I recently traveled to China for business and tacked on a couple days to explore the Shanghai area and learn about the country. I’ve worked with colleagues in the Asia/Pacific region -and in China specifically- for some time but I’ve had little opportunity to meet with them in person. One of my goals for this trip was to understand their business landscape better so I can support them more effectively.
My work is focused on the use of social media and technology which has become a political topic in China. Thus, I was hoping that first hand experience on the ground would provide meaningful insights and perspective. In this post, I plan on sharing some observations based on my experience.
On the flight over I had the fortune to sit next to another marketer who suggested that I watch a TED talk by Eric X. Li: A tale of two political systems. I watched the presentation when I arrived at my hotel that night and I kept thinking about it for the rest of my trip.
In his presentation Eric proposes that China’s governmental structure is a compelling alternative to what Americans are used to. He also suggests that the Chinese system is not well understood by westerners. He shares many facts that are arresting, for example, less than 6% of Chinese governmental party leaders are from a background of privilege (though I do not know exactly how that is defined). Leaders must work their way up from the bottom which causes them to have much more experience than their American counterparts. And, China has what what he calls the “largest HR department” in the world to run a merit based recruiting system. Combined with new term limits and the incorporation of business leaders into the party structure the Chinese system is a very intriguing alternative.
Interpreting his comments, it occurred to me that this approach to recruiting might serve as an alternative to democratic representation because rising up from the ranks seems to imply empathy for the ranks. Li also suggests that there are other mechanisms in China to provide direct feedback from the population, but my experience on the ground did not support this fully.
What I heard is that corruption largely undermines the merit based system. I was told that the merit system may up-level that ability of the average government worker but scoring at the top of the range on government tests is really just a prerequisite for tapping into the relationships that will get you the job. Said another way, getting to top score is not the most decisive selection criteria. Indeed this appears to be engrained at every level of government such that it’s become part of the culture and as such it will be hard to change. How hard? My gut is that it may be about as hard as the fight for civil rights has been in the United States. In fairness, Li stated that corruption is one of the biggest challenges China faces.
I learned some of this first hand from my 28 year old guide who spent two days exploring the Shanghai area with me. She’s from a middle class family (the upper part of the middle). Her father is a manager at a large police station and her mother was a teacher until she retired a year ago. He boy friend is an entrepreneur in the fashion industry. She speaks English only passingly but we were able to converse well, occasionally relying on Google translate. Incidentally, that app does work on her phone and is better than Baidu for translation. She’s also studying Spanish and said that she would leave China permanently given the chance to do so. Such a move would require a visa and a sponsor.
She shared that she’s experienced corruption first hand and provided some specific examples that involved her father. For this reason, she has been estranged from he father for some time. One thing that became apparent is that there is a huge gap between the way her parents see the world and the way that she sees it. In her view, this is prevalent in families with kids her age or younger because China has changed so dramatically in that time.
As a tech guy I keep coming back to a technology metaphor to frame a comparison between governmental systems. It presents Democracy and Communism as the operating systems (OS) of our respective countries. These systems are being continuously evolved and may be converging in some respects.
For example. swings from left to right on policy issues in the Democratic OS are in the same scale/scope as changes in the Communist implementation. Though of late, China has been able to make some bigger and more fundamental changes as their OS is less prone to the democratic grid-lock that has established a chronic short-circuit in the Unites States. That said, China may have it’s own unique challenges. To pull this apart and really understand how different and competitive these OSs are you must consider the application layer where the architecture of the OS is amplified and expressed. In this case, there is common and prevalent application to consider. I’m referring, of course, to Capitalism.
Both China and the US run capitalism though China’s implementation in more recent. Here’s a link to a great article that speaks to how Capitalism came to China Of course, there is no standard for capitalism to ensure that it’s a common experience across platforms, rather this is an open-source project chock-full of hackers, contributors, corporate sponsors, evangelists and such.
As I’ve considered these two implementations I’ve tended to focus on the interactions between capitalism and the OS. This may be because I’ve spent a significant amount of time considering how capitalism has impacted democracy in ways that our founding father did not -and probably could not- have anticipated. In the United States corporations have found a way to influence the underlying OS more effectively than ranks of individuals have.
