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Chinese Capitalism and Transparency: Economic Argument for a Free Press
by Satya J. Gabriel
"The Political Bureau of the CPC Central
Committee will work to ensure the
smooth progress of the reform of the administrative system and the
institutional reform and set the objective of government reform as
building a government featuring standardized behaviors, coordinated
operation, fairness and transparency, and honesty and high
efficiency."
Wen Jiabao, Premier of the State Council
Despite
what the propagandists would have us believe, the economic process we call
capitalism does not always produce economic
dynamism.
And even in social formations where capitalism has played a dynamic
role
in generating new wealth and expanded production potential, conditions can
change in such a manner as to slow down the process of growth and
development,
produce stagnation, or worse. In
other
words, the very specific set of social behaviors that define capitalism
can
produce different outcomes, as well as related rules of interaction,
depending
upon the overall gestalt of social and environmental conditions.
Therefore, my argument (in prior
essays) that China is being rapidly developed into
a capitalist social formation does not necessarily mean continuation of
the rapid economic growth that has epitomized the past two plus
decades. Indeed, a good deal of that growth has been a
side-effect of unleashing self-employment/ancientism, rather than
capitalism, although one should not underestimate the importance of those
rural capitalist enterprises referred to as town-village enterprises. In any event, to make sense of the type of
capitalism developing in China and its implications requires
examining a wide range of related political, cultural, other economic and
environmental conditions. We have to,
necessarily, do this a little at a time and our work will always be
incomplete because the possible variant combinations of these political,
cultural, environmental, and other economic conditions is very
large. In this essay, I want to briefly explore one
of these related factors: the free flow
of information about corporate and governmental activities
(transparency).
I
believe transparency is a critical element in producing a dynamic, rather
than
stagnant, version of capitalism. In
order to make the argument, we need to advance an analysis of the
overdetermined nexus connecting the performance of capitalism (in growth
and
development terms) to transparency. But
before we can do this we need to think about the nature of transparency
--- what
are the specific social rules that determine transparency and under what
conditions can those rules obtain in a capitalist society?
We can then move to the next stage of
analyzing whether or not these conditions exist in China and, if not,
whether there are mitigating factors that might still produce the desired economic
results of economic growth and development over the longer
term.
Orthodox
(meaning neoclassical) economists almost always assume that transparency
is
innate to market processes, which they assume are comprised of equally
powerless and
omniscient beings engaged in exchange.
But anyone who has ever bought a used car or a house or Worldcom stock knows that transparency is hardly
innate to
market processes and the participants in such processes are never equal in
any
measurable way. Markets work as efficient and effective
signaling and allocation mechanisms not because they conform to the
utopian
vision of neoclassical economists but simply because they inexpensively
generate useful
information that can help economic actors to solve problems, such as
whether or
not there is a sufficient number of people willing to pay X price for Y
units of commodity Z to make it worthwhile to produce Y units of
commodity
Z. It isn’t really necessary that this result is
optimum in any social sense (much less Pareto optimal).
It is even possible that a significant
number
of the human beings purchasing units of commodity Z at price X will suffer
buyer’s remorse, feel cheated, and wish they had never seen that
advertisement
lauding the virtues of Z
or listened to that relative who recommended it.
How
often have you said, after buying a product, “I wish I had known that
. .
.” Fill in the blank.
In our everyday experience transparency can
be quite elusive. But then “caveat
emptor." We could add many more caveats.
Even in a democratic society,
voters rarely understand the implications of their votes or
have the necessary information
to make informed choices among candidates (or even a choice that includes
the
candidate they really would prefer).
Add
to that the problems with majority voting processes, see the work of
Kenneth Arrow and others since.
No, transparency
is hardly built into market processes. Instead, market relationships
are rife with deceit, hubris, and confusion, among other things.
Transparency must be produced. And in order for transparency to
be produced, there must be social institutions,
operating within appropriate rule frameworks, wherein individuals have the
task/obligation/right of seeking out and exposing relevant information to the public.
The institution that has traditionally served this function is the press, at least the relatively autonomous,
competitive version of the press (the so-called Fourth Estate).[1]
When
financial disasters, such as the recent debacles with Enron, Adelphia, and Worldcom,
occur it
is partly a result of a breakdown in the press.
Where were the investigative financial reporters?
The information on Enron and Adelphia were particularly easy to identify.
I know, having pointed out problems with
both of those firms in my course in corporate finance prior to the fit
hitting the shan.
The problem was that the financial press is
not as autonomous or competitive as it should be in order to produce the
level of transparency that would have resulted in early exposure of the
shenanigans
at Enron and Adelphia (or inside Arthur Andersen
Accounting, which is implicated in far too many of these financial
scandals). What this means is that the sort
of free press necessary to create transparency and push capitalist boards
of directors and managers to behave themselves and produce value (the
stuff of which
growth and development are made) is one that is even freer than the press
in the United States at present (where a significant percentage
of the information producing machinery is now in the hands of huge
conglomerates that have a vested interest in watering down or avoiding
stories critical of key advertisers, business associates, or even their
own senior management). And
without a free press to produce transparency, the agent/principal problem
can become a full-blown agent/principal crisis, among other negative
results.
And
yet
in China, the press is not only less free than the press in the United
States or France or Great Britain, but there are ambiguous signs of whether or not the
Communist Party of China led government has any intention of changing the rules of
the
game in such a manner as to allow greater press freedom in future.
