Platt Perspective on Business and Technology

China and its transition imperatives 8: moving from rule by man to rule by law 1

Posted in macroeconomics by Timothy Platt on May 1, 2014

This is my eighth installment to a new series on China and its recent Party and government leadership transition, looking back over the past year since that formally and officially took place and to now and China’s current situation, and forward (see Macroeconomics and Business, postings 154 and loosely following for Parts 1-7.)

I ended Part 7 of this series with an introduction, at least for this series, of the distinction between rule by man and rule by law. And I at least begin this posting by discussing this approach to national organization and governance here.

In an open, democratic society, laws primarily state what individuals and organizations cannot do, and with legal sanctions limiting or preventing certain actions selected for inclusion in that so as to promote the common good, and for the protection of individuals and of the communities that they collectively form. Laws in this sense are at least ideally interpreted and enforced equally and without favoritism, though that is always going to be an unreachable ideal as laws themselves are not always drafted perfectly and can carry ambiguities and even inconsistencies within them. And laws are still always going to be interpreted and applied by people, with their own individual biases and assumptions and with their own personal interests. Still, in an open and democratic society, rule of law takes precedence over rule of individuals and their personal interests and regardless of their individual socioeconomic or political position – that at least is an ideal and a goal that is sought after.

In a closed society, and particularly in a centrally controlled society such as China’s one Party state, law is much more oriented towards regimenting its citizens, and both individually and collectively, and legal requirements are much more stated in terms of what actions and decisions are explicitly permitted. And when essentially all oversight control in interpreting and implementing this law on a case-by-case, and a here-and-now basis is carried out by officials of that one Party who are there holding immediate local authority, that leads to local flexibility as to what is going to be allowed and for whom and when and where. This creates room for a significant and even a vast gray area of “it is legal for them to do this because I say it is, and illegal for those others to do the same because I say so.” Under these circumstances, and regardless of how the law itself is written, society becomes to a significant degree a matter of people and their particularly biased decisions, and not of law; governance becomes disconnected and rife with locally sanctioned abuse as it becomes a matter of ad hoc rule by man.

• A more open and democratic society tends to be more a society of law, and not simply of specific individuals who would interpret and perhaps very selectively enforce it. In an open society, I add, there is very little room for a gray economy with its of necessity ad hoc legal and quasi-legal foundations.
• In a closed authoritarian one as locally practiced, and away from central authority there can be very little room for consistent rule of law, and economically there can be little room for anything else besides gray economy with that effectively usurping what would be an open white economy every time, and certainly when local economic and political interests might be challenged.

I noted in Part 7 that Xi Jinping and his government have at least officially brought an end to China’s disastrous one child policy. And I wrote about how they could do that precisely because it had long since become problematical across China and for both the Party and for at least a significant threshold proportion of its local and provincial leadership. Xi and his supporters in the Politburo Standing Committee have now gone beyond that sought after change to at least begin to open their currency and its valuation in international money markets too, to the pressures and evaluations of the larger international marketplace, ending at least some of their ongoing programs and processes for artificially managing its value.

• At least in principle, this holds potential for creating real pressures that would move China away from the locally skewing rule of their politically connected,
• As a more realistically and open arrived at currency valuation, with the removal of economic props that even state owned businesses have been afforded,
• Would force those enterprises and their leadership to be more consistently effective – and according to more widely accepted and enforced standards – according to a rule of law.

There are a lot of assumptions in that set of bullet points, many of which are shaky and all of which involve a fundamental rethinking from the current Party norm, as to what even constitutes the common good and how that manifests itself. As long as China has its one Party ruling and controlling all and without any countervailing voice allowed for, Xi’s economic changes can never really move beyond the superficial and cosmetic. And any real impact of his efforts will remain blocked from affecting the powerfully connected and only actually be felt by their still embryonic private sector businesses and their new entrepreneurs. Currency revaluation to align the renmimbi with global currencies could easily become just another tool for controlling the economy for the benefit of the politically connected and for enforcing Party power.

But at the same time it could be argued that if Xi cannot simply take on China’s one Party hegemony directly and even if he wanted to, a real world valuation of the renmimbi and of China’s overall economy would still put genuine pressures on its enterprises – private and public alike, and enforce a move towards greater efficiency in them. And that would require consistency and accountability if it were to actually work, and certainly long-term. I am going to at least begin a discussion of that in my next series installment. Meanwhile, you can find this and related postings at Macroeconomics and Business.

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