The Newcastle shipyards in world history

I recently paid my first visit to Newcastle-upon-Tyne in northern England, which is a worthwhile stop for anyone interested in the history of the Industrial Revolution. If you follow the promenade along the river to the west, outside the city center you come to a low-rise brick office park. There is no particular reason for a tourist to hang out there, but I was intrigued by the fact that several of the buildings had what appeared to be Japanese names. Looking around, sure enough there was an explanatory placard: the office park sits on the site of the old Newcastle shipyards, and one of their major customers in the late 19th century was the Japanese navy. The buildings were named after the ships.

I had not known until then that the UK had supplied much of the hardware that enabled Japan’s famous military victory over Russia in their war of 1904-5. British shipyards had built all six of the Japanese navy’s battleships, four of its eight cruisers (other European powers supplied the rest), and 16 of its 24 destroyers (the other eight were domestic).

Japan of course was busy building up its own shipbuilding industry, but being able to purchase leading-edge military technology on the open market was essential. Admiral Togo Heihachiro, who commanded the navy in the battle in which Russia’s Baltic fleet was destroyed, had studied in England as a young man, and in 1911 visited Newcastle to express his thanks for its role in arming the navy.

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Japan’s military victory over Russia was the first time an Asian power had defeated a European one in modern times. It was shocking to European and American observers at the time, as it overturned what had been assumed to be an established order. The Russo-Japanese War was a clear turning point in what was to become the century-long rise of Asia and the quest of non-European countries to achieve parity with the European imperial powers. But what does it mean that Japan’s victory was in fact aided and encouraged by some of those same European imperial powers?

Perhaps one point is that rivalry among existing great powers is one of the forces that helps produce new powers: an existing power can seek advantage over its adversaries by encouraging the rise of new powers. The US decision to engage with Communist China in the 1970s cannot, of course, be understood in isolation from its rivalry with the Soviet Union: the US wanted to make sure that China was, if not exactly on its side, at least not on the USSR’s side.

Another possible interpretation is that commercial interests (or, if you prefer, capitalism) can be disruptive to hierarchies in international relations. Would Japan’s aggressive drive to bring its navy up to European standards have been as successful if it did not also boost the sales and profits of Armstrong Whitwork & Co in Newcastle? Similarly, it is hard to imagine that the US would have been so accommodating of China’s “peaceful rise” over the past few decades if it had not also presented big opportunities for American companies.

What I’ve been listening to lately

 

  • Benny Goodman – The Complete RCA Victor Small Group Recordings. Small-group swing is one of the best sounds in jazz in my book, much more listenable today than most big-band music from the same era. The sound that Goodman’s quartet with Teddy Wilson on piano and Lionel Hamptom on vibes generates is just lovely.
  • Kitsos Harisiadis – Lament in a Deep Style 1929-1931I discovered this recording thanks to Andrew Katzenstein’s fascinating article in the New York Review of Books on the music produced in Epirus in the 1920s and 1930s. Harisiadis is a clarinetist and near-contemporary of Goodman but his sound ventures into territory jazz would not explore until the 1960s.
  • John Coltrane – Both Directions At Once. This will probably outsell any jazz recording by a living musician, so I don’t need to give it more publicity. But who could pass up more recordings from the Coltrane quarter’s classic period? While it did not surprise me, I certainly enjoyed this, especially the untitled original compositions.
  • Herbie Hancock – Sextant. Another one of those records I just didn’t hear right the first time: the goofy cover and synthesizer bleeps were apparently not serious enough for this young jazz fan. But with this passage of time, I find I do really like it: an excellent extension of the moody, complex Bitches Brew sound.
  • Ergo – If Not Inertia. The prepared piano pieces of John Cage are some of my favorite music outside the jazz idiom, mostly because of the lovely spooky sound. So I really enjoyed the incorporation of the prepared piano, along with electronics and other noises, into a more jazz-like context on this recording.

What surprised Pieter Bottelier about Chinese economic history

Pieter Bottelier has observed a lot of recent Chinese economic history, starting with his tenure as head of the World Bank’s office in China from 1993-97. But his new book, Economic Policy Making in China (1949-2016): The Role of Economists, goes farther back, and opens with an interesting collection of “puzzles and surprises” he encountered doing research on these earlier periods.

