On 25th february, business professor Li Shaomin left his home in Hong Kong to visit a friend in the mainland city of Shenzhen. There he was arrested and imprisoned, accused of spying for Taiwan. Never mind that Li is a US citizen. And never mind that the theme of his writings, published in journals like China Business Review, is optimism about China's investment climate. Li, it turns out, proved too optimistic for his own good. In addition to rewarding foreign investors, he believed that China's economic growth would create, as he put it in a 1999 article, a "rule-based governance system." But, as Li has discovered, China's leaders have other plans.
Like Li-who was finally released after six months-Washington's most influential politicians claim we can rely on the market to transform China. According to this new orthodoxy, what counts is not China's political choices but rather its economic orientation, particularly its degree of integration into the global economy. President Bush has not revived Bill Clinton's recklessly ahistorical claim that the US can build "peace through trade, investment, and commerce." Bush has, however, latched onto another of his predecessor's rationales for selling Big Macs to Beijing-namely, that commerce will act, in Clinton's words, "to expose China to our ideas and our ideals." In this telling, capitalism isn't merely a necessary condition for Chinese democracy. It's a sufficient one. Or, as Bush says, "trade freely with China, and time is on our side." In other words, to promote democracy, the US need not apply political pressure to China. All we need to do is conduct more business there.
Alas, the historical record is not quite so clear. Tolerant cultural traditions, British colonisation, a strong civil society, international pressure, US military occupation and political influence-these are just a few of the explanations scholars credit as the source of freedom in various parts of the world. Even when economic conditions do hasten the arrival of democracy, it's not always obvious which ones. After all, if economic factors can be said to account for democracy's most dramatic advance-the implosion of the Soviet Union and its satellites-surely the most important factor was economic collapse.
If not every democracy emerged through capitalism, it is also true that not every capitalist economy has produced a democratic government. One hundred years ago in Germany and Japan, 30 years ago in countries such as Argentina and Brazil and today in places like Singapore and Malaysia, capitalist development has buttressed, rather than undermined, authoritarian regimes. And these models are beginning to look a lot more like contemporary China than the more optimistic cases cited by Beijing's American enthusiasts. In none of these cautionary examples did the free market do the three things businessmen say it always does: weaken the coercive power of the state, create a democratically minded middle class, or expose the populace to liberal ideals from abroad. It is not doing them in China either.
One of the ways capitalism should foster democracy is by diminishing the power of the state. Or, as Milton Friedman put it in Capitalism and Freedom, "competitive capitalism promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other." In his own way, Bush makes the same point about China: "I believe a whiff of freedom in the marketplace will cause there to be more demand for democracy." But the theory isn't working.
China's market system derives, instead, from a pathological model of economic development. Reeling from the economic devastation of the Mao era, Deng Xiaoping and his fellow party leaders set China on a course toward "market socialism" in the late 1970s. The idea was essentially the same one that guided the New Economic Policy in Soviet Russia 50 years before: a mix of economic liberalisation and political repression, which would boost China's economy without weakening the Communist party. And so, while leaving the party in control of China's political life, Deng junked many of the economy's command mechanisms-granting state enterprises more autonomy, opening the country to limited investment and replacing ageing commissars with a semi-professional bureaucracy. The recipe worked well: China has racked up astronomical growth rates ever since. And democracy is as far away as ever.
The reason is not just that government repression keeps economic freedom from yielding political freedom. It is that China's brand of economic reform contains ingredients that hinder-and were systematically devised to hinder-political reform. The most obvious is that, just as the state retains a monopoly on the levers of coercion, it also remains perched atop the commanding heights of the economy. True, China has been divesting itself of state-owned enterprises, and the process should quicken once it enters the World Trade Organisation (WTO). But Beijing's leaders have said they will continue to support China's most critical industries. Taking a cue from authoritarian South Korea during the 1980s, China's leaders have backed industrial conglomerates in crucial sectors of the economy, transformed industrial ministries into "general associations," merged failing state firms with successful ones and built organisations to serve as a bridge between the state and the enterprises.
But that is where any similarities with South Korea end. Unlike South Korea, the Philippines, and Taiwan, which evolved from authoritarianism (and did so, significantly, as de facto protectorates of the US), China even today has no effective system of property rights-a trait that distinguishes its communist regime from traditional authoritarian ones. The absence of a private property regime in China means that the state controls nearly the entire edifice on which China's "free" markets rest. It also means that China's brand of capitalism blurs, rather than clarifies, the distinction between the public and the private realms on which political liberty depends. Nor is that the only requisite for democracy that China's markets lack. As the imprisonment of Li Shaomin and thousands of other political prisoners attests, capitalism in China still operates within the confines of an arbitrary legal order and a party-controlled court system. "China is still a lawless environment," says American sinologist Arthur Waldron. "Whether in terms of individual rights or the rights of entrepreneurs, interests are protected not by institutions but by relationships with those in power."
