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Dec 01 2011

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Andy Stern “Jumps the Shark” on China

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The Folly of "State Sponsored" Development

In a jaw-dropping Op-Ed in today’s Wall Street Journal, Andy Stern, former President of the Service Employees International Union (SEIU), the largest public service union in America, posits that “…[the] free-marketfundamentalist, shareholder-only model…is being thrown onto the trash heap of history in the 21st century.”  A victim of “empirically failing free-market extremism.”

The apparent answer to Stern’s imagined quagmire is found in the title of his article, “China’s Superior Economic Model.”

So now it has come down to this.

A proud and productive labor movement in the US, a grassroots groudswell to protect the rights and dignity of workers, to provide fair wages and a safe working environment, now seeks to emulate a country where the only legal workers union is run by the government.

And not just any government.

Amnesty International,  has documented widespread human rights violations by the government in China.

According to Amnesty International, “An estimated 500,000 people are currently enduring punitive detention without charge or trial, and millions are unable to access the legal system to seek redress for their grievances. Harassment, surveillance, house arrest, and imprisonment of human rights defenders are on the rise, and censorship of the Internet and other media has grown. Repression of minority groups, including Tibetans, Uighurs and Mongolians, and of Falun Gong practitioners and Christians who practice their religion outside state-sanctioned churches continues. China remains the leading executioner in the world.”

Indeed, as the world looks to the Arab Spring and the promise of greater citizen participation in their governance, the Chinese have increased their crackdown on dissidents and dissent. China remains a place where you can be placed in jail for expressing an opinion on the Internet. The Atlantic stated that as dissent and protests are increasing in China, censorship, repression and frequent and severe human rights abuses are also on the rise.

This is the societal model we want to follow?

Yet Stern paints a glowing picture of state-sponsored innovation and economic growth, with the latest, Chinese 5-Year Plan. “The aims: a 7% annual economic growth rate; a $640 billion investment in renewable energy; construction of six million homes; and expanded next generation IT, clean energy vehicles , biotechnology, high end manufacturing and environmental protection – all while promoting social equity and rural development.”

From Stern’s’ point of view, what’s not to love here.

But a closer examination of China’s  past is sobering as we consider Stern’s “state-planning” utopia.

Lets look at the Three Gorges Dam.

 It is so big that it could legitimately be considered a new wonder of the world, and it was a marque project for the Chinese leadership.

Now in operation however, the Chinese have had to admit that the dam is triggering landslides, altering entire eco-systems and causing indirect environmental damage that could affect millions of Chinese citizens.

Stern talks glowingly about six million new housing units under the new Five-Year Plan. He doesn’t mention the “ghost towns” that have sprung up all over China – 64 million empty homes by some estimates – that are too expensive for average Chinese to afford.

Is this some brilliant allocation of capital?

Indeed, who is actually paying on the loans that it took to create those empty cities in the first place? Is there a housing bubble in here that international economists and investors should know about?

And lets not forget the bullet trains. China is building them everywhere, and we  – the US – are therefore, woefully behind.

But as the recent accident that took 32 lives shows, not only do the rail systems engender safety concerns, but as we look deeper into the construction and management of the train system as a result of the accident, a bright light is shed on a very questionable  economic model for the rail lines as it is impossible for average Chinese to afford rides on fast moving trains. Only massive government subsidies can keep it afloat.

Indeed, in a direct rebuke to Stern’s glowing portrait of Chinese progress, the Eurasia Group did a detailed analysis of the new Five-Year Plan and found that structural imbalances in China’s economy – unless addressed – could endanger the stability of the country.

Specifically, the report identified income inequality, the risks-reward paradigm of continued development vs serious environmental risk, and pervasive “crony capitalism” as systemic risks not only to China’s growth, but to its very stability.

As one who complains loudly about income inequality here in the US, you might think Stern more skeptical of the Chinese model, but alas, no.

Taken together, its clear that China is anything but a superior economic model.

The truth is that governments can mass resources but they cannot harness inspiration.

China was indeed capable of creating the massive Three Gorges Dam, through a level of government involvement that would be extraordinary in almost any other country.

But by the same toke, ut it would never – could never – have created a Facebook or a Google. Indeed, China’s government remains terrified not only of these American marvels, but more broadly of the single constant of innovation – the free unfettered flow of information.

In “hearting” China, Stern forgot a significant statistic that symbolizes the difference between our two systems.

For all of our political gridlock and economic malaise, the US creates three times as many patents yearly as China does.

New ideas and processes are the life blood of future economic growth and jobs.  Top down requirements can yield results, but they cannot catalyze innovation, which is necessarily snuffed out in state-sponsored focus.

And this is the question of our time.

Contrary to Stern’s hypothesis,  greater government involvement in planning and guiding economic growth is not the lesson for the 21st century. Indeed, the technology revolution that started here in America has led to a global shift toward the the individualization of society.  It is our unique ability to choose – from our music to our ring tones, to our customized car insurance and computer software – that will define the years ahead, a structure that is anything but authoritarian and heirarchical.

Simply put, one size fits all government planning will never keep up with the passions and preferences of individuals, and only a free marketplace of ideas can marshall the energy and enthusiasm to meet this need, not a central planner.

This is what Stern is oblivious to.  And as a former union rep, this is what is so disheartening.

Indeed, it was the union movement that created a voice for the invidivual worker, separate and equal from the manufacturing behemoths that they serviced. Now union leaders are walking lock step governments that supress and deny individual rights for some esoteric, greater good.  In search of a place for the worker, Stern and the unions have come full circle- now willfully subordinated to the diktats of government for its own self-interest.

What a colossal disappointment.

Workers need to unite – not against their corporate management but against their own union bosses who have lost sight of the dignity of the indivdiual in a long march toward union- sanctioned statism.

 

 

 

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