Tom Pepinsky

Author: tompepinsky

  • Self-Referential and Self-Serving

    I recently attended a really interesting conference at Penn State called Global Asias. Like many interdisciplinary “pan-Asia” conferences, I found myself representing both the token Southeast Asianist and the token political scientist. Most everyone else was a China humanities person; there were a couple of India and Japan humanists too, but that’s about it. So I spend a lot of time at these things translating their regional and disciplinary interests into something that I can understand.

    Over lunch, I found myself (surprise!) at a table full of China people. Three of them, in particular, were easy and fun to talk to. I had given a presentation on political business relations in Southeast Asia, so the topic turned to political business relations in China. They told me fascinating stories about the absolutely nauseating levels of corruption in China, how the CCP is frantically forcing the state-owned banks to pump billions of yuan into the wobbly property sectors around the coastal cities to keep the country’s economic system afloat, and thereby to keep the CCP in power. After we complained about the state of affairs, we had a quiet moment. Then one of them said, “Yeah, but I just hope that China can maintain this system.”

    Huh? Well, OK, maybe I don’t know what this means. We got to talking further about the plight of China’s urban labor force, which outside of the high-skill industries is really vulnerable to the business cycle and is politically marginalized (they are all basically illegal migrants within China because they have no local residency status, therefore are ineligible for most government services). They talked about these horrible stories of factories poisoning workers, then firing them, and forcing them to return to the countryside, crippled and broke and now a burden to their families. Again, the conversation wound down for a moment, and the second one said, “I really hope that the Chinese can keep this system together.”

    Wait, what? Before I could probe further the conversation turned to the countryside, to the ways in which urban China has grown at an astonishing rate since the early 1990s while the countryside has stagnated, how the CCP–which ones lavished favors on the local village enterprises–has turned essentially into an urban big business party. How rural smallholders have no property rights, no political voice, yet they get to participate in fake elections every couple of years which foreign Polyannas think are some sort of sign of orderly society rather than firm social control. As we paused to get some dessert, the third one said, “I just look at China and hope that the Party can figure out how to protect the system.”

    The f***? At this point I had to intervene. “What,” I asked, “do you three mean when you express this desire for the Chinese regime to keep the country together? The story that you’re telling me is one of a brutal and repressive dictatorship, corrupt to the very core and basically indifferent to the plight of 90% of its population. You guys are academics in U.S. universities. None of you is Chinese. You all expressed disgust and hope for political reform in the countries that I study. Why do you hope that the system in China will remain intact?”

    Their answers were instructive, and at the risk of generalizing too far from their informal remarks, I think that they illuminate something fundamentally rotten about much of the recent contemporary China scholarship in the U.S. Many–not all, but a good many–China scholars are self-referential, and they are self-serving.

    My lunchmates responded to my question like this: we have to keep the current system going because the risks of it coming apart are too great. I pushed further on what they meant. Well, they replied, do you want another 1911 or 1949? They are referring here to the Revolution of 1911 (which ended the Chinese imperial dynasty) and the end of the Chinese civil war (20 years of nationalist versus communist). Both of these events were marked by huge social unrest, economic collapse, and untold human death and suffering. These were really bad. It would be nice not to repeat them.

    But the point here is that their referents for what it would mean for the CCP to come apart were exclusively Chinese. There was no sense that the political and economic experiences of, oh, Russia or Brazil or Indonesia or Mexico or Egypt or South Africa or whatever could possibly be relevant for the Chinese experience. I ask them directly about this, and they looked at me like I was crazy. But think about it–if you wanted to guess what would happen in China without the CCP, would you look to the fall of the Qing Dynasty or would you look to the collapse of another one-party state in with a rapidly modernizing economy? I’m not saying that China will be just like Brazil; far from it. I’m saying that it is peculiar not to even consider that another country’s experience could have anything to contribute to a China scholar’s view of what China is like. Political change is always difficult, but it is usually not genocidal. China, for them, is sui generis. There’s nothing like it, and China can be (nay, it must be) understood completely on its own terms.

