China has devalued its currency several times. This is a crisis measure with some very negative aspects: for starters, a drop in the value of Chinese property. China's wealthiest billionaire has already lost $11 billion through the act of state legerdemain. It is an instant destruction of capital.
Why did China do it? Beijing wants to re-energize exports, which have declined by 8 percent over one year. But it will be hard to sustain such a goal by these means. Countries that have restricted their imports won't resume them just because Chinese exports are a little bit cheaper. They reduced them, as did Brazil and the oil exporters, because the drop in the price of raw materials left them with less spending power than they had in the past.
Government leaders are naive to think that an economy can grow indefinitely at a 10 percent yearly clip. Japan, which sustained that rate for 25 years, managed to build one of history's most prosperous societies, to the extent that futurologists predicted that the 21st Century would be the Japanese century - yet Japan's economy stagnated many years ago.
Still, while developing, Japan created a huge middle class and a productive apparatus capable of generating near-full employment. Long after its economy cooled off, it has an annual per-capita gross national product of $37,800 measured in purchasing power - the same as England's.
China has taken a great leap forward since the early 1980s, just as Mao wished, but by the hand of Deng Xiaoping and his pro-capitalist dictum, "To get rich is glorious." On its astounding road to progress -- the true progressive societies are those that depend on private industry and the market -- the country has rescued 500 million people from misery; but 800 million are still waiting for the new model to benefit them.
China's annual per-capita GNP is $12,900 - the same as the Dominican Republic. It has a long way to go before it is a truly wealthy society, one populated by middle classes.
On the road it has followed, it is possible that China will fail to achieve its objectives and will in the process generate a major domestic and international upheaval. The country is trying out an economic duality that likely won't work. On one hand, the vigor of its entrepreneurs and their capacity to generate wealth denotes an excellent performance. On the other hand, the presence of the Chinese state in the design of the future, based on its alleged ability to predict what will happen and how, leads to wastefulness and error.
A crystal-clear example is the pharaonic project to build a new interoceanic canal in Nicaragua at a cost of $50 billion (before the devaluation; now the cost has gone up).
Purportedly, the project is the dream of a private investor, but obviously the Chinese state stands behind him. Why? Undoubtedly, an urge to control an important maritime channel. This resembles China's attempt to buy 300 square kilometers of Iceland or to gain a notable presence in Greenland.
Such is the caprice of strategists in the Chinese Communist Party, convinced that control of the world is attained by placing themselves in the world's presumably key spots, in great measure as done successively by Portugal, Holland, England, and the United States for five centuries. They do not realize that the powerful fleets and the control of certain enclaves were not the cause but the consequence of the success of the companies that engaged in trade.
Their outdated mentality leads to ruin. In reality, in a contemporary open economy, what determines the success of a society is not its control of the sea channels but the success of its entrepreneurs.
Japan was never as powerful as when its entrepreneurs created Sony, Honda, Toyota and the rest of the fabulous companies, sentenced in extremis to innovate and improve the quality of their offers so as not to disappear in the flames of "the market's destructive-creative fire," as described by Schumpeter.
Planning by the state makes no sense at the micro- and macro-economic levels - even less so when politicians try to divine the path of history, and worse still when they try to lead it in any direction. Demographics, natural disasters, technological and scientific inventions, and people's unpredictable actions suddenly change the course of events and destroy the objective of controlling the future.
China's leaders need to gain a deep understanding of the thinking of Friedrich Hayek, Nobel laureate in Economics, about the growth of the market's spontaneous order. If they applied it to geopolitics, they'd become aware of the poverty of the old ideas of development that still addle their little pates.
(AP photo)