Before he was arrested, Li diagnosed this condition as "relation-based capitalism," meaning that relations with government officials, not property rights or the rule of law, underpin the market. Because the political foundations of China's economy remain the exclusive property of the state, China's entrepreneurs op-erate with a few degrees of separation, but without true autonomy from the government. Hence, capital, licences and contracts flow to those with connections to officials and to their friends and relatives, who in turn maintain close relations with, and remain beholden to, the regime.
Helping to keep all these distortions in place are Deng's functionaries, who form the world's largest bureaucracy and still control the everyday levers of the economy. Today, they function as the administrators of a market increasingly driven by skimming off the top. The foreign-trade sector offers particularly easy pickings. In 1995, the World Bank found that while China's nominal tariff rate was 32 per cent, only a 6 per cent rate was officially collected. Much of the difference went into the pockets of Chinese officials. And even though WTO accession will reduce opportunities for rent-seeking from trade tariffs, China's bureaucracy will be able to continue siphoning funds from distorted interest rates, the foreign exchange markets and virtually any business transaction that requires its involvement-which is to say nearly every business transaction. Nor is the problem merely the corrupting influence these bureaucrats wield over the markets. The larger problem is that, whereas in the US the private sector wields huge influence over the political class, in China the reverse is true.
For this reason, Washington's celebrations of the democratic potential of the new Chinese "middle class" may be premature. Bush declares that trade with China will "help a freedom-loving class grow and burgeon and become viable." Bush did not, of course, invent the theory that the middle classes have nothing to lose but their chains. In the first serious attempt to subject the ties between economic and political liberalisation to empirical scrutiny, Seymour Martin Lipset published a study in 1959, Some Social Requisites of Democracy, which found that economic development led to, among other things, higher levels of income equality, education and, most important, the emergence of a socially moderate middle class-all factors that promote democratisation. More recent studies have found that rising incomes also tend to correlate with participation in voluntary organisations and other institutions of "civil society," which further weakens the coercive power of the state.
But middle classes aren't always socially moderate and do not always oppose the state. Under certain conditions, late modernising economies breed middle classes that oppose political change. In each of these cases, a strong state, not the market, dictates the terms of modernisation. And in each case, an emerging entrepreneurial class too weak to govern on its own allies itself-economically and politically-with a reactionary government and against threats to the established order. In his classic study, Social Origins of Dictatorship and Democracy, sociologist Barrington Moore Jnr famously revealed that, in these "revolutions from above," capitalist transformations weakened rather than strengthened liberalism. In the case of 19th-century Japan, Moore writes that the aim of those in power was to "preserve as much as possible of the advantages the ruling class had enjoyed under the ancien r?gime, cutting away just enough... to preserve the state, since they would otherwise lose everything." Japan's rulers could do this only with the aid of a commercial class, which eagerly complied, exchanging its political aspirations for profits. On this point, at least, Marx and Engels were right. Describing the 1848 revolution in Germany, they traced its failure partly to the fact that, at the end of the day, entrepreneurs threw their support not behind the liberal insurrectionists but behind the state that was the source of their enrichment.
Much the same process is unfolding in China, where economic and political power remain deeply entwined. In fact, China's case is even more worrying than its historical antecedents. In Germany and Japan, after all, an entrepreneurial class predated the state's modernisation efforts, enjoyed property rights and, as a result, possessed at least some autonomous identity. In China, which killed off its commercial class in the 1950s, the state had to create a new one. Thus China's emerging bourgeoisie consists overwhelmingly of state officials, their friends and business partners and-to the extent they climbed the economic ladder independently-entrepreneurs, who rely on connections with the official bureaucracy for their livelihoods. "It is improbable, to say the least," writes historian Maurice Meisner, "that a bourgeoisie whose economic fortunes are so dependent on the political fortunes of the communist state is likely to mount a serious challenge to that state... the members of China's new bourgeoisie emerge more as agents of the state than as potential antagonists."
A steady diet of chauvinistic nationalism hasn't helped. In the aftermath of the Tiananmen Square massacre, party leaders launched a "patriotism" campaign, a sentiment they defined as "loving the state" as well as the Communist party. As the Shanghai-based scholar and party apologist Xiao Gongqin explains, "the overriding issue of China's modernisation is how, under new historical circumstances, to find new sources of legitimacy so as to achieve social and moral integration in the process of social transition." To Xiao and others like him, the answer is nationalism. And it's working. Indeed, independent opinion polling conducted by the Public Opinion Research Institute of People's University (in association with western researchers, who published their findings in 1997), indicate greater public support for China's communist regime than similar surveys found a decade earlier. Contrary to what development theory might suggest, the new nationalism appears to have infected the middle class-particularly university students and intellectuals-more acutely than it has China's workers and farmers. "The closeness of the relationship between the party and intellectuals is as bad as in the cultural revolution," a former party official noted in 1997. Even many of China's exiled dissidents have fallen under its spell.
