Don't be lured by the super-sized

People just back from a visit to the country can speak of nothing else. The cars in the streets where bicycles once passed. The natural landmarks and the man-made structures - that thick wall! The autocratic authorities and their peculiar ways. The incredible pollution. The incredible rate of growth. The mind-bending market potential. And, most important of all, the sheer size of the country and its story. When has a nation ever moved so far, so fast?

This might be a description of China today. Actually, however it describes the Soviet Union of the 1920s (the wall being the Kremlin's, and not China's Great Wall). Today we know that the early years of communism were terrible years - years of murder, famine and economic destruction. In the 1920s, however, there was enormous excitement about Russia. The excitement wasn't merely on the left; it was widespread among investors and entrepreneurs.

This past winter, or just about the time China was clocking in another year of sizzling growth, Brandeis professor David C. Engerman published an important new book* on Russia in the 1920s, which offers a few truths about how infatuation with a country can obscure some of its less pleasant realities. The points he and others make about such mis-perceptions may have some relevance for the China story today.

There's something attractive about what has been hidden. The Soviet Union in its early years had a lot of things to hide: foreigners were led around by the nose by early iterations of Intourist. Authorities prevented visitors from seeing the horrors.

Moscow also kept visitors on their toes with warnings they could lose their visas. All this spurred enthusiasm for Russia. China does not have nearly so much to hide. But it can be selective about what it shows to visitors and its own people. China also profits from the romance of the formerly hidden.

There's nothing like a new frontier. The tsars did not develop large parts of their empire. After the American frontier closed, wistful US adventurers went looking for another "Wild West"; they found it in the Soviet Union. Siberia beckoned; its natives seemed different and exotic, almost like American Indians. Harvard professor Bruce Hopper said that in Siberia, "the old East becomes the New West." Today China is a destination for all economic adventurers.

Countries seek partner countries that reflect well on them. We forget it today, but one of the strong attractions of the Soviet Union was its sheer scale. Americans in the 1920s, after all, studied a number of foreign models; the publisher William Randolph Hearst for example focused on the merits of Mussolini. Still, vanity limited US affection for smaller countries; none seemed a worthy counterpart. Like shoppers in a supermarket, they preferred a "super-sized" country. Russia was "hot", almost as hot as China is today. Many international observers fasten on China in part because it is one country that seems big enough to hold their attention.

The romance of industrialisation is strong. In 1929, Stalin proclaimed that "we are advancing full steam ahead along the path of industrialisation behind the age-old 'Russian' backwardness. We are becoming a country of metal, a country of automobiles, a country of tractors". Henry Ford came in on the Russia deal, developing the famous Fordson tractor. Soviet industrialisation looked all the more dramatic because Russia had been so backward. Today's China investors are fascinated by similar dramatic changes.

The romance of the new can be even stronger than any political ideal. Socialists and progressives were aware of this. Lincoln Steffens after all, did not say "I have seen socialism and it works". He knew that "I have seen the future and it works" would be more powerful.

These bearish points may seem as irritating as a bit of red flag to China bulls. They will marshal a number of arguments in their rebuttal. The first is the Chinese people have proven to be natural born micro-economists and entrepreneurs. China is heading to markets; Russia headed to communism. The Chinese state is nowhere near as depraved as the Soviet state of the 1920s. China is a great trader, Russia failed to make things other countries wanted to buy. China has come too far to turn back. And so on.

All these arguments have validity, especially the markets one. But they ignore the truth that Steffens recognised: to all but professional ideologues like himself, the lure of the new matters more than the lure of the left or right. In succumbing to Russia's romance, the US mis-estimated its prospects for growth. Yes Russia and China are different; but who can say they have nothing in common when it comes to growth or business hype? Here the lesson of 1920s Russia is clear: "super-size" may seem great, but it is not always economical.

*Modernization from the Other Shore, Harvard University Press, 2003.

© Copyright 2004 Financial Times

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