Governing China’s NGOs

3The “governing” in the title of this article has a double meaning. First, it references the economic controls employed by the Chinese state to govern the nongovernmental sector. At minimum, the state uses funding to exert influence over non-governmental programs. However, it often outright usurps programs begun by NGOs. The second meaning of “governing” relates to the ways state interference governs the decision-making of the founders/directors of NGOs. In this way, the founders/directors are both shaped by and find space to work within government control frameworks. In this article, I analyze data from decision modelling to understand how this process affects the decision of the founders/directors of Chinese NGOs to accept or not accept government funds and how this decision affects subsequent decision-making.

Accepting Government Funds

Forty percent of the organizations in my sample (n=34) accept at least some funding from the government. It is a misconception that these organizations are forced to take government money. The Chinese state is certainly overbearing. Yet, my data strongly suggest that Chinese citizens have many ways to exert their agency, particularly in civil society organizations. When faced with government pressure, a founder/director can simply shut down the current program and begin a new one under a different organizational structure. In fact, several founders/directors in my sample reported that their current programs resulted from just such a process.

I also found several cases of founders/directors choosing not to accept government money and still able to maintain their programs. I will discuss specific examples later. The point is that the founders/directors have a choice whether or not to accept government funding. The founders/directors in my sample feel passionately about their work. They are typically not willing to walk away from their programs simply because they face obstacles, even from the state.

For these reasons, I wanted to understand the criteria used by the founders/directors to decide whether or not to accept government funding. While forty percent of the organizations in my sample received government money, over eighty percent of the founders/directors report being faced with this decision. Figure 1 depicts the decision tree I created from interviewing the founders/directors about this decision.

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Figure 1: Accepting Government Funds

This decision tree reveals only two pathways by which the founders/directors decide to accept government funds (shown in green). However, as I mentioned above, this represents the experiences of forty percent of the organizations in my sample. Moreover, it points to some significant factors affecting the decision-making of the founders/directors, regardless of whether they accept government money.

None of the organizations that have been in existence less than five years accepted government funding. In my sample, none of them were offered government funding. This correlates with survey data that found a similar relationship between years in existence and obstacles faced. It also suggests that the government is more discerning than we might want to give it credit for, and is likely looking for programs with at least a five-year track record to share its burden of dealing with migrant issues.

Of those in existence longer than five years, roughly sixty percent are “educational” and forty percent are “legal” organizations. For both categories of organization, the decision to accept government funds is largely a function of the availability of other funding sources. Notably, only organizations that bring in less than fifty percent of their operating budgets from commercial revenue accept government funds. The availability of foreign funding also contributes to the decision to accept or not accept government money. Interestingly, this is a significantly more important factor for the educational organizations. They must receive at least seventy percent of their funding from foreign donors in order not to take government money – as compared to a thirty percent threshold for the legal organizations.

Bolstering survey and interview data, this discrepancy further suggests government preferences for certain NGO programs over others. The decision tree in Figure 1 underscores how these preferences affect the decision-making of the founders/directors. Within the “educational” category, all of the decision-criteria relate to the availability of funding. However, in the “legal” category, in addition to funding criteria, the types of programs and their structures strongly influence the final decision. Notably, programs run by lawyers and those that promote collective bargaining do not receive government money.

Some founders/directors who are lawyers report being offered funding from the government. None of them decided to accept it. In most cases, this has to do with their greater access to personal and network wealth than other founders/directors. In China, as in many countries, even lawyers who engage in nonprofit work are top-earners. Several of these lawyers also cited fiduciary duty as an important decision criterion. As attorneys, they have a professional obligation to represent the interests of their clients and avoid conflicts of interest. Lawyers who take on migrant clients are often defending them against government policies related to labor rights and collective bargaining. The government tends to favor business interests in both of these areas. As one informant commented, “Money from the government is a payment not to oppose the government.”[1]

The above analysis of Figure 1 provides insights into what personal, organizational, and political factors lead some founders/directors to accept government funds. However, it reveals little about how this important decision affects subsequent decision-making. In theory, by accepting government funds, an NGO loses one of its defining characteristics, namely being non-governmental. Yet, with such an overbearing central government, China creates a much less distinct nongovernmental sector than is common in democratic societies. In the next section, I will explore how using (or not using) government money plays out in the Chinese context.