In addition to being independent of the regime and predisposed toward liberal values, China's commercial class is supposed to be busily erecting an independent civil society. But, just as China's communist system restricts private property, it prohibits independent churches and labour unions and any other civic institutions that might plausibly compete with the state. Indeed, China's leaders seem to have read Robert Putnam's Bowling Alone and the rest of the civil-society canon-and decided to do exactly the reverse of what the literature recommends. "Peasants will establish peasants' organisations, then China will become another Poland," senior party official Yao Yilin warned during the Tiananmen protests. To make sure this fear never comes true, China's leaders have dealt with any hint of an emerging civil society in one of two ways: repression or co-option. Forbidden organisations-such as Falun Gong, the Catholic church, independent labour unions and organisations associated with the 1989 democracy movement-find their members routinely imprisoned and tortured. Others, such as the Association of Urban Unemployed, are merely monitored and harassed. The officially sanctioned organisations that impress so many western observers, mostly constitute a Potemkin facade. "Almost every ostensibly independent organisation-institutes, foundations, consultancies-is linked into the party-state network," says sinologist Andrew Nathan. Hence, Beijing's ministry of civil affairs monitors even sports clubs and business groups and requires all such groups to register with the government.
The same kind of misreading often characterises celebrations of rural China's "village committees," whose democratic potential the engagement lobby routinely touts. Business Week discerns in them evidence "of the grassroots democracy beginning to take hold in China." But China's leaders restrict committee elections (first sanctioned 14 years ago) to the countryside and, even there, to the most local level. More importantly, China's leaders don't see the elections the way their western interpreters do. In proposing them, says Jude Howell, co-author of In Search of Civil Society: Market Reform and Social Change in Contemporary China, party elites argued that elected village leaders "would find it easier to implement central government policy and in particular persuade villagers to deliver grain and taxes and abide by family planning policy. Village self-governance would thus foster social stability and order and facilitate the implementation of national policy... The party could strengthen its roots and bolster its legitimacy in the eyes of rural residents." Which is exactly what it has done. In races for village committee chairs, the ministry of civil affairs allows only two candidates to stand for office and, until recently, many townships nominated only one. Local party secretaries and officials often push their favoured choice and most committee members are also members of the Communist party, to which they remain accountable. Should a non-party member be elected, he must accept the guidance of the party which, in any case, immediately sets about recruiting him. As for those rare committee members who challenge local party officials, their success may be gleaned from the fate of elected committee members from a village in Shandong province who accused a local party secretary of corruption in 1999. All were promptly arrested.
Still, the very fact that China's leaders feel compelled to bolster their legitimacy in the countryside is telling. A few months ago, Beijing took the unusual step of releasing a report, "Studies of contradictions within the people under new conditions," which detailed a catalogue of "collective protests and group incidents." What the report makes clear is that Beijing's leaders think China's growing pool of overtaxed farmers and unemployed workers, more than its newly moneyed elites, could become a threat to the regime. Fortunately for the authorities, with no political opposition to channel labour unrest into a coherent movement, protests tend to be narrow in purpose and uncoordinated. The wheels of repression have already begun to grind, with Beijing launching a "strike hard" campaign to quell trouble. In any case, what these formerly state-employed workers have been demonstrating for is not less communism, but more-a return to the salad days of central planning.
Which brings us to the final tenet of the engagement lobby: that commerce exposes China to the ideals of its trading partners, particularly those of the US. As Sandy Berger, Clinton's national security adviser, claimed in 1997, "the fellow travellers of the new global economy-computers and modems, faxes and photocopiers, increased contacts and binding contracts-carry with them the seeds of change." But the Chinese disagree. To begin with, they don't import much. And economists predict that will not change dramatically once they've joined the WTO, since China's leaders have committed themselves to the kind of export-oriented, mercantilist growth model that South Korea, Japan, and Taiwan pursued. Last year, for instance, China exported $100 billion in goods and services to the US and imported $16 billion worth. Hence, for every six modems it sent to the US, Sandy Berger sent back only one.
