China's wicked competitive advantage ?

by Colin Evan Cook 

Cheap labour is frequently given as the basic factor underpinning the low cost to us of ‘made in China’ goods but is there another, more fundamental factor?

We don’t talk about ‘land’ very much in western societies save as real estate and its very reliable capital appreciation over the years.  This reputation of capital appreciation, combined with associated tax breaks and huge lending by banks, has seen significant inflation of property prices, reinforcing the capital appreciation trend and attracting many investors to the market to the detriment of would-be owner-occupiers.

Many Australians will never get their ‘foot on the ladder’ and will rely on the rental market to meet their housing needs; for many, rent will be their biggest household expense. Those with secure and adequate incomes will often be allocating 30 to 40% of their disposable income in mortgage repayments on the house of their dreams. Anecdotally, land now is about 50% of the cost of a home purchase – previously about 30%.

The point is that access to land in Australia has become very expensive and is the great unmentionable social inequality.  Nevertheless, increasing land/real estate prices are widely applauded, as a sign of the nation’s increasing wealth and it would be a disaster if a decline occurred.

But supposing citizens did not need to allocate such a large proportion of their income to having a secure home, that they were not trying to buy a piece of their country on which to live? Their income need not be as large – labour could indeed be cheaper if access to land were cheaper!

Land tenure in China is quite different to our system and has been evolving since the revolution. The Wikipedia entry, Chinese property law, is extensive, well-referenced though in some passages seems contradictory – maybe has some translation glitches; some wording indicates a ‘western’ view of real estate.

Here are some relevant quotes:

·      In general, rural collectives own agricultural land and the state owns urban land.

·      Foreign investors are not allowed to buy land in China. The land in China belongs to the state and the collectives.

 ·      In the era of Deng Xiaoping, a fundamental legal source of the regime of property and property rights in the PRC lay in the Constitution of PRC enacted in 1982.

·      The most recent development would be the enactment of the Property Law in March 2007 (after 14 years of debates), which is noted as one of the most important core components of the evolving civil law in the PRC. 

·      A land user obtains only the land use right, not the land or any resources in or below the land. A land grant contract shall be entered into between the land user and the land administration department of the people’s government at municipal or county level

These show that China has a modern constitution (enacted 1982), which was importantly revised in respect of property in 2007, that the land of China is owned by the community and that user rights are obtained by entering into a contract with the land administration department of the people’s government at municipal or county level. The contracts are for 40 to 70 years.

It would seem therefore that the right of access to land can only be obtained by paying the community – but I do not know how the consideration is assessed or paid. If it is, say, comparable, to the costs incurred in buying the freehold in Australia or paying rent to a landlord who holds the freehold title then, prima facia, land access is no cheaper in China than Australia. But the funds are flowing to the community and therefore mitigate local taxes. In short, the income needs of the citizens are less if the community truly owns the land – does not just sing about ‘our’ land and fight distant wars defending it.

But it is not just in legal matters that China is very different to western modes; the attitudes of governments are chalk and cheese – markedly as we relax lending requirements for personal loans and mortgages. An article about real estate prices in the Chinadaily, 19 September 2020, reports:

“NBS (National Bureau of Statistics) senior statistician Kong Peng said the real estate market continued its steady trend in August as the central government has reiterated that “house is for living in, not for speculation,” calling for the implementation of a long-term management mechanism for the real estate market, while not using the real estate sector as a short-term measure to stimulate the economy.” (My emphasis CC)

Interestingly a similar article published two days earlier in the Chinadaily, Asia edition, has slightly different statistics but similarly quotes Kong Penn

“Home prices have remained largely stable with marginal growth. Most of the local governments have been strictly following the central government’s directive that housing is for living in and not for speculation and taking timely steps to ensure that the long-term mechanisms are effective,”

Thus it appears that China has a very entrenched competitive advantage – their land has been resumed, none is now ‘privatised’, they are not supporting a ‘landlord’ system.  Thus access to land is, most likely, less expensive and the ‘market’ more stable than in Australia.

Of course, the harmful effects of ever-increasing land price could be offset here by a nationally uniform, uncapped – State collected – Land Value Taxation. It is time for some of our modern economists to look afresh at the teachings of the much-ignored economist/philosopher Henry George and seriously research the impacts of our system of land access on the nature of our society and our economic performance.

With a political class heavily into real estate investment – our politicians generally own two and bit houses – the possibilities of significant change are, sadly, zero.

