The left turn in China

Mr. Xi has moved Chinese politics significantly to the left since 2012. Party theory and Party loyalty are again of supreme importance, and fear is again daily fare for many people.

But another left turn is more important for daily life in China, and that is the traffic left turn signal at stop lights. The theory and practice of left turn signalization in China needs immediate attention. Short explanation follows.

American engineering practice

No need to beat around the bush on this. Standard traffic engineering practice in the US is for the left turn signal in a multilane, two-way intersection to turn green before the straight-proceeding green light. Left turn light first, then green. I think this is an American universal. 

American driving practice

Left turning traffic clears, or mostly clears, before the forward green light. This makes it safer for people just going forward because there are only forward movements for drivers to expect – except for that last guy waiting in the intersection to turn left.  Occasionally, someone in a go-forward lane will try to sneak a place ahead in the left turn lane, but that is considered quite outre. Ostracism, if not gunplay, can result.

 

Driving practice in China

A few oddities –

There is the occasional bicycle or motorbike going the wrong way on a three or four lane (each direction) 50 mph arterial.  Its less dangerous for all if the motorbike is sticking to the furthest left or right lane while going the wrong way, but this cannot be taken for granted. It might be coming at you down the middle of the road.

My colleague Scott Peters notes that the Chinese government wastes a lot of money by painting lane stripes on streets. Drivers ignore them in any case.

There is the driving on sidewalks and the blocking-in of cars in the shopping mall parking lot and the cars driving the wrong way up or down the parking garage ramps. All de rigueur, and theoretically fixable with some police presence – but that does not happen anywhere I have ever seen. In any case, these are transgressions by drivers.

 

Chinese engineering practice

The more serious left-turn problems are caused by government traffic engineers directly. The problems take two forms. Bear with me on this.

Problem 1 – standard engineering practice in China is for the left turn signal to come after the green go-forward light (at the end of the cycle);

Problem 2 – occasionally the left turn signal ignores the fact that oncoming traffic has a green light. Say what? Read that again.

Problem 1 – Stealing a march on the left turn lane

This is the same problem as that which would cause ostracism in America, but made far more common and serious by poor signal timing. Picture a four way intersection with left turn-only lanes and signals.

This problem is ubiquitous in China. Eager prospective left-turners use the green light to pile up two or three lanes of left-turning cars in front of and blocking the left turn lane. These cars of course have to go first when the left turn signal comes on. Often, there are so many cars attempting this maneuver that at least one, perhaps two, of the go-forward lanes are blocked by cars piling up to turn left. That way, cars cannot go forward on the green light unless they maneuver to the right around the eager illegal prospective left-turners.  

At the left turn signal, all the left-turners jockey for position in achieving the one or two lanes on the perpendicular street. The car in the most dangerous position is the first car in the legal left turn lane.  When the signal comes, that driver must contend with the others piled up ahead and blocking him. The driver in the second car in the actual left turn lane will occasionally get anxious as well, and – this is good – steal a march to the inside of the first turning car. That is my favorite move. The first driver never sees that car coming on his inside. It is a blind side hit – or not, but still a blind side move.

These problems are of course fixable by putting the left turn signal before the go-forward green light. But nevermind. There is one added element of interest to this left-turn-signal-last sequencing. 

When there are a lot of vehicles turning left, it is easy to create a traffic jam of left-turning cars – if, for example, some of the left turners experience some problem just as they complete the turn – some car moving into or out of a driveway, a truck blocking a lane. Since no driver in China has ever been known to yield to circumstances except in the last moment, you can easily get two or three quarter-circle rows of left-turners stopped in flagrante delicto blocking all the traffic from the perpendicular direction once their own light turns green. Nice. 

My Way on the highway

Left turn problem 2 means that signalized left-turners and the oncoming traffic have a simultaneous green light. This is a bit of a “no one expects the Spanish Inquisition” problem. 

You’d think this problem 2 would be a grievous mistake in traffic signal programming, done by some young traffic engineer who didn’t properly think through the timing and the movements.

That might be true. A recent college graduate is unlikely to own a car, so he lacks experience of driving. He has the traffic design manuals, and plenty of access to instructions for programming the software for light timing and sequencing. But this stupid and really dangerous mistake is far more common than you would think. And not just in small towns.  I have experienced this in Hangzhou, in three different locations, and in Wuhan. Mixing left turning cars – with a left turn signal – and oncoming proceeding cars – with a green light – should be a rookie mistake that is corrected quickly. But the correction doesn’t happen, at least not for months. In two cases I can think of, not for years. 

This phenomenon does have a traffic calming effect.  Those who know the procedure proceed cautiously, since no one knows who will prevail in the cross-traffic – except for the more insistent driver who is unafraid of conflict. 

The novice driver at this corner is most likely to have an accident, since the novice driver thinks the signal they follow provides them with exclusive access to their move.

Segregation

There is an additional traffic engineering wrinkle. China has done a very good job accommodating the huge number of bikes and motorbikes on the streets. In many places there is a segregated and physically separated right lane for two and three wheel vehicles. Excellent idea – except for those bikes and motorbikes turning left and competing with the cars two or three or four lanes to the left doing the same thing. Motorbike drivers in China are fearless – or oblivious. In any case, they are frequently injured. It might help to give the motorbikes their own left turn signal, but there is just no reason to expect compliance.

Learning curve

These common roadway confusions are not discussed in the driver’s ed manuals. The manuals pay a lot of attention to understanding the meaning different colors and striping on curbs, and meaning of traffic policeman hand signals, which in five years of daily driving in Hangzhou, I never saw used once. But those are book learning, the theory of driving. The theory is near useless in practice. Hobbes would recognize the state of nature on Chinese streets. Even if not solitary, life on the streets is nasty and brutish and occasionally short.

Let the driver beware.

My First Protest

February, 2015 

We are in Jingzhou, Qing’s home town in Hubei Province. 

We went out with Ben for a walk, and the Jingzhou district government compound is less than a block away.  The district is an urban subdivision, akin to a ward in Chicago, though much bigger than a ward.

The district compound is a series of small buildings, like a small university campus, some offices, some residences.  Leafy, low key, surrounded by the usual wall with three entrances, or gates.  Buildings look old, a bit decrepit, although probably built in the early 1980s. Qing says this area was pretty and clean and orderly when she was growing up.

Now, it is different. 

Everything in Jingzhou is dirty, bad construction site dirty, all the time, everywhere.  Leaves on trees and bushes are covered with a film of greasy dirt.  You can see the green under the dirt, but it is not leafy green.  Some unfamiliar green.  What was built in 1985 has suffered from 40 years of no maintenance, at all. All of Jingzhou suffers from the tragedy of the commons problem – no one is the owner of public space, including buildings, so no one  takes care. But the district is the hub of local government.

Never let it be said that everything in China is better now than it was before.

At the district main entrance about 30 or 40 men and a few women were protesting. I asked Qing to get some details, and we talked to the leaders for a few minutes. They were protesting not being paid – for a year – on a construction project that has been taken over by the government.   The original developers of a wholesale shopping mall fled, the government took the project over, and promised to pay workers.   They are apparently owed several million yuan –  maybe ten million yuan – for themselves, their employees, and suppliers.  It was now close to New Year’s, workers were going home, and they needed their promised wages. They had a cloth sign that blocked the exit for district government employees to leave in their cars.   They had been there for several days, they told us.

Main entrance, Jingzhou District headquarters, after clearance

About 4:30 in the afternoon, the police showed up, two personnel vans, a few cars, some police in riot helmets with the pull down plastic visors and heavy vests with heavy guns, some not.   About thirty policemen to match the protesters.   Police stood around their cars, waited for a few minutes.

The leader walked up separately.  Chengguan is the term for the non-uniformed thugs employed – or let us say, arranged – by the government to break up protests, beat up old women and men, and occasionally murder protesters.   The leader was a thug in anybody’s book.  Big, fleshy, jowly. Scowl. No uniform, just a pullover shirt and a light jacket.  Right out of casting, but this was not rehearsal.  Qing and Ben and I were standing right around the protesters and the police – this entire event was unfolding in the driveway in the picture, between the building entrance and the street, about 30 feet of sidewalk and parkway.  We were taking pictures. The thug threatened Qing, didn’t know what to do with me. 

Qing told the thug that if he wanted trouble, that was ok.  She said she was American.  She was not in a mood for cooperating.  Police wanted us to go away, but we were slow.  Qing said that my presence might have calmed the police a bit in their later action against the workers.   The thug shook his head first, as if telling his subordinates he had decided not to proceed as planned.  He then nodded, the police moved in, tore down the sign, pushed the protesters out of the way, to either side of the driveway.   They broke the protesters up into small groups, and surrounded them against the walls of the entrance. Pretty well organized, like they had done this before.  Very clear that any resistance would be met with overwhelming violence.

The protesters did not react much, at least not much compared with being physically shoved out of the way. The concept was to separate the protesters, and then the police formed a line on both sides of the driveway, so the government officials in their cars could leave on time at 4:30.  

Some people standing around, watching, but most passers-by just kept passing by.  Either not news or not news they want to be a part of.

About half a dozen cars left the compound, moved into traffic.  The police hung around for about 20 minutes, gathered, got back in the vans, left.  No arrests this time, no bloodshed.  The protest was finished for the day. Qing said that the thug was not chengguan, but a representative of the central government security force, a somewhat secretive unit that exists in each city.   I did not know about them.   But the central government has a security presence even in the cities.   I have a couple of pictures, nothing juicy.   I will go back tomorrow, see if the protesters are there again.

