Recent History Isn’t Encouraging
By now it is a well-known fact that Xi Jinping will be in charge in China until he decides to step down. Dictators don’t often do so voluntarily; they are usually the last to figure out that their time is past. Robert Mugabe is the prime example of a dictator who could have left behind an increasingly prosperous nation. Instead he chose to hang on, seemingly forever, and bring his country to ruin. Closer to home we saw Ferdinand Marcos subvert the blossoming Philippine economy for his own gains.
In Singapore Lee Kuan Yew orchestrated slow progress toward democracy while keeping a firm hand on the economic tiller. While Singapore is not a liberal democracy, its widely shared prosperity means that relatively few Singaporeans are complaining. Furthermore, its relative openness allows its citizens free interchange with the outside world.
And Then There’s China
China is a different case. Its immense size and recent backwardness, made it seem to be a hopeless basket case. The rise of Deng Xiao Ping and then his insistance on term limits for his successors has underpinned the steady growth of China. That spectacular growth is unaparalleled in history for a large country. Even with those gains, though, China still remains far behind the developed world. Glitzy skyscrapers, high-speed trains and car-filled highways are signs of progress. However, they aren’t by themselves indicators of the well-being of its people.
Let’s compare. The IMF ranks the following six countries as indicated by GDP (PPP) per person:
- 1 – Macau ($96,100)
- 3 – Singapore ($87,100)
- 9 – Hong Kong ($58,100)
- 11 – United States ($57,300)
- 19 – Taiwan ($47,800)
- 79 – China ($15,400)
Small economies specialize and can grow to phenomenal levels very quickly. It is much harder for a broadly-based, large economy such as that of China. But the difference between the U.S. and China shows that China still has a long way to go. China will never be a Singapore or a Macau, but attaining parity with the U.S. should be feasible. The question is, can that be done in an economy that is largely controlled by a single person? Or even one party?
Normal is, well, normal
There is a statistical phenomenon known as “reversion to the mean”. Simply put, it means that, in general, exceptional performances don’t stay exceptional. Managers of investment funds can be stars one year but they are unlikely to stay stars. Football teams may have one or two or three good years but they’ll move back into the pack. The exceptional performer turns out to be pretty normal over the long term. Politicians may make a few good decisions and those may carry them through an entire career, but the countries they lead would be better off replacing them with new leaders who have a better chance of making good decisions.
Which brings us to Mr. Xi. In terms of growth, China has certainly done well under Xi, most countries would be ecstatic to have growth as robust as China. However, there’s been nothing exceptional about the rate of growth under Xi. That isn’t necessarily bad as Mr. Xi has taken some positive steps to reduce corruption and to reduce China’s fouling of its own nest with industrial pollution. On the other hand, there are still hundreds of millions of Chinese who are barely touched by the improvements in the economy but who are victims of the pollution. Is the answer for them, more of the same? If Xi extends his term beyond 2022 that is what they are likely to get, more of the same.
China’s Prosperity is Threatened… by China
China has prospered first because of cheap labour, then because of lax environmental regulations and increasingly, because of its growing intellectual prowress. However, both labour and intellect are increasingly under threat from the one-two punch of robotics and artificial intelligence (AI) China has declared that it wants to lead the world in AI. Fair enough. But the better and more ubiquitous AI becomes, the less need there is for the talented people that China is churning out of its universities. (That’s a global problem, of course, but every country needs to face this alone.) If Mr. Xi fosters an explosion in Chinese AI over the next four years, will he be the right person to fix the massive negative consequences that will result?
Xi Jinping is the beneficiary of the flexibility that term limits has provided. Now that he proposes to end term limits, he is proposing to end that flexibility as well. Reversion to the mean virtually guarantees that his third and successive terms are going to be mediocre no matter how successful he has been in the past.