THOUGHTS FOR THE WEEK
WHICH WAY THE NEXT GREAT LEAP?
May 31, 2013
Successful investing requires spotting problems and opportunities on the horizon. China could be both,
which is why an article last weekend by Bret Stephens, “The Weekend Interview with Yang Jisheng,
Reading Hayek in Beijing”, caught our eye. Stephens, who writes the “Global View” foreign-affairs
column for the Wall Street Journal, helped us frame some of our long-held skepticism regarding the
widely held view that China is poised to become the greatest economic power on the globe. We thought
we’d summarize his interview and some of the cautionary lessons that we took away from it for those
who might have skipped the Journal as you lounged by the pool or fired up your barbeques this
weekend.
The subject of the interview, Yang Jisheng, is a Chinese historian “whose unflinching scholarship has
brought him into increasing conflict with the Communist Party - of which he nonetheless remains a
member.” Jisheng started his career as a journalist and became senior editor with the Xinhua News
Agency. In 1959 Jisheng, then an 18 year old student, returned home to his family farm to find his father
dying of starvation. As Stephens reminds us this was not unusual in the China of 1959:
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36 million Chinese succumbed to famine between 1958 and 1962
The source of this suffering was not nature: There were no major droughts or floods in China in
the famine years.
The cause was man “and one man in particular: Mao Zedong”. Mao’s “Great Leap Forward”,
begun in 1958, focused on increasing grain and steel production and employed what turned out
to be disastrous agricultural methods.
Grain produced was shipped to the cities, and even exported, with no allowances made to feed
peasants adequately. Starving peasants were prevented from fleeing their districts to find food.
When Jisheng returned home the elm tree in front of his family home had been reduced to a
bark less trunk and even its roots had been dug up. Cannibalism became commonplace. Some
historians believe this “forced famine” was the single greatest atrocity of the 20th Century.
Now 72 years old, Jisheng was awarded the Manhattan Institute’s Hayek Prize this month for his book
“Tombstone”, which Stephens describes as Jisheng’s “painstakingly researched, definitive history of the
famine. Stephen’s asserts that Tombstone is “more than a history of a uniquely cruel regime at a
receding moment in time. It is also a warning of what lies at the end of the road for nations that
substitute individualism with any form of collectivism, no matter what the motives.” Not surprisingly,
“Tombstone” is banned in China.
During his interview Jisheng holds up a dog-eared Chinese translation of Friedrich Hayek’s “The Road to
Serfdom,” and says “This book had a huge impact on me”. Hayek’s book was originally translated in
China in 1962 as a ‘an internal reference” for top leaders, and forbidden to everyone else. For those of
you who haven’t read The Road to Serfdom we highly recommend it. To paraphrase Wikipedia it
describes “the danger of tyranny that inevitably results from government control of economic decisionmaking through central planning and argues that the abandonment of individualism inevitably leads to a
loss of freedom, the creation of an oppressive society, the tyranny of a dictator and the serfdom of the
individual.”
Mao’s Great Leap Forward is an extreme example of what happens when a coercive state, operating on
the conceit of perfect knowledge, attempts to achieve some end. To Yang Jisheng, “in Hayek’s warnings
about the dangers of economic centralization lay both the ultimate explanation for the tragedies of his
youth – and the predicaments of China’s present.”
With that as a backdrop, Jisheng harbors a skeptical view on modern China. He thinks the common view
that China as a combination of political authoritarianism and economic liberalism is inaccurate, and that
in reality the Chinese economy is controlled by power at every level. This results in dictatorship and
cronyism, leading to rampant corruption, environmental degradation, and vast inequalities between the
politically well-connected and everyone else.
China’s “power-market” also makes it hard for China to adopt meaningful economic change. "For the
last 20 years, the Chinese government has been saying they have to change the growth mode of the
economy….meaning more value-added services and high tech. They've been shouting such slogans for
20 years, and not many results. Because the problem lies in the very system, because it's a powermarket economy. . . If the politics isn't changed, the growth mode cannot be.”
Yang Jisheng writes powerfully from firsthand experience about issues that Hayek wrote about seventy
years ago - the corrosive effects of central economic planning and the power of the state over the
individual. We think that the lessons of history from China’s Great Leap Forward and the warnings of
Hayek are especially important today in a world where governments and central banks all over the
world are engaging in wide scale interventions and are increasing government control of economic
decisions. We do not know how the next chapter of China’s development will play out, or France’s or
our own for that matter - but we are reminded that during our careers both Japan and OPEC were
described at different points as being poised to dominate the world economy in much the same way
that it is now widely assumed that China will dominate. Time will tell, but as Jisheng might agree,
sometimes stuff happens along the way that upsets the consensus view…and sometimes if you study
your history it may not even be a big surprise.
Enjoy your reading and your weekend,
Mike & Scott
Mike Burbank, Executive Director
Private Wealth Advisor
Morgan Stanley Private Wealth Management
555 California Street, 14th Floor | San Francisco, CA 94104
Phone: +1 415 576 3131
[email protected]
Scott Hafeli, CFA
Private Wealth Advisor
Morgan Stanley Private Wealth Management
1775 I Street NW, Suite 200 | Washington, DC 20006
Office: +1 202 862 7509
[email protected]
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Source: Bret Stephens, “The Weekend Interview with Yang Jisheng, Reading Hayek in Beijing”
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