My first protest in China.  Things you can learn by going out for a walk.  I knew that it was common for migrant workers to work for six months or a year and then not get paid, and there is little recourse. The blue roof shacks you see on all construction sites are the housing for the farmers who do the work, on projects big and small, and they live on the site, and usually get a little money for food, but they agree to get paid when the contractor or the developer gets paid, and so they work and exist on scraps for a year, waiting for the big payout at the end.  Often, the big payout never comes.  If the workers get half, or 25%, of what they are owed, that will be a good outcome. 

The CCP says that China is in the beginning stages of socialism.  I guess that is true. The worker’s paradise is not here, just yet.

Negotiating Harmony – Conflict and Governance in the New Age

This paper was published in the Journal of the Zhejiang Province School of Administration (otherwise known as Party School) in 2015. 

So far as I know, it is the only original contribution by a foreign author to this Journal.  Since the Journal is from CCP in Zhejiang, one of the wealthiest and most sophisticated provinces in China, it is as well respected as a CCP journal can be.

The paper is way too long for a blog read.  I outline a way for CCP to provide meaningful voice to populations angry over land thefts, pollution problems, and corruption.  Among other suggestions, a ready-in-waiting conflict resolution organization, structured at the provincial level, could be brought to bear on incidents of mass protest.  A stand-still agreement is necessary to force parties to negotiate.  This is one way to provide voice to Chinese people in the absence of democracy. 

This is a theoretical paper, although no one in China would describe it that way.  A bit too clear and direct.  The paper was presented at a conference at Zhejiang Business and Financial University in 2015, although my presentation was kept apart from those of other presenters.  I gave a more or less private briefing to about 30 faculty and students – either to inoculate others from dangerous ideas or provide me with a rapt audience.  Probably both are true.  The presentation was in the school’s Party conference room.  

Negotiating Harmony – Conflict and Governance in the New Age

William D. Markle, Ph.D.

Zhejiang University of Science and Technology

Hangzhou             

March, 2014

Version 2 – May 15, 2014

Contact:

wdmarkle@aol.com

15988832937

Abstract

A fundamental question of the times is whether the economic and political reform necessary to continued growth in the Chinese economy can be accomplished within the existing political system.    This article briefly reviews the literature on complex systems, as applied to the Chinese Communist Party (CCP) and the demands for a new method of addressing fundamental conflict – mass protest – over land rights changes and environmental problems.   The author suggests that use of conflict resolution skills and a defined public participation program, conducted at the provincial level, can be of use to the CCP in adapting to the new society. 

Introduction

Stability and harmony 和谐  hé xié  are key words for public administration in China, as they have been for more than a thousand years.   Nevertheless, for more than sixty years, the concepts of stability and harmony could be trumped by economic development, in whatever form that took – land reclaiming, expressway construction, development zone clearing, or apartment and factory construction. 

That era is over.   For many reasons, including overinvestment, bank balance sheet problems, a rising middle class that demands attention, and social media that make communication instant and definitive, it is no longer possible for government at any level in China to ignore stability and harmony as important principles of governance.

As is well-known to readers of this journal, both environmental problems and land conversions are a significant source of instability.  One has to only consult China Daily, or most any western newspaper or magazine, to get weekly examples.  Most recently, last October, Xiage township in Zhejiang provides an embarrassing example, or Gangnan County in Wenzhou, in 2012. 

This article is not directed at providing advice for policy makers on compensation, or removal procedures.  This article argues for a more sophisticated approach to public involvement in public decision-making that can reduce the potential for, and severity of, mass protest.   Specifically, public participation training, in schools and training institutes, should include courses in conflict resolution and negotiation.  The public officials for whom this training is critical are those working in urban planning, environmental analysis, civil engineering, and public administration. 

In addition to conflict resolution training, it is important to develop a structured dispute resolution system within government, for use in local land conversion, land use, and pollution conflicts.  

There are five suggestions for consideration as part of greater use of rule of law, openness, and the reform agenda of the Xi Jinping era.

The five suggestions are –

1.Training in conflict resolution for undergraduates in urban planning and environmental programs 

2. Similar training for graduate programs in public administration and at institutes

3. Empower professional staff in decision-making, and publish environmental evaluation reports and demand conformance to a time frame

4. Create a defined provincial level procedure for conflict resolution, triggered without excessive delay or petition

5. Process and professionals in conflict resolution to report to provincial authorities

Public Participation, Conflict, and Demand for Change

Public participation techniques are well understood in China, at least at some levels.   Design of public participation in environmental assessment in China has been discussed by Wang and Chen (2006), Horsley (2009), Wang (2006), Zhang (2012), and Tang (2007), among others. 

As long ago as 2006, Pan Yue, the vice minister of the State Environmental Protection Agency (SEPA),  linked environmental changes to increased public participation –

In China, environmental protection is an increasingly pressing issue. Not only are pollution and ecological degradation becoming ever more serious, but also people are more and more unsatisfied about the situation. The speed with which we are polluting the environment far outstrips our efforts to clean it up. Why is this? China has a large population but few resources, and our production and consumption methods are too out of date. But at the root of the problem lies a more significant cause — the lack of public participation in China.  (Yue, 2006)

Wen Jiabao made protection of land use rights in land conversion a theme of the later years of his premiership.  In an article in Qiushi –

Chinese Premier Wen Jiabao has called for farmers’ land rights to be protected and criticized a widespread policy of moving villagers into apartment blocks so their land can be merged into larger blocs or developed.

State-backed land grabs are a cause of deep tension across China. Ten days of protests over confiscated farmland and the death of a protest organizer in Wukan in booming Guangdong province in December drew widespread attention as a rebuff to the stability-obsessed government.

In an essay for influential magazine Qiushi, or Seeking Truth, Wen said “rural residents enjoy the legal rights of land contracts, land use and collective income distribution,” whether they stayed in the countryside or migrated to cities for work, according to a summary published by the Xinhua news agency on Sunday.   (Reuters, January 15, 2012)

 

And as recently as last October, Xi Jinping urged officials to resolve conflicts according to the rule of law, reminding officials of the “Fengqiao experience”  in 1963, in Zhuji.   The Fengqiao experience suggests that people should be enabled to resolve conflicts among themselves without having to refer disputes to higher level authorities. 

Improvements to process and participation in decision making about the built environment are laudable.  But too often, such public participation fails because it is done at the wrong time or at the wrong level of analysis, or with wrong intentions.    Seven years after Hu Jintao promised

To ensure scientific and democratic decision- making, we will improve the information and intellectual support for it, increase its transparency and expand public participation. In principle, public hearings must be held for the formulation of laws, regulations and policies that bear closely on the interests of the public…. We will improve the open administrative system in various areas and increase transparency in government work, thus enhancing the people’s trust in the government  (Hu, 2007)  

we know that the environmental protection process and land conversion process in China fail to protect.  In a short piece in Global Times, quoted in Qiushi, Yan reports that the draft changes to the environmental protection process were unlikely to protect Chinese or the environment.  (Yan, 2012).    And at times, the environmental protection bureau itself displays the problem with both regulating and collecting fines for violations of regulations – the economic moral hazard problem in Haimen City, in Nantong, in Jiangsu.  (WSJ, February 1, 2013)

And even though environmental protection is moving closer to the top of the national agenda, there is still reluctance on the part of powerful departments to consider environmental projection when proposed by the environmental protection bureau –

Strong and influential government agencies such as the planning commissions (jiwei), economic commissions (jingwei), and the construction commissions (jianwei) and industrial and commercial authorities are known to be reluctant to endorse and enforce stringent environmental measures for fear that they might slow down economic growth.  (Wing Hung Lo and Leung, 2007)

We are concerned here not with administrative rule making, or mediation in Chinese village life, or strike resolution, but with the use of public participation ideas in resolving conflicts in land transfers and the built environment.   These are the areas of most significant individual and group conflict in China, which according to research by Sun Liping at Tsinghua, reached 180,000 per year in 2010  (Fung, 2012).   

The topic is not new to the CCP.   At Fujian School of Administration, Wang Liping has held a class that points not to improvements in governance, administration, or communication techniques, but to violence –

To help illustrate his point that forceful demolition can lead to violence, Wang shows a slide of a farmer in Hubei Province who used a home-made cannon to drive away a demolition team in order to protect his land. The class falls quiet.   (Fung, 2012)

 

In what follows, I want to describe the CCP as a system of organization, and make the point that the CCP has demonstrated in the past, and must continue to demonstrate, that is an adaptive system, that can use flexibility to respond to challenge.    Then, discuss governance and public administration in China, and note that conflict resolution has not been part of professional training. 

CCP as a Complex Adaptive System

The unique political and governance structure in China has facilitated economic growth for 30 years.   During that time, the CCP has shown itself to have remarkable flexibility in adapting to new conditions – restructuring SOE in the mid-1990s,  banks in the late 1990s, opening to the world in trade and gradually expanding the scope of the private sector.    All accomplished within a single party state system, with hierarchical but still extremely decentralized control.   How is decentralized control possible?

Despite the decentralized nature of government in China, we can characterize government and political organizations as part of a single complex system.    A definition of relationships and interactions that are complex –

They are complex in that they are dynamic networks of interactions, and their relationships are not aggregations of the individual static entities. They are adaptive; in that the individual and collective behavior mutate and self-organize corresponding to the change-initiating micro-event or collection of events    (Mitelton-Kelly, 2003)

There are an uncountable number of parts, interacting both closely and at a distance, with varying levels of force and reaction over time.   It is really impossible to describe any policy change, any administrative change in such a system, as a linked set of linear commands, coming from a central authority to subordinate groups, which understand and obey.  The rational and hierarchical models of Max Weber or Henri Fayol certainly do not apply.   

