The Asian Century 17b.

Yet, for historians—if not for political scientists or economists—there is reason for cautious optimism.  On the one hand, the historical record suggests that democracies can be slow to mobilize their strength, but better able to mobilize that strength over the long haul.[1]  If one looks at (or, much worse, had to live through) the period from 1930 to 1942, one could easily believe that the liberal system had shot its bolt.  Economic depression, the collapse of new democracies, the appeasement of authoritarian nations, and military defeat slammed confidence in the Western system.  Three years later Berlin and Tokyo stood in smoking ruins. 

Second, “there’s a great deal of ruin in a nation.”[2]  The recent unpleasantness at the end of the Trump presidency led journalists and public intellectuals to invoke the example of the disputed presidential election of 1876.  Squalid though as were those events, they also helped settle a period of deep division within the United States and helped bring on a long period of rising power and prosperity.[3] 

American business may be resistant to government guidance on China policy, but it is resistant to government policy on many things.  Usually, the outcome is satisfactory to most people.  American society is immensely creative and innovative.  The rapid development of two vaccines for Covid 19 demonstrate that old truth.  Conversely, the many problems with distributing the vaccine fall to the responsibility of the state and federal governments.  Hardly cause for business to defer to the state.  During the pandemic, American businesses have moved rapidly ahead with collaboration software (like Zoom), direct delivery bypassing stores, and cloud computing to manage all of it.  Compare this with the PRC’s treatment of Jack Ma, the entrepreneur who created Alibaba and Ant.  He got “disappeared” for a while after he suggested that entrepreneurial innovation outstrips old ideas.  About the subordination of business to the state for example. 

America remains remarkably open to immigration.[4]  Immigration helps off-set the aging of the native-born population, while admitting large numbers of people eager to work and to create their own futures.  In contrast, the PRC oppresses its own people and violates international agreements, like the Anglo-Chinese agreement on Hong Kong, in order to get more people to oppress.  China is not a country of voluntary immigration. 

By any standard, China’s economic progress since the death of Mao has been extraordinary in statistical terms.  However, much of that progress came from moving peasants out of low productivity rural farming and into higher urban productivity manufacturing.  The government has used subsidies, entry into the world market, and massive intellectual property theft to push China so far forward so fast.  There is good reason to wonder if the PRC has reached the limits of what can be obtained by such methods.  Just when they’ve alarmed the US. 


[1] This is a central theme of Gordon Wright, The Ordeal of Total War, 1939-1945 (1968).  It remains the best single volume history of the Second World War. 

[2] Adam Smith.  I forget where I read it, but it stuck with me. 

[3] Richard White, the author of The Republic for Which It Stands: The United States During Reconstruction and the Gilded Age, 1865-1896 (2017), would wish to qualify this view if it ever came to his attention. 

[4] In 2017, 2018, and 2019, an average of 1,085,181 people obtained lawful permanent resident status each year.  In 2013, 2014, 2015, and 2016, an average of 1,060,401 people obtained lawful permanent resident status each year.  See: https://www.dhs.gov/immigration-statistics/yearbook/2019/table1 

The Asian Century 17a.

            It is now commonly accepted that the United States (US) and the Peoples Republic of China (PRC) are strategic competitors.[1]  All eyes regard this competition, for they represent two different approaches to government and economic management.[2]  China combines an effective authoritarian government with state-managed semi-capitalism.  The US combines democracy with a regulated free market.  For the duration of the “Fifty Years War”[3] the United States represented the preferred wave of the future for an ever-growing share of the world’s population.  Is the US able to win a new competition or have essential elements of its previous strength dissolved?  Is China better able than were Nazi Germany and the Soviet Union to win a competition with the US?  It depends where you look. 

Does the Covid 19 pandemic of 2020 offer any insight into the relative positions of the US and the PRC?  The answer must be NO if examined in international perspective.[4]  Democratic Taiwan did better than the PRC; the United Kingdom did even worse than did the US in spite of doing all the things that Democrats criticized the Trump administration for not doing.  The explanation for the diversity of results may have something to do with an Asian culture of compliance with the public interest in comparison with a Western culture of asserting individual rights at the expense of the community. 

