Yuen Yuen Ang interview

I have blogged here, here, here, and here about Yuen Yuen Ang's work explaining the Chinese political and bureaucratic system.

Ezra Klein has a long interview of Yuen. Yuen's argument has been that the western narrative on China misses several important aspects. 

Far from being painted as an authoritarian state, this about how Deng Xiaoping introduced elements of democracy within the political system,

And these included partial checks on power at the highest level, such as term limits. It included accountability, with targets being assigned to officials where they have to fulfill their jobs, and not simply get promoted because they are toadies or politically correct. He also introduced a tremendous amount of competition into the political system. And very importantly, he also introduced the norms of pragmatism and honest feedback, so that officials within the party wouldn’t be afraid to tell the truth, and there would be a moderate but necessary amount of debate within the party. And so these are what I call democratic qualities or characteristics. They do not add up to make China a liberal democracy. But just by liberalizing the party and society partially, that went a long way to providing a political foundation of stability, pragmatism and good governance that allowed China to prosper for the next 35 years... it was a collective leadership of elites in the Politburo at the highest level. So everyone gets to have a say. Everyone also gets to have a share in the gains of capitalism. 

And these elements of democracy, which have also been safety valves, have now been closed by Xi Jinping through his "personalist dictatorship", thereby creating tensions and engendering political instability.  

On the "boring politics and exciting bureaucracy" in China compared to their reversed opposites in the US,

Well, we can think about politics as fundamentally the system of how politicians and leaders are selected. So the obvious difference is in a democracy, you have elections. In an autocracy, you have no elections. But then below that, you have this big, grand activity called governance. And that’s what the bureaucracy does. It runs the country in multiple ways — the economy, society, social welfare... And so the China case is one in which you have the same Chinese Communist Party in office since 1949. But if you look at the bureaucracy and the governance, it has dramatically transformed up and down over time... in the United States when you have elections, that’s where all the attention goes. And we just take governance for granted. We just take for granted that the government will do whatever it’s supposed to do once the laws are passed. In China, you take the existence of the Chinese Communist Party for granted. You know that it’s the only party and it’s not going away. So the part that is really open to big changes is the bureaucracy. That’s where the action and the change happens...

About profit sharing in the political system, 

So think about profit-sharing as both a literal description as well as a metaphor of the Chinese political system in the reform era. It occurs at all levels of power. At the highest level, it’s not about salaries. But it is about the very top elites essentially privately splitting up the spoils of capitalism. And we get to have a glimpse of their deals when we see corruption scandals... profit-sharing is meant to be a metaphor to capture this whole system in which Deng Xiaoping, in order to get the whole Communist Party to embrace capitalism rather than resisting it, he gave all of them a stake in capitalist success... So everyone gets to share. Whether you are the very top elite in the Politburo, right down to being a rank-and-file bureaucrat in a particular Chinese city, you get to share, in terms of the revenue being made by your agency. So he creates — in institutional economics, we use this term called high-powered incentives. So a commission is an example of a high-powered incentives, where if you bring in sales, we’ll give you 20 percent commission.

So my incentives are very high to perform, because I get a cut of that performance. So he created this profit-sharing system where all of the officials are personally and enthusiastically invested in economic success... It is problematic... And so what happened in China is that in order to create these powerful incentives for capitalist growth, they injected this profit-sharing system, which has both advantages but also severe disadvantages. So we can see all of the consequences play out today in the combination of crazy growth and, at the same time, crazy corruption.

Explaining the different kinds of corruption using the analogy of drugs,

The growth-damaging forms of corruption are like petty bribery, embezzlement, extortion of businesses. And those we can think of as toxic drugs or, at best, as painkillers. But there is a special category of corruption that has always gone hand in hand with capitalism, and I call that access money. So businesses are paying for access, for privileges. And that, I compare them with steroids. So steroids are kind of drug that helps you grow muscles fast. But if you keep consuming steroids, it has very serious side effects that build up over time. And those side effects only explode in the event of a crisis... If we want to go back to American history, in the 19th century alone, America had multiple financial panics linked to corruption, speculation and distortions in the economy. So my argument is... the historical reality that capitalism and access money corruption has actually gone hand in hand, that development is not linear. It is interrupted by financial crises that erupt, due to the corruption and distortions from time to time.