 

Within this hierarchy, we can characterize the CCP as a relatively adaptive system, in the terms of Boisot and Child (1999) –

systems that have to match in a nontrivial way the complexity of their environment (Ross Ashby 1954, Wiener 1961), either to achieve an appropriate measure of fit with it or to secure for themselves a degree of autonomy with respect to whatever constraints it might impose (Varela et al. 1991).

Within the system, there are feedback loops, and non-constant levels of action and reaction between agents.  And a system that remains in existence for a significant period of time, responding to change from outside, must be minimally adaptive to the environment.    The adaptation requires the system to interpret, or understand, pressures being applied from outside.   How can a complex system adapt?   We can think of the hedgehog and fox essay, by Isaiah Berlin – “the fox knows many things, but the hedgehog knows one big thing.”   (Berlin, 1953).   An adaptive, interpretive system can be a hedgehog or a fox.

Adaptive, interpretative systems have two quite distinct ways of handling the complexity that underlies the variety:

(a) They can either reduce it through getting to understand it and acting on it directly. That is, they elicit the most appropriate single representation of that variety and summon up an adapted response to match it.  Such a strategy leads to specialization informed by relevant codification and abstraction of the phenomenon.

(b) Or they can absorb it through the creation of options and risk-hedging strategies. That is, they can hold multiple and sometimes conflicting representations of environmental variety, retaining in their behavioural repertoire a range of responses, each of which operates at a lower level of specialization. This approach develops behavioural plasticity. There may be less goodness of fit between any given response and the state of nature to which it needs to be matched, but the range of environmental contingencies that an organism can deal with in this way is greater than in a regime of specialization.  It may endeavor to enhance its capability to deal with a wider range of environmental contingencies …

In plainer English, an adaptive interpretive system can develop a single response, informed by judgment, and specialize;  or, the system can become more sophisticated, and develop a variety of responses that are then more suitable for individual conditions.      There can be a single system response to the same challenge – always do This, or That;   or, be adaptive in the individual circumstance.

A key characteristic of adaptive systems is the ability to undergo substantial  change, without collapse or failure. 

The decentralized complex system can survive because it can adapt.

That CCP absorptive adaptive model now needs to be called upon again, as China addresses the problems of corruption and

environmental pollution and land reclaiming.   This is a public administration problem of the first order.   Existing public administration theories allow for more effective solutions to conflict than have been used in China in the past. 

 

New Public Management – Models and Practice

The term New Public Management (NPM) refers to a view of governance that tries to incorporate consideration of “markets, managers, and measurement”  as a way of improving performance and accountability  (Ferlie, 1996).   Although NPM was a popular emerging paradigm in public administration in the US, and then in China, the number of published articles on NPM has certainly faded in recent years.  And there is no particular reason to force Chinese public administration practice into a western theoretical construct.  But the lessons – treating citizens as customers, providing information, and lessening the gap between citizens and administrators – do continue in China. 

As part of the New Public Management focus, there is increasing attention to what is referred to as “governance.”   Governance refers, in part, to the set of traditions and practices by which laws are implemented.  In essence, governance refers to both quality of governing and reasonableness of policy.   Are rules for society reasonable, and understandable by those to whom the rules are applied, and is there a sense of fairness in the application?   New public management, and governance techniques, are applied to daily effectiveness of organizations in cities in China.  But the implementation process in built environment projects remains a public administration problem in the world, but particularly in China. 

Practice

The Chinese government has learned to respond to the wishes of the people, in some cases better than in others.   In general, one expects that the higher the level of government, the more sophisticated the leadership, the less tied for promotion to enhanced local GDP, the more willing leaders will be to listen to the local view.  

Zhejiang Province is a key example.   Rich, experienced, open to the world, and innovative, Zhejiang has long been in the forefront of administrative reform in China.   The Zhejiang model of land reform, allowing for transfers of development rights (TDR) within and between local governments, is well known (Wang, Tao, and Tong, 2009).  And more recently, Haining has been selected as a pilot for land reform, allowing mortgages of village property and sales of farmer land to those outside the village; and Wenzhou has established a “rural property rights service center, that in theory allows sales of village land to citizens from within the county.    

As far back as 1995, the Yantai Service Promise System, in Shandong Province “drawing on the New Public Management approach to administration,”  represented a serious attempt to make the bureaucracy more customer oriented and professional (Foster, 2006).   Fifteen government departments were required to provide service delivery promises to citizens, and the local government leaders appeared to consider citizen complaints and survey results quite seriously in individual leader evaluations.

A version of the Yantai system was begun in Jinhua in 1996, 

and in Wenzhou, in 2003.   Other cities – Beijing, Guangzhou, and others –  have implemented more open communications with citizens, and provided a survey mechanism to review the performance of government departments. 

In addition to openness in administrative matters,  there are public officials willing to experiment.   In Shaoxing, a communications model has been used to defuse conflict between a real estate developer and neighborhood residents.   This model used intervention by the urban planning authorities to pro-actively address concerns, rather than ignoring them or waiting for conflict to reach a higher level of intensity (Zhou, 2008, unpublished).       

But these laudable experiments in communication are still focused on administrative actions and service delivery.   We are concerned here with projects, not programs, that constitute once-in-a-lifetime events for most citizens and farmers.

More commonly, however, we have seen examples of local mass protests, real conflict, being resolved by provincial or higher government leaders, stepping in at the critical moment to undo the Gordian knot of development and its externalities.   Witness environmental and land transfer conflicts in Wuhan (Provincial Party leader steps in to resolve); Dalian (City leaders vow to close paraxylene plant, and move it); Ningbo (city officials decide to cancel paraxylene plant);  Shiyang (Deputy Director of local Development and Reform Commission and former City Party leader meet with protesters);  and many other places. 

There are problems with this high tension, high conflict model, however.

Governance has two components – leadership and administration.   Both exercise power,  and both need to demonstrate legitimacy for a sense of fairness.   China, with its focus on relationship and Party loyalty, has tended to solve public conflicts in governance through application of leadership, rather than administrative techniques.    At the last moment, or too often, after the last moment (someone is killed, or worldwide media attention is obtained) a top leader, from the city or province – possibly from a central organization – steps in to mediate or construct a solution. 

But solution to conflict through application of leadership should be the least attractive option for the CCP and the government.   For reasons that are as apparent in the west as they are in China, using leadership as a solution mechanism puts leaders in uncomfortable positions, often between parties with equally good claims to authority and justice, and forces a solution that could be more sophisticated in form if left to negotiation at a lower level of authority.   Moreover, governance by leadership almost necessarily takes place after local dissatisfaction has risen to the level of local mass protest, once positions have hardened, interests are damaged, and trust in government is weakened. Governance by leadership is a high-cost strategy.  It is responding, rather than anticipating, and tends to put the government in a negative position. 

Leadership, moreover, takes on new dimensions as the demands of the economy and the culture change.   Leadership that once meant making command decisions now must be collaborative, and collaborative not only with a few subordinates and leaders, but collaborative with the general public, who demand more and better from leaders.

What to do, now?   The customary answer is training, for both leaders and for administrative staff.   Government leadership, management, and administrative technical skills can be, and are, taught.   But skills in implementation, particularly as regards dealing with the public –how to do what is desired –  remain generally untaught.   For most environmental and land decisions, “decide, announce, defend” remains the dominant implementation model.   The government decides on policy or program, announces a decision, and then is forced to defend that decision before an angry and aroused public.   But a changing environment demands changing nature of training that can utilize a different, more sophisticated model.   And the new era of development in China requires an implementation model that takes public participation into account, and in a manner more respectful of public wishes. 

 

Public Communications and Public Participation

The term public participation gongzhong canyu, 公众参与 can have many meanings, and many ways of implementing. 

There are many ideas in the “toolkit” of public participation –

Obtaining information from the government

Complaints or petitions to the government

Deliberative democracy experiments

Public meetings or hearings

“Field investigations”

Expert analysis

Online activism

Street protests and demonstrations

 

Public participation refers to the public’s involvement in government decision making, whether regulation or rule-making (zhiding tiaoli, guizhang, 制定条例,规章or administrative  xingzheng juece, 行政决策  (Horsley, 2009).   This is the definition most of interest in discussing ways of lessening public protest and improving citizens’ lives.   But this list of public participation techniques is too limited.   It does not address the response to conflict in the streets, moving to destruction of property and prestige.

A local government can provide information, and take complaints, and have public meetings, and conduct expert analysis of a project well in advance of construction, and still face mass protest at perceive injustice.  One can make the argument that with “correct” dissemination of information to the public, and properly scheduled public meetings, and serious attempts at obtaining expert opinion, there should be no need for additional public participation techniques.    The facts on the ground, however, suggest that the “correct” processes are seldom followed, and the result is the demand for public participation tools that help to resolve conflict.   The suggestion here is that skills in conflict resolution, including negotiation, should be part of the public participation toolkit.   

To be effective, and considered just by all participants, public

participation must be timely – that is, it must take place before spending commitments are made, certainly before construction begins;  information with which to analyze proposals must be provided; and it must be understood as being useful – public participation that is “public relations” rather  than public involvement is designed to result in loss of respect for, and trust in, government.

Above all, public participation must demonstrate respect for the views of the public, whether informed or not, and allow a “seat at the table” in decision making.   This is where the conflict resolution skills are necessary.

Rather than the decide-announce-defend model noted above, a

more sophisticated model for public participation is discuss-decide-announce, in which community concerns are made part of the decision-making process, rather than trying to address them at the end of a process when commitments may already be made and it is too late to develop anything but anger and resentment and protest.  Public participation needs to be more than press agentry, or one way dissemination of information, or even two-way communication that is widely asymmetric in power relations. 

