Memo To: Ambassador Li Daoyu, Embassy of the People’s Republic of China
Re: One China
When I wrote my book, The Way the World Works, in 1977, it was the conventional wisdom in the United States that China would eventually be unified with Hong Kong and Taiwan and that the small provinces would then come to resemble the larger China’s political and economic system. In other words, they would be socialized under authoritarian rule. It may be hard to imagine now, but there was a crisis of confidence in the United States in that period 20 years ago. We had “lost the war in Vietnam,” the Soviet Union economy seemed to be getting stronger and its global influence expanding, while our own economy was wracked by inflation, climbing interest rates, and a sense that our best days were behind us. Prominent Americans were arguing that our Communist adversaries had a natural advantage over us in that our form of democracy held us back while their centralized authority enabled policy decisions to be made quickly. Our social fabric was fraying, our cities becoming increasingly drug-ridden and crime-ridden. The socialist idea was then in the ascendance in the western hemisphere, including Mexico and Central America. Castro’s Cuba was exporting Marxism to Africa as well as South America. The Bulletin of Atomic Scientists was practically guaranteeing there would be a hostile nuclear exchange before the end of the century.
In this anxious climate, I predicted the worst was already behind the world. In the “Epilogue” to my book, which I wrote on September 30, 1977, I went so far as to suggest that China would soon unify and its political and economic system would come to resemble Taiwan’s. I quoted an unnamed Chinese official as having already indicated a shift in philosophy. The official, whose name I had seen for the first time in a press report that month, was Deng Xiaoping.
In China, the passing of Mao Tse-tung has given the vast electorate of 900 million an opportunity to “vote” in new leadership, through internal consensus-shaping. The result has been a relatively rapid shift in the direction of classical economic forms. Peking [i.e., Deng] has openly embraced the idea of using individual incentives as a means of expanding production, going so far as to twist a Marxist slogan into one more appropriate to Adam Smith: Instead of Marx’s idea of communism, “From each according to his abilities, to each according to his needs,” Peking proposes, “From each according to his abilities, to each according to his work.” If China can find a way to unlock the nation’s intellectual capital through incentive systems, for industry as it has for agriculture, rapid growth can follow. Unity with Taiwan is historically inevitable, as is unification of North and South Korea. But it is now not outlandish to consider the possibility that the completed results will mean a China and Korea that more closely resemble Taiwan and South Korea than Marxist models, which has been the conventional assumption by both liberal and conservative intellectuals in the West.
What gave me the confidence to make my optimistic forecast on that last day of September twenty years ago was my discovery of what came to be called “supply-side economics,” coupled with my discovery of the cause of the Wall Street Crash of 1929, while doing research for the book. Because I knew I had found the key to explaining the 20th century, I knew it would only be a matter of time before that knowledge would penetrate like a vaccine into the diseased global corpus. In that same epilogue, I forecast the ascendance of Margaret Thatcher in England, “who is steadfastly pledging to sharply reduce the progressivity of Britain’s tax rates as soon as her party returns to power,” and of Jack Kemp in the United States, “who began enjoying success in selling his plan, which was formally adopted by the Republican National Committee in New Orleans, Louisiana, on September 30, 1977 [the very date on which I wrote that epilogue].” The vaccine was a mixture of the work of Canadian economist Robert Mundell and American economist Arthur Laffer, with my application of the new “efficient market” theorems of the financial markets to the political markets.
On this day, which you have been kind enough to invite me to share with you at your Embassy celebration, I will venture another prediction. It is that in 20 years China will evolve toward a new kind of constitutional democracy, one with distinctly Chinese characteristics. This may mean you retain a one-party rule at the executive level, with an expansion of personal political freedoms that permit meaningful factional debate at the parliamentary level. A weak civil “monarch” who is selected up from party ranks, with a strong prime minister elected by the party faction in power. Our federal model, designed to compose differences of myriad ethnic and regional minorities, is not necessarily one that suits your country. I hope we are both around in 2017 to see if I am right.