Back in 1999, I was in Tanzania relaxing by the pool at my hotel in the Serengeti after a dusty day of wildlife photography. A young attendant approached and informed me that former Tanzanian president Julius Nyrere was one of the most influential men in the world and that world leaders were streaming into Dar es Salaam to pay homage at his funeral. Nyrere had just died a few weeks before my arrival. The attendant went on to recite the many successes Nyrere and the government had achieved.
Like most African post-colonial leaders of his time, Nyrere was a dedicated socialist influenced by Marx, Mao, and Stalin. In the 1960s and ‘70s he launched Tanzania on a series of disastrous 5-year economic plans which devastated the country. His one-party state collectivized farms which resulted in starvation and mass upheaval (an estimated 10 million peasants were moved off their farms). His plans were a disaster for Tanzania.
By the time I got there (the first of three visits), top-down economic plans were still being promoted. In 1999 there was a new 3-year plan (“Vision 2025”). Their most recent plan is still aiming at 2025. The unsurprising result is that Tanzania remains a poor country. The latest data (2017) shows that it had a GDP of about $1,200 per capita. It’s about $62,000 per capita in the US. They still have a problem with hunger.
Imagine my shock when I saw Steve Rattner on Fareed Zakaria’s GPS Sunday morning program claim that China’s form of “state capitalism” (rife with 5-year plans) was outperforming our comparatively “hands-off” form of capitalism. He bemoaned our lack of a government economic plan.
Rattner, a well-known investment manager, is CEO of the firm that runs Michael Bloomberg’s personal assets. One of his claims to fame was his role as Obama’s “auto czar” in 2009 when he was tasked with the problem of what to do with union-encumbered GM and Chrysler who were then on the verge of bankruptcy. His solution: government bailout.
Rattner’s comments on GPS mirrored his recent opinion piece in the NY Times. His thesis is that the US is stagnating and China is surging economically and the reason is that they have a government-directed economic policy (“national strategy”) and we don’t.
China, he says, has brought more people out of poverty faster than any other country in history, yet we have “failed in recent years to deliver broadly higher standards of living.” Rattner praises China’s “Made in China 2025” policy of investing in industry that will compete in the manufacture of higher-end products like information technology, aerospace/aeronautics, and automated machine tools and robotics. It took two and a half years and 150 government engineers to produce the plan. China’s is now in its 13th 5-year plan.
According to Rattner, while we can’t even pass a budget addressing our “national priorities”, China is moving ahead with exciting projects like infrastructure spending, building a new Silk Road to access markets in Central Asia, and their new planto make China a leader in artificial intelligence by 2030.
Rattner believes that China is savvier than we are because it “understands the benefits of incorporating a robust free-enterprise element” in its planning. After all, he says, “in a complex global economy, the public sector should play an important role, and ours just isn’t.” We need “to get our government to perform the way it did in passing the New Deal and Lyndon Johnson’s Great Society.”
Why Rattner is given time on the national stage to advocate junk economics sums up the poor state of economics reporting in America. It’s just more Progressive wishful thinking about government’s role in the economy. Would that it were so. Well, it isn’t so.
This stuff reminds me of the Japanese “threat” back in the 1980s. It was the same kind of thing. The wise bureaucrats in Japan’s Ministry of International Trade and Industry (MITI) were responsible, they said, for Japan’s economic surge which resulted in advanced manufacturing techniques and the splurge of Japanese investors in overpriced U.S. real estate. It didn’t work out very well as Japan’s economy has more or less stagnated for the past 20 years and they’ve run up huge public debt (highest of advanced economies). We bought back a lot of that real estate at discount prices.
If history is to be any guide on policy, the premise that “scientific” economic planning by a bunch of bureaucrats has performed better than free market capitalism is a joke or a fantasy.
Rattner reacts like a lot of economic tourists who go to China and are dazzled by the skyscrapers, new roads and rails, and massive factories. They are also dazzled by China’s claim that their GDP is growing at somewhere between 7% and 11% per year post-Deng Xiaoping’s economic liberalization. They may or may not be growing at that rate; it depends if you believe the State’s data—which I don’t.
What Rattner fails to understand is that China is growing despite government meddling in the economy. It is an emerging economy with pent-up energy being released through their private sector. Growth has come because the government relaxed their control of the economy, especially since the more “radical” (for communists) reforms starting in the mid-1990s, which is when GDP started to take off:
Imagine what they could do if they had real economic freedom.
What I don’t understand is why Progressives like Rattner, who see people as fallible human beings needing government to guide them in their economic activities, believe those same fallible humans are wise and capable when they are called “bureaucrats”. There has been a lot of research on this topic (public choice theory) by economists such as Nobel prize winner James Buchanan and others who revealed that bureaucrats are not necessarily high-minded folks looking out for our best interests: they have ulterior motives and are driven by self-interest just like the rest of us.
You can count on that in spades when it comes to Chinese bureaucrats. They are given goals by the government and you can be assured they will report that they have met them. The result is massive waste, corruption, and malinvestment. That’s why you can’t trust their numbers.
Rattner cites Franklin Roosevelt’s New Deal as a good example of can-do government. Like China’s economic mandarins, the New Deal was an attempt by Roosevelt to replace our free market economy with a command economy where prices, wages, and output were to be determined by his idealistic “Brain Trust” mandarins. The New Deal got things wrong, very wrong. Between Hoover’s and FDR’s policies of economic meddling, what would have been an ordinary recession became the Great Depression which held back the economy for more than 20 years (the stock market did not get back to its pre-Depression 1929 high until 1954). Perhaps Rattner should read a history of the New Deal by someone other than FDR’s apologists.
America doesn’t need 5-year plans. Rattner protests that we don’t want to give up our liberties and become like China, but that is exactly what he is proposing. It seems that there is a corollary between granting government the power to direct the economy and the loss of liberty. As economist Ludwig von Mises said, there is no middle ground between “state capitalism” and liberty. The history of ceding economic power to the government has been a one-way street to stagnation and poverty.
