Editorial #1

Will Zhu Succeed In Consolidating the Communist Party of China?

Let me begin my first editorial piece by quoting Friedrich Hayek: Which of these systems, (central planning or competitive markets) is likely to be more efficient depends mainly on the question under which of them we can expect that fuller use will be made of the existing knowledge. And this, in turn, depends on whether we can more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals, or in conveying to the individuals such additional knowledge as they need in order to enable them to fit their plans in with those of others. For those of you who have just joined and developed interests in Chinese contemporary economics, something paramount is happening in Beijing. In early March, Zhu Rongji, a faithful believer of the market, originally from Shanghai, will replace Li Peng as Prime Minister. To top that off, during last fall, he summoned the country's 60 top bureaucrats to a meeting and asked them to justify their jobs as the country shifts from a planned to a market-driven economy. "This round, you talk and I won't," he warns. "Next time, I'll talk and you won't." Zhu is expected to close or merge some 10 ministries, of which some will be converted into holding companies and the rest into "separate, self-governing entities." The resistance is tremendous as expected since 2 million jobs are at stake, but it appears that Zhu is prevailing as the congress nears. The recent downfall of the Asian nations, coupled with perverse currency devaluation have given a leg up for Zhu to prove to the congress that "China must get its own house in order to prevent meddling by the International Monetary Fund (IMF) or other outsiders." Some say that Ministries of Labor and Personnel will merge, others believe the Culture Ministry and the Radio, Film & Television Ministry will merge. While these mergers are in the air of heated debates, one thing is clear as stated by the Newsweek columnist Joyce Barnathan and Dexter Roberts that "Zhu's transformation of China will require at least one new ministry -for social security." Already, as many as 12.5 million workers are unemployed as state enterprises go belly-up. According to a conservative figure, by year 2000, an additional 10 million jobs will disappear. As I mentioned earlier that the objectives of my writings are not politically oriented, but merely to provide the reader with another economic perspective. With that said, I, nevertheless, do want to point out just a few things. The word reform is not merely to change, but to a large extent, especially in Chinese history, the word meant to get rid of people one opposes. Therefore, while Zhu's attempt in reforming the party system is intended to brings economic prosperity, it could also serve a viable means to remove his opponents. Many private deals have been made within ZhongNaiHai with the general understanding: "if I leave my position, he will also have to leave his." Qiao Shi, an old but powerful man has agreed to step down if Li Peng goes down with him as well. Now, let's go back to the economics. It is admirable of Zhu to remove bureaucracy and fully implement his reforms, but the emanating social explosion cannot be ignored. Government expenditure has always been a significant portion of the total gross domestic product, both in China and the United States. With the unemployment rate in the government sector shooting straight up, what would happen to its community in terms of crime rates and local upheavals? Most of these workers are in their mid-30s to 40s, and they lack the energy and time to reinvest their human capital in other fields. Therefore, they cannot prevent themselves from being appropriated by quasi specialized rent, as the younger generation can successfully avoid. While it is a significant cost saving strategy for Zhu to model after the relatively more efficient American government sector, and to be more competitive on the market, we should not forget the primary concern of every household: the forgone sunk costs being invested by these older workers are wasted. Perhaps, rather than restructuring the government itself, more freedom ought to be rendered to the hands of the current semi-private firms to enable them to become more independent and thus, allowing the Middle Kingdom to walk into the 21st century in stride with competitive private firms for young people, and at the same time, offer job security to their middle-aged parents. After all, to survive in one's golden years is not only an objective for the Communist, it's also the same for the developed, capitalistic societies. China is in her transition period, we cannot make the transition too fast by abruptly firing so many workers to satisfy any ulterior motives.