The Turning Tide

Phaedrus · Jul 12, 2004

I got a suprising amount of feedback (both positive and negative) from this article that I recently published at Liberty Impact. Thought that I would make a vanity post, since I'm always copying and pasting other people's stuff but never my own.

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The Turning Tide

How Former Communist Nations are Trumping the World's Economic Powerhouses

Former communist countries, far from being distraught "Third Worlders" are gradually leading the way for the future of capitalism and economic freedom. The evidence over the last decade and change since the collapse of the USSR makes a very compelling argument for a diminished state.

In The Road to Serfdom, Friedrich Hayek discussed and demonstrated that interventionist policies by the state invariably lead to socialism, even if a benign form of it such as is exhibited in nations like Canada, Denmark and the UK. Hayek predicted the logical result of such policies: permanent warfare, bankruptcy, and increasing interventions by the state until such a time that the whole mess collapsed under its own weight. Hayek's theories were proven correct less than fifty years later when the Soviet Union did precisely this.

In The Sovereign Individual: Mastering the Transition to the Information Age, James Dale Davidson and Lord William Rees-Mogg explore (among many other things) the phenomenon of the collapse of the Soviet Union and the implications that nascent economic freedom in such states as the former Soviet republics had on developed societies such as those of the G8 nations. The predicitons made in TSI are sometimes dire and sometimes hopeful, but there is one underlying tone which cannot be ignored: there is a coming gradual economic collapse, and it will be far less felt by those nations which do not have massively developed welfare structures, militaries and other facets of the super-state than it is by those that do.

How do the theories and predicitons of these two excellent books hold up in the real world? Let's examine some facts from various sources about the state of things in former communist countries.

The Heritage Foundation's Index of Economic Freedom is an annual report that measures the degree of economic freedom in the world, and its correlation to economic prosperity, peace, and other benefits essential to the expansion of human civilisation. Astonishingly, a former Soviet republic -- Estonia -- actually ranks higher than the United States in the 2004 study! Additionally, two other former Soviet republics and one former BLOC nation -- Lithuania and Latvia, and the Czech Republic, respectively -- rank in the top forty nations in the world for economic freedom, and outrank Asian G8 nation Japan by a wide margin (Lithuania also outranks Italy and Spain in the IEF rankings.) These nations, barely a decade out from under the shackles of history's greatest super-state, have rocketed up the IEF rankings as their only means of sustenance -- a viable market environment -- is allowed to grow and expand without the constant nannying and harrassment seen in major developed nations.

In a story from a recent issue of The Economist, the current and recent trends in the economy of nominally communist Vietnam are examined. The often-ignored southeast Asian nation, once the site of a great and pointless ideological struggle between the superpowers of the Cold War, enjoys greater proprotionate foreign direct investment, stronger growth rates, and more rapidly-falling poverty levels than any other nation in the region -- including its collossal neighbour China.

Data from the World Bank shows that the percentage of Vietnam's population living at or below the poverty level has fallen from 58% to 29% in the last decade. Neither the SARS nor Asian bird flu epidemics made a meaningful dent in the Vietnamese economy, and even during the worse of the Asian financial crisis Vietnam's economic growth rate never fell below 4.8%

In fact, the only thing keeping the Veitnamese economy "down" at all is state interventionism born of the communist blood in the government: state control of the banking industry, investment and finance regulations, etc. leave a massive gulf between small, local businesses and massive foreign-backed companies; the small businesses that would otherwise make up the backbone of any nation's economy are stifled. One can only speculate what the result of government easing of these regulations, similar to the easing of agricultural regulations which sparked the decade-long economic boom in Vietnam, would do for the country.

In another related piece, a recent story from the BBC revealed a fact which is simply shocking: New York City is no longer the home to the greatest number of billionaires in the world, probably for the first time since anybody became a billionaire proper. Guess who is?
Moscow. The capital of Russia, the former hub of the Soviet Empire, is now home to thirty-three individuals with a net worth in excess of US$ 1 billion, versus thirty-one in the Big Apple.

What does all of this mean? America and other G8 Nations are slowly descending the ladder of economic prosperity, dragged down by the weight of increasingly fascist and socialist economic policies. The only thing that props them up is the level of economic prosperity generated not because of state-granted freedom, but in spite of state-imposed restrictions. However, it is clear that in virtually all of the G8 nations, state spending and the cost of compliance to private enterprise are gradually pushing these nations out of the category of wealth producers and into that of wealth consumers. By contrast, in countries such as the former Soviet republics the state does not have the power or wealth necessary to enforce, for example, Medicare/Medicaid, or support an army large enough to invade anyone anywhere under any pretext, and such comparitively diminuitive governments bestow a sort of "implied laissez-faire" not seen in developed countries in generations.