It is sad, but true that the Covid pandemic is a transitory event.  It has been deadly and disruptive in its impact, but in a year it will be history.  More fundamental issues should be alarming.  So far, China has won the trade war launched by President Trump.  During 2020 its trade surplus increased, as did the trade deficit of the US.  The Trump administration’s attack on Huawei Technologies led the PRC to pour resources into its semi-conductor industry.  American efforts to get other countries to join in exerting pressure on China signally failed.  European, South American, and Asian countries are so entranced by the promise of the China market that they seek to fill the gaps when other countries try to pressure China.[5]  Nor is American politics oriented toward pursuing a coherent industrial policy during peacetime.  One of Trump’s last acts as President was to see his efforts to encourage an American rival to Huawei come to grief.  Intel announced plans to offshore some of its chip production; while Cisco rejected government entreaties to buy either Nokia or Ericsson.  Here they put the bottom line ahead of national strategy.  One of Biden’s first acts as President was to cancel the permit for the Keystone XL pipeline.  Here he put the demands of environmentalists over the interests of America’s Canadian ally (and over those of the American construction workers who had been building the pipeline). 

Finally, Chinese news media are portraying the riot at the Capitol as proof that American democracy is crumbling.  Many, here and abroad, would agree with this grim judgement. 


[1] Greg Ip, “China Played Its Hand Well in 2020.  Will It Keep Winning?” WSJ, 23-24 January 2021. 

[2] I’m not sure how Francis Fukuyama makes sense of this development.  Apparently, Hegelianism only takes you so far.  See Fukuyama, The End of History and the Last Man Standing (1992).  Still, he’s teaching at Chicago and I’m working at an educational wide spot in the road.  So,…

[3] The struggle from 1940 to 1990 between capitalist liberal democracy and autarkic dictatorships. 

[4] See: https://ourworldindata.org/covid-cases 

[5] For example, the European Union recently concluded an agreement with China to increase investment.  In doing so, they ignored a suggestion from Jake Sullivan, then President Biden’s national security advisor-designate that they should wait. 

China Data.

            During the late 1980s, Judy Shelton, a researcher at the Hoover Institution, began an examination of the public documents on the Soviet Union’s budget.[1]  Communism’s centrally-planned economy had spent decades setting unreachable production targets and then hiding the failure to achieve those targets.  The huge Soviet arms build-up after the humiliation suffered at the hands of the Americans in the Cuban Missile Crisis had long term effects.  The military (the “metal-eaters” as they were called) creamed off resources that could have been devoted to either civilian consumption or investment in production.  Economic stagnation went hand in hand with mounting popular discontent behind a veneer of great military power.  Shelton concluded that massive inflationary forces were being held back by controls, but eventually the dam would burst.  In the meantime, she argued, Mikhail Gorbachev sought to stave off the disaster by obtaining Western credits and technology.[2]  As Shelton predicted, collapse followed. 

            Twenty years on another financial crisis arose in Greece.[3]  Following a historical pattern, Greece had borrowed a lot of money from foreign lenders, spent the money on a higher standard of living in the short-term without investing in higher productivity in the long-term, cooked the books to cover what they were doing for as long as possible, and then loudly bemoaned their unjust fate when the sheriff finally showed up. 

            The common thread here is that reality and perception differed widely.  Both the Soviet Union and Greece worked hard to project an image that concealed grave problems.  Only a handful of budget experts could—with much labor—discern the truth.  The reason these historical cases matter is because not everyone today is happy with the state of data from China.   