An interesting contrast between US and China,

(T)he focus of American and democratic politics is, we’re going to limit the government, but we are going to give society as much freedom as possible... America is a society where the government is small but society is large... In China, the focus of limits and restrictions is not placed on the government, but on society. And so the party is obsessed with, how do we make sure that the media is limited, that civil society is put under caps. So it is a society where the government is large and empowered and society is relatively small, compared to government... where is the source, the primary engines of policy innovations and adaptability? In America, you see that from society — from civil society, universities, the private sector. Whereas, when you look at China, very often the source of policy adaptability comes from the bureaucracy. It comes from the government itself... And so in that sense, the two societies are flipped images of each other...

Because it is a single-party autocracy, there is no question and no secret that the number one goal of the party is to keep itself in power... from the point of view of the Communist Party, capitalism is the means to an end. It’s not an end. So capitalism is allowed to thrive, to the extent that it allows China to become prosperous. But as soon as those forces have grown to an extent that it threatens the Party’s hold on power, it then needs to crack down on that. Whereas, in the United States, I would say, I think most people might agree with me, that capitalism is an end. Capitalism is an end in itself, along with liberal democracy.

This about the challenges inherited by President Xi

There’s another kind of autocracy, which is autocracy with partial liberalization and effective governance. And that was reform China under Deng Xiaoping. But that model that he created had an expiration date. Because despite the successes it brought economically, the Gilded Age was also wired into China’s development DNA. The same economic success brought corruption, inequality, debt risks, environmental pollution — all of the defining problems facing China when Xi Jinping took over.

How has the bureaucratic incentives changed post-Xi Jinping crackdown on corruption?

(P)rior to Xi Jinping, the number one objective and incentive of government officials is economic growth. This is reflected in the targets that are assigned to them. And also, the more economic growth you can create, the more corruption and personal rents an official is able to collect... I think the key difference that Xi has introduced — and this is not a sudden thing. I think it evolved gradually in that direction over a 10-year period, is that now to be successful within the political system, the number one thing to do is to demonstrate personal loyalty to Xi. And that may still involve some economic growth, but not always.

And about the subtle reprioritisation of policies under him

When Xi took over, he began to change the basis of legitimacy of the Communist Party. So under the Deng Xiaoping era, the basis of legitimacy was performance. So that was the 6, 7 percent economic growth you’re talking about — and along with that, generally effective governance... Now when Xi took over power, he began to change that, for a number of reasons. The first reason is a good reason, which is he realized that the stage of development in China has reached the point where if you just continue to produce more 7 percent G.D.P., it’s not going to make people happy. It’s actually going to produce more problems. Because the fundamental problems are structural, things like extreme inequality. The more G.D.P. you produce, you just make the super rich people even richer. So he recognized that there was a need for legitimacy coming from things like equity, from fighting corruption. And so you see that he adjusted his domestic policies with a focus on fighting poverty, fighting corruption... You can think of them from the American lens as progressive goals, in the sense that Progressive Era policies were designed to correct the excesses of the Gilded Age. So you can think about common prosperity as Xi’s style of a progressive reform... 

At the same time, his objectives were mixed. And his desire to structurally reform the Chinese economy was also mixed up with his personal ambitions for consolidating power. And that process of consolidating power necessarily has to involve things like cracking down on the media, exercising more political control, having more surveillance. And all of these actions at the same time are anti-growth. So I would say that there are contradictions, fundamental tensions between his portfolio of multiple objectives, some of which are about himself, some of which are about keeping the Party in power and some of which are about genuinely trying to restructure the Chinese economy.

In other words, Xi's challenge was to move beyond poverty eradication to managing the excesses of capitalism while also ensuring the primacy of the Communist Party. As Xi himself acknowledged in his 2021 speech and which Yuen refers to, the Party does not have the playbook to control corruption, inequality, and environmental pollution at such scale nor manage the flowering of the innovation economy. And he worsened it by thinking that he could manage these excesses through top-down command and control.

One thing worth pointing out is the problem with the equivalence of some kind being made between the US and China (both have their set of problems and challenges etc). Both are big powers and it's only natural that the incumbent power will resit the rising power. It's also natural that the rising power will seek to assert itself. But the problem is with the means adopted by China to assert its emergence - stealing industrial technologies, forcing multinationals into submission, uncouth wolf-warrior diplomacy, and, most importantly, threatening and nibbling at its neighbours. It's the latter which makes it a rogue power, especially so in these times.