Tuesday, August 31, 2010

After the Fall of Communism, Why Did Russia Become Democratic and China Remain a Communist State?

A friend emailed me the other day asking for my thoughts on why Russia democratized after the fall of Communism and China did not. My initial, flippant thought is, Russia democratized? But that's too harsh. Let's give Russia the benefit of the doubt that it is a representative democracy, or a republic. Let's also give China the benefit of the doubt and not say "the fall of communism," but instead the beginning of the adoption of market economies. I think there are three factors for why Russia has democratized since the fall of the Soviet Union, and why China has not democratized since the fall of the Gang of Four and the rise of Deng Xiaoping Theory: 1) different solutions to the trilemma of international finance; 2) historical tradition; and 3) the particular circumstances in each country that led to the adoption of market economies.

Trilemma of International Finance
What is the trilemma? The New York Times had a great article by Gregory Mankiw on the trilemma almost two months ago. The trilemma is that economic policy makers would like to achieve the following three goals, but economic logic only allows regulators to choose two of the three:
  1. International capital mobility;
  2. Ability to use monetary policy to stabilize the economy; and
  3. Maintain currency stability.
Although some argue that the trilemma can be challenged, research tends to show that it does indeed exist.

The US has chosen the first two 1) by allowing Americans to easily invest abroad and by allowing foreigners to easily invest in America, and 2) by using the Federal Reserve to set monetary policy. 3) But at the price of a volatile dollar value which is set by international markets.

Europe has chosen the first and third 1) by allowing Europeans to easily invest abroad and by allowing foreigners to easily invest in Europe, and 3) by maintaining currency stability, at least across the euro zone. 2) But at the cost of nations giving up the ability to use monetary policy to the European Central Bank.

China has chosen the second and third 2) by setting monetary policy, and 3) by maintaining tight control over the exchange rate of the yuan. 1) But at the cost of restricting outbound and inbound international capital mobility to control how much money comes into and goes out of the country.

Russia's policy is closest to the US in practice. 1) There are some restrictions on international capital mobility, but a) they are not as strict as China's, and b) the geographic realities of China and Russia make them more difficult to enforce in Russia's case. 2) and 3) The goal of the Central Bank of Russia is to maintain currency stability, but it has proven ineffective at maintaining currency stability, and is instead focusing on using monetary policy to stabilize the economy (see the link to the "goal of the Central . . .").

When economic policy makers choose to restrict international capital mobility, I think that it necessitates a government with stronger or more authoritarian control over its citizens. And I think a democratically elected government would have a much harder time maintaining legitimacy with such tight controls on capital mobility. That isn't to say that China's economic policy isn't working brilliantly, just that democracy suggests greater freedom, and capital mobility restrictions are a more tangible restriction on freedom than currency pegging and a central bank's tinkering with monetary policy.

Historical Tradition
We all know the traditional narrative about government institutions in the West v. those in the East, right?

The historical tradition in the West follows an embrace of an idealized Athens and Rome. Athens became super-rich as the de facto head of the Delian League, and being rich is totally awesome because you have all this cash to make art and pay for plays. People even forget that everybody got pissed at you for being super-rich, and you got your ass handed to you by Spartans in the Peloponnesian War, and twice more by barbarians: one Macedonian, and the other Roman. Rome was super-powerful, and being powerful is awesome because it allows you to dominate others. To be super-rich and super-powerful, the Western tradition dictates that you should be like Rome and/or Athens, and to be like Rome/Athens, we look to their writers. Democracy, or at least a republic, where citizens exercise votes to choose their leaders is considered ideal because Plato wrote about Socrates arguing about topics such as courage, liberty and freedom. But Plato actually believed in philosopher-kings, and when western philosophers started reading all of the awesome Aristotle during the Renaissance that Islamic and Jewish scholars had preserved, they started to totally dig this idea of a real republic which resulted in liberty and freedom, not that fake one that Plato writes about. Then a bunch of well-educated people bought a bunch of printing-presses and had some revolutions. Some were cool, some were creepy, and tradition is preserved.

In the East, Qin Shi Huang unified China through a highly bureaucratic state in which the nobility was replaced by a relatively meritocratic hierarchy of officials who administered the state which begat a major ass-kicking of the other kingdoms during the Warring States period. After Liu Bang successfully exploited Qin and Chu weaknesses, the Han dynasty emulated Qin's bureaucracy. Fast-forward through a couple thousand years of monarchical bureaucracies to the People's Republic China, and what China now has is a single-party, nominal republic with a highly bureaucratic state. Tradition is preserved, but the monarchy has, if you'll allow me some wiggle room, been replaced by the Party.

But what of Russia, that great nation that straddles East and West? As anyone who has ever read Tolstoy's War and Peace can tell you, a) it's long, and b) 19th century Russians really dug French culture. We see Russia's fascination with and eagerness to engage with Europe over the arc of it's history, particularly manifested in 1) the declaration of Moscow as the New Rome under Ivan the Great following the Ottoman conquest of Byzantium in 1453, 2) the military, political and economic reforms of Ivan the Terrible, and 3) a turbulent affair with a pair of Germans. Russia aspired to be a part of the West, and democratic institutions are more in line with the historical traditions of the West, which Russia has engaged with for far longer than the east, than a single-party bureaucracy.

