China's Maoist Economy Has Obama Parallels

The Wall Street Journal ran a very interesting analysis Wednesday about new pressures facing foreign companies in China: old Maoist tactics. Those amount to using threats of investigation to force concessions–such as price cuts–as well as public confessions of wrongdoing, not just by firms but by individuals as well. The new-old practice under China’s president Xi Jinping recalls the Cultural Revolution, critics say.

That has created a more threatening business climate in China, according to the Journal‘s Andrew Browne. What is striking is how similar some of China’s tactics are to the practices of the Obama administration, which has used threatened and actual civil and criminal prosecutions–sometimes frivolous–to extract concessions from businesses, as well as public campaigns against donors to and supporters of the opposition Republicans.

A weekend editorial in the Journal focused on the example of J.P. Morgan CEO Jamie Dimon, who is being targeted precisely because his bank did not need a government bailout and is therefore more independent than other major financial institutions. The fact that Dimon is a Democrat, and the fact that President Barack Obama himself is a customer, have not saved the bank or its leader from intense government pressure.

In South Africa, where I lived for several years, the same kind of legal extortion has become a feature of the business environment, via the country’s Black Economic Empowerment (BEE) laws. Under BEE, foreign companies must give up a large chuck of equity to “historically disadvantaged individuals”–who invariably turn out to be members of the ruling party. (Black entrepreneurs outside the party are often shut out.)

Everywhere this sort of “legitimate” corruption goes on, it does so in the guise of do-gooderism: rooting out Wall Street greed, in the U.S.; redressing past racial injustice, in South Africa; and, ironically, stamping out corruption, in China. Though what is happening in China is reminiscent of Maoist repression, it is, sadly, not unique to communist China, but a feature of economic life anywhere that the state insists on being in control.

What is particularly worrying is that the Obama administration has celebrated China as an economic model, particularly with regard to the  government’s investments in infrastructure. Thus far, President Obama’s attempts to imitate that model–such as high-speed rail–have yielded little in economic value but much spending, lobbying, and rent-seeking–all of which sustain a stagnant, and vaguely fearful, economic climate.