Great Experiments

Ever since the Cold War Europe’s Social Democrats have claimed to be searching for a "Third Way". Such an ideal system would avoid the excesses of both American-style democracy, with its "savage" free enterprise, and of Marxist economic dirigisme, with the political enslavement of populations.

As far as I can tell, this quest has failed. Mostly, countries like France and Germany seem to have achieved a form of comfortable, but lazy, capitalism. Moreover, rigidities and resistance to change have steadily built within Europe’s economies and political systems, and have numbed their workers’ ability to cope with globalization and the rise of younger and more aggressive economies. So, even the edgy comfort that prevails today may prove transitory.

If a "Third Way" is not mere Utopia, it is more likely to originate in Asia, where several experiments are under way to develop a different mixture of economic freedom and political order than that which currently prevails in the West.

China’s "one country, two systems" is one of the most interesting experiments, mostly because of its size and geopolitical implications. It attempts to boldly free the country’s economy while preserving a highly centralized control over the political apparatus. At the moment, although momentous change has already taken place, this clearly remains a work in progress.

Indonesia’s experiment, though less critical from a geopolitical point of view, is far from negligible. The country’s 220 million people span most major religions, it has the world’s largest Muslim population and, under Suharto, it had become an anchor of stability for the region.

Interestingly, Indonesia’s process of change is almost the opposite of China’s. The fall of President Suharto’s dictatorship ushered an unbridled, often chaotic experiment in political democracy, which now threatens to destabilize a relatively free economy. Obviously, China is watching Indonesia’s experiment with great interest – especially the resulting unrest in some of the out provinces, which raises the specter of a breakdown like that of the former Soviet Union after Glasnost.

Other countries in the region, from the Philippines to Vietnam are also experimenting with reforms, at different paces and with various degrees of success.

In this bustle of change, one small island nation, Singapore, claims to already have found the Third Way. Indeed, under the visionary and forceful leadership of its former leader (and still highly influential senior minister) Lee Kuan Yew, Singapore has achieved a mixture of economic development, prosperity and political stability that are the envy of many nations around the world.

However, many Asian leaders question whether Singapore’s model can be replicated on a larger scale. A story circulates in China about a meeting between the country’s formidable former leader Deng Xiao Ping and Singapore’s Lee Kuan Yew. As he is prone to do, Mr. Lee reportedly lectured Mr. Deng at length about the virtues of the Singaporean model and its desirability for other Asian Nations. Once Mr.

Lee had finished, Mr. Deng, who had kept quiet all along, thanked him and assured him that if he ever needed a mayor for Guangzhou (Canton), he would be sure to call him.

In addition to the matter of size, it is true that Singapore remains a mild and caring version of a police state, where freedoms are relative by western standards. Also, while its economy is enterprise-friendly, it is carefully planned and heavily flavored with welfare programs. This has allowed Singapore to prosper economically in a civic and comfortable political environment, but one wonders if these characteristics could be created and maintained in a larger and more complex country – at least without considerably strengthening the police state and further weakening democratic freedoms.

Perhaps the greatest challenge of the current Asian experiments is to reconcile Asia’s tradition of putting society and family first, with the unbridled, often selfish individualism that brought success to western free enterprise systems.

In this respect, it is interesting to observe how sophisticated Chinese (both on the Mainland and more surprisingly in Hong Kong) have reacted to the popular success and professional praise earned in the West by the movie Crouching Tigers and Hidden Dragons. Besides the fact that several of the actors apparently have very awkward accents when they speak Mandarin, many Chinese viewers failed to see the purpose of the young heroin’s crusade. One (US-friendly) woman argued that the movie’s success in the West was due to its similarity with American westerns, where the lonesome cowboy fights for his freedom and his rights. "Contrary to Americans, she said, we do not rate these individualistic qualities so high".

For those of us who may feel that, in some Western countries, the paroxysm of individual rights crusades has produced unruly and duty-less societies, a democratic system that puts societal values above individual rights has appeal. But the question is: would such a system be propitious to innovation? In other words, could it foster progress and long-term growth?

Apparently, these questions are not merely theoretical for today’s Chinese. On my previous visit, two different journalists interviewing me asked whether I thought China capable of innovating. Anybody who has visited Silicon Valley, I answered, would have no doubt that the Chinese people are capable of innovating. However, creativity requires an environment with chaotic characteristics – where established rules can be questioned and discarded to make room for what is known (not coincidently) as revolutionary thinking.

Chinese leaders would like to allow such revolutionary thinking in business. They are even fostering a Schumpeterian cycle of "creative destruction" by proclaiming that weak enterprises must die. But to allow political rule to be questioned would be to open another can of worms altogether, and it is therefore not on the agenda – at least not officially.

But individualists that are revolutionary in business are unlikely to be sheepishly disciplined in politics. Already, enforcement power by the central government is showing some signs of erosion. Those diktats from Beijing that were enforced mostly through economic incentives (as opposed to political repression) are losing their grip. For example, newly rich families are quite willing to forego economic incentives that have become irrelevant to them, in order to have more than the one child per family mandated by central planning.

Even more interestingly, political democracy seems to be creeping up from the bottom. To avoid the embarrassment of finding itself on the losing side of more democratic local elections, the Party in Beijing has reportedly ceased trying to impose its candidates at that level.

With democracy creeping up in the political process and individual freedoms permeating from economic life into the political, symbols become increasingly important as political tools, to preserve the leadership’s stature.

Recent harsh repression of domestic dissent and provocative reactions to international incidents should be viewed in this light -- more as symbolic messages than as signs of policy changes and more as diatribe than as substance. One could well argue, therefore, that the recent hardening of Beijing’s political attitudes is merely a protective, largely cosmetic reaction to more profound changes: the accelerating progress of both economic and political freedoms, and perhaps the experimental discovery of a Third Way.

François Sicart

^© Tocqueville Asset Management L.P.

May 9, 2001

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