We would do well to learn the lessons of the present of such countries, if we are unable to learn from the lessons of the past of our own.

Yours in liberty,

Phaedrus

Recommended reading:

Friedrich Hayek's 'The Road to Serfdom:' http://tinyurl.com/3xa6a

Davidson and Rees-Mogg's 'The Sovereign Individual:' http://tinyurl.com/2gtzs

The Heritage Foundation's Index of Economic Freedom 2004: http://tinyurl.com/2rrlg

"The Good Pupil" (above-referenced story on Vietnam) http://tinyurl.com/39e3x

BBC report on Moscow as the world's billionaire capital: http://tinyurl.com/2cl9h
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Talk amongst yourselves.

Phaedrus

Oceans11 · Jul 12, 2004

So when are y'all moving to Russia is all I have to say about that.
(Remember to bring your family and ALL your money.)

-------------------
Russia and eastern Europe at the moment?

Dodge City.

Lots of growth though, yeehaa.

[This message was edited by eek on July 12, 2004 at 09:35 PM.]

Phaedrus · Jul 12, 2004

You should spend some time there before criticising it. Wonderful place, Russia, full of opportunity, culture, entertainment, marvelous women, etc. I'd wager (hehehehe) that Russia will become a gambling mecca without par in the next couple of decades, since unlike most of the current gambling centres of the Caribbean and Asia Russia has the nuts to defend itself against encroachement by the crazy Bible-thumping "For the Childreners" in the U.S. government.

And as far as comparison to Dodge City goes, what a wonderful way for people to live; by far preferable to the Logan's Run/Wrinkle in Time/1984/Brave New World/etc. sort of world that the Uk and UK-like nations seem to want to foist on the rest of us.

Phaedrus

Oceans11 · Jul 12, 2004

So.
When ya moving there?
(Money and family too)

Phaedrus · Jul 12, 2004

I already have significant business interests in former Soviet/communist countries, which is a far more pertinent measure of my life than where my ass is parked. I don't stay anywhere for more than a few months at a time, and the only places where I hold any actual real estate are scant (I prefer to rent and let someone else deal with the property tax and zoning fúckmeats and so forth.)

As far as family goes, I don't have any who I would be in a position to force to move somewhere else, so this is irrelevant.

It is amusing how pointless your arguments get when you are desperate to say something, anything, just to get an eekism on the board.

Phaedrus

Oceans11 · Jul 12, 2004

Just wondering when you're moving to this new shiny eastern european 'eutopia'.

basically
"fuxx that shit for a game of soldiers" is your reply.

The new world it aint. huh.

It makes good copy though...but don't go there dudes...

Just raggin ya p.

Phaedrus · Jul 12, 2004

I don't understand what "fuxx that shit for a game of soliders" means.

I do not plan on moving to Russia anytime soon, but I also do not plan on moving anywhere else for the long term anytime soon -- I prefer a semi-nomadic lifestyle, and have for some time now.

I don't have any family over whom I have the authority to forcibly relocate, so moving my family to Russia is a moot point.

I do however have significant business interests in former Soviet/communist countries, and where and how I am making my money is a far better indicator of my opinion of the place than whether or not I park my ass there. True story.

Phaedrus

BoratSagdiyev · Jul 12, 2004

Guys comeon kiss and make up. You are both brilliant.Ok happy?

HENHOUSEx2 · Jul 13, 2004

You are an idiot Dr Phil-aedrus

By the way, you still seeing that shrink

HH

Phaedrus · Jul 13, 2004

Thanks for the bump fuknuts.

Any thoughts on socioeconomic trends in former Soviet/communist countries, which is the actual topic of the thread?

I love the fúcking monkeys around here. Perfectly reasonable thread, open to discussion, no excuse on earth for either of my stalkers to even open the damned thing, and this is the response:

1) If you don't live in a given country it is not permissable to praise it (the same however is apparently not true for countries one wishes to criticise, such as Brits who wish to criticise the US.)

2) Are you still seeing that shrink (and btw, what the hell is that anyway? Not seeing a shrink, no. Good strong point Joe!)