 

A government that can only communicate in these ways is not a government that is confident of its role, and not a government that inspires trust.

Trust can only come from communication, and that in an honest manner.   Otherwise, communication is one-way and is public relations, not public participation. 

In design of a public participation system, there are three dimensions to keep in mind.   What is the scope of participation – will the public be permitted to protest, or petition, but without meaningful response, or will the public be considered as a partner in decision-making?    What is the method of communication – press releases and announcements, or face-to-face discussion, with decision-making to come later?   What is the extent of authority of the government participants?  Are they both responsible for decisions and authorized to make changes?  If not, then the public is going to be at a significant disadvantage in any discussion.   Why talk with people who cannot do anything?  (Feng, 2006).

It is important to keep these three dimensions in mind when considering public participation models for China.

–  Scope of participation  – must include all parties affected; 

– Mode of communication – must be timely, and useful;  special  

  efforts to communicate, and provide technical advisors for the

  public, as needed;

–  Extent of authority – participation must respect the public,

acknowledging that not all interests – even government interests-   can be equally satisfied.

Public participation in physical project review is different from administrative reviews.   Administrative actions generally do not involve threats, or perceived threats, to life, health, or livelihood;  construction projects and land takings often do.    So we are faced with conflict, rather than simple evaluation;  and public participation in conflict resolution is a far different skill than participation in surveys of prior performance. 

One of the teachers within the Chinese Academy of Governance system, Zhong Kaibin, has echoed the demand for better results from leaders, in practice of public management –

The fourth area is related to China’s transformation from a public administration system based on personal will and charisma to one that is increasingly based on rule of law, which has been recognized as necessary for a modern state government. This transformation, however, requires an independent judicial system and genuine public participation process.   (Xue and Zhong, 2012)

The existence of government schools of administration, as well as public administration programs within universities, speak to the need for professional education and continuous learning.    There are now more than 100 MPA programs in universities and Party schools across China (Wu and He, 2009).

Notably, there seems to be increasing attention in Chinese MPA programs on public communications;  negotiation, however, is a topic reserved to business (MBA) programs.   Public communications seems to be focused on public speaking and putting one’s best foot forward, as it were, rather than addressing conflict. 

A review of public administration programs at Zhejiang University, Fudan, and Shanghai Jiaotong confirms that there do not seem to be required or elective courses in conflict resolution or negotiation within public administration programs, at either the undergraduate or graduate level.   There does appear to be a negotiation course and a conflict resolution course within the Tsinghua Master’s in Public Administration Program, but both are 1 credit courses, not required and apparently not considered important topics for education. 

But the “first line” responders to community or village conflict are usually administrative staff,  in urban planning, environmental analysis, or civil engineering.   This is reasonable.   But these professionals receive no training in conflict resolution, or in negotiation.   The question remains as to how much authority such professionals have, in the face of serious conflict.   But they are the first contacts the public sees.   To reduce the spread of conflict, it is important that these “first responders”  have some training in reducing conflict.   This is recommendation No. 1.

1.Training in conflict resolution for undergraduates in urban planning and environmental programs

These are officials with the most direct understanding of issues on all sides of a conflict, and the most technical ability to address problems. 

A review of university catalogs in urban planning, civil engineering, and environmental planning suggest that there are no required courses in conflict resolution or negotiation.

The content of such courses can vary.   International undergraduate business programs already incorporate negotiation courses – examples are Fudan University and Zhejiang University of Science and Technology (ZUST).    These courses will tend to focus on business disputes rather than government-citizen conflicts, but negotiation skills can be similar in both cases. 

But the public management programs – the School of International and Public Affairs at Shanghai Jiaotong University is an example – do not have a required negotiation or conflict resolution course.   Within public administration programs in China, negotiation or dispute resolution does not appear on course listings.   The Chinese Academy of Governance does not seem to offer such courses, either.

In any case, the current negotiation courses taught in China tend to focus on business negotiation, in which both sides are fundamentally hoping to achieve the same goal – a profitable outcome.   But most disputes with village people in China are of conflictual nature, in which power distribution is clearly unequal, one side is reluctant to acknowledge the legitimate interests of the other side, and on one side there are often people willing to take to violence

to protect perceived threats to their lives, livelihood, and health.

Public administration programs, both within universities and within the schools of administration, should have a required course.   There is not a more important piece of training that leads to hé xié than conflict resolution skills.    And current public officials in districts, townships, counties, and cities need such assistance as the first line responders to conflict. 

Where should such training take place?    My suggestion is that the natural location is within the undergraduate or graduate urban planning programs at universities, and within environmental planning programs, and in the CCP schools of administration.  So, suggestion number 2:

2. Similar conflict resolution and negotiation training in graduate programs in public administration and at institutes

 

Community Empowerment – Exit and Voice

Citizens have two active potential responses to undesired local conditions – they can choose to leave, moving somewhere else where conditions might be better; or express their unhappiness.   We refer to these as exit and voice.  Among the two responses to conflict – voice, and exit –  Chinese generally do not have the choice to exit – to leave the village or the neighborhood.    Voice is their means of resolving conflict.    Voice can be discussion, at one end of a communications spectrum, or it can be violent disruption, at the other.   Violence appears when trust is lost.   Discussion, on the other hand, requires trust.   The classic description of exit and voice is by Albert Hirschman (1970).   Voice and exit both work in both the marketplace and in governance. 

The classical work of Tiebout suggests that individuals and businesses make a location decision partly on the mix of public resources available in different locations, and the prices (taxes) at which they are offered.   If the cost benefit analysis of public services and taxes paid changes for the worse, as defined by the individual, the individual or business is inclined to move, to a location with a preferable mix.   This is obviously the “exit”  choice.

The “voice” choice in provision of government services includes complaint, letters, media attention, and street protest.  

But more significant than street protest, more than complaint and media attention, is the work of community organizing and community empowerment in the US. 

Community organizing involves creation of a stronger sense of community in poor and under-served communities, through meetings and public information and creation of a sense of ownership and power, with which to confront the government.  The goal is to win attention, resources, and a “seat at the bargaining table” –  forcing government to pay attention to an organized community that is difficult or impossible to ignore, when individuals could safely be ignored. 

It is fair to say that the seat at the table – the ability to negotiate – is the desire of community organizing everywhere.  In the US, the organizing work of Saul Alinsky and his followers became so powerful that the Chicago local government created a Department of Neighborhoods in 1981, to specifically hear the “voice of the neighborhoods.”   The concept of listening to the people, in a way not provided by representative government (aldermen, mayors) or by individual media, constituted a huge change in the way neighborhoods were understood in American government.   In some cases, local governments now provide annual funds to community organizations that may oppose projects of the same local government.   This can create organized opposition.   But it does provide a way for information to flow up to the decision makers. 

Why would local government do this?   The short answer is that governments in the US do not want to see mass protests or significant organizing against what might otherwise be government policies or projects.  Smart governments want to be ahead of public opinion, not always responding to conflict.   If a “seat at the table”  is the goal of community organizing, after protest and resulting media attention, then it may be possible to provide the seat without the prior conflict.   Making community part of the decision-making process makes for good politics and, in the American sense, good governing. 

It is probably a bridge too far to suggest that governments in China provide funding for a citizen movement.    But conflict that is not addressed, except in the extreme, does not foster trust in government, and people who perceive themselves to be wronged do not forget.   At the same time, there is no negative response more

feared in harmony-seeking China  than the organized mass public protest.   Where should voice be expressed?

These are critical issues for China now, and in the next ten years.   It is no longer sufficient to promise a better world at some undetermined time in the future, when the socialist state is fully achieved.  And, it is no longer sufficient for government to take action without responsible acknowledgement of the interests of the people.   

In negotiations of all kinds, we talk about having to address two different kinds of needs – those that are tangible, and those that are intangible.  In business, we suggest that one party not agree too quickly to an otherwise acceptable offer, or make a concession too fast.  We want the other side to feel that offers and counteroffers are taken seriously.  It is understood that the intangible interests – in being treated seriously, in having positions considered fairly – are as important as tangible results.   In neighborhood and village conflicts, people have interests in a clean environment, and in fair land transfers.  These are tangible.   The intangible is being treated with respect, before, during, and after conflict.    It is no longer sufficient to offer the solution, without the expressed, and intentional, voice of the people being heard.   People have interests in clean air;  but they also have interests in being respected, which requires being heard, and is a form of justice – respect for the individual.

Barriers to Public Participation and a Solution

 

Public participation in environmental impact assessment is required by law in China (Zhang, et.al., 2012).   But despite ten years of required public involvement, the number of protests over land seizures and environmental problems, violent and otherwise, continues to grow.   The list of weaknesses in environmental assessment in China is well known.   Zhang et al., quoting Zhao, 2010 –

there are some limitations in current EIA public participation mechanism. First of all, the extent of public participation is limited. Relatively small percentage of projects is subject to the compulsory public participation requirement. On the other hand, the timing and duration of engaging the public is rather short. The way in which the public is defined and selected also brings bias to the true public participation. Secondly, the access to information is limited. Although progress has been made to increase public access to environmental information, there are still uncertainties regarding what to disclose and how much to disclose, and concerns of potential social unrest if too much information is disclosed. Thirdly, the public has limited impacts on the final decision-making. The power of all the parties is out of balance among project proponents, EIA institutions and the public. In addition, the voice of environmental NGOs in China is still relatively weak (Zhao, 2010).