Using Government Funds

Figure 2 shows the decision tree I created to model the ways the decisions to accept or not accept government money affect subsequent decision-making. All of the organizations in this model were offered government funds. Thus, they made a decision to accept or not accept them.

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Figure 2: Using Government Funds

 

To honor the late Robert Van Kemper, I made the above diagram clean and straightforward.[2] Yet, the simple layout conceals underlying complexity. Indeed, the ‘yes’ and ‘no’ branches yield only three possible outcomes: (1) closing an organization, (2) single city expansion, and (3) multi-city expansion. However, survey data reveals that individual founders/directors have a range of experiences with these possibilities. In this section, I will explore how these experiences give insights into their decision-making processes and the resulting outcomes.

Despite the heavy-handed policies of the Chinese state, the decision not to accept government money does not inevitably doom an NGO. After declining government money, several organizations in my sample managed to expand their operations within the city where they started. Later in this section, I will compare specific case studies of this occurrence with the experiences of NGOs that expand their programs with government funds. To start, however, it is important to note that the ‘no’ branch does yield the possibility of an organization closing down. At the time of field research, all of the organizations in my sample were still in operation. Yet, some informants reported that organizations they had previously founded or directed were forced to shut down after the decision not to accept government money. One case stands out as representative of this experience.

Daisy Li (pseudonym) founded and now directs a program that provides job training and placement for secretaries, most of whom are women. This is the second female-focused organization she has started. Prior to starting her current program, she ran an organization that offered skills training to female factory workers. She had worked in a factory for fifteen years herself and was able to develop a very effective curriculum to help her former co-workers advance to higher-paying jobs within their company. In fact, that company hired her to conduct onsite classes for its employees. Other factories in the area soon hired her to do the same for their employees. Daisy believes that the factories thought her program helped increase worker productivity. So, it was a win-win, because many of the participants in her courses also wound up getting promoted.

Within six years, Daisy was contracted at half a dozen factories to conduct monthly training classes. She had fifteen fulltime employees and at least that many volunteers helping her with logistics, program development, and fund raising. She had two large corporate sponsors and a number of small donors. At that point, her program was sustainable, both financially and in terms of impact. Shortly thereafter, a local government official approached her with an offer of substantial funds to help her improve and expand the program. In fact, he offered her more money than she was getting from all other funding sources combined. As a stipulation of the money, he would serve as an official advisor to her organization. This requirement made her wary. Based on her experiences, and echoing the problems faced by “legal” organizations in the previous section, she knew that the government often undermined any attempts to organize factory workers. Thus, she politely but firmly declined the offer.

Within a couple months, one of her corporate sponsors unceremoniously ceased its donations. The other soon followed suit. She suspected that this was retribution by the government official, but of course she would never know conclusively. With increased funding from small donors, she was able to maintain a scaled-down version of her program. Yet, within another few months the money ran out, and she had let go all of her employees and shutter the organization. It was not for another three years that she was able to start her current program.

The Chinese government is often heavy-handed, yet seldom overt in its restrictions of civil society activities. Several other informants had experiences similar to Daisy’s. The government’s handling of unwanted civil society activity seems most analogous to its censoring of online content. When someone types a sensitive term into a Chinese internet search engine, one of two things happens. Either the search halts to a crawl and eventually times out, or clicking on the linked search results causes a similar slowdown and stall. For example, in the Fall of 2017, I typed “June 4”[3] into Baidu, the largest Chinese search engine. This is the date of the infamous Tiananmen massacre, one of the most highly censored incidents on the Chinese internet. To my surprise, this search term returned nearly two million hits. None of the results were related to Tiananmen, but instead referenced supposed events in other years on June 4. I clicked every link on the first five pages of search results. In each case, I eventually received an error message.

These types of misdirection and misrepresentation are commonly employed by the Chinese authorities. Akin to sensitive search terms, the government is also suspicious of nongovernmental activities. As I discussed in the previous section, this applies to some NGO programs more than others. However, several of my informants report experiences similar to Daisy’s, in which their programs were abruptly undermined after turning down government support, or even disagreeing with unsolicited advice from government officials. This is perhaps the clearest evidence that, in the long run, few NGOs in China are ever truly non-governmental. I will discuss the theoretical implications of the next chapter.