This brings to mind the observation of a Chinese commentator that the differences between our two countries is that ‘in Australia you can change the governing party but not the system whereas we, in China, cannot change the governing party but we can change the system’.

FOOTNOTES

This article was published in John Menadue's respected blog, 'Pearls and Irritations' on 7th October 2020, tagged, economy. The most interesting and informative comment came from Peter Small as follows 

Yes there is certainly speculation with buildings in China. Speculation on land can only be possible if the government fails to keep the land valuation up to date and collect the annual economic rent, If this is 100% effective the land remains at almost zero value. Failure to keep valuations up to date is what has been allowed to happen in Canberra.  
However even if this doesn't happen there is still considerable benefits in Government owning the land. As I have observed in China for example, when it comes to planning new infrastructure the Government owns the land so the occupiers can be moved on! 
New factories and so on, seem to be spaciously set out with plenty of space between buildings and between machinery inside the factory, Something you won't find in Western Countries as land is so expensive.
As Colin Cook correctly points out agricultural land is owned by "Collectives". Of course there has been massive reclaiming of farm land for new factories. This has to be negotiated with the "Collectives". One example I saw at first hand resulted in the small peasant farmers being moved off their land. The factory owners then built a cluster of new homes in the corner of the reclaimed land, with small plots for the farmers and their families to grow vegetables etc. The peasant farmers were offered a job in the factory and a share in the company. There was a mortgage on their new home which they had to repay, Naturally the farmers had mixed feelings about these arrangements but I suspect they didn't have any alternative but to accept!

Peter Small may be contacted at peter_wilderness@bigpond.com

  

Where is all the money coming from?

Covid-19 will cost us heaps - but don't worry; or should we!

As these strange days turn into weeks and months, it will become increasingly important for us to understand where money comes from. The Federal Government is committing billions of spending to combat the health and economic impacts of Covid-19 but where is it coming from?  Already Ministers and commentators are speaking of massive debts being incurred.

No financial limits

Our Federal Government  is a ‘currency issuing sovereign government’, which means that it issues its own currency and is free to purchase any ‘goods or services’ available in Australian Dollars that it wishes and is authorised by the Australian Parliament. It does not need to borrow before it credits a supplier’s, contractor’s or employee’s account. Contrary to all the ‘pollie speak’ over the past decades, there is no financial limit to how much the Federal Government can spend into circulation and it does not need our taxes to enable its spending.

There are however finite, practical limits to Federal Government spending; the productive capacity of the nation must not be pushed beyond its real, physical limits by the money put into circulation otherwise undesirable inflation will be generated.  The Government can control the amount in circulation by the collection of taxes. 

The radical ideas above - no need to borrow and no financial limits on Federal Government spending - are encompassed by Modern Monetary Theory. MMT explains how the system actually works! We have a very complicated and extensive monetary system and MMT covers every aspect even though the basic ideas are quite simple! But it is important to understand that MMT is not a new system of government finance; it is a different way of understanding what already is and how it functions.

MMT and Turbo-Jet Propulsion

It is vital that greater numbers of us make the effort to see the system through the insights of MMT because Modern Monetary Theory has the same relationship to our politicians’ professed concept of Federal finance as the theory of turbo-jet aircraft propulsion has with the concept of aeroplanes clawing their way through the skies with wooden propellers.  Our political class - and their supporting commentators - have a very elementary concept of Federal Government finance - we pay taxes, then they can provide the public services.

Like the theory of turbo-jet aircraft propulsion, Modern Monetary Theory has been developed by looking at the existing factors and relationships from a different, more fundamental angle and has, like turbo-jet propulsion, the potential to revolutionise how the public is served by the system – for better or worse! Airliners or bombers!

A Wicked Problem

Unless more of us get a grasp of these ideas, we may be dragged into times of unnecessary scarcity, austerity and greater inequality by uncomprehending politicians; we could be having properly funded public schools, hospitals and transport links and enjoying near-zero under-employment. The danger is that if politicians do come to understand that there are no financial constraints on spending - and Covid-19 spending is demonstrating just that - the Government of the day may spend heavily to buy the next election, overspend on corporate welfare or indulge other extravagances with our money. There is form here!  

Understanding how a system really works allows its potential to be used and its limits to be recognised. We are going to need the full potential of MMT – backed by widespread public understanding - to rebuild Australia decently. 