            In the eyes of one analyst,[4] it is necessary to do a lot of digging to figure out what is going on.  On the one hand, Chinese government officials and managers are under continual pressure to meet certain quantitative standards.  In this situation, “real” growth (adjusted for inflation) is more important to managers than is actual new output.  So they may tend to overstate “real” growth.  Calculating inflation is a coarse art in China when compared to Western industrial countries.  This facilitates overstating “real” growth.  In addition, the government suppresses existing, reliable data reports when they diverge too much from the government’s line.  In 2016, the government halted publication of lending to public versus private borrowers; in 2018, it halted publication of purchasing managers indexes in Guangdong province. 

            On the other hand, this manipulation of data can makes things really difficult for people who are just trying to do productive things.  Obviously, it hinders the work of foreign observers who are trying to understand and anticipate the performance of the world’s second largest economy.  However, it can have the same effect on Chinese managers struggling to run their firms.  If uncertainty about economic performance piles up year after year, there’s going to be a reckoning.  Also, this isn’t public finance, but it may be true there as well. 


[1] On Shelton, now a controversial figure and notable spoil-sport, see: https://en.wikipedia.org/wiki/Judy_Shelton   

[2] Judy Shelton, The Coming Soviet Crash: Gorbachev’s Desperate Pursuit of Credit in Western Financial Markets (1989). 

[3] Carmen M. Reinhart and Christoph Trebesch, The Pitfalls of External Dependence: Greece, 1829-2015 (2015), Brookings Papers on Economic Activity, https://www.brookings.edu/wp-content/uploads/2015/09/ReinhartTextFall15BPEA.pdf 

[4] Nathaniel Taplin, “China’s Growth Data Dazes and Confuses,” WSJ, 5 January 2021. 

My Weekly Reader 7 January 2021.

            The Enlightenment had a good year in 1776.  The year witnessed the publication of “The Declaration of Independence,” Edward Gibbon’s History of the Decline and Fall of the Roman Empire, and Adam Smith’s The Wealth of Nations.  Smith attacked the prevailing “mercantilist” economic policies of the time, arguing that tariffs serve only politically-connected special interests at the expense of the larger community. 

            Broadly, for much of their history, Americans rejected free-trade as the best engine of prosperity.[1]  While James Madison advocated a ‘very free system of commerce” in the early days of the Republic, Alexander Hamilton preferred a mercantilist/protectionist line.  Tariff policy veered toward the Hamiltonian line once industrialization began, to the great distress of Southern cotton exporters.  After the Civil War, high tariffs became an article of faith among Republicans.  It is by no means clear that tariffs actually contributed much to American economic development in the “Gilded Age.”  Abundant natural resources combined with a scarcity of labor that put a premium on technological innovation probably did much more than tariffs.  Still, they didn’t hurt.  High tariffs as a protection against “unfair” foreign competition became a totem.[2] 

            Making a totem out of high tariffs came back to bite Republicans when passage of the Smoot-Hawley Tariff Act (1930) coincided with the plunge into the Great Depression.  Even though the Federal Reserve’s tight money policy during the 1920s played a far larger role, the high tariffs and falling trade explanation was ready to hand.[3] 

After the Great Depression drove many countries toward high tariff walls and autarky, after the Second World War wrecked most world economies, Republicans and Democrats converged on a new orthodoxy of free trade.  The United States played the leading role in designing the new world order of the Bretton Woods System.[4]  Americans continued this drive through the 1990s, with successive “rounds” of multilateral tariff reductions and the North American Free Trade Agreement (NAFTA). 

Some of the economic and social dislocations of recent decades loosened the post-war consensus.  Republicans still clung to free trade as tightly as they once clung to high tariffs, while Democrats lost the enthusiasm for free trade that inspired them from Franklin D. Roosevelt through John F. Kennedy.  More recently, populist uprisings in both parties have disrupted the march toward a still more integrated world economy.  Senator Bernie Sanders attacked free trade in general and the Trans-Pacific Partnership (TPP) in particular during his run for the Democratic presidential nomination in 2016.  Rival Hillary Clinton soon moved from being a leading proponent of the TPP to having her doubts to opposing it.  Donald Trump seized the Republican nomination in part by dint of his scalding criticism of NAFTA and Chinese trade practices. 