As I hinted above, some NGOs are able to maintain and even expand their programs after refusing government funds. In other words, declining state money is not necessarily the kiss of death. However, the decision tree above makes clear that without government funds, organizations are unable to expand beyond a single city. In fact, the government has instated laws prohibiting civil society organizations from having offices in more than one city. This is in line with its efforts to minimize the influence of the nongovernmental sector. This, of course, limits the scope and impact of effective programs. Yet, it also localizes programs, allowing them to tailor their efforts to the needs of specific groups of migrants. This has important implications for the decision making of the founders/directors. Later in this section, I will discuss how the decision to accept government funds affects program expansion.

The government restrictions on expansion have significant effects on strategic planning. Not surprisingly, the founders/directors who decline state money do not spend a lot of time considering how to expand their programs beyond a single city. In one sense, this is another example of how government intervention suffocates civil society. However, most of my informants take a more glass-half-full view. They are aware of the benefits of expanding to other cities, but they appreciate the ability to focus on their local programs. This is particularly important for creating a sense of community. Migrants lack traditional support networks, i.e., family, friends, and neighbors in their hometowns. Thus, some of the most beneficial work of the organizations in my study involves fostering a sense of community among the migrants in a particular neighborhood. In general, they achieve this by offering migrants a safe space to share their frustrations, learn from the experiences of other migrants in their area, and engage in group activities. As we have seen in several case studies in the preceding chapters, sometimes this involves serious issues, for example how to apply for compensation after a workplace injury or how to navigate a discriminatory labor market. Many times, however, it is more about bringing migrants together for communal activities, such as game nights, concerts, and movie screenings. After all, shared leisure time, even more than hardship, is what unites a community.

This is the mission of the Temple of Migrant Workers, an NGO founded by one of my informants, Wu Wei (pseudonym). The organization’s name (also a pseudonym) reflects Mr. Wu’s belief in the need for migrants to have a refuge from the often-hostile policies of the government and hostile attitudes of society-at-large. In fact, Mr. Wu thinks that the government mistrusts NGOs because they focus too much on the hardships of migrants. The government promotes a narrative that life for migrants is actually pretty good. Such a view is strangely optimistic, and fairly delusional, but goes a long way to underscore what it clearly views as acceptable collateral damage in the process of economic development. The reality, of course, is that migrants lack access to basic social services, education for their children, and most legal protections. Despite the official rhetoric, these factors have the effect of making migrants feel very unwelcome in their new homes. In fact, Wong and Leung (2008) point to social support as one of the key factors affecting the mental health of migrant workers in China.

Mr. Wu knows this feeling well. Twenty years ago, he came to the city as a migrant worker. He was fortunate to have worked as a mechanic in his hometown. He got a good-paying job in the city. He fixed factory equipment, a skill that was in high enough demand that he received frequent raises. He stresses that he has enjoyed a life far better than most migrants. It is important to note, however, that he and his family still live in the same urban village to which he originally migrated. His humility is admirable. Yet, his standard of living is remarkably lower than the urban middle class. Nonetheless, he has devoted a lot of his time and personal resources to make life better for his fellow migrants.

He saved up his money, and with the help of several small donors, he rented a courtyard near his house. Over several years, he and his friends renovated the buildings to create a sanctuary for people in the neighborhood. The four single-story structures that line the courtyard house a small lending library, a game room, a community kitchen, and a thrift store. He uses money from the sale of donated clothing to fund other activities. At the back of the courtyard is a larger, two-story building that he turned into an auditorium where he holds regular performances free-of-charge. Sometimes there are plays. At holidays there are elaborate performances, for example a dragon dance for the new year. I even saw him give a guitar performance with a trio of him and two of his friends. They were really good!

During my three weeks with Mr. Wu, the center was very well used. During the day, older people used the gaming rooms to play mahjong and talk for hours over tea. In the evenings, the center bustled with lively conversations, children darting here and there, and plenty of traffic in the thrift store. On the weekends, performances in the auditorium usually played to a full house, even more so during the holidays.