   

The ‘wicked problem’ of political ignorance of MMT versus understanding the potential and misusing that knowledge, is very well debated in the latter part of the discussion between Alan Kohler and Bill Mitchell on Bill’s blog and in Bill’s subsequent comments posted there. 

From the Horses.......

To increase your understanding of where money comes from and how it can be used, listen to the founders of MMT, Professor Bill Mitchell of University of Newcastle, NSW and Warren Mosler in An Introduction to MMT at a recent ERA conference in Adelaide

Also, Google Modern Monetary Theory and follow any link that names Prof Bill Mitchell, Prof Stephanie Kelton, a respected US proponent of MMT or the Adelaide based, ERA.

See also my post, 'Paying for public Services......' of 16 January 2017

Productivity Commission - still useful?

The Productivity Commission – is it still useful?

The Productivity Commission was created as an independent authority by an Act of Parliament in 1998, to replace the Industry Commission, Bureau of Industry Economics and the Economic Planning Advisory Commission. However its roots go deeper, to the establishment of the Industries Assistance Commission in 1974. 

The emphasis on economics continues to this day. The tertiary qualifications shown to be held by the thirteen Commissioners and Associate Commissioners comprise 10 in economics, 3 in law and one each in ethics, commerce, zoology and environmental science; the last two being held by the same Commissioner. 

PC's role
In the preamble of their 2015/16 Annual Report, the PC tells us:

The Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long term interest of the Australian community (My emphasis). Later, in the Overview of the report, it states that the PC’s  ‘remit covers all sectors of the economy, with a view to better informing policy making to raise national productivity and living standards

There is no doubt of the conventional economic expertise of the Productivity Commission (but they advise on social and environmental issues!), the range of their remit or the extent of their reporting. But one may question how effective the PC is in the current political scenario of climate change and inequality - not to mention the relentless approach of ecological constraints! It seems too, that the independence of the PC is being compromised by reduced resources and increased Government workload. 

In the Foreword to the Annual Report, the Chair, Peter Harris advises that ‘In 2015-16, the Commission completed six government-commissioned inquiries and studies, as well as six self-initiated research projects but this will not be repeated.’ Ten new Government initiated projects are lined up and this precludes any repeat of the recent high volume of PC initiated research. The Chair also observes, ‘In recent years, Government responses to our reports have been provided in some cases only after substantial delay.’

Competitive neutrality nonsense
Another aspect of the PC that restricts ‘independence’ is that one of its Core Functions  is handling Competitive Neutrality Complaints. The entry reads,  

Competitive neutrality policies aim to promote efficient competition between public and private businesses. Specifically they seek to ensure that Government businesses do not enjoy competitive advantages over their private sector competitors simply by virtue of their public sector ownership.

This bizarre neoliberal concept - the opposite of‘horses for courses’ - is the basis of the new Government enquiry into the ABC and SBS fostered by M/s Hanson’s One Nation party to undermine public broadcasting.  http://www.sbs.com.au/news/article/2017/08/15/one-nation-secures-inquiry-abc-sbs-and-publication-salaries

Because Governments have the powers to raise taxes and the Federal Government can and does create currency, they are nothing like businesses so it is not in the public interest to pretend they are and to ‘straight jacket’ government enterprise. 

For example the RBA could offer risk-free accounts to all citizens; this would obviate the need for us ‘taxpayers’ to guarantee the banks because they ‘are too big to fail’ and would free us from the ‘bail in provisions’ which would permit commercial banks to raid the accounts of their customers if this was more politically acceptable than the Government/us’ bailing them out! The RBA could do this simply by virtue of its public sector ownership; commercial bank accounts cannot be risk free. RBA risk-free accounts for all citizens would not acceptable to the Productivity Commission.

The Commission’s legislative ‘instructions’ are summarised in 8 ‘bullet points’. Actions in support of industry, the economy and productivity feature strongly in these; this is in line with the Commission’s history and parentage. Further down, the list itemises that the interest of the community should be ‘recognised’, note just ‘recognised’. 

Productivity's downside
So if we think the Productivity Commission is past its use by date, ideologically constrained and overloaded with establishment economics, what might serve this young nation and its future generations better?

Firstly let us recognise that ‘productivity’ is a two edged sword – especially as the term usually means labour productivity. We produce more – use more resources and increase environmental impacts - with the same labour or produce the same goods and services with fewer jobs. So, accepting our planet’s ecological limits, it is, to coin a phrase, ‘jobs and growth with environmental over-reach or fewer jobs’.