Phaedrus

Redneckman · Jul 13, 2004

Great article, Phaedrus, does it follow then do you think that these former Soviet bloc countries would be a good place to invest as opposed to the U.S. Just curious if you had an opinion on that. I've been telling people for quite a while now that the U.S. is on the downhill side ofour current prosperity, and within the next century or so, will not be the # 1 world power, both economically and militarily, due to the vast socialist pressures being piled on to our economy and lifestyle.

Phaedrus · Jul 13, 2004

posted by Redneckman:
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Great article, Phaedrus, does it follow then do you think that these former Soviet bloc countries would be a good place to invest as opposed to the U.S. Just curious if you had an opinion on that.
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I am not an investment advisor so take this with a grain of salt. I look at places like the former Soviet republics as presenting opportunities with an extremely high return potential ... and a commensurate extremely high risk factor. The U.S. and other G-8 nations abound with opportunities with lower risk, and at least in the U.S. it is possible to generate way over average returns without the sort of risk one would associate with above-market returns. The problem there is that the real money is in venture investing, not stocks/bonds/etc., and you will get anally raped on virtually any sort of venture investment you attempt to make -- whether starting a business, bridge loan to an existing business, private placement etc. if it is outside of the mainstream of SEC jurisdiction it will normally not get treated as standard cap gains and so will end up being taxed at a much higher rate unless you can dig up all sorts of deductions and such (or unless you just, you know, forget to file or something.)

I wouldn't recommend investing in places like the former Soviet republics unless you are in a position to go there in person a couple of times a year, and even then only if you also have some good trustworthy contacts "on the ground" so to speak. That has been a major barrier to me but I have managed to cultivate some good relationships over the last few years and am finally seeing some opportunities open up with which I am comfortable.

Phaedrus

xpanda · Jul 13, 2004

I hate arguing with you, because I always get my ass kicked ... I should know better than to engage in economic debates. But, here goes, anyway:

You are implying that a state-supported infrastructure is detrimental to economic development, and that these states (mine was named specifically) will ultimately collapse in on themselves. I would like you, then, to defend the argument (one that I have read, not invented) that the capitalist success of China has been its continued insistence on its old communist roots -- maintaining its infrastructure and allowing an export economy to build, presumably to trickle back into the domestic economy ... when the domestic economy catches up, it is expected that China will be in a perfect position to embrace capitalism, if that is its intended destiny. Or is China destined to collapse in on itself if it continues to embrace Communism?

What do you think?

Phaedrus · Jul 13, 2004

posted by xpanda:
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I hate arguing with you, because I always get my ass kicked ...
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Well, fwiw I don't really see it as kicking your ass; I'm just offering the counterpoint that I believe to be true.

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You are implying that a state-supported infrastructure is detrimental to economic development, and that these states (mine was named specifically) will ultimately collapse in on themselves.
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Sort of. The problem that is laid out in Davidson and Rees-Mogg's work is more complex than that, and is the result not just of state-supported infrastructure but of the mixed economy as perfected under Keynes and subsequently adopted by pretty much the entire world. As Keynes said, in the long run we're all dead, which is a pretty keen indicator of how he viewed the potential long-term ramifications of his theories (side note: contrary to the deification that has surrounded Keynes in the last few decades, absolutely nothing he wrote was original or insightful. His colleagues ripped him apart during his lifetime; it is only the politicians who saw in Keynes' work an ex post facto justification for the expansion of state power that elevated him to the level he enjoys in posterity.)

Countries with advanced socialist or psuedo-socialist policies will in time find it inevitable that something has to give. This is why the Keynesian mixed economy is so popular, because it allows for massive statism while still allowing a few people to make a dime to steal. However, this is the same basic structure as a Ponzi scheme, and eventually you run out of tricks to keep it going. That is just simple economic fact -- at some point the well runs dry.

(more on this another time, because some of the hidden tactics used to prop up these Ponzi schemes -- like inflation -- could themselves be the source of a ten-page thread.)

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I would like you, then, to defend the argument (one that I have read, not invented) that the capitalist success of China has been its continued insistence on its old communist roots -- maintaining its infrastructure and allowing an export economy to build, presumably to trickle back into the domestic economy ... when the domestic economy catches up, it is expected that China will be in a perfect position to embrace capitalism, if that is its intended destiny. Or is China destined to collapse in on itself if it continues to embrace Communism?
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China is an odd case, inasmuch as it is an overtly commuinst country that has realised the simple facts of life and allowed small portions of its population to be all but outright laissez-fiare capitalist mini-states, from which the parent state sucks off enormous amounts of wealth with which to prop itself up.