I quite enjoyed these observations; here is a selection of a few of them:

  • Surprise: The Chinese communists, who were relatively inexperienced in economic matters when the CPC was gaining strength in the 1930s and ’40s, were more effective in suppressing inflation in areas they controlled than Chiang Kai-shek’s more experienced Nationalist government.

If Chiang Kai-shek had been able to control hyperinflation during the civil war, it would have been much harder for the communists to prevail in that conflict. I was surprised to see how much importance the communists attached to financial stability and how effective they were in fighting inflation before the establishment of the PRC in 1949. …While most historians typically focused on the political and military achievements of the CPC, I found that the financial history, including a surprising degree of fiscal conservatism and appreciation of the importance of financial stability, deserves more attention.

  • Surprise: The extent to which initial economic reforms in the late ’70s were influenced by the need to create jobs for the millions of people (especially youth) returning to the cities from the countryside after the Cultural Revolution had ended.

To reduce the risk of social instability, there was a compelling need for job creation in urban areas after the Cultural Revolution. One of the first and most important reform measures in the late 1970s was to legitimize and facilitate street vending and other labor-intensive retail trading. Most of the millions of people returning to the cities after the Cultural Revolution had been forced by the Party to undergo “re-education” through labor in rural areas. If it hadn’t been for the special efforts to create job opportunities in urban areas for these people, Deng Xiaoping’s economic reforms might not have been as successful as they were.

  • Surprise: The importance of coining the term “socialist market economy” in 1992 to describe the kind of economic system China wanted to establish.

I was surprised to learn how important this had been in the evolution of China’s reforms. In the West, we normally don’t attach a lot of importance to names; we ask rhetorically: “what’s in a name?” By contrast, in China the name of a person, thing or concept is typically very important; a name has real meaning. One of the more important contributions Jiang Zemin made to China’s reform efforts when he was the Party’s General Secretary (1989-2002) was to give a name to the goal of these efforts.

  • Surprise: I was surprised to find that leading Chinese reform economists consider Gu Zhun, a philosopher/economist and historian (who was trained as an accountant and who died in 1974), the “father” of China’s market reforms.

Gu Zhun is now recognized as one of the most important thinkers of the Mao era. He was a brilliant and courageous intellectual; an original thinker with a fiercely independent, some say stubborn, mind. Like Sun Yefang, he opposed some of Mao’s economic policies in the 1950s. He died (of lung cancer) at the age of 59. Had his health kept up for another decade, he might have emerged as one of the most important Chinese reform economists under Deng Xiaoping. Given the breadth and depth of his interests and academic pursuits, he would be called a “Renaissance Man” in the West.

There are several more surprises discussed in the introduction, and I could have read even more of them – it’s a nice format. But the book then shifts gears, and becomes mainly a series of biographical sketches of a number of people who were influential on Chinese economic policymaking (despite the title, not necessarily trained economists). Both parts were reminders of just how much there still is to learn about even fairly recent history in China, so much of which is still obscured by a combination of official propaganda and reformist mythmaking.

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Lessons from watching *Dying to Survive*

On the recommendation of several friends, my wife and I went to see China’s hit summer movie in Beijing last month. Called “Dying to Survive” in English — the Chinese title 《我不是药神》 translates as “I Am Not the Medicine God” — it’s an unusual blockbuster in that it’s not escapist action fare but a realistic social drama. It tells the story, loosely based on real events, of a Shanghai man who smuggled Indian generic cancer drugs for patients who could not afford the real thing.

It’s a pretty good movie and worth seeing (the print we saw in Beijing had English subtitles, so it’s accessible to non-Chinese viewers): it’s well shot, well acted, well edited, and if the tearjerker parts of the storyline are not too surprising, they are still moving and effective. The first half of the film is my favorite, thanks to its sympathetic and realistic depiction of the lives of people living at the margins of Shanghai’s glitzy society. The protagonist starts out as an obviously dodgy seller of supposed aphrodisiacs, and his partners in crime include a dancer in a club, a rural migrant working in a slaughterhouse and, most surprisingly, a Christian pastor.

