China's Katrina Shows Post-Communism No Big Easy

May 21 (Bloomberg) — The picture of the angry parents protesting the collapse of the school in Wufu is so sad that you get the impression there could be nothing like it. But then you remember something like it in, of all places, Louisiana.

Writing about the corruption in that state in the 1920s, the author Robert Penn Warren described a man's shock "when the first brick schoolhouse ever built in his county collapsed because it was built of politics-rotten brick and it killed and mangled a dozen poor little scholars."

"Tofu construction," is what some are saying after a massive earthquake struck central China last week. But that's just Chinese for "politics-rotten brick."

The Chinese disaster is occurring on a magnitude several times greater than anything in Louisiana, including of course, Hurricane Katrina.

Yet what is going on in China recalls what Louisiana was demonstrating well before World War II: Preparation for and reaction to floods, earthquakes or hurricanes reveals much about government and growth. A government can cause economic growth to happen, though it's not always the best growth.

The result can be disasters that are not only natural but also "man-made," as grieving Chinese parents now put it. This is so even when the government has set impeccable goals — sound federalism, political reform and better infrastructure for the locals.

Walking the Walk?

A clue to the dynamic emerges in several papers written years before the recent quake by Li-An Zhou of the Guanghua School of Management at Peking University. Beijing talks all the time about rewarding economic performance. But Zhou and colleagues wanted to know if Beijing was also walking the walk, rewarding local officials for focusing on their province's growth rate instead of practicing old-style patronage.

Like corporate managers hopping from company to company, Chinese regional politicians hop from regional post to regional post in their careers. The scholars therefore followed the careers of 344 provincial leaders in 28 provinces from 1979 to 2002, trying to determine what caused demotion or promotion.

Because party officials along with governors hold the power in such provinces, the authors included 187 party secretaries in the mix. A correlation between the economic performance of a region and promotion of its leader would suggest that China had indeed moved away from the old boss system.

Growth 'Tournament'

That presumption proved correct. Beijing was sticking to its promises. Leaders in provinces where there was more new economic activity won promotions. Provincial leaders whose gross domestic product didn't grow as fast were demoted or chose retirement.

What's more, provincial leaders were marked by Beijing not on how much growth they achieved in their province relative to governors of other provinces, but rather by how their GDP performed against the growth delivered by their provincial predecessor.

Since some regions grow faster than others, this seemed fair, and that appearance, the authors point out, "strengthens the incentive effect." Confident of the terms, the politicians played the growth game harder. The authors used the word "tournament" to describe the competition.

Some observers are blaming some of the Chinese catastrophe on the absence of good construction codes. But even that wasn't a problem, says Ashley Howlett, who leads the construction practice of the law firm Jones Day in China and wrote a book, "PRC Construction Law: A Guide for Foreign Companies."

On the contrary, notes Howlett, "the building codes are equivalent to those of the United States and other developed countries in their scope. The law is there." Multiple levels of subcontracting are also illegal, Howlett says.

No Magic

Still, there were problems in China, as in Louisiana. Whether you mix your cement well or shoddily, what you do shows up as economic activity on paper. Howlett notes that under the current system, local officials know they have to complete their assignment. And often that does involve subcontractors hiring subcontractors. And builders cutting corners.

What all this suggests is that there's nothing magical about any financial datum, not even GDP.

"There's GDP, there's Green GDP, and there's Garbage GDP — China's own version of the road that leads to nowhere," says Gordon Chang, an author who wrote about the vulnerability of the Chinese political house in a 2001 book, "The Coming Collapse of China."

Popularity Through Government

In China as elsewhere, it turns out that competition wasn't always harnessed to good end. The pursuit of GDP through government is too similar to the pursuit of political popularity through government. China intentionally rotates its governors to ensure they don't build up personal machines. Perversely, that freed officials from living with the consequences of shoddy construction. Soon after the ribbon is cut on the new school, they move on to the next post.

So China today isn't like the China of Mao. But it is something like the old Louisiana. There, collapsing schools didn't lead to greater openness, political revolution or an upgrading that made Louisiana like the North.

Such tragic demonstrations of the consequences of corruption merely brought to power a colorful demagogue, Huey Long. As in China, the interplay between the central government and the locals — Washington and Baton Rouge, in this case — also was problematic. Flawed logic at the center clashed with flawed policy at the local level.

The earthquake tragedy suggests that for China, too, finding a way to be a successful society will be no Big Easy.

(Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2008 Bloomberg

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