China’s Culture of Compliance Is Crippling the Country

Next week will be the 25th anniversary of Tiananmen Square. It was a turning point not only for China, but also for the world, in the sense that it heralded a new era in which growing wealth and growing political freedom in emerging markets didn’t necessary go hand in hand. This year, China will very likely overtake the U.S. as the world’s largest economy. It has certainly become wealthy. But it has also become less free–as have so many of the world’s largest developing nations–think Russia, Turkey, many parts of Africa and Latin America, etc.

The question is, that can juxtaposition last another 25 years—or even another five? It’s something I’ve been thinking about a lot lately, particularly as I delve into New Yorker writer Evan Osnos’ very interesting new book on China, “Age of Ambition: Chasing Fortune, Truth and Faith in the New China” (FSG). The core premise of the book is that individual ambition and authoritarianism in countries like China will inevitably come into conflict with one another. As people get richer, they want more freedom, and they put pressure on their governments to deliver it. The problem is that these governments are often much better at delivering wealth than they are at delivering anything close to liberal democracy.

I think we may be reaching a tipping point in the next few years around that juxtaposition between growth and choice in the emerging world. China is, as always, the most dramatic example of this. The recent cyber-hacking scandal, for example, was portrayed by many pundits as yet another example of how the Middle Kingdom is leaping ahead of U.S. government and business interests, stealing American intellectual property and using it to gain a competitive edge. But as I argued, China’s IP theft actually underscores what a “me too” economy the Middle Kingdom still is. China is good, very good, at copycatting other people’s ideas (Osnos’ stories of various Chinese entrepreneurs, like the village woman behind the Chinese version of match.com, are fascinating on this score), but it has yet to create many global brands–aside from Lenovo’s computers and the college mini-fridges made by the low-end white goods producer Haier.

I think the lack of a top-shelf innovation culture has a lot to do with the lack of choice in Chinese society. I once spoke to a Wal-Mart executive in China who told me that he had trouble getting employees in one department to address basic problems in another–picking up boxes that had fallen off a shelf, or order new supplies, for example–because they were afraid of stepping out of their silos. That’s not about work ethic–the Chinese have that in spades–but a culture of compliance. In China, it’s important, sometimes deadly important, to swim in your own lane.

Another issue with the growth of higher end Chinese business is that entrepreneurs don’t trust the stability of the government. I’ve heard time and time again from wealthy people in China (many of whom are looking to get their money out – witness the percentage of high end property purchases in luxury real estate markets worldwide that are made by the Chinese) is that it doesn’t pay to develop businesses for the long haul here, because uncertainly and political risk is so high. People tend to get in, get out, and become serial entrepreneurs, rather than spending decades working on innovation, a la developed countries like the U.S., Japan, or Germany.

How will all this affect China? If the Middle Kingdom can’t make the leap to the “middle income” stage of development, which history shows is the trickiest one (only a handful of developing countries globally have made it), then unemployment will rise and social stability will fall. How will that affect Americans? In a sense, it already is. Trade tensions mean many U.S. companies are rethinking how, or if, they’ll do business in China, with myriad ramifications for us all. For more on all of that, as well as the economic legacy of the Tiananmen event, listen to my radio show, Money Talking, on WNYC this week.