Despite the widespread dissemination of policies regarding public input, implementation remains generally poor, as evidenced by the size and number of mass protests. 

Why is implementation poor?   There are several reasons.   One is political, or, shall we say, reflects a public choice perspective – leaders who see an advantage from not serving the public interest. 

There is no doubt that political obstacles can easily prevent useful implementation of the participation process.    Low level officials can easily circumvent regulations from above, and to the extent bad information does not flow up the chain of communications, upper level executives may not know about problems until the problems are well advanced in severity and complexity.

So one reason for poor quality of implementation can be found in corruption – local officials trying to collect economic rents for themselves, and deceiving the public in the practice.   This is a serious problem, and must be addressed at the highest levels of the Party.

On the government administration side, another issue is low levels of information made available to the public, or information made available in inconvenient form or at inconvenient times.      In China as in the US, a conflict resolution system will only work as well as the commitment to honest voice and openness 信息公开 xìnxīgōngkāi

There are also citizen reasons for not engaging with government in conflicts.  Low willingness to engage can come from four causes.  

–  a traditional reluctance in China to engage in public affairs;

–  lack of awareness of proposals, and a means of response (no

non-government data or information sources are available, petitions have no value)

–  fear of reprisals

–  costs to protest, including ineffectiveness of past efforts

Frustration with the process is cited by Ma, Webber, and Finlayson (2008), from Eastern Horizon.   Respondents to a survey on the failed sealing of a waste storage facility were asked what they thought of public hearings generally.   While about 40% of the respondents thought that public hearings were useful,

nearly 59% of respondents chose the answer that public hearings were ‘not useful, public opinions are rarely adopted’. In other words, most people thought that hearings were not useful and/or that public opinion was rarely heeded.

Tradition

There may be a more traditional reluctance to engage with government in China than in the west.   That is possible.  But the intense use of forms of communication – petitions, lawsuits, complaints, trips to Beijing as part of xinfang techniques – suggests that even if there is a tradition of acceptance, that tradition does not impede Chinese from attempting to make their grievances known.   This does not appear to be a reasonable argument for lack of public participation, particularly in this new era. 

Data and Means

There are many ways in which public information can be obtained prior to land takings or construction projects are begun, and all of those are in use now in China, in different places in different times.   As with many regulations and programs in China, problems lie not in the form but in the substance of the work.   The laws exist, the desire to enforce does not.

There are already systems in place to prevent illegal or undesirable conversions of land  (Heurlin, 2007).

There remains a problem of evaluation of data.   Emissions data, or controls on pollution, are beyond the ability of most citizens to evaluate.   How to provide adequate representation for citizens in conflict?  

In politics, we sometimes argue that a government needs a loyal opposition to provide better policy, better monitoring of results, and better outcomes for the society.    This article does not argue for an opposition; but it does argue for a government ombudsman, or review process, or voice in consideration of the public interest, largely construed.   No such voice exists now. 

There are many ways in which a public voice can be provided.   In China, given recent history, it is important that any system of providing additional voice be located away from local officials, and that the system clearly provide for – perhaps, require – additional delay in construction and land transfer.   Delay is always to the benefit of voice.   Delay is always detrimental to those who want to avoid the law. 

An honest search for harmony in “built environment” disputes requires that first-line responders in conflict be empowered to provide data, including any environmental reports.   But before environmental reports are completed, front line officials should be able to provide data and help citizens and peasants understand what has been provided.   So, suggestion number 3 –

3. Empower professional staff in decision-making, and publish environmental evaluation reports and demand conformance to a time frame

Fears

To address public fears regarding public participation, including threats of reprisal from government leaders, it is necessary to locate a conflict resolution or negotiation program at a level of government sufficiently removed from the local level to allow for some public trust in the process.   As noted in an village aphorism,

 

“the Center is our benefactor, the province is our relative, the county is a good person, the township is an evil person and the village is our enemy”  (Michelson, 2008)

At the same time, the way to reduce corruption at the local level – village, township, county – is to empower the public to communicate with leaders above that level.    I suggest a conflict resolution or negotiation process as that method of communication, once past the petition stage.

So, recommendation number 4 –

4. Process and professionals in conflict resolution to report to provincial authorities

Costs

Another reason for lack of participation is the understanding that protest has costs, short term and long, in several forms.   Heurlin calls this the “Peasant’s Dilemma.”   There are costs in lost time, from productive activities in farming or factories, as well as real dangers in being detained, beaten, or murdered.  See Huerlin (2005), Lichbach (1994), Javeline (2003), Whyte (2010), and many others. 

It is important for the government to encourage additional use of public participation measures by the public, as a way of deflecting anger and conflict that rises to the level of collective protest.    The costs, real and perceived, of public participation to the individual peasant are high – costs in lost time, lost wages, potential reprisals.   As a result, anger and resentment fester, and instead of being defused over time, rises to the level of organized protest as a last resort, when the costs of non-protest become too high to bear.   

There are systems in place that have been designed to address conflict that cannot be ameliorated at the local level – specifically, the petition system.   But even with recent proposed changes to the petition system, it is unlikely that this system will work to  the advantage of citizens and peasants, unless there are additional procedural delays and steps required in the development process.

So, suggestion number 5 –

5. Create a defined procedure for conflict resolution, triggered without excessive delay or petition, coming from provincial authority.

 

It is necessary to construct a dispute resolution system that is administered at the provincial level or above, with a funding source that does not depend on city or lower revenues, with trained conflict resolution experts, or trained mediators, who have power to bring about solution.    Robert Emerson made a similar suggestion in Disputes in Public Bureaucracies (1999),   cited in Michelson (2008). 

The benefit of such a system is that it provides the voice demanded by villagers and citizens.   This, per Whyte and others, is a demand for procedural justice, not distributive justice, and can substantially enhance the position of the Party.   Other measures to enhance distributive justice – greater democracy, independent courts, even hukou reform – are far more difficult for the CCP to accept.   Corruption policies are good;  but  it is doubtful whether even the most rigorous corruption regimes can reach to the lowest levels of governance, where most mass protests arise. 

If administrative officials in urban planning or another technical department are to have authority to resolve conflict, they must report to leaders sufficiently high in the CCP ranks to overrule or counteract actions by local officials.   And, of course, the technical staff should be relatively protected from the lure of corruption.    The suggestion is that each province have an urban planning staff, perhaps from the Development and Reform Commission, whose job it is to assist local technical staff in resolving conflict.   Such an official should have the ability to call a standstill to development in the face of conflict – much as the banking regulators were able to call a halt to actions regarding Zhongdan Investment Credit Guarantee Co. Ltd.,  in Beijing in 2012.   Standstill will put a halt to pressured response from villagers, force scrutiny onto local officials, and do much to restore some element of trust in government.  (Chovanec, 2012)

An argument can be made that active use of conflict resolution skills – particularly negotiation skills – is contrary to Party polices and goals, of remaining as the leader of the people.   And government plans and expertise are far beyond anything that is reasonable for the public to obtain – technical skills in planning, real estate, evaluation, budgeting, and mitigation of damages.    Consulting – in an honest, open fashion – could be viewed as government weakness.   Leaders should lead.

The contrary is true.    Leaders who are secure in their power are unafraid to ask for assistance.   There are different sources of power and types of power.   Coercion, threats, and force are ways of exercising power.   But Antonio Gramsci, in Selections from the Prison Notebooks,  used the centaur – half man, half beast – image from Machiavelli to describe the different characteristics of power.    More traditional power, violence and threats, are the beast half;  but capitalist relations demand the more human side of domination, the thinking, consensual source of power.   That is certainly where China is now, and will be.   Use of consensual means of power does not take away from leadership or authority;  it expands it.

Additions to Required Process

In addition to training for government officials, it is necessary to provide a structured public participation program for units of government.   Such a program has several elements –

  1. Requirement for submission of the public record of public hearings and public participation meeting to relevant city and provincial bureaus before a land conversion and transfer can take place
  2. Additional procedural requirements for existing public participation in environmental reviews.
  3. Any public hearing or meeting record regarding land conversion or construction of “significant public projects” must be signed by a provincial or city representative, who was in attendance at the meetings.   This should help remove principal-agent problems among village or other local leaders.
  1. Triggering of a required conflict resolution program –  when protests submitted reach a particular level – and publicized – then a conflict resolution system must be employed. 
  2. Publishing of environmental reviews in time for public consideration
  3. provide technical assistance to the public to help in understanding of technical details of proposals

 

Benefits to CCP of a defined negotiation process

 

What are the benefits to the CCP of better conflict resolution skills in the development of projects and transfer of land?   Here is a list, not in any particular order of importance.

Retain Government Authority

Conflict resolution skills, used proactively, puts the government in charge of change.    Mass protest by definition means that the public perceives that its interests are not being served, and is a failure of change management.   Asking questions at the beginning is far easier than offering concessions in a media charged atmosphere, later.

Keep Conflict Local

It is important for the CCP to keep protests local.   Negotiation and consultation before implementation is one of the best ways to do that.   Citizens in Dalian are unconcerned about negotiations on a paraxylene plant in Ningbo;  but they are concerned when the objections rise to the level of mass protest.     As an adaptive complex system, the CCP allows local solutions to local problems.   That is still true with use of better public participation techniques, but conflict resolution skills and negotiation skills add to the “toolkit” of local solutions.   China is not at the point in development or law in which national laws can be effectively enforced.   Local solutions to local problems are a satisfactory substitute.

Keep Leaders out of Local Processes

Use of planners in planning departments, or officials in environmental departments fits with a traditional Chinese approach – adaptive, not like western approaches, which are more complexity reducing (using law and regulations),  Chinese approaches would be more complexity absorbing (harmony and guanxi)).   In any case, leaders should be kept out of the process as much as possible.  