Not surprisingly, Mr. Wu is quite popular in the community. A couple years ago, he was approached by a government official. Unlike the experiences of many other founders/directors in my study, the official did not offer Mr. Wu money for his community center. In fact, the official complimented Mr. Wu’s ingenuity and ability to run his organization without government assistance. He offered Mr. Wu enough money and resources to open a second center in another migrant neighborhood on the other side of the city. The official would find another manager to run the current center, so that Mr. Wu could focus on the new center. The plan was to open several of these centers across the city, and eventually expand to other cities. This is line with the government’s practice of using grassroots NGOs to develop effective programs that it then takes over (and takes credit for).

After much deliberation and soul-searching, Mr. Wu declined the offer. He thought a lot about why he had originally started his organization. He realized he had no interest in helping all migrants. He told me, “It’s a problem bigger than me.”[4] He has formed bonds with the people in his neighborhood. In many respects, they are his adoptive hometown. His organization is merely a vehicle to help them. He stressed that his organization would not exist without them. In this way, he defines his role as a good person in terms of his role within a local community, not on a larger scale.

Admittedly, less than five percent of the organizations in my sample run programs in more than one city. As the decision tree above indicates, all of these receive greater than fifty percent of their funding from the government. Interestingly, of the organizations that receive greater than half of their funding from the government, more than eighty percent operate in multiple cities. This indicates that the government recognizes the benefits of scaling up effective programs. Thus, it seems likely that more and more GONGOs will begin to operate in multiple cities. It follows that more and more NGOs will relinquish both financial and managerial autonomy to the government. So, how do the founders/directors of such organizations factor into their programs once they are effectively taken over by the government?

The simplest answer is that it is largely up to them. Given the small number of such organizations in my sample, I can only make limited conclusions. Yet, my data suggest some significant factors that influence how the founders/directors make decisions regarding this situation. For all of the founders/directors in my study, their programs are more than simply a job. At one point or another in my interactions with everyone in my sample, I heard them say, “This is my life’s work.”[5] For some, like Mr. Wu, this statement signifies a parent-child relationship. Mr. Wu gave birth to his organization, continues to nurture it, and is unwilling to hand over control simply out of convenience. In many ways, his life has come to be defined by his role in the organization and the ways it situates him within the community. Others, however, prioritize the success of their programs over their roles within them.

Objectively, both of these approaches can result in effective programs. In this type of situation, the temperament and preferences of the founders/directors appear to have the greatest impact. While some founders/directors decide to reject government funding or leave their organizations if they cannot retain control, others remain at their organizations even after the government takes them over. The latter perspective, i.e., prioritizing the program above all else, is less easily analogized than a situation like Mr. Wu’s. Are these founders/directors akin to helicopter parents, micromanaging their children even after they go off to college? Are they really just empty-nesters who are struggling to accept that their little babies are all grown up? More accurately, this decision seems rooted in an entrepreneurial spirit, defined not only in terms of founding an organization but also in terms Schumpeter’s (1934) notion of entrepreneurs as innovators who respond to needs in society (see also Cohen and Levinthal 1990). This innovation is not a one-time action but an ongoing process of improving societal problems. The impact of such motivations on decision-making is well exemplified by the case of Du Xin (pseudonym).

Mr. Du (pun intended) was, like many founders/directors, a migrant himself. In his early twenties, his favorite band went to university in Beijing. On a whim, he decided to move hundreds of miles from his hometown to be closer to them. He got a job washing dishes at the cafeteria and was able to go to all their concerts. His impulsiveness was well-tempered by an innate desire to improve himself. These character traits have defined much his professional life. He soon learned about the adult gaokao and decided to take it. The gaokao is a college entrance exam taken by high school students. The adult version is somewhat less rigorous, but still enables people with a passing score to attend university.[6]

He passed the test and was accepted into a computer engineering program at another university in the city. After graduation, he secured a good job in the tech industry. Within a few years, he became a VP. After a successful career, he wanted to help other migrants do what he had done. So, he started a program to get university students to volunteer to teach migrants prep courses for the adult gaokao. In fact, one of the members of his favorite band become a major donor to the program, and even attended events to talk with migrants.

Mr. Du estimates that more than ninety percent of the migrants in his program passed the adult gaokao. This enabled them to receive professional training and get significantly better jobs than they could before attending his program. Not surprisingly, after a few years, the government offered to take over his program. Without hesitation, he accepted their offer. He remained on as an advisor and helped them expand the program to several other eastern cities. Though he dislikes the inefficiency of government bureaucracy, he acknowledges that state funding has allowed his program to help far more migrants than he could on his own. Moreover, he has come to realize that his time and effort can be better spent on establishing new programs. It is here that his entrepreneurial spirit shines through.