But what’s really interesting about the film is how you can see the struggle between the demands of making popular art and satisfying official propaganda playing out in the open. How many dramatizations of social problems end by displaying on screen a detailed timeline of the government policy measures that decisively solved said social problem? (The Economist wrote a bafflingly wrong-headed article about the film, calling it “a radical departure from China’s film policy, which is to encourage the production of uplifting fare that presents the government in a good light.” They must not have stayed for the credits.)

At times “Dying to Survive” feels like two movies stapled together. When the main characters are on the screen, the tone is of low-key realism. But when the police and court system appear, everything changes: the actors are stiff and predictable, straight from central casting for one of China’s cookie-cutter state television dramas. The cops are upright, businesslike and effective, the judges wise and firm. They ensure that the drug smuggler is eventually brought to justice, and serves a prison sentence for his crimes. The message is: yes, high drug prices are a social problem, but that does not excuse breaking the law; the government will take care of things.

What’s more interesting is how the movie departs from the real-life story of Lu Yong, who did smuggle into China the Indian generic version of Novartis’ cancer drug Glivec (the drug did not have patent protection in India). Lu was himself a patient who needed the drug, while the movie’s protagonist Cheng Yong gets into smuggling because he needs the money, and then develops sympathy for the struggling patients over time. (Lu has publicly stated he was unhappy with being portrayed in this way, and said he had not been consulted or compensated by the producers of the movie.) This alteration is rather understandable, as it creates a more interesting story arc: Cheng Yong starts off as an unsympathetic character (he hits his ex-wife in an early scene) and gradually matures into a sympathetic one.

The real punchline is that Lu Yong never served a prison term for his smuggling. When he was brought before a court, the public outcry led the judges to release him. The true story, in other words, was even more like a movie than the movie: in the end, the morally upright hero is recognized for doing good deeds and praised rather than condemned. (In Lu Yong’s blog post about the movie, he says that the movie’s producers told him that a political leader had ordered that the movie play up the role of the government and play down individual heroics.) That courtroom scene would have been a triumphant climax for any other drama. But suggesting that popular morality can override the demands of the law was apparently a bit too dangerous.

I do think “Dying to Survive” is a successful piece of popular art, but it is one that shows very clearly the constraints under which it was made. For further reading, I recommend this piece by Richard Yu, in which he argues that it serves as a potential template for how Chinese movies can discuss social problems–as long as they celebrate the accomplishments of the government.

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Making sure our expectations for the future are sufficiently weird

As someone who is professionally required to at least occasionally issue prognostications about the future, I enjoyed this passage from Cory Doctorow’s Walkaway, in which a character warns against the perils of straight-line extrapolations:

End-timers used to project our consumption levels forward, multiplying our population by our needed resources, and get to this point where we’d run out of planet in a generation and there’d be famine and war.

That kind of linear projection is the kind of thinking that gets people into trouble when they think about the future. It’s like thinking, ‘well, my kid is learning ten exciting new things every week, so by the time she’s sixty, she’ll be smarter than any human in history.’

There are lots of curves that start looking like they go up and to the right forever, but turn into bell curves, or inverted Us, or S-curves, or the fabled hockey-stick that gets steeper and steeper until it goes straight vertical.

Any assumption that we’re going to end up like now, but moreso, is so insufficiently weird it’s the only thing you can be sure won’t happen in the future.

That’s a fairly self-referential statement for a character in a science-fiction novel to make, but thankfully most of the characters in this piece of utopian fiction do not go around making speeches; Doctorow is very good at writing real, vivid people, not types or abstractions.

Perhaps the line is meant to highlight that the world Doctorow imagines in Walkaway is indeed very much like now, but moreso: it’s a straight-line extrapolation of rising inequality, increasing automation and declining labor participation. What he’s trying to imagine is the moment when that curve starts to turn into something else.

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Nick Lardy on the crowding-out of private investment

The Australian National University’s annual free China Update book is bigger and more interesting than usual this year, in honor of the 40th anniversary of the start of reform and opening up in 1978. It’s got contributions from lots of prominent China economists that I have only begun to work my way through.