Will policy now snap back to normal under Joe Biden or are we at the dawn of a new era of managed trade?  The ability to formulate policies that help those displaced may hold the key.         


[1] Douglas A. Irwin, Clashing Over Commerce: A History of US Trade Policy (2017).  Reviewed by George Melloan, WSJ, 29 November 2017. 

[2] Tax cuts as the solution to every problem has become a similar totem for Republicans since the Reagan presidency. 

[3] See: https://en.wikipedia.org/wiki/Availability_heuristic 

[4] The General Agreement on Tariffs and Trade (GATT), the World Bank and the International Monetary Fund (IMF), the Marshall Plan and support for European integration all were vital early contributions. 

The Asian Century 14.

            The way it looks at the moment, the foreseeable future will be dominated by tiny things: deadly viruses and ultra-thin semi-conductors.  Controlling both holds the key to leadership (and possibly survival) in the Twenty-First Century.  Both come from Asia.  Of the two, computer chips may be the more pressing long-term concern.[1] 

            Inevitably, this begins as History.  The West pioneered industrialization, then moved up the ladder from making simple things to making more complicated and higher-value things.  From this they drew immense wealth.  Wealth converts into military power.  From the late Eighteenth Century onward, the West both shot ahead of the rest of the world and began to impose its rule on the rest of the world.[2] 

            Since the Second World War, many countries have wanted to follow the Western path.  For most of the imitators it meant beginning where the West had begun, with simple mass-produced goods that the West no longer cared to produce.  Textiles, then simple electronics, then motorbikes and automobiles.  They were filling global needs without competing head to head with the established economies. 

            Two countries—South Korea and Taiwan—went farther than making textiles, steel, and ships.  Taiwan’s strategy: invest heavily in research and development; build human capital through education and hold that capital in Taiwan; push rapid adaptation to changing markets in the West; encourage new businesses, rather than guard the established giants; and don’t put the hackles up on key Western manufacturers. 

            One of those start-ups was the Taiwan Semiconductor Manufacturing Company (TSMC).  The Taiwanese government chose Morris Chang, an American-educated Taiwanese, to begin creating a semi-conductor industry.  They didn’t set him to jumping too far by building an industry to use those chips in things like smartphones.  They set him to building the essential component of such devices.  He succeeded, but–true to the Taiwanese form—he didn’t rest on his laurels.  TSMC kept pushing up the ladder to chips until it became the leading producer of high-end semi-conductors.  What it did not do was to branch out into making the devices produced by powerful companies like Apple.  Both American and Chinese device manufacturers came to rely on abundant supplies of TSMC chips. 

            Now TSMC and Taiwan are becoming important “chips” in a different game.  The Trump Administration broke with previous American policy by taking seriously the profound Chinese-American rivalry.  Tariffs formed one part of its campaign, but so did a campaign to block the expansion outside China of the Huawei Company.  The American campaign against Huawei aimed, in part, to block the Chinese company’s access to TSMC chips.  The Trump Administration also encouraged TSMC to build a chip plant in the United States. 

            IF artificial intelligence and high-speed computing are going to be two corner stones of economic power and national prosperity, then high-end chips are an essential interest of both China and the United States.  Will the complicated Sino-American relationship on this issue and on so many others be resolved by diplomacy? 


[1] Ruchir Sharma, “It All Comes Down to Taiwan,” NYT, 15 December 2020. 

[2] David S. Landes, The Unbound Prometheus: Technological Innovation and Industrial Development in Western Europe from 1750 to the Present (1969). 

The Asian Century 13.

