Lots of axes to grind
By Scott Sumner
Just how communist is Mainland China? The answer seems to depend on the ideology of the observer:
1. (Non-Chinese) Marxists see China as an example of Dickensian laissez-faire capitalism, with private companies owned by billionaires that operate highly polluting factories employing workers at slave wages with poor working conditions.
2. Libertarians agree that China has poor living standards, but attribute its problems to a communist dictatorship that utilizes heavy regulation and other controls, including outright state ownership of the commanding heights of the economy.
3. Some mercantilists are dazzled by double-digit growth rates, and see a successful example of an intelligently planned economy.
Given that I’m a libertarian, you might not be surprised to learn that my view is closest to #2. But I don’t fully align with even that view, as it’s best to divorce one’s ideological preferences from one’s view of the state of the world. More specifically, I believe that China has continued to do reform over the past 10 years and that it’s a bit less communist than many libertarians believe. Here I use ‘communist’ to refer to the economic policy regime. I certainly accept that China’s politics are fully controlled by the Chinese Communist Party, which is highly authoritarian.
It’s not clear what sort of metric we should use to evaluate China, but today I’ll focus on employment shares:
Interestingly, the private sector seems to have grown especially fast since 2012, when Xi Jinping took power. Xi is often seen as someone who has tried to promote the state-owned enterprises (SOEs), which had been declining in importance. While he has indeed taken several steps to promote SOEs, it’s hard to see much impact in the employment data. On the other hand, perhaps this graph is missing something important. After all, it only includes about 187 million workers, whereas total Chinese employment in 2016 was 776 million. So what explains the discrepancy?
The graph only includes a portion of urban employment, and completely excludes the rural sector. But even urban employment is 414 million, more than double the figure in this graph.
The data from the graph seems to have come from this table:
The areas not included seem to be in the private sector, broadly defined. And indeed that’s how others interpret the data as well, as I found a number of graphs showing that SOE employment had fallen to only 15% of urban employment by 2016. Because the SOEs are primarily urban enterprises, the SOE share of total employment (including rural areas) is presumably still lower.
At this point I tried to figure out what sort of businesses were owned by the state. According to the next table, roughly 2/3 of all SOE employees are in just three sectors; health, education and a third called “public management, social security and social organization” (bureaucrats?) Of course many government workers in America also work in those areas. Overall, these traditional government jobs comprise about 10% of China’s urban workforce. In contrast, manufacturing workers at SOEs are about 0.4% of the urban workforce, and similar small shares apply to finance workers at SOEs, utility workers at SOEs, construction workers at SOEs.
To summarize, relatively few workers in China are employed at state-owned enterprises, and the vast majority who are seem to be doing the same sort of work that government employees do in America.
So what am I missing? On the Heritage scale of economic freedom, the US earns 75.7/100, which is #18 in the world (close to Netherlands), whereas China is given 57.8/100, which is number 110 in the world (close to Russia). Why is China widely viewed as being far more communist than the US?
1. China may interfere more with the private sector. Thus even many private firms in fields such as technology have close ties with the Chinese Communist Party. China also has far more heavy-handed economic controls, such as restrictions on foreign investment.
2. On the other hand, Marxists are right that in some respects China is less regulated than America. They really do have fewer regulations in areas such as employment discrimination, working conditions, pollution, etc. (Or at least fewer regulations that are actually enforced, I have no idea what sort of regulations appear on their books.)
3. China may also appear more Communist because control of the economy doesn’t always equate to employment levels. Thus the big four Chinese banks are all state-owned. Ditto for many other major corporations.
Under Chairman Mao, China was almost 100% communist. Everyone agrees it’s now considerably more market-oriented than back in 1976. Where people disagree is on the questions of how much more market-oriented, and has the reform process stopped in the past 10 years. In my view it’s a lot more market-oriented, and
1. There is less freedom of speech than 10 years ago.
2. There is more personal lifestyle freedom than 10 years ago.
3. There is more economic freedom than 10 years ago.
When I travel to China, the people I meet typically do not work for SOEs. Thus my wife’s cousin works for a private sector insurance company, which is a far more typical “finance” job than working at a big state-owned bank. It’s easy for me to see how China has grown fast, as they’ve allowed a big enough private sector to generate huge efficiency gains.
I used to think that lots of Chinese still worked for SOEs that operated in sectors that are traditionally private in the West. Now that I see that is not the case (in percentage terms), it seems like future economic reform will face fewer political barriers than I had imagined. China’s already done the hard part of moving tens of millions of workers away from state-owned firms. Most that remain at SOEs are in areas that are government dominated even in the West. What remains are the much easier reforms, reducing Communist Party influence over private firms, allowing more foreign investment, better property rights for land, etc. That makes me slightly more optimistic about China’s future.
PS. I’m not a China expert, so please let me know where I’ve misinterpreted the data.