We must accept our planet’s ecological limits; we may not know right now what they are but we know, really know, that for our children and their children’s sakes we must transition to a society hat lives within the limits our ecological resources.

Prosperity without Growth
This is the cogent argument set forth in Professor Tim Jackson’s, Prosperity without Growth (Routledge) Second Edition. We need to plan a way out of ‘The Iron cage of Cosumerism’, recognizing that our addiction to ‘growth’ has trapped our political class into pursuing policies that ensure social stability but are totally unsustainable. ‘An economy predicated the continual expansion of debt-driven materialistic consumption is unsustainable ecologically, problematic socially and unstable economically’, says Tim Jackson.

So, if we disband the Productivity Commission what might we need to help our Australia transition to an economy fit for our future circumstances? An Ecological Commission? A Sustainable Council? A Transition Directorate? A Low-growth Agency?

Prosperity Commission
I cannot go past Tim Jackson’s work! We need a Prosperity Commission - as one of host of new institutions to break free from the ‘economic growth’ addiction and move to a governance and economy, fit for purpose; a society designed and built for the well-being of all citizens within our accepted ecological limits.

Aiming for widespread prosperity? Think of the lift in national spirits! Not threatening austerity, not living within our meanest means, not forever competing to own the latest piece of startling novelty. But building a commonwealth for the best, most fulfilling lives and vibrant communities throughout the nation; our children being educated for living and caring; not primarily getting a job and managing digital devices. Living as if other people, our fellow creatures and our environment mattered.

New PC's role
The new Commission might be announced as follows (with apologies to the old PC!):

The Prosperity Commission is Australia’s research and advisory body on ecological, social and environmental issues affecting the welfare of its citizens. Its role, expressed most simply, is to ensure governments develop policies that encourage inclusive prosperity throughout the community within our ecological limits, in the long-term interests of all life in Australia.

The Commission's legislative ambitions are:-

1.   Determine the ecological limits of the nation

2.   To introduce all necessary legislation and regulatory mechanisms to ensure these limits are regularly updated and firmly maintained

3.   Foster the change from individual consumerism to community integrity and resilience.

4.   To develop policies to give secure, viable land access for housing, education, farming and commerce throughout the nation.

5.   To develop appropriate industries to meet the needs of the nation in individual and socially rewarding ways.

6.   To co-operate with international bodies in the determination and policing of ecological limits.

Finale
Such a body would require a broad range of disciplines, not just economists with a similar range of affiliations.  And maybe not all appointees of the Governor General.
Would the Prosperity Commission be an early proclamation of our first directly elected Australian President? It is too urgent for that – but do get your copy of Tim Jackson’s, Prosperity without Growth; it is a stimulating and encouraging read, charting a course that needs to be travelled. If you are pessimistic and half-hearted about the prospects, read the last two chapters first! The Progressive State and A Lasting Prosperity will brighten your horizons.

This democracy thing ......

Is it something ‘we’ have and ‘they’ don’t?

The demonization of China in our media – mainstream and not-so – is constant. Our biggest trading partner is often the subject of critical comments because it is not ‘a democracy’’ - not like us. It is worth reflecting on a few comparative news items.

Last October, the China Daily news site reported http://www.chinadaily.com.cn/china/2016-10/22/content_27142506.htm that  a province in China had just elected over 400 new lawmakers, saying,  ‘The new legislators were elected Tuesday and Wednesday in 14 cities in the province. The 12th Liaoning Provincial People's Congress now has 594 deputies.’

Why would a province in China need 600 lawmakers when for our central government we elect a mere total of 226 members? It transpires that Liaoning - https://en.wikipedia.org/wiki/Liaoning - has a population of 43.9 million!  Adjoing North Korea, Liaoning has 14 prefectures, 100 counties and 1511 townships  (2012 figures). 

Thus this northern Chinese population elected, on the above figures, 13.5 lawmakers per million of population, whereas, we make do with about 10 per million: increases in population since 2012 would reduce both figures but the indications are that Liaoning has at least as many elected lawmakers as Australia has federally.

Of course there are many differences. The article in China Daily also advised, ‘The by-elections for lawmakers were carried out in Liaoning after an election fraud scandal in January 2013 that implicated 523 deputies to the Liaoning Provincial People's Congress. They either resigned or had their qualification as deputies terminated.’ Which just goes to show what a crooked bunch they are or what an effective anti-corruption watchdog they now have; take your pick.