Circumstances at the Inception of the Adoption Market Economies
This, I think, is the big one. Fortunately, I think I can describe it less verbosely than the other two.

The collapse of the Soviet Union began with turmoil in the Warsaw Pact allies. The communist countries of Eastern Europe were economically inefficient as a direct result of the command economy. The governments had lost legitimacy because of the form of government. After the Sinatra Doctrine, the Eastern European countries turned to new forms of government that were modeled on representative democracies. When economic inefficiencies finally brought down the Soviet Union in 1991, it was also because the form of government was blamed for the economic inefficiencies. With the form of a highly centralized and all-powerful federal government rendered illegitimate, a new form of government was needed, and because of tradition and the First World's success with representative democracies, the Second World decided to take the democratic route. Of course, this probably could not have been accomplished without the strong personalities of Gorbachev and Yeltsin.

The adoption of a market economy in China began in 1978 when Deng Xiaoping became head of the CPC and guided the Party toward political and economic pragmatism. But it was never the Party or the autocratic government that had lost legitimacy; it was people in the government that had lost legitimacy. Mao Zedong's policy of perpetual revolution had caused the country to economically stagnate, and atrocities were committed under the Gang of Four, but people still believed in Communism, and Deng Xiaoping brought China a socialism with Chinese characteristics: "Poverty is not socialism. To be rich is glorious."

China had not been a world superpower on the order of the Soviet Union post-WWII and prior to the adoption of market reforms. There was not glorious scientific, athletic, and artistic achievement in China in the post-WWII to Deng period. Communism was not associated with poverty, poverty simply existed, and Deng started to bring China wealth under the auspices of Communism. The CPC has not been without its hiccups since 1978, but it has been remarkably successful at maintaining control and legitimacy.


MaoRuiqi said...

It is always stated that China is a one party system (although only de facto); however, in your esteemed opinion, is this actually the case? As a metaknowledge example, the founders of the US republic were generally not the same party--so to speak--as those who revolted from England. Thus, China CCP is quite diverse, even to the extent to maybe thought of as different parties within the party? So Beijing politicians may differ in policy and admin as their Shanghai counterparts as with between the US Dems and Repubs.

Will Lewis said...

Your example doesn't exactly hold up. I would not analogize the CCP to the Republicans v. Democrats, but to a single US party with all of its internal divisions, though probably not even as many internal divisions as a US party.

As you wrote, the Founding Fathers who wrote and signed the Declaration of Independence are separate from the Drafters of the Constitution who founded the USA. The Founding Fathers would have identified themselves with one of the various Whig factions which were so distinct as to be considered different parties. And their disagreements with each other were quite public, as documented in the musical 1776.

There was a large split between the Drafters, and it was the Federalists v. the Anti-Federalists. The Federalists believed that a separation of powers between 3 branches of government with specific enumerated powers would ensure liberty while preventing injustice. The Anti-Federalists agreed that a separation of powers was needed, but they also argued for the Bill of Rights as a means of ensuring certain basic rights. The Federalists believed in all of those rights, but they also believed that no branch was given a power that could affect those rights. In the end, both were used.

With the founding of the republic, there was only one political party, the Federalists. Within one year of the existence of the US, Thomas Jefferson founded the Democratic-Republican party in opposition to the economic and foreign policy positions of the Federalist party.

There were multiple factions, multiple parties, and public disagreement between the parties and factions at all points.

Today we have the Republicans and the Democrats. The Republicans are better than the Democrats at party politics (voting as a block, presenting a united front, etc.), but the internal divisions are stark. Compare Republican governors in California v. Arizona (Main Street Partnership v. the dominant party), or Democratic congresspeople in New York City v. Indiana (dominant party v. Blue Dog Coalition). Even with the divisions, party politics and party image are very influential in determining who gets power, letting the world know who is in power in the US, and what their general policies will be.

The CCP's general policies have been roughly the same since Deng Xiaoping cemented control over the Party. There are sure to be internal divisions, but those divisions are rarely public, and when they are made public they are over in how to attend to the details of administering the country. The divisions are never as stark and fundamental as the divisions even within a US party: social conservatism and fiscal conservatism v. social liberalism and fiscal conservatism.

Also, given the Party school system and the difficulty that the poor in China can have in becoming educated, I'd wager that the background of many of the members of the Party is quite similar. This is in no means an attack on the CCP, I think they have done an excellent job ruling China, but I do think it is a single-party, despite divisions.

Also, I'd imagine that Party members in Beijing and Shanghai are quite similar in the goals. Maybe Party members in Beijing v. Shaanxi? Only problem is, any Party member with sway from Shaanxi is probably in Beijing...