To be sure, that one modem may carry with it seeds of change. Alas, through links to Chinese service providers, Beijing tightly controls all access to the web. And western investors in China's information networks have eagerly pitched in. One Chinese internet portal, backed by Intel and Goldman Sachs, greets users with a helpful reminder to avoid "topics which damage the reputation of the state" and warns that it will be "obliged to report you to the public security bureau" if you don't. But Goldman need not worry. China's recent experience lends credence to the pessimistic theories of an earlier era, which held that nations shape the uses of technology rather than the other way around. Thus Beijing blocks access to "damaging topics" and to western news sources such as The New York Times. It also monitors e-mail exchanges and has arrested internet users who have tried to elude state restrictions. The government uses websites-and, of course, television, newspapers, and radio-to dominate the circuits with its own propaganda. "Much as people might like to think the internet is part of a bottom-up explosion of individualism in China, it is not," writes Peter Lovelock, a Hong Kong-based academic. Instead, it provides "an extraordinarily beneficial tool in the administration of China." That tool was on vivid display during the EP-3 spy plane crisis, when China blocked access to western news and censored chatrooms.
US politicians describe foreign direct investment, too, as a potent agent of democratisation. But, in this case, they are not even paraphrasing political science literature they haven't read, because the literature makes no such claim. In fact, a 1983 study by Kenneth Bollen found that levels of foreign trade concentration and penetration by multinationals have no significant effect on the correlation between economic development and democracy. In China's case, it is easy to understand why. Beijing requires foreign investors in many industries to co-operate in joint ventures with Chinese partners, most of whom enjoy close ties to the government. These firms remain insulated mainly in three coastal enclaves and in "special economic zones" set apart from the larger Chinese economy.
Nor is it clear that US companies even want China to change. If anything, growing levels of US investment have created an American interest in maintaining China's status quo. Hence, far from criticising China's rulers, western captains of industry routinely parade through Beijing singing the praises of the regime (and often inveighing against its detractors), while they admonish America's leaders to take no action that might upset the exquisite sensibilities of China's politburo. Business first, democracy later.
Ultimately the best measure of whether economic ties to the west have contributed to democratisation may be gleaned from China's human rights record. Colin Powell insists, "trade with China is not only good economic policy; it is good human rights policy." Yet, rather than improve that record, the rapid expansion of China's trade ties to the outside world over the past decade has coincided with a worsening of political repression at home. Beijing launched its latest crackdown on dissent in 1999, and it continues to this day. The government has tortured, "re-educated through labour," and otherwise persecuted thousands of people for crimes no greater than exercising freedom of expression, association, or worship. It has arrested Chinese-American scholars like Li Shaomin on trumped-up charges, closed down newspapers and intimidated and threatened dissidents. Nor is it true that linking trade and human rights will necessarily prove counterproductive. When Congress approved trade sanctions against Beijing after Tiananmen, China's leaders responded by releasing more than 800 political prisoners, lifting martial law in Beijing, entering into talks with the US, and even debating among themselves the proper role of human rights. As soon as US pressure eased, so did China's reciprocal gestures.
Turning a blind eye to Beijing's depredations may make economic sense. But to pretend we can democratise China by means of economics is a self-serving conceit. Democracy is a political choice. Someone, not something, must create it. Often that someone is a single leader-a Mikhail Gorbachev, a King Juan Carlos or a Václav Havel. But such a man won't be found in China's current leadership. At these times, pressure for democracy comes from a political opposition-the ANC in South Africa, Solidarity in Poland, or the marchers in Tiananmen Square. But there are no more marchers in Tiananmen Square.
Pressure for democratisation, however, can also come from abroad. And usually it comes from the US. During the 1980s, the US applied diplomatic and economic pressure to repressive regimes from Poland to South Africa; intervened to prevent military coups in the Philippines, Peru, El Salvador, Honduras, and Bolivia and loudly enshrined human rights and democracy in official policy. The US played a direct role in democratising even countries like South Korea and Taiwan, which many China-engagers now tout as evidence that the market alone creates political freedom. Appropriately enough, the decade closed with activists erecting a model of the Statue of Liberty in Tiananmen Square.
The commercialist view of China, by contrast, rests on no historical foundation; it is a libertarian fantasy. "The linkage between development and rights is too loose, the threshold too high, the time frame too long, and the results too uncertain to make economic engagement a substitute for direct policy intervention," writes Andrew Nathan. And, far from creating democracy, this subordination of political principle has created the justified impression of American hypocrisy and, worse, given US policymakers an excuse to do nothing.
Maybe the claim that we can bring liberty to China by chasing its markets will prove valid in the long run. But exactly how long is the long run? One political scientist says it ends in 2015, when, he predicts, China will be transformed into a democracy. Others say it may take a half-century or more. The answer matters. After all, while capitalist Germany and Japan eventually became democracies, it wasn't capitalism that democratised them and it certainly wasn't worth the wait. In China, too, no one really knows what might happen as we wait for politics to catch up with economics.