    This view, like its parallel in U.S. politics of “American exceptionalism,” bugs me to no end. Maybe it’s just because I’m a Southeast Asianist, but no one in political science thinks that Indonesia that special anymore. The risk of this sort of self-referential China scholarship is that it leads to asymmetric parochialism. Indonesianists, Latin Americanists, Middle East scholars, we all are required by our discipline to know the broad canon of comparative politics of developing countries. China scholars just need to know China. That’s nonsense.

    But of course, there’s a deeper critique that I want to make, and this brings me to the second point. Fine, due to the way that China scholars tend to think, they believe that political change cannot lead to anything other than humanitarian disaster. You know who else thinks that, and consistently reminds Chinese people that any political or economic reforms that are not directed from the center are going to result in disaster? The CCP–that is, China’s own political elite. They say this because they obviously stand to lose the most from reform. To put it crudely, they are first up against the wall.

    My lunchmates expressed no sympathy for the CCP leaders or the corrupt new politically-connected capitalists. But I believe that like China’s elites, my lunchmates (like a lot of China scholars that run in certain circles) stand to lose a lot from political and economic reform. Why? Because the current Chinese political-economic system makes it very lucrative to be a U.S. scholar of China.

    It’s lucrative in a couple ways. First, in purely monetary terms, there is great demand in China for the prestige that a U.S. degree brings. If you speak Mandarin and can show up to say “I am the professor of Blah at the university of Blah” you can almost certainly arrange for yourself and your family a sweet gig at Beida or Nanda and make a pile of loot (we academics almost never make piles of loot, so it matters). It’s also lucrative because China funds Chinese studies around the world, most recently through the establishment of Confucius Institutes. They bring teaching and research funds that are unmatched, which can be used to do great things (like, have conferences on Asia that invite people like me).

    There’s a second, less monetary way in which the current system is lucrative: people seems to understand it and it makes sense to them. China scholars know how this Chinese system works, and it would be costly to have to learn how a new Chinese system works.

    This does not make China scholars support the regime. But it makes them indirectly interested in the same sorts of things that the CCP is interested in: stability, not change; and orderly if astoundingly unequal society, not what they fear would be the chaos of a country in which ordinary Chinese have political and economic rights and exercise them. The distaste for reform, in other words, is not just self-referential, it is also self-serving.

    To return to our conversation: after hearing them out, I asked them, “so, surely, you would advocate some sort of reforms, right? You don’t support the continuation of every single policy or practice in place now, right?” Of course, they said. But from their perspective, what China needed was gradual reform, from the top, with the CCP clearly on board and the military actively supporting the decisionmakers. That way Chinese society will adapt to the new changes at the proper pace. Sounds familiar to me. “Is such change likely,” I asked? Well, they responded, probably not: when you look at specific events like the Shanghai rail disaster, or chronic problems like internet censorship, you definitely get the sense that the elite may talk about small reforms, but that the system cannot tolerate real reform.

    Sounds to me like hoping for gradual reform is another way of hoping that the current system hangs together.

  • Papers I Will Never Write: The Euro and the Greek Crisis

    There is a very interesting piece by Kash Mansori in the New Republic on the origins of the Euro-area crisis. The main point seems to be this: the crisis cannot be reduced to policy mistakes or misbehavior by the PIGS (Portugal, Italy, Greece, and Spain). Greece, especially, had some real problems with budgeting, spending, and tax avoidance that are integral for explaining why their government has had such a tough time adjusting to the crisis, but Mansori points out that

    the very design of Europe’s common currency area not only caused, but was meant to cause the eurozone’s periphery to incur large amounts of international debt.

    His conclusion is that it’s the Euro, not just problems internal to Greece’s political economy, that led Greece to where it is today. (One important piece of supporting evidence is that countries like Spain and Ireland, models of fiscal discipline in the 2000s, are in a fix too, just like naughty Greece.) I’ve had this argument before with numerous Germans and admirers of Germany, for whom the structural problems of the Euro itself aren’t obvious (and who, understandably, are loathe to view themselves–as members of the Euro–as somehow responsible for Greece’s problems).

    But there is an interesting counterfactual question here that leads me to disagree with Mansori’s conclusions a bit. Let me try to lay it out. To what extent did the Euro versus the contemporary global financial system cause the Greek crisis? This is a paper that I will never write–not even with tenure–because it requires me to enter into a world of Greek politics and political economy that I do not know well. But I’ve spent some time thinking about this (I once had a bit of a public debate on it with Kevin Featherstone) and I think that there is something to what I’m about to write.

