Harvard’s Vogel: Deng Would Be Delighted

April 30, 2012

The new biography on Deng by Harvard’s Ezra Vogel is must-reading for any investor interested in China.

 

The speed of China’s transition from a largely agrarian society to an industrial giant is unprecedented in human history. “Deng Xiaoping and the Transformation of China,” by Ezra Vogel, the Harvard University social sciences professor emeritus, tells the story of Deng’s reforms and how they paved the way for China to become the world’s second-largest economy. Vogel’s book, a 2011 National Book Critics Award Finalist, has been named a “Best Book of 2011” by the Washington Post, The Economist and the Financial Times. Reviewers have hailed the biography for its insights into a man so driven and focused on the future that he was nicknamed the “Steel Factory.” IndexUniverse.com Correspondent Alex Ulam caught up with Vogel recently to talk about the book, Deng’s legacy and China’s current economic challenges.

 

Ulam: Your book describes how a group of U.S. professors visited China after the Cultural Revolution and one of them said that the country’s top educational institutions were at the level of a junior technical college in the U.S.

Vogel: I was on that delegation. And it was Victor Weisskopf, MIT’s famous professor, who said that. He told that to me as we were going around. It was at Peking University, 1973, when we were visiting the place. And it was so cold and dominated by worker, peasant and soldier classes. Admittance was not by examination; it was strictly by recommendation. And the quality of education was unbelievably low.

Ulam: What were Deng’s key initiatives in turning around the country?

Vogel: Deng was just absolutely insistent on opening up the world to Chinese study. It had been closed before that. So as you know, now over 1 million have gone to abroad since 1978, but that was new in 1978 when Deng started it.

I would say opening markets, allowing foreigners to come in, sending students abroad and de-collectivization are probably the most important changes that Deng introduced.

Ulam: Has Deng’s legacy now trumped that of Mao’s?

Vogel: Oh absolutely. Mao has been elevated and put into a museum. The flags fly, and the mottos and the sayings are Mao’s, but the content and what’s really happening is Deng’s. So there is still an official reverence for Mao that’s not translated into reality. They have his picture at Tiananmen, where his body lies, and some people can go see it. The ultimate triumph of capitalism in that the little Mao buttons and books and all kinds of things now are sold on markets, which is in a way the ultimate irony, and the ultimate deceit of what Mao really stood for, even though his name is officially revered.

Ulam: So are Chinese leaders still following the concept of socialism with Chinese characteristics that Deng promoted?

Vogel: Well, what Deng did was invent a phrase that was sufficiently flexible that it could be adapted to what people wanted to use it for. And I think that Deng’s followers have basically done the same thing. And if new things come, and new adaptations come, they can do that and still call it “socialism with Chinese characteristics.”

It was a wonderful phrase that allowed him to move ahead in reality without thoroughly alienating the Old Guard.

 

 

Ulam: There was a recent article in Financial Times about Zhou Yongkang, China’s security chief, who has been linked to the Bo Xilai corruption scandal. The Financial Times was asserting that his expansion of the internal security apparatus had set back decades of legal reforms aimed at establishing an independent judiciary. Do you agree with that?

Vogel: No. I think that they’ve been creeping along slowly with judicial reforms. And they still like to keep individual authority.

Ulam: But this idea of independent judiciary is still moving ahead?

Vogel: Very slowly, very slowly. Deng specifically said he didn’t want that. He thought it would divide the authority and he wanted more centralized authority. He thought it would slow things down to have an independent judiciary.

Ulam: Do you think he foresaw a future where there could be an independent judiciary?

Vogel: I think he wanted more regular procedures. And he wanted rules. He was willing to consider those if conditions were ripe. I think on issues like democracy and stronger judiciary, he wasn’t opposed to those. But you had to have the right political conditions. And he didn’t feel that the conditions in his time were ripe for big changes.

Ulam: What’s the potential impact of the Bo Xilai corruption scandal on China’s economy and its political system?

Vogel: I don’t think it’s going to really upset things. They’re getting rid of him now, and what they’re trying to do is find all kinds of dirt … to weaken his appeal. They don’t want to create too much opposition because he was very popular.

The question is whether this effort to deal with his corruption will extend beyond him so that the new leadership will be under more pressure to do more about corruption. My guess is that they will feel that pressure. And there’s a new leadership coming to power after the next party congress that will have to work harder to deal with corruption. And I think that they will attack the issue more forcefully.

Ulam: Just because of this particular case?

Vogel: Not just because of this case. There’s widespread feeling against corruption, particularly in high-level leaders already. I think this perhaps just escalates it a little. It’s a more prominent case than some of the others.

Ulam: Are some sectors of their economy more corrupt than others?

Vogel: Well, construction and land use are particularly corrupt: the sale of land to developers and things that require public permission. Local industry is not necessarily as corrupt as the types of businesses that require permits from the government. All of those things that require government permits are opportunities for an official to have his hand out.

