In 1979, when I came to China, China accounted for roughly 22% of global population and less than 1% of global GDP. 32 years later, they account, still, for about 19% of global population and, depending how you count GDP, maybe 7 or 8% of global GDP. So, on the one hand, that’s a tremendous achievement, to go from 1% to 7% in 32 years, at a time when the global economy wasn’t exactly stagnating. Alright? So incredible achievement.

But, then you look at the other side of that and you say, “Wow, still only 7 or 8%. They still account for 19% of the global population.” So, they’ve gone from 1 to 7% with a model that’s created all of these negative externalities. You’ve got GINI coefficients that are at or above US levels, they’ve got these incredible greenhouse emissions, they’ve got a social safety net. By 2030, China will be as gray as Japan is today with 1/3 of Japan’s per capita income. China will be the first gray developing country. That train has left the station. There is nothing the Chinese can do today to alter that fundamental. They have corruption issues, they have incredible environmental issues, there’s not enough affordable housing. Ok? All of these things are, in part, the results of their economic model. So, the question is, can they rely on the same model that got them to 7% of global GDP to then go to 19, 20% of global GDP? The answer is clearly no. The answer is clearly no. They’ve topped out environmentally, they’ve topped out in terms of income distribution, they’ve topped out in terms of the social safety net, so clearly, clearly, a new model is required. Now, the question is, do the powers that be know what model it should be and are they capable of transitioning to that model? Because there are a lot of vested interests in the current model. And one of the problems with going to the consumer driven model is, look, this place... China says it’s a market economy. China’s always been a market economy, for thousands of years, China’s been a market economy. The issue here is one of ownership and power. And China, since 1949 has always been a planned economy and still is, very much, a planned economy. The whole basis of a planned economy is you tilt the economic playing field so that surplus collects where the state can get to it. Because if the state can’t get the surplus, it can’t plan anything. You can plan all day, but if you don’t have the money to spend, your planned economy is nothing. So, China has had, all planned economies, not just China, they have an economic mindset that says, “We have to tilt the playing field so money flows where we can collect it.” That means you don’t let it collect in households. You let it collect in state owned enterprises and government bureaucracies, whatever.

In order for you to develop a consumer driven economy, you have to completely change that mindset. If you want individuals to spend money, you have to give them money, which goes very much against the grain of the traditional planning mindset in this country. Money, at the end of the day, is power. So, if you really want to get rich and empower the common people, I think it’s a challenge, I think it’s a huge challenge. You’re basically saying, “We’re going to take money from the people who have it now, all of these vested interests, the state owned enterprises and whoever, and we’re going to redistribute that money.” And it gets back to the issue that we talked about earlier in this interview, which is basically, is this going to continue, is this trend going to continue? And I said, well, it can continue in a peaceful, evolutionary way, or it can continue in a less peaceful, less evolutionary way. And this is part of the issue. How do we redistribute resources and put them in the hands of the people when you have these vested interests saying, “Wait a minute, I like having those resources.”

It’s a huge challenge. It’s not an economic challenge. China, economically, can grow for the rest of your and my lifetime. And you are a lot younger than I am. It can grow at 6, 7, 8%. That’s not the issue. China’s issue is dealing with the externalities, non-economic externalities, that are generated by this rapid growth, political, social, that kind of thing. And so, the question is: Does China have what I could call the institutional capacity to deal with these problems in an effective way? I think that’s where the key is, going forward. It’s not money, China’s got money. It’s not technology; China will either develop it, buy it, steal it. Whatever. It’s not people; they have lots of smart Chinese people running around. It’s not natural resources; they have lots of natural resources they can trade for what they don’t have. What China needs and lacks is the institutional capacity to deal effectively with all of these issues that come about as a result of this rapid economic growth of a country that has 1.3, 1.4, or 1.5 billion people.

A lot of people encourage them to allow civil society to develop, because civil society is a tremendous aid to states in collecting data and making sure that policies get implemented. It can also be a tremendous threat to states that aren’t legitimate and therefore the Chinese Communist Party has a very schizophrenic view of civil society. They see how it could help and they also see how it could be a threat. In the absence of civil society, how do you develop this institutional capacity? Strictly within the communist party? Well, I think there are those out there who might question whether the communist party is in the position to develop that kind of sophisticated institutional capacity, especially at the local levels.

So, I think that’s the challenge for China going forward, it’s not purely economic. One of the problems with the people who talk about the new China model, economic model, is that’s all they do, they focus on economics. They say, “China- look how successful they have been growing the last 30 years” and, yeah, they could probably be very successful growing 8 or 9% for the next 30 years purely at an economic level. The trouble is, society is more than economics. A lot of things are involved besides economics and I think we’re seeing a lot of those issues coming to the fore now with strikes, housing issues, with the environment, and it’s a real challenge for China going forward.