Reduce Costs of Governance

Mass protest is far more costly to the government and CCP than to villagers or citizens.    By the time conflict reaches the stage of mass protest, the cost to organizing at the village level is small, and the cost to leaders in terms of trust and image is very high.   In this era, information is relatively easy to obtain, voice, as expressed through social media, is cheap.    A small expense in time and money at the beginning of a project will seem very inexpensive when compared with the costs of dealing with protest later. 

Remove Threat of Reprisals

Consultation and negotiation at the beginning removes threats of reprisal from local officials to citizens; which enhances trust in government and creates working relationships.    There have also been cases of threats by the public of revealing confidential  information about leaders,  as a way of forcing upper level action against local leaders.   While providing information about corrupt leaders is good, extortion is not. 

Strengthen Party Discipline Process   

Use of a defined conflict resolution process provides additional evaluation information for both discipline inspection and the organization departments.   How well can leaders serve the public interest?

Increased Party Legitimacy and Flexibility

Allow local solutions for local problems   – including response to petitions, and reduce the use of “extra-legal” actions – chengguan – that stifle protest and decrease legitimacy

Novel idea – Strength Through Openness

Real power is shown in not having to use it.  See  sun tzu-  “the supreme art of war is to subdue the enemy without fighting”   sun tzu    孙子   writing in The Art of War孙子兵法,  Sūnzǐ Bīngfǎ.

Provide Administrative Clarity

 As in Yantai – provide a defined system for protest, rather than the ad hoc system now in place.   This alone, if done in an open and honest way, should provide greater trust in government.

Rationalize Land Use Procedures

Even though several provinces, including Zhejiang, have announced plans to reform rural land use and sales, there remains the problem of how to plan for future uses below the county level.    If peasants are going to be provided with stronger land use rights, then a stronger system of adjudicating those rights must be in place.   A conflict resolution system provides a means of doing that, without having to resort to court actions which may be influenced by local officials in any case. 

Improve the Business Climate

Increased use of conflict resolution or negotiation skills, in advance of significant conflict, improves the business climate by bringing difficult issues – land conversion, pollution – to the leadership at the beginning, when solutions may be possible, rather than later when solutions may be impossible and government legitimacy is lessened. 

There may be additional costs to using better public participation skills.   Costs may be in simple delay, or significant costs in pollution equipment or additional compensation to farmers.   It seems difficult to argue against such spending, however. 

Allow Regional Solutions

At the same time as local solutions – within the township, or village – to local problems are enhanced, there may be a need to consider more regional solutions to larger problems.  The pollution impacts from a steel factory, or a coal burning power plant, are regional.   An honest public participation process allows for consideration of who should be “at the table” in discussion of regional issues, and a structured conflict resolution process is a way to do that.

Improve Evaluation of Cadres

The Organization Department zu zhi bu  already takes into account more than simple GDP growth in the evaluation of leaders for future positions.  The absence of conflict is another measure.   This can be enhanced by existence of a defined public participation program that reduces conflict.   Use of the techniques is not a negative for leaders;  it should be considered a positive development, demonstrating consideration of public needs in addition to business needs. 

Reduce Corruption –  An honest public participation program acts to reduce corruption, since it raises issues of conflict before a project is implemented, and allows the public to ask the question that all too often goes unanswered in China – “why?”

 

Removes Pressure from Leaders for Special Privilege

The honest leader can find himself in a difficult position when pressured by powerful business owners or other government officials to approve a project to which the leader has objections.   The ability to use a structured public participation program, required by law or local practice, allows the leader to “put more moving parts” into the machine of project approval.  Significant opposition by the public cannot be ignored.

Address Democratic Issues

At its most fundamental, democracy is a system for providing voice to the public.  Democracy with Chinese characteristics will certainly not look like American democracy.   But additional voice for the public in China, particularly on those projects in which they are most interested and have the most stake is a good step in the direction of Singapore, which certainly is not democratic but allows voice.

Serve the People

An honest public participation program serves the needs of the people, both locally and regionally.   The program will require additional data and analysis, which may not be available to the public in government channels;  but that is a small cost to pay for the benefits of providing more harmony.

There are many ways to provide additional voice to the Chinese people.   A China that wishes to lead, not only in economics but in public approbation, should do better on government effectiveness.   A dispute resolution system is necessary, feasible, and Chinese.   It is the manifestation of harmony with Chinese characteristics. 

 

 

 

 

 

 

 

 

 

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A Note on the Middle Income Trap

In the last couple of years, a number of China political observers have commented on the dangers to China of the middle income trap.  The fear is that the Chinese economy will fall into the trap. Since economic growth is the remaining claim to legitimacy for CCP, a substantial slowdown from real growth rates of 6 to 15 per cent per year, which obtained in the last forty years, will be disturbing to the harmony that keeps CCP in power. 

In what follows I am not making direct claims for or against the middle income trap in China, only describing the concept. 

What does the middle income trap mean? 

Most models of national development posit a growth track that demands –

– increased savings, so savings can be used for investment;

– an abundant low wage population;

– transfer of low wage, low productivity workers into higher productivity jobs in factories;

– promotion of exports; and

– a progression to higher levels of productivity, eventually approaching the GDP per person levels of the most developed countries. 

Only a few countries – notably, the Asian Tigers – Singapore, South Korea, Taiwan, Hong Kong – have made that transition.  More countries have begun the transition and after a couple of decades, found themselves stuck – unable to significantly increase GDP per person.  That list is longer – Mexico, Philippines, Malaysia, Indonesia, Turkey. The World Bank has identified 37 countries that are prisoners of the middle income trap.  These countries have achieved middle-income country status, but seem unable to pass that barrier, or trap. 

It is important to note that the middle income trap does not mean people are starving, or in poor health.  It does not mean that economies are failing, only that GDP/person is failing to grow much.  National economies are stuck, not declining.   But notably, economic performance is the remaining claim to legitimacy for CCP, now that Marxism-Leninism is discredited (except for Mr. Xi) and nationalism is a dangerous ally.  If nothing else, the middle income trap may be just reversion to the mean of GDP growth.  But that alone is scary for a government whose claim to legitimacy is growth. 

Reasons for the middle income trap include the need to transition institutional arrangements, from those that worked well when the country was emerging from poverty to those needed for higher quality growth – one can imagine changes in rules about finance, banking, savings, property ownership, transfers of ownership, control of bribery and corruption.  With increasing sophistication of work come demands for increasing sophistication of education – workers in finance need different training than workers on factory assembly lines.   Also, changes in cultural features – attitudes to education, health care, family connectedness.   Acemoglu and Robinson in Why Nations Fail boil most of the necessary changes down to institutional change – rules, regulations, laws, customs built in to culture. 

Is there evidence for the middle income trap in China?  Here are some things that keep Chinese macroeconomists up at night.

 Scott Rozelle, education and health researcher in rural China, defines part of the problem, not mentioned in glowing reviews of Chinese economic power.  In decades of research across many Chinese provinces, he finds that iron deficiency anemia was present in 40% of students in fourth and fifth grade in at least four rural provinces; in Guizhou and other southern provinces, 50% of children suffered from at least one type of intestinal parasite; and nearsightedly was common in schoolchildren, but went unaddressed in many rural areas.   Health care and education in rural areas is now significantly better than twenty years ago, but problems persist for much of the rural population.   The health problems are definitely treatable; but they persist, nevertheless.   Rozelle has found that 15% to 20% of rural kids do not do not complete middle high school.  That is a fearful statistic for future growth.   Many of those same kids are affected by poor quality or poisonous drinking water, or rice laden with heavy metals, or air that is even more poisonous.  China has been a leader in flashy environmental projects – wind, solar, dam construction.  Not so much in the unflashy, dirty job of cleaning air, water, land, or ensuring food quality.  Spending on those items will make no contribution to exports or factory technology or even short term health.  For local officials, what’s the point?

For those rural kids, China now has much less ability to build on exports to fuel internal growth.  The rural school children who don’t go to high school are not going to swing investment deals in London, and other countries in Asia and Africa are now lower cost producers of commodity and low-end  products.  That part of the growth path is now less available in China for the 800,000,000 or so who are not middle class and living in Beijing or Shanghai or Hangzhou.  How will they flourish?

That is one side of the problem.  Another side is the ability of superior Chinese scientists and engineers to continue with indigenous innovation.   In one sense, this is not a problem – what is not invented can be stolen, as in the past.  But innovation is no longer an individual working in his garage, but coordinated lab work and bench work and computer work, and collaboration with people outside China is vital.  The Great Firewall, in all its manifestations, inhibits that.  On a project basis, that may not be much of a problem.  In addition to theft, direct internet access to western journals and scientific reports in readily available within scientific and engineering schools and labs.  The firewall, which is eminently adjustable locally, does not affect them.  On another level, however, those same scientists and engineers can find themselves unable to participate in the events of the world in which they have an interest – conferences and symposia and simply news of family and friends outside China.  Sometimes, these sophisticated workers find the daily restrictions and requirements – writing paeans to Xi Jinping Thought, as is a current requirement –  to be just too stupid, and they leave.  They don’t want their kids to write such paeans, either.

