12.1.16

IF YOU'RE SO SMART?

The new year has not begun too well for China, where the establishment is catching on that they will get old before they get rich.  That's not good news for a lot of Smart People, and Power Line's Steven Hayward brings the schadenfreude.

But there's an instructive error in advice offered by the editorial board of the New York Times.
Instead of trying to micromanage stock prices, Chinese officials ought to be strengthening the economy, foremost by shifting its emphasis from investment to consumer spending and services. This is important because China can no longer grow by taking people off the farm and putting them to work in factories. It needs to move people into white-collar jobs. To take one example, officials could help create more such jobs and make the economy more competitive by easing the way for private companies to get into industries like telecommunications and insurance that are currently dominated by a handful of state-owned corporations.
That's enough to make a Marxist giggle. Why should state capitalists be any more willing to share their power voluntarily than private capitalists, particularly private capitalists in cartelized industries, which is what telecommunications and insurance generally have been?

Furthermore, apparently public investment in infrastructure isn't automatically economic stimulus.
China also has to clean up its financial system. Many businesses and local governments have borrowed billions of dollars to build high-speed rail lines, real estate developments and other projects, many of which are not going to produce the returns needed to pay off those debts. The government should encourage lenders and borrowers to quickly restructure loans that paid for those projects so that banks are not crippled by bad debts and can continue making new loans. Officials also need to shut down highly inefficient state-owned businesses.
These fixes are easy to see after the fact.  But who has the foresight to make the changes ahead of time?  Yes, it's not uncommon for business managers, even in competition, to all make the same mistake.  It's easier, though, for one such manager to break with the consensus than it is for a government official.  And government officials can easily stick with the wrong policy.

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