With over a billion people and the wheel already in motion in the eastern provinces, it is very hard to imagine that China will not graduate into a modern mixed economy sometime soon, especially if economic conditions in the U.S. do not significantly improve under the next administration (whomever that might be.) The 200 million or so people living and working in the "capitalist zones" are going to get pretty tired of feeding the 800 million or so living in the "non-capitalist zones." Regardless of what economic progress China makes, it is an inarguably brutal, repressive regime that jails dissidents, censors the Internet and other media, and has warlike aspirations in the region. As long as those factors stay in place, China is ripe for a revolution, especially given that there is nowhere left for them to turn except inward -- back to the Mao-like state that killed millions -- or outward, into the real world of mixed economics.

Since it would be a late entry into such a system, it is likely that such a massive inflow would crush the economic system globally, so everyone has a vested interest in propping up the current regime (what I mean by this is, imagine if everything that said "Made in China" quadrupled in price over the period of six months to a year.)

So, lots of variables there. If China could maintain the status quo under its current regime it can continue to sacrifice the few to the many and make cattle out of its citizens for as long as the U.S. can go without a major economic meltdown. If there are economic problems in the U.S., China feels it. If there are economic problems in China, the U.S. feels it -- so both sides continue to try to keep things exactly as they are for as long as possible. What happens when/if the Chinese people get tired of all the shit is anybody's guess.

And of course there's no going back to the old system, I don't think. Mao's inefficiency killed over 30 million Chinese in the worst famine in human history (at a time when agriculture around the world had reached its zenith no less.)

Do you really think that anyone in the modern world, no matter how conditioned to fear the state, is going to put up with:

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According to Fengyang [province] statistics, 12.5 percent of its rural population – 28,926 people – were punished by one means or another. The report lists the punishments; some were buried alive; others were strangled with ropes; many had their noses cut off; about half had their rations cut; 441 died of torture; 383 were permanently disabled; and 2,000 were imprisoned, of whom 383 died in their cells. Sometimes torture was used to force the peasants to give up their food supplies...sometimes to punish them for stealing food...
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or

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"The worst thing that happened during the famine," explained someone who lived through it, "was this: parents would decide to allow the old and the young to die first. They thought they could not afford to let their sons die, but a mother would say to her daughter, "You have to go and see your granny in heaven." They stopped giving the girl children food. They just gave them water. Then they swapped the body of their daughter with that of a neighbor's. About five to seven women would agree to do this amongst themselves. Then, they boiled the corpses into a kind of soup. People had learned to do this during the famine of the 1930s. People accepted this as it was a kind of hunger culture. They said: "If your stomach is empty, then who can keep face?"
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(from Jasper Becker's haunting Hungry Ghosts: Mao's Secret Famine)

Not sure if that really answers your question or not. China is a major subject, and in many easy an exception to all of the rules. I don't think that anyone thought that China would survive the collapse of the USSR, but then I don't think that anyone thought that China would turn most of its eastern seaboard into one giant Hong Kong either in order to keep the game going -- or that they would get away with it, if they did (of course that's only been in the last decade, so who knows what the future will bring.)

Phaedrus

xpanda · Jul 13, 2004

Very good. Next question:

While you laud laissez-fiare routinely, in the case of Russia who you state as being one of the few acting close to this utopian state, what props are you willing to concede to the former socialist/communist state-supported-infrastructure to whom the new capitalist enterprise no doubt owes a thank you or two? Is it not true that capitalism would have had a slower time developing if roads, for example, did not exist upon its inception?

In other words, capitalism finding success on the backs of failed communist/socialist/state regimes is quite a bit different than capitalism being given a chunk of land and told to go for it. Is there any chance you will concede that the presence and intervention of the state may well contribute to capitalism's rise?

Phaedrus · Jul 13, 2004

Well, of course. There's no point in arguing against the existence of roads, is there?

This is where many capitalists (especially the pseudo-capitalists of the Libertarian persuasion) tend to get all flustered and stammering. For those of us that live in the real world, there is no denying that a) roads exist, b) the vast majority have been built by the state, and c) for the most part they are quite helpful in our day-to-day lives. (setting aside for a moment the problem of the pork barrel role model that is modern transportation and just think about the period of the emergence of ubiquitous roads [in America.])

However, it is wrong to speculate that capitalism might have had a "slower time" of it without the state -- given that capitalists generally flourish and excel first and foremost at filling their own needs, it is vanishingly unlikely that roads would not have been built by private parties at the rate at which they could be afforded.