    My task, in this paper that I will never write, is to imagine a counterfactual scenario in which the Euro does not exist but the global economy is otherwise the same. Then compare what I anticipate would have happened in Greece in that imaginary world, and see if it’s any different from what actually took place. I contend that from the perspective of Greece (if probably not Spain or Ireland), the world would not have looked much different in October 2007 without the Euro than it did with the Euro.

    Here are some aspects of the global economy that I take to be features of a world without a Euro.

    1. Capital accounts are still very open in Europe. That is, it’s still nearly costless to move money from Germany to Greece, either to lend or to invest. The only difference is that you have to convert marks into drachmas rather than just bringing your Euros
    2. Exchange rates are fairly stable (or at least predictable, which can be shown to be the same thing for the purposes of my argument). This is probably debatable. But we do know that in one actual example of a non-Euro peripheral European economy–Iceland–exchange rates prior to the crisis were believed to be predictable. Ask English savers.
    3. The “big” northern European economies are doing well, but trend growth is lower in Germany than in the PIGS (the “convergence” of the neoclassical growth model), so there’s an incentive for investors in Germany and France to look abroad for higher rates of return.
    4. Smaller economies like Greece cannot borrow abroad in local currencies (“original sin“) but have to borrow abroad in international currencies–in this case, probably the mark and the pound instead of the drachma.

    OK, so what happens in this imaginary world? Well, to begin with, you still get capital flowing to Greece from Germany because (following 1) there are still no barriers, (following 2) there’s still not too much exchange rate risk, (following 3) the incentive to lend is still there, and (following 4) the need to borrow is still there. The same pathology of overborrowing, overspending, and ultimate overheating would ensue–implicitly, I have assumed that the imaginary Greece is no better able to manage its public sector, force its wealthy to pay taxes, or avoid “cooking the books” in national accounting than the real Greece actually is.

    The outcome from this would probably be another financial crisis that started off a lot like the one that actually occurred.

    In fact, the only real thing that the existence of the Euro itself may have done is to shape beliefs about the exchange rate between Greece and the rest of Europe. Adopting a common currency is just an extreme form of fixing your exchange rate. If traders believe that exchange rate is fixed and credible (or predictable–again it makes no difference, due to high-volume currency arbitrage [another feature of the global financial system]) then they will act as if exchange rate risk does not exist. That is what adopting a common currency did: it make European lenders and borrowers believe, it seems, that the peg between the currencies of Greece and the rest of Europe was irreversible. Without the Euro, you’d imagine that lenders and borrowers around the region would be a bit more careful. But I’d argue that’s probably not true: look at Iceland and the UK. Also, look at every other emerging market crisis in the past thirty years where you have international overborrowing (which we could equivalently call “international overlending“) following mistaken beliefs about the future path of the exchange rate. We could talk about Latin America in the 1980s. Or Mexico in the 1990s. Or Southeast Asia in the late 1990s.

    If I were to write this paper, I would argue that the actual effects of the Euro were not in causing the crisis but in exacerbating the problems that Greece faces in adjusting to the crisis. Here my argument isn’t new, it’s been told repeatedly by Krugman. Conditional on the existence of a financial crisis (which I argue might well have happened with or with the Euro) the fact that the crisis occurred with the Euro in place has probably made things worse, both for Greece and for the rest of Europe.

    One final note: it’s often the case that there is a kind of code language that political economists use. “Political economy” can mean, for example, a kind of Marxian analysis of politics to some, or it can mean the study of political constraints on economic policy from a libertarian perspective to others. Here, the buzz-phrase that some readers may want to use to divine something about my politics is “contemporary global financial system.” It’s possible to read what I’ve written to imply that I’m critiquing the modern global financial system. Not necessarily so. I do not have have an alternative global financial system that I believe is clearly better for all people or all countries at all times. Although I would probably favor a Tobin tax, and I would certainly favor better economic policymaking in countries like Greece and better financial regulation in the U.S., I’m not sure that any of that would eliminate the phenomena that I’m describing here. I simply take it as a feature of the contemporary global financial system that from time to time, there are exchange rate/debt/banking/etc. crises. We had them before the Euro, we’ll have them elsewhere without it, too.