            From the time of Queen Elizabeth I (1533-1603, r. 1558-1603), England had a special intelligence service dedicated to thwarting the schemes of foreign enemies.[1]  Other countries took longer to reach this institutional goal.  Many countries assigned this task to intelligence departments of the military, with military attaches in foreign countries operating as case officers for spies.[2]  Impressed by the achievements of the British in the Second World War, the United States soon created the Central Intelligence Agency.[3]  On the other hand, revolutionary movements caught up in the struggle for power have to improvise.  The Bolsheviks created the “Cheka” in 1917.[4]  Later it became the OGPU, then the KGB, and now the FSB.[5] 

            The intelligence service of Peoples’ Republic of China (PRC) followed a recognizable track in its own development.  It began as a branch of the Peoples’ Liberation Army in the era of the struggle against Chiang Kai-shek’s Kuomintang government.  It continued as such during the wars with Japan, with Kuomintang again, and then with the Americans in Korea from 1937 to 1953.[6]   The Ministry of Public Security handled the repression of domestic resistance. 

Military domination of intelligence-gathering matched poorly with Deng Xiaoping’s decision to dramatically reorient China after the death of Mao.  An opening to the West would involve allowing Westerners relatively unrestricted access to China.  This would pose a grave security threat.  However, an opening to the West would also permit greatly expanded espionage directed not only against foreign military power, but also against economic and technological targets.[7]  In 1983 Deng created the Ministry of State Security (MSS). 

In comparison to the Soviet Union, the PRC began at a disadvantage.  Many of the Westerners who spied for the Soviets were recruited during the “Devil’s Decades” of the 1920s and 1930s.  Social, political, and economic crises created large numbers of foreigners who were true believers in Communism.[8]  That intellectual commitment had died long before the MSS began its work.  Instead, it has relied upon a combination of lots of money to human agents and lots of technology to invade foreign computer systems. 

Has it worked?  Yes: spy scandals are becoming ever more common.  How much difference has it made?  It’s hard to tell because China’s astonishing ascent as a military and economic power has so many roots.  Still, in the judgement of experts, “China is today the greatest intelligence threat to U.S. interests.” 


[1] Now called MI-6, the Secret Intelligence Service.  Domestic counter-intelligence is the province of MI-5, the Security Service.  See: Christopher Andrew, Secret Service: The Making of the British Intelligence Community (1985). 

[2] See, for example, Peter Jackson, France and the Nazi Menace: Intelligence and Policy-Making, 1933-1939 (2000). 

[3] Unfortunately, one of the British advisors to the early CIA turned out to be the Soviet “mole” Kim Philby. 

[4] The All-Russian Extraordinary Commission for Combatting Counter-Revolution and Sabotage. 

[5] See Christopher Andrew, KGB (1990). 

[6] Peter Mattis and Matthew Brazil, Chinese Communist Espionage (2020), reviewed by Michael Auslin in WSJ, 2 March 2020.  . 

[7] Despite President Obama’s huffing and puffing, this was hardly a new approach to hurrying industrialization on the cheap.  See Doron Ben-Atar, Trade Secrets: Intellectual Piracy and the Origins of American Industrial Power (2004). 

[8] See, for examples, the Rosenberg spy ring in the United States, the “Cambridge Five” in Britain, and the “Red orchestra” in Germany and elsewhere. 

Down the Malay Barrier 3.

The Shan State forms one of Myanmar’s ethnic communities.  Located in the northeastern quadrant of Myanmar, it borders southwestern China (Yunnan), Laos, and Thailand.  Under other circumstances, a bunch of forested hills on the inland edge of a no-account country would be of no interest.  In fact, however, it is an important–and increasingly important—link in the international narcotics supply chain.

