China’s Krismon?

When a government sacrifices political development on the altar of economic prosperity, heaven may respond by sending down a national tragedy.

Indonesia suffered that kind of tragedy in 1998. We called it krismon, meaning krisis moneter (monetary crisis). It was also an economic crash and a political upheaval that culminated in the fall of longtime strongman President Suharto.

It may be China’s turn sometime soon.

In the case of Indonesia, the economy first rose when Suharto, having seized power in 1966, encouraged foreign companies to take control of the construction and mining sectors. He also unleashed a coterie of American-educated economists, the Berkeley Mafia, who crafted market-friendly policies aimed at making Indonesia irresistible to foreign investors. The result was that during the 33 years of Suharto rule, Indonesia averaged yearly GDP growth of 7 percent.

As for China, Deng Xiaoping oriented its economy to the market in 1979, following the example of Singapore. China went on a frenzy of economic reform but made no effort at political development. The result was an average annual GDP growth rate of 9.9 percent. In 2010 its GDP surpassed that of Japan, making China the world’s second-largest economy, after the United States.

But when political development does not match and substantiate economic growth, the glitter of big statistics could be masking a rot within. When too much money goes into the hands of too few people who contribute too little to production — there will be a day of reckoning.

That day came for Indonesia in the blast of the Asian financial crisis of 1997-98. It endured a 13.5 percent fall in growth and all hell broke loose. But since then Indonesia has recovered to become one of the world’s emerging economic powers.

How did Indonesia do it? It simply geared its political development into overdrive. Today Indonesia’s political development is abreast with its economic development. Both have many imperfections. But Indonesia has gone some way in political development.

Now take a look at China: in 2011, its GDP growth slid to 9.2 percent, not an alarming drop but perhaps a warning. On the whole, China is in a situation analogous to that of Indonesia just before the chaos of 1998. The state rather than the market now drives the economy. The euro-zone crisis and the slow American recovery have shriveled China’s export markets. Its cheap labor is now history. State enterprises are exorbitantly subsidized. Capriciously directed by bureaucrats, money flows are inefficient. Corruption is rampant and the people know it. Boiling with discontent, they clamor for reform. The World Bank says an economic crisis could be around the corner.

Listen to this: “There are structural problems in China’s economy that cause unsteady, unbalanced, uncoordinated and unsustainable development.” That’s Prime Minister Wen Jiabao appealing for reform and greater accountability. But nothing much has been done about this. Instead of bold reform, Wen dangles a new stimulus package that may diminish social discipline.

The Chinese know what kind of poison has seeped into their system. They also know the antidote. But it takes heroic courage to take such strong medicine. Entrenched, powerful political forces oppose reform. The Communist Party fears political reform will loosen its iron grip on the nation. They seem to say, “Better dead if still red.”

In 1998 Indonesia found the courage — born of desperation — to institute far-reaching reforms after disaster had already struck. Let’s hope President Hu Jintao and Prime Minister Wen or their successors find that courage before disaster strikes. A world economy in acute need of recovery has an enormous stake in a Chinese economy made healthy again through political reform.

By Jamil Maidan Flores Posted in El Indio

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