In the course of running the adult gaokao program, his thinking on the migrant situation evolved. He has come to understand that the root of the problem is not finding migrants better jobs in the city, but rather giving them ways to make money in their hometowns so they can avoid coming to the cities in the first place. In this vein, he started an online marketplace to help local farmers sell their products.[7] Unlike the experiences of the organization I discussed in Chapter 2, Mr. Du has found that Chinese consumers care that they are helping local farmers, and he advertises this by telling the stories behind each of the products he sells online. He buys direct from farmers, paying them on average eighty percent of the final retail price. He uses the net profit to maintain the online store and subsidize shipping costs. He has also raised significant funding from venture capital[8] and has plans to expand his program to several more provinces.

He has already received support from local governments and expects to hear from national officials in the next few years. After all, his program is right in line with their goals of keeping people in the inner provinces. This is the type of thinking China needs. If the central government is going to disincentivize migrants to stay in the cities, then it needs to instate more programs that give them money-making opportunities in their native provinces. It will be interesting to follow up in a few years to see where this program has progressed, whether the government has continued to support it (if not take it over), and how Mr. Du’s thinking about the migrant problem has evolved.

Despite the theoretical implications of an NGO accepting government money, my data suggest that in China this is not an inherently bad decision. I found effective (and certainly ineffective) programs on both ends of the spectrum. In the end, the limiting factor in the success of any given program is the decision-making of the founder/director. Naturally, asymmetrical information and political headwinds also factor heavily. Yet, even in such a top-heavy political and economic environment, the decisions made by individuals remain central to civil society organizations.

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WORKS CITED

Cohen, Wesley M, and Daniel A Levinthal. 1990. “Absorptive capacity: A new perspective on learning and innovation.”  Administrative science quarterly:128-152.

Schumpeter, Joseph Alois. 1934. The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. Rutgers, NJ: Transaction Publishers.

Tufte, Edward R. 1983. The Visual Display of Quantitative Information. Cheshire, Connecticut: Graphics Press.

Wong, Daniel Fu Keung, and Grace Leung. 2008. “The functions of social support in the mental health of male and female migrant workers in China.”  Health & Social Work 33 (4):275-285.

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END NOTES

[1] 政府给你的钱是为了让你不反对政府的一种费用。

[2] Professor Kemper was a strong proponent of Tufte’s (1983) approach to precise and uncluttered data visualizations. I hope this dissertation lives up to his high standards.

[3] 6月4日

[4] 比我大问题

[5] 这是我终身事业。

[6] Mr. Du thinks that the assumption of the adult test is that life experience can compensate for lower academic aptitude. As usual, it is impossible to know the exact thinking of the Chinese officials who administer the test, but Mr. Du’s theory seems reasonable.

[7] He gave me permission to publish a link to his website, but to protect his identity I have opted not to. Anyone interested in checking out his online store, can email me directly at: ijdorfman(at)protonmail.com

[8] 风险投资

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One in a Billion Names

Screen Shot 2016-02-01 at 3.01.44 PMFor students of Chinese, one of the first rights-of-passage is being given a Chinese name. Usually a teacher or other person versed in the the subtle art of naming has this honor. The process occurs by: (1) Selecting a one-character family name from the surprisingly short list of most common names, one that typically begins with the same sound as the english last name; and (2) Selecting a one- or two-character given name, one that typically begins with the same sound as the english first name, and may or may not sound like the whole first name. The given name generally comes from an obscure literary or mythical reference, or coveys a grandiose sentiment, such as heroism for men and elegance for women (perhaps not so different from our own naming practices).

After much consideration, my first Chinese teacher gave me the name 杜照石 (dùzhàoshí). The surname is relatively common, and has the “d” from my last name. Mimicking the sounds of my first name within the confines of Chinese phonetics, the given name comes from consecutive lines of a poem by the 8th century tang Dynasty poet, Wang Wei. Together the characters mean “illuminated rock” – and fortuitously the first character 照 is used in the word for taking pictures (photography is a lifelong hobby of mine, though my teacher did not know that).