For one thing, the many small farms grow both produce and opium poppies.  Poppies grow easily in the poor soil often found in hill regions.  Poor peasants value poppies as a cash crop.  For another thing, part of the anti-Communist Chinese Kuomintang Army retreated from Yunnan into the Shan State after the Communist victory in 1949.  Rather than transit to join the other supporters of Chiang Kai-shek in Taiwan, they settled down in Shan State.  There the refugee army embarked on opium and heroin production.  For yet another thing, since 1962 the central government’s effort to suppress autonomy movements has spawned local resistance groups.  As the old saying goes, “For success in war, three things are necessary: money, more money, and still more money.”[1]  Shan autonomists have relied upon drug sales to build up military forces more than capable of holding off the army of Myanmar on most occasions.[2]

If opium and heroin built the foundations of the Shan State drug trade, the producers have been alert to changes in global market conditions and new product development.  Take, for example methamphetamine and fentanyl.  Methamphetamine is a synthetic stimulant.[3]  “Crystal meth” is an alternative form of methamphetamine.  Fentanyl is a synthetic opioid that is far stronger than is heroin.[4]  All have become popular “recreational” drugs.  Much of production of the chemical components of both methamphetamine and fentanyl took place in China.  In recent years, pressure from the United States caused the Chinese government to restrict production in China proper.  Producers shifted their facilities outside China, including to Shan State.

New supply chain routes then developed.  Fishing villages dot Myanmar’s long coastline on the Bay of Bengal.  Doubtless the local fishermen feel the same eagerness to profit from the drug trade as do the peasant farmers.  Probably they carry their cargo to ports like Yangon and Singapore, while another route may run down the nearby Mekong River to Ho Chi Minh City.

Myanmar’s war with the ethnic groups has been a murky business.  To offer one example, the Kachin Defense Army, in Shan State, is suspected of having done a deal with the army of Myanmar involving the drug trade.  However, the trouble with criminals—even criminals in uniform—is that they’re dishonest.  The Kachins seem to have been sending some of their product to the Arakan Army on the west coast.  Discovering this betrayal, the army and police launched a series of raids into Kachin territory in Spring 2020.  They hauled in 200 million tabs of meth, 1,100 pounds of crystal meth, 630 pounds of heroin, and almost 1,000 gallons of methyl fentanyl.[5]  The army probably sought to remind the Kachins of the deal, not break the deal.

[1] Attributed variously to Marshal Trivulzio and Raimondo Montecucolli.

[2] You might enjoy and learn from “Proof of Life” (dir. Taylor Hackford, 2000).

[3] See: https://en.wikipedia.org/wiki/Methamphetamine

[4] See: https://en.wikipedia.org/wiki/Fentanyl

[5] Hannah Beech and Saw Nang, “Record Raids in Myanmar Point to Shifting Drug Trade,” NYT, 20 May 2020.

My Weekly Reader 9 March 2017.

In the bad old days,[1] individual nation-states pursued the welfare of their citizens—political, economic, psychic—through nationalism, protectionism, and war.  The “Devil’s Decades” from 1914 to 1945 thoroughly discredited this approach.  In place of this disgraced “realist” world-view arose two rival systems.  The Soviet model of centrally-planned economies and Big Brother-little brother domination of surrounding countries came to dominate one half of the world.  The Western model of a market economy based on borders open to the flows of capital and people, and regulated by rules and laws came to dominate the other half of the world.  Both systems seemed to depend on international political stability.  Thus, “The “Cold War” was, as John Lewis Gaddis put it, “The Long Peace.”  However, the Soviet model also rested upon a set of beliefs about human beings that were completely false.[2]  Since 1990, former followers of the Soviet model have been in flight toward the Western model.  Intellectuals declared “the end of history” since all the ideological rivals to the Western model had been defeated.

The financial crisis of 2008-2009 and the adjustment problems of the Eurozone posed huge problems of economic management for experts and politicians.  However, they hardly dented the belief in the one best way.  Hence, it is fascinating to encounter a restatement of the Western model[3] made just before the Brexit referendum, the election of Donald Trump as president of the United States, and the arrival of Marine Le Pen as a sort of Snow White to a host of populist dwarf parties.

Michael Mandelbaum understands the substance of international relations and domestic politics almost entirely in material terms.  A stable international order has allowed governments to focus on the promotion of economic growth and the distribution of its benefits.  (Indeed, the pacification of international relations and the de-legitimization of most ideologies have left them nothing else to pursue.)  Mandelbaum carefully explains the main components of the system.  He considers the changes that may be necessary to respond to the rise of the BRIC (Brazil, Russia, India, China) economies.  He calmly contemplates the teeter-totter shift in power as the United States experiences a relative decline and other countries develop economically.