Granted corporations have shareholders that choose their representatives at the board level (at least in public companies), but adding this extra layer of representation effectively buffers these corporations from direct and meaningful shareholder impact. Additionally, the fluidity of the market also erodes this connection because it’s hard to differentiate “market” dynamics from shareholder input based on investment behavior. I think it’s well understood that corporations in the Unites States have found a means of changing the playing field they are on and that our implementation of democracy makes this possible and legal. I’m referring to campaign financing practices and the prevalence of executive revolving doors. Suffice it to say that I increasingly have conversations about -and see first hand- how corporate america has influenced the democratic system of representation such that it’s no longer a democracy of individuals but rather one of corporations.
That might be alright if there was a reliable and representative connection between corporations and their constituents (shareholders and customers) but that’s not how the system was designed to work, or actually works, in my view. To the contrary, I believe that one consequence of this two-tiered democracy is the growing gap between rich and poor. I could write another piece just on that topic, but I won’t as there is ample discussion about this point elsewhere. To conclude this thought, I believe that this gap will ultimately hurt our long-term prospects and competitiveness because it will erode the overall diversity of our economy. Lack of diversity leads to greater fluctuations in market performance and an increased exposure to risk.
Let’s switch back to China for a moment and consider Capitalism’s implementation there. Capitalism has worked it’s way into China despite governmental policy. Today, the government is struggling to stay on top of Capitalism and harness the value it can bring to the economy. In many respects, Capitalism has behaved like a virus in China spreading across the landscape relatively un-checked. One consequence is that it’s consumed resources with abandon and with a disregard for the environment. That is now changing, however, as the government recognizes that it faces massive challenges to healthcare, the environment, and distribution of wealth.
One mechanism that China has to control Capitalism is to insert party members inside corporations and to set governmental policies that companies must work within. This is not inherently different than what we have in the Unites States, but corporations do respond through different pathways. In the United States companies can influence policy by supporting candidates whereas in China they likely rely on the existing relationships that undermine the merit based recruiting system. Either way, there will be a similar battle between the OS and Capitalism. What makes China unique is that it’s more feasible for a forward looking leader to effectively set up constraints around capitalist venture whereas in the Unites States this would require dramatic campaign financing reform. The latter seems more challenging.
Capitalism is a powerful engine of productivity and innovation, but unchecked (read: unregulated) it is also capable of undermining itself spectacularly (e.g. “financial innovation” and mortgage backed securities, anyone?). Thus, I think it’s fair to say that a primary goal of the OS is to manage the resources given to Capitalism so as to maximize long term value and resilience. Capitalism itself is focused on growth and growth alone, however, it can be harnessed by constraints to transform it’s purpose into long-term value. Will Democracy of Communism be the most effective means of doing this?
In the end, the implementations of Capitalism in China and the United States are still quite different from each other. Considering that American style capitalism is itself open-source (on top of open source democracy) it’s been able to spread much further and wider. Pushing the metaphor too far perhaps, we might say that America is more like Microsoft with it’s openness to working across a range of environments whereas Chinese capitalism is more like Apple. The Chinese are less focused on extending their platform far and wide and are more focused on harnessing their implementation in place. Too bad the Chinese leadership is not more like Steve Jobs with his obsessive attention on delivering great experiences above revenue (the presumption being that success with the former will lead to the latter). There are few Job’s in the world … and if he was in China he might be even more authoritarian than the current party leadership. Either way, he’d be furious to know how many people in China are running Android on his hardware.
China is well passed the tipping point when it comes to Capitalism. It’s playing out on social media everyday as people respond to political events quickly and in volumes that wash over the censorship infrastructure. Educated people buy virtual private networks (VPN) that let them access the open internet for as little as $20 a month. They’ve grown up watching dubbed versions of American sitcoms, have a greater affinity for American brands that we do, and are hungry for change. That said, those with wealth also know that they don’t have to play by the same rules as those without. That’s what problematic about China because being able to resist corruption is critical to having a more effective implementation of capitalism. In my opinion, the country that harnesses capitalism most effectively and sustainably is going to win in the end. For my part, I’m glad we’ve got two approaches in the wild and agree with Li that it makes for a more interesting planet.