It’s a good name, very intellectual sounding, and many Chinese friends and colleagues have complimented me on it. But, honestly I don’t really like the name, and one thing in particular bothers me: though the surname is common, not a single Chinese person that I’ve ever met or heard of shares my given name. Though some Chinese choose unique names, they are generally discouraged by the government, and thus rare. When Chinese come to the US, they either go by their Chinese names (which is only confusing because the surname comes first and pinyin are somewhat hard to pronounce for English speakers), or they adopt a common English name and keep their Chinese surname (many of which English speakers have become familiar with). Why, then, do we not do the same?

My parents named me after my great-grandfather, a man who was greatly admired as the family’s patriarch. It’s a name I use proudly. Although my Chinese name is functional (people in China can easily pronounce it, and I have gotten pretty good at explaining its origins as a conversation starter), it really has very little personal meaning to me. It’s simply a part of  the way I present myself in everyday Chinese life (see Goffman 1959).

I understand that Chinese phonetics cannot easily accommodate my english name. But, why can’t I just use a common Chinese name? Why do non-Chinese go to such lengths to create pseudo-Chinese names? This seems to further accentuate our foreigness. In the end, I’d rather keep the name I was born with and remain who I am: An American trying to speak Chinese – not an American trying to be Chinese.

What remains unclear is whether taking a Chinese name is simply a gimmick, or whether it serves a function for non-Chinese trying to engage with China. There’s certainly a precedent for phoneticizing foreign words with Chinese characters, notably foods and place names. But, these are generally commonly used words, with which the Chinese have become familiar. The same is true for a handful of foreign names, for example 大卫 (dàwèi) for “David”. But, how do the Chinese view foreigners’ names not common in China, either with their native pronunciation and spelling or using Chinese characters?

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The First China War

I’ve spent the weekend devouring and digesting The War for China’s Wallet. Shaun Rein takes a deep dive into China’s economic strategy, stability, and appeal to developing nations, as well as a timely critique of America’s weakness on all of these accounts.

In my notes, I began using the shorthand WCW I, as this is likely the first of many iterations of China wielding its economic weapons.

Shaun wisely advises governments and corporations alike to be strong over conciliatory, in order to earn the respect of the Chinese. Yet, this reveals a sobering reality: we must now earn the respect of the Chinese.

With trillions of consumer dollars at stake, WCW I is being waged squarely in the Chinese arena. Shaun generously refers to the authors of current US policy as “intellectuals”. Yet, these ideologues remain entangled in the outdated narrative of China’s economy being exclusively export-oriented.

Shaun provides a clear roadmap for waging WCW I. Yet, the rules of engagement are largely out of our hands. We have become reactionaries, much like the paper tigers described by Mao.

It appears WCW I is largely about profit and influence. Yet, if the US does not begin to develop economic strategies independent of the Chinese, the stakes of WCW II may be far greater.

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More than a Middle Class


A billion people in China are NOT in the middle class.

Typically we hear about the roughly 300 million people that make up China’s middle class. This figure makes marketers drool, and is the cause for much self-congratulation by the central government. Even the most cynical China watchers concede a hearty applause. Indeed, over the past generation, improvements to the lifestyles of this rising middle class are nothing short of amazing.

Of course, in China having 300 million people in the middle class means that approximately 1 billion people have yet to reach this socioeconomic level. This group includes marginalized rural populations, the urban poor, and nearly 300 million migrant workers.

While the business opportunities and economic success stories typically come from the middle class, my research suggests that the real space for innovations and market disruptions can be found among the 1 billion people forgotten or left behind by China’s breakneck development trajectory.

{To give credit where credit is due, I have adapted this perspective from CK Prahalad’s The Fortune at the Bottom of the Pyramid.}

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Knowing what we don’t know: the Chinese economy


One thing that strikes me about us serious China observers is that we are frequently and completely wrong about the direction China is headed. In the 1980s many top analysts predicted that without democracy China would be unable to grow its economy. Later, many asserted that only with a free and open Internet could China maintain its growth.

Wrong on both accounts.

The Chinese development model has now become the first serious competitor to the Washington Consensus since the Cold War. More and more developing countries model their growth strategies on the Chinese state-managed market economy. 

