The Fraying of China’s Gilded Age

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The Fraying of China’s Gilded Age

China’s rapid economic advances over the past three decades are undeniable. But as social pressures build, is the country set to relive the trauma of America’s Gilded Age?

Published in 1873, Mark Twain’s novel The Gilded Age describes a post-Reconstruction United States in which rapid economic growth generated tremendous wealth for the upper class, and technological innovations improved the quality of life for a burgeoning middle class. Twain also detailed how America’s workers worked long hours in dangerous conditions for low pay, and how corruption rendered the country’s politicians unresponsive to the needs of their constituents. While many of the Occupy Wall Street protesters on U.S. streets may draw parallels between the America of that time with that of today, Twain’s novel provides an evocative window on contemporary China.

The rate and duration of China’s economic growth have no historical precedent. In just over 30 years, China has been transformed from one of the poorest countries in the world, in which tens of millions died of starvation, into the world’s second-largest economy. Where communal farms once languished, one can find modern skyscrapers and Starbucks. Where people once wore Mao suits and rode bicycles, there are now Prada, BMW, and iPhones galore.

Remarkable economic growth has created a new Chinese wealthy elite, an ironic statement about a country still formally dedicated to communism and the teachings of Karl Marx. There are now almost a million millionaires in China, and more than 400 billionaires (second only to the United States). A nascent middle class is also growing, making China the world’s largest market for consumer items like cars and PCs. This growth is driving economists to predict China’s inevitable rise to become the world’s largest economic power, with experts only disagreeing on the exact year it will happen. Thomas Friedman, though admitting he’s “not a China expert,” has proclaimed his envy of China’s “Reaganism.”

Yet several specters haunt China.

In order for these economic projections to come to fruition, China’s economic planners must navigate a set of structural and demographic challenges the scale of which has never been seen before. To continue economic growth, China’s economy will have to fundamentally shift away from its current orientation toward exports and grow based on its own consumption. Other structural challenges, from taxes and regulation to intellectual property and the rule of law, all must be reformed if China’s economic growth is to continue. China’s leaders will also have to manage an unprecedented level of urbanization, with an expected 400 million new urban residents (yes, that’s more than the entire U.S. population) by 2050. Just as daunting, China’s population is rapidly ageing, which will become a tremendous economic challenge given the effects of China’s One Child Policy and its Bachmann-beloved lack of a Social Security program.

Beyond economic and demographic challenges, China is roiling with discontent. As the Wall Street Journal recently pointed out, 40 percent of Chinese are unhappy with their lives, 70 percent of farmers are dissatisfied, and 60 percent of China’s rich are emigrating or considering doing so. While each group has its own reasons – farmers resent abusive land seizures by local government officials, city dwellers are regularly victims of government abuse, and China’s wealthy would prefer to live where their children have better educational opportunities and their wealth is more secure – this translates to a roiling hotbed of popular discontent. Tens of millions of Chinese who have moved from the countryside to the cities in search of work receive little basic government support, such as medical care and education, because they are generally considered to be illegal immigrants by city officials.

Riots, often violent, are a daily occurrence. According to official statistics, there were 127,000 so-called “mass incidents” in 2010 alone – an average of over 340 per day.

There are certainly ways to address these problems. The United States gradually developed tools to manage the negative effects of its own Gilded Age, by eventually allowing the rise of labor unions, laws to protect investment, efforts to stamp out official corruption, and eventually implementation of welfare and social security programs. Yet in each case, implementing these tools in China would require a fundamental change in how business is done. Labor unions are (naturally) controlled by the Chinese Communist Party, the rule of law in China is unreliable at best, and official corruption is a persistent problem on a scale that would even make Jack Abramoff blanch.

Most fundamentally, China’s ability to manage future problems will be hampered by its political system. The United States was able to (very gradually) adjust to the problems it faced because its leaders were accountable to a voting public that demanded reform. China’s leaders, however, aren’t directly held accountable by their people. While Chinese politicians routinely (and often genuinely) cite popular opinion as a driver in their decision-making, tying one’s position and job to regular elections has the effect of sharpening one’s need to represent the interests of the public.

The implications of these phenomena for China, and for the world, are staggering. Unlike with the democratic world, the Chinese people don’t have the ability to vent their frustration with free and fair elections. This has the effect of putting a lid on a political pressure cooker, forcing people to express their discontent through riots and difficult-to-censor microblogging. If something goes wrong, this pressure could explode.

Domestic problems in China, either caused by political discontent or structural economic difficulties, would have disastrous effects on the economies reliant on China as a source for trade, which basically includes every country on the planet. Economies around the world would fall, and history has demonstrated that countries during these difficult times can be unpredictable, at best, on the world stage.

China’s current leaders are acutely aware of the problems their country faces, and are trying to adjust economic growth and introduce policies designed to account for the problems created by unchecked economic growth. They have set a goal for slower economic growth, have called for increased development and investment in China’s poorer provinces, are considering policies to respond to concerns voiced by farmers and migrant workers, and are attempting to crack down on corruption. Ironically, China’s nominal communist ideology somewhat prepares China’s leaders for these challenges – after all, who understands the political challenges posed by burgeoning economic inequality and a rising middle class better than a Marxist?

America’s Gilded Age began after the national trauma that was the Civil War and a remarkable period of Reconstruction that saw significant internal development and stabilization. China’s Gilded Age began after the national trauma that was the Great Leap Forward and the Cultural Revolution, and occurred after a remarkable period of internal development and stabilization under Deng Xiaoping. The United States’ Gilded Age lasted for 16 years, ending with a financial panic in 1893 that turned into a depression, then a Progressive era that saw reform at home and adventurism abroad. It has been 22 years since 1989 signaled the end of Deng Xiaoping’s post-Mao Reconstruction and the beginning of Shanghai-style economic growth under the leadership of Jiang Zemin.

Ultimately, Beijing’s ability to navigate China’s staggering challenges will fall to the next generation of leadership in Beijing, set to come into power next year. There’s currently a debate roiling the halls of power in Beijing, with some calling for a retrenchment of unchecked economic growth and others hope to avoid the mistakes of their American predecessors and are calling for what amounts to a Chinese Progressive era. There’s no reason why China must follow America’s painful path out of the Gilded Age, and the United States should do everything it can to help ensure that China’s rise is peaceful and stable. Yet the past is not encouraging. Indeed, as Twain is often quoted as saying: history does not repeat itself, but it does often rhyme.

Abraham Denmark is Asia-Pacific Advisor for CNA Strategic Studies. He was previously a fellow with the Center for a New American Security and served as China Director for China Affairs in the Office of the Secretary of Defense.