Naturally, I immediately checked out the chapter on private sector development by Nick Lardy. It’s quite a useful update to his work on the economic weight and role of the private and state sectors, and includes a careful, data-driven assessment of the resurgence of state enterprises under Xi Jinping. Here is a section where he identifies the symptoms of the crowding-out of private investment by SOEs:

The most plausible explanation of the waning of private investment is crowding out—an explanation supported by several pieces of evidence.

First, the share of bank loans to nonfinancial corporations that went to private firms fell from 57 per cent in 2013 to only 19 per cent by 2015, while the share that went to SOEs almost doubled over the same period—from 35 per cent to 69 per cent.

Second, financing of private firms through microfinance companies stalled after 2015. Lending by these companies grew rapidly from 2008, when the People’s Bank of China and the China Securities Regulatory Commission first issued formal guidelines on microfinance companies. The volume of such lending levelled off at just less than RMB1 trillion in 2014, but has not grown since.

Third, between 2011 and 2015, SOEs’ profits rose by only RMB30 billion, or 1 percentage point, while the investment of these firms rose by almost RMB2 trillion, or more than 20 per cent. Much of the differential between the growth of investment and the growth of profits must have come from increased borrowing from banks.

Fourth, indirect evidence suggests that SOEs have borrowed increasing amounts of funds to cover their financial losses. In 2005, 50 per cent of all SOEs were lossmaking. By 2016, the share of lossmaking SOEs had declined slightly, to 45 per cent. Thus, roughly half of China’s SOEs for more than a decade have been unable to fully cover their cost of capital. Moreover, the magnitude of losses generated by lossmaking firms increased sevenfold, from RMB243 billion in 2005 to RMB1.95 trillion in 2016. As a share of GDP, these losses doubled, from 1.3 per cent in 2006 to 2.6 per cent in 2016.

The interesting question at the moment is how this crowding-out of the private sector evolves in response to the government’s campaign to rein in financial risks. Surprisingly, one of the big casualties has been investment by state entities: there’s been a sharp slowdown in infrastructure investment as the central government has tightened controls over local government fundraising. Mostly as a result, the non-state share of fixed-asset investment rose to 65% in the first half of 2018 from 63% in 2017.

But it would be unusual for tighter financial conditions to really benefit private-sector firms, which tend to be smaller and riskier borrowers than state firms. And there is indeed a great deal of official concern at the moment over small businesses losing access to credit.

(Also see this previous post for other references on the crowding-out of private-sector investment.)

 

Varlam Shalamov’s prose of the future

For the last couple of weeks I have been steadily working my way through Varlam Shalamov’s Kolyma Stories, a newly-translated collection of tales drawn from the author’s experiences at the most notorious outpost of the Soviet Gulag system. Perhaps not everyone shares my fascination with prison literature, but I found these stories remarkably fresh and closely observed.

One of the closest things to a statement of purpose from Shalamov comes at the opening of the 1960 story “The Necktie”, when the narrator asks himself how he can make his story “a piece of the prose of the future”:

In the past and at present a writer needs to be someone like a foreigner in the country he is writing about if he wants to be a success. He has to write from the viewpoint—interests, vision—of the people he grew up among and from whom he got his habits, tastes, and views. A writer writes in the language of those in whose name he speaks. And that is all. If a writer knows his material too well, the people for whom he is writing won’t understand him. The writer will have betrayed them and gone over to the side of his material.

You mustn’t know your material too well. Every writer in the past and the present had that defect, but the prose of the future demands something different. It will be professionals with a gift for writing who will speak out, not writers. And they will tell us only about what they know and have seen. Plausible accuracy is the force behind the literature of the future.

Shalamov was not a foreigner in the country of the Gulag: he was very much on the side of his material. In his stories he does not explain too much about the camp system, but simply recounts the actions of its participants, and this is usually all that is really required to understand how it works. As the translator, Donald Rayfield, observes in his introduction, “Despite his own assertion…Shalamov knew his material perfectly, and he wrote in a way that everyone can understand.”

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