After all, the massive federal infrastructure expansion in the 19th century was not forged in the wilderness, but built on the thousands and thousands of miles of privately-owned toll roads and community-owned town roads which the government had regulated to the point that they could no longer be operated at a profit. Between 1795 and 1830, the US government spent $ 622,000.00 on roads and bridges; private operators spent $ 11 million (see here.)

So, yes, massive government expenditure can lead to benefits, even to those who despise the government like myself. This is an unavoidable consequence unless I am going to go live in a cave (I'm not.) The example of the roads holds true for railways, telephone systems, power grids, etc. much of which cannot and never could be built without state hand-holding, and sometimes with state investment. But for the most part most of the infrastructure in the States was built on the backs of producers, with said producers getting perks from the government in exchange. Weirdly enough, the producers are vilified by history (the so-called "robber barons") and the government officials of that era have statues and portraits and whatnot to commemorate the same basic behaviour.

Really, I know it's tangential to the question, but an analysis of infrastructure development in America shows that things have been on a pretty steady downard plane for the producers in society ever since the Industrial Revolution. Fúcking state just takes and takes and takes.

Back on the subject, over 150 years ago the noted French economist Frederic Bastiat refuted this argument with his famous "Broken Window Fallacy. The state can do all the good it wants with its misappropriated money; it doesn't change the nature of the way in which the money was taken.

Phaedrus

xpanda · Jul 14, 2004

I just ordered the Road to Serfdom from Laissez Faire Books. Of course, since it's being shipped to Canada, I had to read over the shipping details/costs etc. Thought this was rather funny:

DO YOU HATE THE POST OFFICE?

WE DO.

In this business, it is hard to avoid supporting the Post Office, but when we can use a private carrier instead, we try to do so. We have negotiated rates with United Parcel Service that allow us to offer our customers MUCH FASTER AND MORE RELIABLE DELIVERY for ONLY $2 PER ORDER (over the standard shipping rate, via USPS).

All UPS shipments have guaranteed delivery dates (1-6 days, see chart below) and trackability. And as an added service, customers will receive email confirmation that their LFB packages have shipped, with their tracking numbers!

As you might guess, this is not the kind of service we receive from the Post Office. Even if all goes right with the Post Office, their estimate of delivery on Priority Mail has no guarantee, and for book rate (standard) shipments, they estimate delivery in 1-3 weeks.

International shipping through the Post Office has even greater problems. Costs are much higher, and delivery even less reliable, than on domestic shipments.

(snip)

Again, UPS wants our business and has offered us extremely competitive UPS Worldwide Express rates to most countries, bringing trackability and guaranteed two-day delivery to international shipments! In many cases, UPS is actually CHEAPER!

So, take a look at how little it costs (if anything!) to upgrade to UPS delivery, and we bet you'll see the value!

Fast, guaranteed delivery at reasonable prices.

LET'S TELL THE POST OFFICE TO TAKE A HIKE.

Oceans11 · Jul 14, 2004

Only guessing but...

I have doubts that China will be able to cope with the amount of pollution she will produce as she becomes increasingly industrialised.

I reckon that clean air and potable water could become major issues.

http://news.bbc.co.uk/1/hi/world/asia-pacific/3805883.stm

------------------------------------
The real bad boy on CO2 pollution is the USA with around 35% of world emissions.
http://news.bbc.co.uk/1/hi/sci/tech/3143798.stm

[This message was edited by eek on July 14, 2004 at 02:46 PM.]

Phaedrus · Apr 24, 2005

Interesting relevant commentary by Henry Blodgett...

China's Biggest Gamble

Can it have capitalism without democracy? A prediction.

On my last evening in Beijing, I walked west on the long blocks of the city's main drag toward Tiananmen Square. The sun was setting when I arrived, and, on the north side of the road, beneath the portrait of Chairman Mao on the Gate of Heavenly Peace, crowds of tourists were streaming out of the Forbidden City. On the south side, in Tiananmen Square itself, kites and flags were flying, and entrepreneurs posing as "students" were cruising around entreating foreigners to visit a nearby art "exhibit" in which their works were purportedly displayed. The students' story was clever and well-choreographed, but I'd already fallen for it once that day (enduring a guided tour of machine-made paintings being sold to fund a "trip to America"). So, I just wandered around the square and watched the sun set over the Chinese flag.