When we look at the macroeconomic picture of China is all its glory and warts, we come down to the Acemoglu and Robinson prescription – institutional change.  The change required is not small.  It is systemic, and at the heart of the Chinese model for the last forty years – financial repression and investment in infrastructure and real estate.  Interest on savings in banks was held low, so loans to SOE and other factories and real estate developers could be held low as well.  The hukou kept peasants out of cities, keeping social overhead capital for poor people – primary and secondary education, health care, low income housing, pensions – mostly out of government budgets.  But changing the model means changing the relative shares of income in the economy – poor people and farmers and ordinary savers need to get a larger share of total income, and lots of vested interests in government and SOE and banks need to get a smaller share.  The reluctance to share in China is no less than it is on Wall Street, hence the political conundrum.  Social spending in China on education and health care and pensions needs to go up significantly, as China ages and education needs are greater and pensions, long a source of misspent and stolen funds and poor accounting, become a bigger factor in people’s lives. 

Truthfully, when reform began in 1978, China did need every piece of infrastructure that it could build – trains, planes, airports, ports, expressways, housing, factories, offices.  Now, what was needed is built, and far more.  The return to GDP from more construction is less and less.  That contributor to GDP growth is no more.  But building more stuff is the only lever that officials have right now to goose short term GDP. 

Finally, the world is no longer cooperating with China.  For forty years, in the US and Europe, policy makers were willing to accept some job losses in return for low priced consumer goods.  Now, in 2019, governments are less willing to trade jobs and technology for low priced shirts and televisions.   That is one threat facing China.  Another is the economic construct of a secular stagnation, a  general slowdown in all the advanced economies attributable to ageing populations (which don’t buy as much), greater income disparities (since the wealthy don’t simply buy more food or shirts or televisions), greater savings in advanced economies (due to risks of recession or simple job loss), and even greater flexibility in wages and prices, which we normally think of as a good economic outcome (flexibility can increase savings and decrease spending because incomes can now fall as well as rise).  In general, there is more savings than the world can profitably use, and investment levels remain anemic.  This is certainly not good for China exports or profitable Chinese infrastructure investments overseas. 

There is no guarantee that GDP/person will fail to grow in China.  But the threat is there, as evidenced by the paper by Barry EichengreenDonghyun ParkKwanho Shin in 2013 – Growth Slowdowns Redux: New Evidence on the Middle-Income Trap.  Their conclusion – We also find that slowdowns are less likely in countries where the population has a relatively high level of secondary and tertiary education and where high-technology products account for a relatively large share of exports, consistent with our earlier emphasis of the importance of moving up the technology ladder in order to avoid the middle-income trap.

That is what CCP theoreticians and macroeconomists are thinking about. 

Cultural Economy

In the old days, before about 1890, there was no field of economics.  There was only political economy, rightly reflecting the link between institutions and laws and the incentives they created.  As Acemoglu and Robinson pointed out in Why Nations Fail, what we call economics arises from the interplay of culture and institutions, and to think that economics is the same for all is to think poorly.

I want to point out some of the ways in which economic thinking can differ across cultures, and explain some of what we see in development in China, and in foreign countries with Chinese companies. 

Economic issues are necessarily paramount for any national leader.  Right now, both Mr. Xi and Mr. Trump derive their legitimacy from promises to achieve national greatness again, and for both, this fervent hope has much citizen – that is, cultural – support.  For Trump, the political slogan is Make America Great Again; for Xi, Made in China 2025, or perhaps, Socialism with Chinese Characteristics for a New Era.  

In China, this promise is more than a political slogan – more than, it’s the economy, stupid.  For Xi and CCP, the promise of development is at the heart of the promise to the Chinese people. All other values are to serve that purpose.  That has been CCP policy since inception.  The CCP Constitution is pretty clear –

In leading the cause of socialism, the Communist Party of China must persist in taking economic development as the central task, making all other work subordinate to and serve this central task.

Chinese development internally has been one of the world’s great stories – from extreme deprivation and depression to dual tier markets and township village enterprises and some land rights and property rights and competition law and insurance and stock markets and financial markets of all kinds.  The infrastructure miracle is the obvious sign of change for investors and foreigners alike.  But China doesn’t seek to export its development model.  It is understood that China is sui generis – except for infrastructure, where the universal model always seems to be, if you build it, they will come.

Many revenue-generating infrastructure projects within China seem structured as loss leaders for economic development, to the benefit of the local party chief.  There just isn’t any way for the completed project to throw off enough cash to pay for all construction and development and operating costs. One sees this in some expressways, subways, some high speed train lines, some airports and ports. The completed projects are beautifully appointed white elephants. How can this go on, year after year, across China?  Where is the ROI calculation?  Where is the money coming from? Who is eating the losses?

One has to understand the difference in ways of understanding economics in China and the west.  This means understanding how culture drives incentives. Economic interpretations are culturally implanted. Thinking about long and short term can be different. Thinking about goals can be different.  What is rational can be different. Let me give you some examples. First, from the savings side of the market.

Example 1 – bank savings 

It is about as fundamental an economic idea as there is.  When returns go up, people invest more and restrain consumption.  Interest rates go up, people will save more, and restrain consumption.  At the national level, macroeconomists have to figure out the impact of potential changes in interest rates, exchange rates, employment rates and investment.  What will people do? And while every situation has its own special character, when one has been making judgments for a while, one gets a feel.   So it was with some surprise that I saw Chinese policy makers discussing the impact of a rise in interest rates on savings.  This was at a time that policy makers were debating whether to allow rates on bank savings to rise, giving citizens a bit more of a return on their money, commensurate with growth in the economy, and ever-so-slightly slowing demand for money from developers and governments.

But what’s to discuss?  If interest rates go up, people put more money in the bank.  That is how the world works.

But maybe not always.  Our standard assumption, seldom noted, is that people are unconstrained in their choice to save or consume – that is, people are free to alter their spending or savings pattern as they wish.  For many savers in China – for most of us in the real world – that is not true.  You know the deep cultural importance attached to education in China.  Families, grandparents, will sacrifice mightily to save enough money to send their star student off to college, maybe high school, in America.  That may take extreme savings over a fifteen year period, but the investment is considered worth it.   If the grandparents have a defined monetary goal – $50,000 in fifteen years, then savings of $240 per month are required if interest rates on bank savings are 2%.  Returns in the real economy might be 7%, or 10%, but savers never see those returns.   But suppose policy makers allow interest rates to rise – say to 5%.  Then monthly savings of $193 are required to meet the future monetary goal, and perhaps grandma and grandpa can eat a little better, or afford the medicine they sacrificed for the cause.  Current consumption instead of savings.  The policy question is then, will they spend the extra $47 per month, or save it?  If you are a policymaker, how do you think about the goals of savings?  If you raise interest rates, will people put more money in the bank – or less?  Without some handle on the cultural features of savings, you don’t know.  And don’t let libertarians or advisors whose understanding of economics includes no psychology or human behavior tell you that economics has no cultural biases. 

Example 2 – trust and good faith

Getting to Yes is the well-known book on negotiating by Roger Fisher and William Ury.  I think everyone in the world who has ever taken a negotiation course has read this book.  In it, Fisher and Ury lay out the major principles for successful business negotiating over time – focus on interests, not positions; try to invent options for mutual gains; quantify or be clear about goals and measures of success. They are well aware that some negotiators lie, cheat, and distract, for the sake of the bargain.  But a general assumption in the US at least, is that the parties are negotiating in good faith – meaning a sincere intention to deal fairly with others.  In American contract law, good faith means that one party will not act so as to destroy the ability of the other side to receive intended benefits.

That is decidedly not a good assumption in negotiating in China.  The best known classics of war, and negotiating, in China are san shi liu ji, 36 Stratagems, and sun zi bing fa, the Art of War, by Sunzi.   Both are studied closely by students and businessmen.  Both emphasize deception, misdirection, and secrecy in dealing with the enemy.

With apologies to Chinese businessmen who have been highly successful by acting in open and principled ways with Chinese and foreigners, good faith is not a good assumption.  Stories about misunderstandings in completed negotiations or the irrelevance of a signed contract can be attributed to cultural differences. This is part of learning the turf.  But other problems, such as quality fadetheft of molds and IP, even kidnapping of American business people over payment disputes, are not cultural, but simply describe dishonest behavior.  This, when negotiations in China are designed to take extra time in order to build relationships.

Even within a company, growth plans can be secret, the province of only the owner. Survival and growth in the market is akin to warfare. Sunzi tells us that deception is a necessity, even when dealing with subordinates. 

5:19 Energy – Thus one who is skillful at keeping the enemy on the move maintains deceitful appearances, according to which the enemy will act.

6:9 Weak Points and Strong O divine art of subtlety and secrecy! Through you we learn to be invisible, through you inaudible; and hence we can hold the enemy’s fate in our hands.

11:35,36 The Nine Situations  It is the business of a general to be quiet and thus ensure secrecy; upright and just, and thus maintain order… He must be able to mystify his officers and men by false reports and appearances, Literally, “to deceive their eyes and ears”and thus keep them in total ignorance.

Per Sunzi, and per common practice, implementation in business or government can then be undertaken without clarity for underlings. It is a powerful tool in both business and government. Clarity for CCP underlings is not required when leaders are the only source of truth and know the goal.  For leaders, lack of clarity permits use of oppression when unclear laws are violated. For citizens, lack of clarity requires self-censorship in word and deed. In business, proper use of unclarity and deception might induce the “other side” in any negotiation to reveal its secrets or preferences, or even act rashly when confronted with apparent delay or indecision.  In the best of times, trust in good intentions is limited.  There is no good faith in the absence of relationship built over time.

This is both a powerful tool and a crippling handicap in Chinese international infrastructure deals.  Initial lightning speed and mystery in decision-making overwhelm opposition, but in the longer term, substantial good will is lost.  We dealt with that problem in the US – the model of government action as “decide, announce, defend” became too costly in time and lawsuits.  Better is “discuss, decide, build.”  But that isn’t necessary in an authoritarian state.

