, I think for export oriented countries such as Taiwan and South Korea, neither PPP or nominal tells the whole story. The truth is probably in between.

  5. I think you may have a point in that corruption can have some benefits but it I think it needs to be way more limited than what it is in China today:

    http://edition.cnn.com/2012/11/12/opinion/china-reforms-lam/index.html
    Critics of the government do not seem to be exaggerating when they say that 100 or so of the biggest clans that represent the country’s “red aristocracy” control the largest chunk of the economy.

    The official China Daily has reported that the top 1% of Chinese families owns 41.4% of the nation’s wealth,

    More on HDBChick: http://hbdchick.wordpress.com/2012/11/17/random-notes-111712/

    1. I merely comment about the way in which they select their leaders. I agree that the system that they have is full of problems, as was the system they had 30 years ago, as was the system they had 20 years ago. The Magna Carta was created in 1205 in England because a group of businessmen decided the rule of the king was not just. These were a very small group of wealthy folks in England, not your daddy’s idea of a democracy. The folks who took the big slice of the pie in China today did so due to their power in the state. Tomorrow, after a couple of generations, as the state evolves, not everyone of these folks will still have governmental power. However, they will still have the money and own the business. Over time, people with power got a piece of the pie and became the business class. It will now be in their interest to see a fair and stable environment for business to flourish. Rule of law, at least in business, is now in their interest.

      I recognize there are a lot of problems with the system that they have, but I think the prognosis is good because they have good people in the system.

      Also, while they get there, the businesses are still competing with each other. There is not a sector in which there is monopoly. Even in the Telco and Power sector, there are still a lot of competitors.

  6. The Chinese leaders are engineers. So they are smart. They are not like our dickheads in Washington DC (who are all lawyers and pundits).

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