March 17, 2009

STAGNATION IS THE BEST CASE SCENARIO:

Looming Stagnation (Minxin Pei, 3/03/09, National Interest)

A vicious circle exists in which the Communist Party’s survival is predicated on the neglect of fundamental aspects of society’s welfare in favor of short-term economic growth. And many of the same social, economic and political risk factors the government has thus far sidestepped—heavily subsidized industries, growing inequality, poor use of labor—remain. Some are becoming worse.

Because the party relies on growth for legitimacy, Beijing invests in tangible signs of progress—factories, industrial parks and the like. This emphasis on “visible” gains has in turn led to huge social deficits. By focusing on short-term growth instead of long-term sustainability, health care, education and environmental protection have all been neglected. Not a cause for optimism.

The end result is a state built on weak political, economic and societal foundations with a potentially unhappy and restless people. Reducing these economic and social deficits will require both additional financial resources and politically difficult institutional changes. Allowing such deficits to accumulate is simply not viable.

Worse, China’s difficulties will be compounded by the future deterioration of some of what have thus far been structural and political strengths—a large, young population; underpriced natural and environmental resources; and a public consensus in support of economic growth. With fewer people entering the workforce, a rapidly aging population and ongoing environmental damage, China faces the choice between stagnation, even disaster, or fundamental change.

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Posted by Orrin Judd at March 17, 2009 9:45 AM
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