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 Yet, these ideologues remain entangled in the outdated narrative of China’s economy being exclusively export-oriented.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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STOP SAYING THAT! “Increased regulation hinders economic growth.”

At best this is a half-truth. For example, consider a new regulation on industrial air pollution. This would certainly add a financial burden to industries that produce air pollution, e.g., factories, refineries, etc. But, these represent only a fraction of the whole economy. More broadly, such regulations would create opportunities for innovation. There would be lots of money to be made from producing and selling air filters and other pollutant-reducing technologies. This would have the effect of growing and diversifying the economy, both in financial terms and in the creation of jobs. And then of course there are the non-economic benefits, notably less toxic air. So, please stop saying that increased regulation hinders economic growth.

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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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Project Proposal

Project Title: The decision-making of social entrepreneurs in China’s urban villages (PDF Version)

Overview: I am seeking funds to complete field research for my doctoral dissertation. I am studying how Chinese citizens are working to solve the many problems faced by migrant workers in their country’s biggest cities. The results of my research will: (1) help the Chinese improve the impacts of their programs; (2) hold lessons for people working on similar problems in other countries; and (3) offer outsiders a new and productive way of engaging with the Chinese. I will provide a final report on my findings, and gladly present them in person upon request.

What & Why: Despite all the social, economic, and legal problems faced by China’s 250 million migrant workers, previous research reveals little about how the Chinese are working on solutions. I have already investigated programs run by local governments and by non-profits. Both of these are hindered by enormous political and legal obstacles. It seems that for-profit businesses that address this major social issue – aka, “social entrepreneurship” – may be the most effective way to help migrant workers in China. Because they are run as normal businesses, the government does not overly scrutinize their programs. Because they generate revenue, they are not limited by legal restrictions and social stigma on charitable donations.

I will study the decision-making of the founders and managers of these businesses. How do they deal with the authoritarian legal and political systems in China? How do they decide what goods and services to offer migrants? Are they achieving their goals? What other goods and services could they offer that would further help the migrants?

The answers to these questions will: (1) help Chinese social entrepreneurs improve the impacts of their businesses; (2) hold lessons for people working on what is a common problem in other nondemocratic countries, which remain the norm across the developing world; and (3) offer outsiders a new and productive way of engaging with the Chinese beyond contentious international affairs and business negotiations.

How: I developed a survey for the social entrepreneurs, in order to gather information on how they design and run their businesses, as well as what obstacles they face, and their personal motivations. I will give this survey to 40 social entrepreneurs. From this group, I will sample 10 organizations, seeking to include a range of goods and services offered to migrants. I will spend one week at each organization, observing the daily operations, and conducting semi-structured interviews to gather more detailed information on themes revealed by the surveys.

I also designed a short social capital survey to gather data from the migrants on what services are available to them, who provides these services, and what additional services might further benefit them. I will give this survey to 100 migrants, approximately half of whom are served by social entrepreneurs. Comparing survey data from these two groups will help the social entrepreneurs improve their programs based on the real needs of their target population, and ultimately benefit the migrants by improving the goods and services available to them.

I will get informed written consent from all participants, and make all personal information anonymous to ensure confidentiality. This process has been approved by my university’s Institutional Review Board. I can supply more information upon request, including full versions of the surveys and consent forms.

Where: I will compare social entrepreneurs working on migrant issues in Beijing and Shenzhen. Both of these cities have significant migrant populations. Beijing is China’s most internationally visible city. Thus, programs that provide social services in the nation’s capital tend to come under strong government scrutiny. Shenzhen was the first Special Economic Zone in the country, and remains a hub of direct foreign investment, manufacturing, and finance. It is the startup capital of China, and as such has become a center for both tech and social innovation. Thus, in Shenzhen the government tends to prioritize business over politics. Comparing the experiences of social entrepreneurs in these two cities will offer a holistic perspective on the successes and failures of their solutions to the problems of China’s migrant workers.

When: I will conduct this research for thirteen weeks in June-August 2017. I will spend six weeks in each city, and leave one week as a buffer for travel and unexpected delays. I can provide a detailed research schedule upon request.

How much: I have already done seven months of field research for my dissertation. I need $12,000 to cover expenses for an additional three months. This amount is based on the budgets from my previous field research. It will cover my travel, living costs, direct research expenses (such as printing, data analysis, and small gift cards for the migrants), as well as a stipend for my local research assistant. I can provide an itemized budget upon request.

My bio: I am a PhD candidate in cultural anthropology. I have completed 54 hours of graduate coursework in research methods, data analysis, and the social aspects of economic behavior. I have taken three years of college level Mandarin, as well as participated in a two-month language immersion program at Beijing Normal University. I designed and taught an undergraduate course on global economic development. During two years at the Norman Borlaug Institute for International Agriculture at Texas A&M University, I prepared field-based reports on sustainable agricultural projects throughout South and Southeast Asia. As part of an NSF-funded team, I helped assess the impacts of the 2014 Ebola scare on African refugees in Dallas. I have conducted seven months of research for my doctoral dissertation in Beijing, Shanghai, and Shenzhen. My prior experience and professional connections in China help assure the feasibility of the final phase of this project.

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