The story of what happened in Tiananmen in June of 1989 is different in China than the one we tell in the United States. In America, we remember the student protests as a plea for democracy, for our form of government (who has forgotten the students' mock-up of the Statue of Liberty?). But in China, people describe the students' goals as not democracy, per se, but as the end to corruption, the ability to air grievances, and the right to more control over their lives (or, as one person put it, the right to refuse to be shipped off to some dumpy factory for 40 years—a fate that would drive anyone into the streets). Although these ideals were closer to our form of government than China's was in 1989, they were not the "one man, one vote" system we hold so dear, the one that, in America, we herald the Tiananmen students as having died for. And, by local estimation, Chinese have gotten much of what the students were really hoping for 16 years ago.

In Beijing, as in Shanghai, the businesspeople I spoke to seemed more concerned about preserving their ability to make money than about gaining the ability to vote leaders out of office or to express themselves however they pleased. One expects businesspeople to tend toward this end of the idealism scale, but in the U.S., democracy and freedom of speech are so fundamental to our sense of ourselves and our country that even our businesspeople can't imagine life (or economic success) without them. So, it is interesting to see China succeeding—on the surface, anyway—without them.

The question remains: Can the Chinese model—capitalism without elections or free expression—succeed forever? The common Western theory is that the more China's wealth grows, the more the pressure will build, until one day, the Communist Party's chokehold on power will break and American-style freedom of speech and democracy will follow (or, alternatively, that, in a desperate attempt to preserve itself, the party will revert to Cultural Revolution-style oppression and stop the economy cold). Both theories presume that free speech and elections are high on the average Chinese citizen's agenda, but, for now, a strong economy seems to take priority. ("The average guy wants to buy a car, eat vitamins, and get his kids into Berkeley," said one Beijing entrepreneur. "As long as the government doesn't screw that up, he's willing to play along.") The Western theories also presume that the transition from socialism to capitalism inevitably includes a transition from one-party rule to elected, multiparty democracy, but perhaps this isn't so. Especially when the leaders of the one party know exactly what keeps them in power—fat consumer wallets—and are willing to go to extraordinary lengths to control the spread of potentially destabilizing ideas.

For China's economy to continue to thrive—and for its companies to grow strong enough to compete globally on something other than price—the government will have to continue to reduce corruption, strengthen property and legal rights, and develop a more efficient capital allocation system (including a securities market in which government connections are not a prerequisite for raising cash). In a democracy with a free press, the pressure that forces such changes often comes from decision-makers' fear of being ravaged in the media and/or voted out of office. In China, the repercussions may not be so immediate and direct, but based on the government's actions over the last decade, it knows well that continued economic reform and success are not only good for the country but key to its survival. The pressure is there, in other words, with or without the media, and the government continues to make progress in reducing corruption and buttressing legal and property rights.

The government also seems to be deciding that, at least in the realm of business and finance, greater press freedom helps advance its economic goals and lessen its regulatory burden. Business journalism keeps companies honest and makes customers and investors comfortable that they at least have a forum in which to complain. Such freedom is not all good—in the media's eagerness to advance its own economic agenda, it often manufactures scandals where there are none and spins normal free-market processes into institutional or regulatory failures. But just as a free market is more effective than central planning at, say, managing crop production and pricing, a free press enhances the regulatory abilities of a government and creates the information flow that capitalism requires.

But the Chinese government will probably continue to stifle the press's freedom to criticize it. As demonstrated by the government's subtle, sophisticated control of all forms of media and its ongoing penchant for firing, beating up, jailing, and perhaps even killing journalists who cross vaguely defined lines, we won't see a Michael Moore of China anytime soon (see Perry Link's essay in the New York Review of Books). But I doubt this will hinder the ongoing development of China's vibrant economy.

The key test of China's version of capitalism, of course, will be during the bust that inevitably will follow the current boom (some day). If elections were held today, many in China suggest, the current leaders would win the popular vote. On the whole, thanks to the economy, people feel they have done a good job. During the bust, the pressure for change will increase, with or without the press. If the government is to maintain control in such an environment, it will probably have to engage in a practice that has long been a fixture of oligarchies and democracies alike: blame. As long as the countrywide pain can be laid at the feet of an individual or group, instead of the system—and as long as the scapegoats can be tossed out on their respective rears—the public pressure for revolutionary change can probably be controlled. If China can survive that inevitable economic crisis without a political uprising, we will probably be able to conclude that a dynamic free-market economy need not, in fact, go hand in hand with democracy.