Two points are worth noting.  First, Mandelbaum says little about the impact of the disruptive changes in the old industrial countries brought by globalization.  The adjustment costs of globalization have chiefly been born by common people in sectors of the economy swept by the winds of change.  Currently, Western populism is being fueled by the anger of these people at the elites who have promoted globalization without devising any adequate devices for helping the losers.  Attention-grabbing though these movements have been, what will happen if the Chinese, Indian, and Brazilian people disrupted by globalization launch their own populist movements?  At least the Western countries have political systems designed—however grumpily and disdainfully—to accommodate grievances.

Second, writing in 2014, Mandelbaum foresaw that “it is reasonable to expect that the United States will do less global policing in the future than it has in the past….making the world a politically and militarily more turbulent place.”  Donald Trump may make this long-term trend worse, but he didn’t cause it.

[1] Admittedly, days beloved by history students.

[2] As one fictional character remarked, “All you had to do was keep them penned in and wait for the food riots to start.”  See William Gibson, Pattern Recognition.

[3] Michael Mandelbaum, The Road to Global Prosperity (2014).  See Tod Lindberg, “An Elite Guide to Globalization,” WSJ, 3 April 2014, p. A15.

The Rise and Decline of Nations.

Back in the day–as young people used to say before they moved on to some other expression up with which I have not caught—I was going to be an economic historian. I came across a book by Mancur (Man-Kur or Man-Sur, depending on who your listening to) Olson.[1]  It’s a remarkable book, although—like many another remarkable book—long forgotten.

At the core of the book is a puzzle.  Germany and Japan lost the Second World War big time, while the United States won big time.  So how come the post-war German and Japanese economies were so dynamic, while the American economy slowed down?

Olson’s answer is one that will be obvious to sailors.[2]  You leave the boat in salt-water and it will pick up barnacles.  It also will be obvious to heart surgeons.  You have too many double bacon cheeseburgers with the twisty fries covered in BBQ sauce and your arteries will get clogged with sludge.  In either metaphor, the system gets loaded with stuff that slows down its operation.

What, in economic terms, are these barnacles/sludge?  They are the various interest groups that grow up around an established way of doing things: unions, government regulators, tax collectors, and business monopolies and cartels.  They grow up with—well, slightly behind– any new industry.  They figure out how the system works.  They figure out how to work the system.  They’re opposed to change because they know how to work the existing system.[3]  They fight over shares of the existing pie, rather than over how to expand the pie.  Eventually, the contending groups reach agreement on how to divvy-up the pie.  These agreements Olson labels “distributional coalitions.”  They are the “masters of the crossroads.”[4]

The thing is that the Second World War destroyed all these “distributional coalitions”—the barnacles, the sludge, the interest groups, the barriers to new technology and new relationships–in Germany and Japan.  War “emergencies” caused the German and Japanese governments to break down established relationships from the pre-war era.  Then the American and British occupations banned many regime-associated groups.  In contrast, the victor nations institutionalized their own “distributional coalitions.”  American and British unions foreswore strikes, while lots of leading businessmen took “dollar-a-year” jobs with the government.[5]  Subsequently, many interest groups dug-in to established positions.  So, Germany and Japan were able to achieve rapid economic growth, while the United States merely chugged along and Britain soon fell behind the countries against which it had fought from the first day of the Second World War to the last.

In a sense, then, catastrophic defeat in war serves as a kind of social and economic angioplasty.[6]  Obviously, Olson was talking only about already advanced industrial economies.  I doubt that anyone expects Iraq to be the next “economic miracle.”

Trite observation though it is, the same analysis might be applied to any organization.  For example, colleges facing severe competition either ruthlessly adapt or wither.