 

 

Ulam: Was Deng more sort of oriented toward modernizing the country and creating an industrial powerhouse than improving the lot of the average Chinese?

Vogel: I don’t think he saw those as contradictory. I think he saw getting the industry as a benefit for the people. And I think that compared to the first “Great Leap Forward,” where they had the first five-year plan that was so focused on industry, Deng and his advisors felt there had to be a little more balance. They would have to, if anything, slow down industrial growth and not sacrifice individual consumption the way Mao was doing. They had to allow more consumption to provide more incentives that would help drive the economy.

Ulam: There is a new book, “What the U.S. Can Learn From China,” that suggests the U.S. can learn from the Chinese way of doing business. What do you think that the U.S. can learn from China’s growth?

Vogel: Well, I think the question is whether we can find our own way to look after our infrastructure and to make decisions fairly quickly without getting hung up. Can we find our way to make wise decisions and in a timely way, and not allow legal procedures and distribution of wealth to stockholders to overwhelm our political system? I think what Deng and a lot of traditional Chinese thought is that if you have wise officials who are ethical, they will make better decisions for the country than the populists appealing to the masses.

Ulam: They also seem to be doing much better in the competition for natural resources throughout the world.

Vogel: Well, they have the money. I think the issue is that we’re running a system where we’re in debt so much, and they are accumulating hundreds of millions of dollars each year in surpluses. That gives them the capacity to buy up a lot.

Ulam: Also, they don’t have the same sort of scruples about human rights that we might have.

Vogel: They do things much faster. They go right into an African project. But before we would be willing to consider it or send it to the World Bank, it would go through very careful considerations about safety and people, quality and human rights and so forth. And they would just do it. So things get done faster.

The question is: Can we find ways to preserve some of our values and at the same time speed up some of those procedures?

Ulam: A crucial factor in the future economic success of industrialized countries depends upon locking into natural resources. How is this going to play out in China?

Vogel: They have quite a bit of resources. But it will also mean getting new, sustainable resources. China is going to be in plenty of trouble over the next couple of decades. Their economy is going to slow down. And they don’t yet have universal medical care. And they don’t have good education in the countryside. And they have perhaps a couple hundred million people below the poverty line.

Ulam: I gather that they don’t have social security either, right?

Vogel: Well, not quite. People in their work unit had some kind of security system. And they’re gradually extending that in the urban area. Back when the population was not mobile under Mao, the unit took care of them. But now that you have the mobile population you have to develop a national {social} security system. After all, it took us to the FDR period before we really were doing pretty well at that. China’s not there yet.

 

 

Ulam: Western investors are very hungry to get exposure to domestic sectors such as Chinese telecom. What are some of the critical issues there?

Vogel: Those are the sectors the Chinese government is trying to protect and use for their own companies. The foreign companies who have leverage on technology will try to use their leverage to get either shares of ownership or shares of market as they compete with Chinese companies.

Ulam: Some people say that is where the real growth in China is going to take place.

Vogel: It’s booming. I don’t know what the figure is now, but it may be 400 million cell phones. And they’re selling more cars than we are now. When you’re dealing with a population that’s four times the size of our population, the market potential is fantastic.

Ulam: So what happens if they raise the value of their currency more—the way we want them to?

Vogel: I think they will. They are doing it slowly, not fast enough. It doesn’t make as much difference as Americans think it does. I was working on that problem in the ’80s and ’90s when people yelled that Japan should allow its currency to rise, and it did. And they still had terrific export surpluses for a long time after that.

Ulam: Already some states are exporting a tremendous amount of agricultural products to China, aren’t they?

Vogel: Some are doing quite well, yes. Some states are very successful. And American farmers are exporting quite a bit.

Ulam: China has a policy of trying to maintain food independence, don’t they?

Vogel: Relative independence. If they went to the market, say for 20-30 percent of their agriculture, it would raise international global prices so high that it would be a big burden on China. So yes, they want to keep purchases of agriculture down to a modest level.

Ulam: So they really can’t afford to not be food-independent to a certain extent.

Vogel: That’s right; it would be an enormous cost to them. So they’re trying to maintain acreage under cultivation for agriculture. And the central government is trying to make it very hard to take land out of agriculture for other use. They realize that they need to keep a lot of that land producing goods for agriculture.

Ulam: So if Deng came back to life today, do you think he would feel satisfied?

Vogel: He would be delighted the country has grown so much, and that China’s prestige is so high in international affairs, and that it’s rivaling the United States in terms of economic potential. I think he would feel it’s an enormous success, and be satisfied. But he was very concerned about maintaining the political base of support for the party. And if he saw how much corruption there was today, I think he would be very tough on corruption. He would clamp down more than other leaders have done so far.

Ulam: Do you think this corruption is a greater threat to China’s future than all these disenfranchised workers that travel the country looking for work?

Vogel: There is so much concern about corruption now that it’s possible to imagine more people demonstrating and overthrowing local governments. So I think the Chinese government is running very scared.

 

 

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