China: A Greater Safety Net in the Making
European Straits #65
Dear all,
The role of what I call the ‘Great Safety Net’ is to create a balanced relationship between economic security and prosperity. Many people assume that the two outcomes are mutually exclusive: you can cover people against critical risks, or you can create jobs; but you can’t do both simultaneously.
This assumption is false. What we learn from history and social science—and what my coming book Hedge will try to illustrate—is that providing economic security to the many is conducive to more prosperity for all. In the past, mechanisms such as social insurance and empowering trade unions were not only a lifeline charitably thrown to suffering households. Together they formed a powerful macro mechanism for delivering sustainable economic growth to both households and businesses.
That being said, I’m not sure there’s much correlation between deploying a proper safety net and promoting liberal democratic values. In practice, a well-functioning safety net always reinforces the existing political regime, whatever its nature. Because it provides economic security and prosperity at scale, the safety net deprives the regime’s opponents of their strongest argument: that the government, whether it’s democratic or not, doesn’t deliver well-being to its citizens.
You could say that the New Deal contributed to making the US immune to fascism, thus reinforcing the liberal democratic regime of the American Republic. Conversely, the terrible social and economic evils inflicted on the German people under the Weimar Republic paved the way for the steady rise of the NSDAP from 1929 onward. With those historical precedents in mind, we came to think of the Great Safety Net of the past as an integral part of the liberal version of the market economy. This argument was made by Umair Haque here: Seven Lessons We Should Have Learned From History But Didn’t.
Yet what is true for liberal democracies is also true for other regimes. And this is where China is a case in point. The Chinese government doesn’t express the slightest interest in embracing Western liberal democratic values—as stated by Martin Jacques, “China is modernizing, not westernizing”. At the same time, it is self-evident that the flourishing of the People’s Republic depends on the majority of citizens sharing the fruits of prosperity and counting on a reasonable coverage against critical risks.
The combination of economic security and prosperity is one of the key messages conveyed by President Xi Jinping as part of the “Chinese Dream”, which touts equity, fairness, and amity among social classes. And this is based on an acute sensitivity on the part of the Chinese Communist Party to the needs (and moods) of the population. The extraordinary capacity of the CCP to be sensitive to the Chinese society in many dimensions is a feature that’s been labeled “respond-ocracy” in this recent article. Needless to say, it relies in part on the widespread presence of CCP-affiliated trade unions in the economy.
Indeed China can strengthen the regime of the People’s Republic, or it can leave its people to fall into frustration, poverty and hunger. But if it is inclined to do both, it’s a certainty that, just like in any other country, unrest will be followed by sedition which will likely be followed by a sudden (and brutal) overthrow of the regime. And so just as the American Republic saved itself with the New Deal from 1933 onward, China has a vital interest in deploying a Greater Safety Net for our time. It is simply a necessary condition for the perpetuation of the Communist Party and the flourishing of the People’s Republic.
Why does it matter for us Westerners? Because as I already discussed in a previous issue, China is now the most advanced country on the path to deploying a new socio-institutional framework for the Entrepreneurial Age. Sadly, Donald Trump is doing the opposite in the US—and the damage he’s currently inflicting might be irreversible. As for Europe, it’s been lagging behind in the new paradigm, and industrial strength is a prerequisite for imagining a Greater Safety Net.
Thus in making the most of the techno-economic paradigm of the day, and they’ll likely be the first to imagine a Greater Safety Net for our times. And so just like the New Deal in the US, the Chinese version of the Greater Safety Net could very well serve as a precedent and inspiration for all countries interested in providing both economic security and prosperity to their citizens in the current Entrepreneurial Age.
What are the components of this Greater Safety Net that the Chinese are imagining before our eyes?
Progress is on the way when it comes to pensions. As mentioned in Saving for old age: the global story (part II), “a developed pension system is precisely the kind of thing you’d expect a growing Chinese middle class to agitate for, especially one labouring under the weight of a retired population approximately the size of Indonesia” (Thomas Hale, February 2014).
China has developed its own version of trade unionism, which revolves around the CCP-led “respond-ocracy”. A decades-old rule makes it mandatory for all organizations with three or more party members to set up party cells, which effectively act as checks and balances against corporate power. Details are provided in the following article: Foreign companies in China get a new partner: The Communist Party (Chun Han Wong & Eva Dou, October 2017).
China is also tackling the housing challenge, one that’s at the heart of today’s Entrepreneurial Age. While the Chinese have a craving for owning real estate, innovative solutions are already emerging to make it easier for workers to find affordable housing in large cities: Why Tencent and Sequoia Are Pouring Millions Into China's Rental Space (Lulu Yilun Chen, January 2018).
Likewise, Chinese tech companies are building a new healthcare system, thus providing an advanced view of how healthcare will be delivered at scale in China: How Tencent’s medical ecosystem is shaping the future of China’s healthcare (Linda Lew, February 2018).
And of course there’s the emerging social credit system and its implication for accessing public services and revolutionizing consumer finance. In a recent issue of his must-read newsletter Exponential View, Azeem Azhar pointed to this excellent (and nuanced) article: Life Inside China’s Social Credit Laboratory (Simina Mistreanu, April 2018). Highly recommended!
Warm regards (from London, UK),
Nicolas