[1] Mancur Olson, The Rise and Fall of Nations: Economic Growth, Stagflation, and Social Rigidities (Yale UP, 1984).

[2] Nevertheless, will all the non-sailors please spare me the abusive remarks about me wearing pink—“salmon” in the imagination of my brother-in-law—pants, blue Polo shirts, and Topsiders?  Please?

[3] Big Carbon—coal and oil—has a lot more drag with the gummint than does Not-So-Big Renewables.

[4] See: https://en.wikipedia.org/wiki/Papa_Legba  See also: Madison Smartt Bell, All Souls’ Rising (1995); Master of the Crossroads (2000); and The Stone That the Builder Refused (2004).

[5] See, for example, Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War  (1995). 

[6] Curiously, this is how mainstream economists saw a business-cycle recession before the Great Depression.

More Young People.

If we look at the history of the last quarter century, we see two dominant and inter-related trends.  Radical Islam isn’t one of them.  First, the collapse of Soviet Communism inspired other followers to abandon the controlled economy for participation in the world market.  Second, information technology destroyed many old barriers.  Upheaval and opportunity resulted.   Currently, about a quarter of all the people in the world are aged 10 to 24.[1]  That is, they were born between 1992 and 2006.  The world in which they have grown up is that same world that older people have often found so disorienting.   Now young people face their own problems.

Those billions of young people are not equally distributed around the world.  They account for only 17 percent of the population in economically developed countries; for 29 percent in less-developed countries, and 32 percent in the least developed countries.  In the United States, the median age is 37; in Russia, 39; in Germany, 46.  In Nigeria, the most populous nation in Africa, the median age is 18.  China offers a particularly interesting case of a transition.  Faced with a swiftly rising population, China declared a one-child policy for married couples.  It worked so well that the youth base of the population narrowed to a frightening degree.  A shortage of workers to replace those who are approaching retirement loomed.  At the same time, young couples found themselves providing care for up to four aging parents, while trying to work and raise their own child.  Recently, the government ended to one-child policy.

A disproportionate share of young people lives in the countries least well able to provide them with either an adequate education or a decent standard of living.  Take the example of India.  There are more than 420 million Indians between the ages of 15 and 34.  The median age is 27.  Desperate measures to expand primary education have had mixed results.  Although almost all Indian children now attend primary school, half of fifth graders can neither read at a second grade level nor do subtraction.[2]

Then, India needs to create 12-17 million new jobs every year to absorb the population growth.  In India and in other countries in similar dire straits, young people are forced into spotty, badly-paid just to get any jobs at all.  India’s reluctance to end the carbon-burning that drives economic growth in that country is easier to understand in light of that imperative.  The here and now weighs more heavily in the balance of decision-makers than does the future.[3]

Migration from “young” countries to “aging” countries might offer a solution.  However, there are several big barriers here.  First, even in the developed countries there is a problem of youth unemployment: in the United States, almost 17 percent of people between 16 and 29 are not in school and not working; in the European Union the youth unemployment rate averages 25 percent.[4]  It will be difficult to make the case for expanded immigration of young people when a country cannot even provide work for its own young people.  Second, the poor quality of education in many developing countries means that only some people will be viable migrants.

Even so, migration from the Lands of Inopportunity to the Lands of Opportunity may be inevitable.  There are 11 million illegal immigrants in the United States.  The current refugee crisis in Europe shows just how difficult it can be to keep out hordes of determined people.

[1] Somini Sengupta, “The World’s Big Problem: Young People,” NYT, 6 March 2016.

[2] The wretched state of education can be glimpsed in Aravind Adiga, The White Tiger (2008), and Mohsin Hamid, How to Get Filthy Rich in Rising Asia (2013).

[3] A third problem is anti-female sex selection.  There are 17 million more Indian males than females aged 10 to 24.

[4] Sengupta argues that the high European rate results from a combination of a slow economy and the absence of economically valuable skills.  The same may be true in the United States, although some economists would argue that the skills-deficit argument is false.