We must continue to be vigilant with both our investigations and critiques of the Chinese system. However, it seems unwise to view it as an immature or inherently flawed system that will inevitably evolve to look more and more like the US model. And its success is emboldened by its growing popularity.

As it has in the past, failing to accept this will continue to produce misguided policies toward China.

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In Defense of Cash

Not having cash — not a positive image

Will getting rid of cash have benefits for society? This is a question that economists and public policy experts have been debating more and more. In fact, India (among other countries) has begun to eliminate all large denomination bills. The stated logic driving such programs seems to be that large bills are the primary enablers of organized crime and tax-evasion. There’s probably some truth to that (see Freakonomics podcast). However, many of the poorest people in society also rely on cash for their living expenses. They often have limited access to banking, or no access at all.

So, let’s assume for a moment that we could overcome the accessibility issue — that we could provide banking services to everyone. This is a big assumption, given that we’ve largely failed to do it up to this point. But, let’s assume we could eliminate the poor’s reliance on cash. Immediately it becomes clear that the biggest winner of all these new banking customers would be the banks themselves. But, let’s make another assumption: we can overcome any moral objection to banks profiting from consumer demand that is mandated by the government. So, for the time being, let’s be satisfied that we’ve eliminated the need for cash without further disenfranchising the poorest populations.

Now we’re left with the crime issue. Ideally, cash would be phased out over a decade or so. There would certainly be missteps, but hypothetically criminals would eventually no longer have access to the near perfect fungibility of cash. Now we find ourselves having to embrace another major assumption: in the absence of cash, criminals will not develop alternate means to conduct their “discrete” business dealings. Furthermore, even if they do develop new means, these would be inferior to cash in terms of “discreteness” and fungibility.

It seems fair to assume that any new currencies used for shady dealings would be electronic, for example like Bitcoin. This presents a whole new slew of complications for law enforcement. Hard cash can be traced and is increasingly hard to counterfeit. Electronic transactions, however, do not necessarily abide by the relatively rigid rules of the analogue world. Digital spaces harbor far more possibilities for “hacking” the system. It seems reasonable to assume that the code for a digital currency could be counterfeited in far more ways than the layout of paper currency. Furthermore, if social media use is any indication, financial transactions in the digital realm have the potential to become increasing anonymous and thus harder to trace (unless we take the authoritarian step of requiring real-name internet registration).

In the end, becoming a cash-less society might have some short-term impact on criminal activity. But, these effects would be hard-fought and by no means guaranteed. In fact, forcing criminals to innovate may make them harder to catch. It is far more likely that eliminating cash will have an immediate and lasting impact on the poor. Moreover, cash is useful for daily, non-criminal exchanges. For example, whenever possible I tip in cash. It’s more personal, and goes directly to the other person, rather than on a circuitous route through banks and management. Even as we continue to embrace the convenience of digital payment methods, we should not undervalue the social importance and impacts of cash.

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Project Proposal: Comment

In the first presidential debate, both candidates stated that nuclear weapons are the greatest threat facing humanity (one of the few points on which they agreed). Nuclear weapons are a big threat, potentially. Some, including President Obama, make a strong argument that climate change is the biggest threat. Clearly, we must continue to develop informed and forward-thinking solutions to both these problems.

Poverty, however, is a far more destructive and immediate threat. Abject poverty directly threatens the lives of more than a billion people worldwide. Indirectly, economic inequalities create the environments for the spread of disease, social unrest, and terrorism (all of which top many lists of the greatest threats to humanity).

What is the best way to improve people’s lives? How can we reduce poverty and increase economic opportunities? How can we call ourselves an advanced civilization without addressing these questions? In fact, there are many ways to accomplish these goals. More than at any other time in history, it is likely to find somebody working to improve these situations in almost any given corner of the globe. This is the new “local knowledge”. We must move beyond simply working with local communities to solve their problems with outside knowledge. This is the traditional community participatory approach to development programs. I suggest that now we must learn how local communities are already working to solve their own problems. And then applying this knowledge to similar problems faced in other communities around the world.

My doctoral research is a pilot program to test this theory. I’m looking at a huge problem in a very difficult place to solve it: Urban Migration in China. It’s a problem we find in industrializing countries around the world. Please see my project proposal here. (For a longer version with citations, click here.) I would greatly appreciate any insights (or potential funding sources).

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