Than again, our Parliament has an estimated 900 registered lobbyists  -http://johnmenadue.com/john-menadue-who-can-we-trust/. If we add just half these to our 225 representatives giving us 676 lawmakers in Canberra, then we can boast as having 30 lawmakers per million population! Lobbying is a tax deductible business expense, so they are all on our payroll one way or another; but only10 are democratically elected.

The phrase ‘…..qualification as deputies terminated’ indicates that there is a mandatory  qualification before a Chinese would-be lawmaker can stand for election. In Australia almost anyone can stand for election but one has a much better chance of success if one has been ‘pre-selected’ by an existing political party – proven party loyalty and compliance being prerequisites to get the party’s ‘blessing’.

Thus, both in Liaoning and Australia, voters do get a choice of candidates – but in practice it is just a choice between candidates who have already been singled out, nominated, by some other body.

Doubtless too the successful Chinese candidates must espouse the communist system with specific adherence to the current 5-Year plan that has been developed by some higher authority, the central government in Beijing. In Australian it is assumed that one accepts capitalism – any other ‘ism’ will create difficulties for one’s public image – especially the variety embracing the neoliberal philosophy of globalisation, reduced regulation, privatization programs and balanced budgets.  Thus, both sets of candidates have prescribed ideologies. The Beijing Consensus and the Washington Consensus?

That the Liaoning Provincial People's Congress does not have any say about what the Beijing government does in the South China Sea goes without saying. Similarly, our national Parliament has no say in the deployment of Australian forces in foreign parts-- http://www.abc.net.au/news/factcheck/2014-09-08/julie-bishop-correct-on-australia-history-at-war/5710696– or the deployment of foreign troops in Australian parts such as Darwin! http://www.abc.net.au/news/2011-11-16/gillard2c-obama-announce-darwin-troop-deployment/3675596

So can ‘democracy’ be rated? It is not just a binary matter that a country either has it or it doesn’t and it is not just a matter of ‘free and fair’ elections. Democracy does not stop at the ballot box, it is a system and the way it functions and serves its purpose is the true measure of it.  Is it not time that we realised that ‘democracy’ is a work in progress and that we would do well to concentrate on improving ours and let other countries attend to theirs?

We could begin by accepting:

·      that ‘democracy’ was a dirty word at the beginning of white settlement,

·      our first governments were top down affairs; grass roots were to be trodden on,

·      the ethos of white settlement was of centralist governance of all aspects of society; it was after all a prison

·      our democracy is not the result of a lengthy, natural gestation

 This is in contrast to indigenous, old societies where, in the very beginning, tribal groups, settler communities managed their own resources and affairs and over millennia coalesced – with much skullduggery and bloodshed - into larger more extensive governing bodies; and finally central, national governments. In this sense, Australia got it the ‘wrong way up’ and has never sought to accept that local communities are best managing their own affairs and resources; at present in Australia local government exists only at the convenience of State governments.

This status quo is firmly ensconced in our ‘community DNA’; witness how often local initiatives and programs are conditional upon grants – bestowed by Government - and how revered are those who are skilled at writing the applications. No thought that the grant money may have been extracted from other communities lacking the ‘nous’ and application skills!

If we do aim to improve our democracy, the way it works and what it delivers, we must recognize that democratic governance naturally grows from the small to the big; witness how the States came together to form the Federal body. Sadly our States lack legitimacy in the sense that they did not grow from self-governing communities.

We need local governance to be fully, constitutionally recognised – it is the bedrock of genuine, effective democracy.

Unsourced quote – a Chinese national explains to an Australian,  ‘The difference is that you can change the party governing but not the economic system whereas we cannot change the governing party but we can change the system’.

Note well the New Matilda article by Paul Spinks, 'It's time for our baby democracy to walk' See https://newmatilda.com/2017/07/30/its-time-for-our-baby-democracy-to-walk/
A great critique of the present with lots of thoughts on what changes could improve it; Citizen Juries, electronic voting, start locally etc

Note that this article was published by Independent Australia (1 July 2017) - with many extra useful and informative links - at https://independentaustralia.net/politics/politics-display/this-democracy-thing,10456  I would have preferred that my sub-title (Is it something we have and they don't) had not been changed. The comparison is not really important, the immaturity of Australian democracy is!