The authorities still shut down
newspapers, magazines, and web sites[2]
on a regular
basis because they don’t like the
substance being produced.
Sometimes that
censored substance is just the facts necessary to create more
transparency and to motivate better decision-making in official positions,
whether in senior management of huge state-owned enterprises or within the
governmental bureaucracy. Transparency is all the more critical in a society
where governmental authority is monopolized by a single party and continues to
play a major role in the economy. But it is no
less important in a
society where economic decision-making powers are becoming more
decentralized and diffused, including decentralization and diffusion of
the power to appropriate and distribute capitalist surplus
value. Indeed, unlike the utopian vision of the neoclassicals,
capitalism always has the potential to generate corrupt behavior, value
destroying behavior, and the conditions for wide scale economic problems
or even crises. To the extent that transparency exposes such
behavior and creates possibilities for intervention to correct problems
before they get worse or, alternatively, encourage behavior that would
prevent the problems from happening altogether, then transparency can
generate a better variant form of capitalism than an environment of
relative information scarcity.
And
in
fact one of the reasons for the resiliency of capitalism within democratic
social formations (as opposed to the more mixed picture for capitalism in
less
democratic social formations or social formations where democracy is only
an
occasional luxury) is that the effect of signaling from a range of
sources, the
ballot box, the market places, the free press, results in better public
policy
choices, as well as better economic decisions within enterprises.
Problems are less likely to grow
unnoticed in
such an environment. And solutions
are
likely to exhibit greater flexibility in the range and quality of
choices.
Ironically, China's economic development has been aided
dramatically by the flexibility of the CPC, which has been able to shift
policies several times since 1949, as a
result of internecine power struggles among various
factions of the CPC,
as discussed in earlier essays in this series. This is one of many
factors to distinguish and give advantage to the Chinese social formation
under a communist led government
vis-à-vis the now defunct USSR (where flexibility was
stifled by Joseph Stalin, if not completely exterminated).
Transparency
is, in this sense, just as important as market processes in creating an
environment where the necessary signals can be produced and communicated
to relevant parties. Capitalism, in
the
presence of such transparency, will be more flexible for the same reason
that
capitalism in the presence of more competitive market driven decisions
will be
more flexible than capitalism with less competitive market driven
decisions (or
administrative/bureaucratic driven decisions).
Most importantly, transparency (and voting and market
processes) act to
signal impending crises and provide valuable information during
crises. Although
there
is no guarantee that government officials or enterprise senior management
will
respond appropriately to information (or even that the public will be
paying attention), it is more likely that the quality of decisions will be
considerably better in an environment of transparency.
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NOTES
[1] The existence of a press is not
sufficient to generate transparency. Transparency is more likely to occur
in the presence of a relatively large number of autonomous institutions
within the press who are partly motivated by competition over information
consumers and status as effective agents of information dissemination. To
the extent that the press role is monopolized/oligopolized by a single or
small number of press institutions, there is a reduced probability of
aggressive investigation and reporting of information. In China,
government officials have the power to command agents of the press to
comply with implicit or explicit guidelines for reporting. Officials have
been known to tell agents of the press not to publish certain stories or
to only write positive stories about government activities or
policies. To the extent these powers are reproduced in future, the press
will not be autonomous enough from the government to serve the oversight
role of providing reliable information on governmental (or
other) activities. This makes it less likely that misfeasance or
malfeasance by government officials (or their cronies in business) will be
exposed and corrected. Similarly, as China
has discovered, market processes can sometimes work at odds with
generating reliable information (transparency). When information is
commoditized, it becomes possible to buy custom designed information
reporting, including the production of fabricated or distorted
information. Chinese officials have expressed concern about news stories
being commissioned by firms, the content of which was not completely in
accord with the facts. This behavior is recognized as a form of
corruption. These officials have also expressed concern about the linkage
between advertising, as this form of information dissemination grows in
importance, and the writing and reporting of news stories. These are
concerns that go directly to the heart of transparency.
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[2] The widespread optimism that the Internet would
serve as a major medium for exposing the public to news the authorities
might have censored had not been completely unfounded. There is evidence
that the Internet (and cell phones) provides a medium for the rapid and
relatively
uncensored dissemination of information and that the effect it has on
public opinion can influence public policy decisions. However, the
ability of the Net to have even greater impact hinges, in part, upon the
problem of credibility,
more so than unavailability despite government efforts to censor the Net.
The public doesn't know what is credible on the Net and there is often
conflicting information. Nevertheless, it does appear that, at least for
young people, whose experience with this new medium and
computer technology,
more generally, allows them to better filter the facts from the fakes, the
Internet has become a major source of information. All over the world,
there is a very dynamic tug of war going on between those who would keep
the Internet open, making it a source of transparency, and those who would
tame this medium and make it serve corporate and/or bureaucratic
interests.
(The following citation was added 17 June 2005): Johan Lagerkvist has an
interesting essay on this topic titled, "The Rise of Online Public Opinion
in the People's Republic of China," in China: An International
Journal, Volume 3.1, 2005, pps. 119-130. If you have access to
Project Muse, this journal is available through that online source.
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Copyright © 2003 Satya J. Gabriel, Mount Holyoke College. All
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