Example 3 – infrastructure investment

We are all astounded by the sheer extent of Chinese infrastructure investment in the last ten years.  The stimulus in 2008 was far larger, as a per cent of the economy, than the American one.  But those of us with some boots on the ground are also astounded at the sheer wastefulness of some of that investment.  We know that these projects are financed by bank loans, and those loans come due in three years or so – banks are not long term lenders.  And aside from projects taking three years to build, we have the experience of (theoretical) revenue generating projects that cannot possibly generate enough money to pay for construction and interest and operations.  No way.  A favorite example of mine is a new expressway built from Shanghai to Pudong, where the international airport is located, completed about 2008.  My first trip to the airport in 2008 was uneventful, for the simple reason that there were hardly any other vehicles on the road for 30 miles.  I mean, nearly zero.  At the time, this was a new expressway, and I suppose the information of its availability could have been scarce.  Possibly.  But I used that expressway at least twice a year for eight years, and the level of congestion hardly changed, anytime of the day or night, weekend or not.  Nearly no traffic.

There were simply too many other competing routes to the airport.  Big mistakes are possible everywhere in the world on infrastructure projects, the US being no exception, but we see similar stories repeated across China.  Transportation economists and engineers work pretty hard to forecast traffic and revenues, consider alternative routes and toll costs, and while the results are less than perfectly accurate, they are a decent guide to the investment decision.  But voters in the US, not to mention bond holders, would be more than a little exercised if their investment produced no ability to repay after so much planning.  Is there a different calculus in China?

Chinese planners have the means to make perfectly rational decisions about such matters.  So how can such revenue-short projects get built over and over again – aside from the pressure on local officials whose promotions depend upon generation of a target level of GDP in their three or five year term, and the need to spend following the huge 2008 stimulus.  Is the investment planning really for a twenty year horizon, at which time future demand will be sufficient to pay off the loans?  (I did transportation planning and economics work for some years.  There is no twenty-year projection of expressway use that is worth the spending of electrons to produce).

There is a way to make sense of these deadbeat projects, whether they are expressways, high speed train lines, airports or commercial ports.  And there is a way to understand the difference with western decision-making.  Given that the real decision is a political one, even more so than in the US, the trick is to consider than the long term doesn’t really matter.  A little bit of the cynical Wall Street IBG, YBG – by the time it matters, I’ll be gone, you’ll be gone.

How to understand this?  A simple chart from econ 101 should help.  A key point to understand is that the construction contractors, lenders, and local government investors in these projects are either government entities or heavily government-compromised.  While many big SOE make big profits, the companies can have political goals as well.  This means that they are not strict profit maximizers, in basic econ terms.  This also means that someone will take care of them in times of trouble.

Many, if not most, expressway projects in China are constructed by SOE as what we call B-O-T projects – build, operate, and transfer.  The concept is that the SOE contractor borrows the money to build the expressway, and receives tolls for a period of time – twenty years, let us say – to repay the loan and provide profits for the contractor. At some point in the future, the right to receive tolls reverts to the original government owner of the expressway.

But what happens when tolls are nowhere near enough to pay back loans?  This is a rather common problem.  Or would be a problem in the US.  Two particular ideas of “capitalism with Chinese characteristics” pertain here.

  • Loans for construction are bank loans, but the borrower may include local governments where the branch of the lending bank is located and even though loans come due every three years or so, the loans can be rolled over again … and again. That is part of what the SASAC (State Asset Supervision and Administration Commission) does – help borrowers roll loans among different local lenders. At some point in the future, someone will have to deal with these problem loans – perhaps one of the “bad banks” created for that purpose. But that is not now.  Just FYI, my favorite expressway to Pudong is now being handled by the one of the SASAC units in Zhejiang.
  • But wouldn’t the construction companies get cold feet, or nervous about not receiving planned income or having to repay the banks? Not necessarily.  In many recent cases, the borrower is actually a partnership between local governments and an SOE contractor.  And here is a neat trick, that could – theoretically – explain how the contractor can sleep at night.

How do regular retail stores decide to close for the evening, or the season?  How does a Starbucks decide to close at 10:00 PM, and then, miraculously, reopen at 6:00 AM?  Why not stay open all night?  Or, the ski lodge – open for five months a year, then close for seven months, and reopen?  How can this work, with mortgages and taxes and rents to pay?

The econ 101 answer is that businesses will shut down temporarily when revenues cannot cover average variable costs – for Starbucks, the cost of salaries and cups and coffee and heat or a/c.  If these variable costs can be covered, then the store will remain open.  If not, then close down and reopen when there will be enough customers – in the morning – that you can reliably cover average total costs.  In the morning, you will begin taking in enough revenue to cover operating costs and the bank loans and interest and rent and insurance and other fixed costs and make a profit. In the short run, you stay open if you can cover average variable cost.  In the long run, you have to cover all the other costs as well, but that is the long run. This is also the situation for the Chinese expressway with little traffic.

Stay with me on this, and the graphic representation will help.

In the figure below, you can see that the price P of the good is still above average variable cost AVC at the quantity Q being sold.  In this case, the seller should remain open, as long as the seller is confident that sales will pick up at some point in the near future (the morning) and sales quantities will then be at or above average total cost ATC.  Think of the price here as the price of the average sale at 2:00 AM; by 11:00 AM, both the average sale and the quantity sold will be greater, putting the company into a profitable situation again.

  • Even though the firm is not earning any economic profit, it is earning enough to pay their laborers (AVC), and thus it incurs less loss compared to the whole of average fixed cost.
  • In this situation, the company should continue producing the product.
  • P = MR > AVC , P = MR < ATC –> point where MC = MR minimize its loss
  • Economic loss = Q (ATC – P)
  • When AVC < P < ATC, the firm can stay open as long as they can cover the AVC
  • If a firm can cover all of the AVC and even part of the fixed costs, they will lose less than shutting down, as MR < ATC
    • Shutting down would mean losing everything and still have to pay for fixed costs, while in the loss minimizing case, costs are still covered.

Source: Welker’s Wikinomics

The same concept can apply to Chinese construction companies in BOT projects.  Loan servicing costs don’t really matter.  Someone, sometime, will deal with that, in the long run. If tolls from cars and trucks – and tolls are very high in China* – can cover operating costs – labor to collect tolls and trim bushes – then the project can remain open.

*Example – passenger car tolls for the 600 mile trip from Hangzhou to Jingzhou, in Hubei Province, are about 500 yuan, one way – say $75.

This is only a theoretical example.  I don’t really know if this is the thinking behind expressway projects that will never make money with debt taken into account. More likely is the the leader at some point said, proceed, and at that point, money became no obstacle.  And obviously some projects can pay their debts. You can see why big projects are often development projects, with revenues from related operations – retail stores, sales of apartments, rental from offices – rather than simply infrastructure projects.  Just like the building of the transcontinental railroad in the US, where the railroads were given land to use for non-railroad revenue.

The example shows what could be a rationale for continuing to operate the expressway.  And a positive spin on this story would be that to a much greater extent than in the US, Chinese infrastructure projects are expected to pay for themselves. 

When they cannot pay for themselves, loans are, in fact, rolled over again and again.  At some point, these projects with negative economic value must be recognized as such, and GDP will suffer as the project is written down to some value via sale to a third party, all the partners and the bank will need to take a big hit, or else someone – some government – will need to continually feed money into the project to cover debts.  This process usually happens quickly in the US, in bankruptcy.  In China, the process can take many years, but that is what the “bad banks” are for – to take the otherwise uneconomic projects and run them until they can be sold to someone or debt finally paid off by the Ministry of Finance.  The current idea is to convert the bank debt into bonds owned by the banks, and let the banks sell the bonds to (haha!) foreign investors.  Win-win!

Example 4 – stock investing

Stock markets were originally intended to accomplish two tasks – provide a source of funds for SOE, and “privatize” some of the risk. These efforts succeeded, and now most companies on the Shanghai stock exchange are SOE, with private funds supplementing a major government position, either ownership or management. Two way foreign and domestic stock market trade between Shanghai and Hong Kong has been allowed since 2014, and there is now an rmb clearing function in London, meaning trades can be settled in rmb outside of China. Now the government is pushing quite hard to get foreign investors directly into stocks and bonds in China.

My own somewhat cynical view is that this is not in the long term interest of Hong Kong or London – or foreign investors.  As long as CCP controls markets in China – and Mr. Xi is reestablishing the “Party is fundamental in all markets” philosophy – markets will not receive the sort of information needed to function efficiently.  Observe how much markets in China are affected by news reports or a speech by a particular high level official.  And observe the somewhat herd-like behavior of Chinese in purchases – a good word from the government suggests safety and profitability in a nation critically short of widespread basic economic news, not to mention divergent views. 

Michael Pettis does a superb job in pointing out the structure and pitfalls of China investing. He is one of the few China macroeconomic analysts with both western and Chinese investment trading experience, as well as the academic chops to put all in context.  Those interested in China financial markets should not miss a posting, now hosted at the Carnegie Center for International Peace.  Every post is rich.

Pettis writes most about overinvestment and the necessary macro adjustments, but his writing about the stock markets is also insightful. Writing in late 2013, he made an important point –  The recent Nobel Prizes in economics suggest both that markets are efficient, and that they are not. In fact they are likely to be efficient under certain conditions and inefficient under others.

Pettis argues that stock markets can be efficient at allocating capital under some conditions and not others.  He sees the need for an appropriate mix of three different kinds of investors, with different investment profiles, which he terms fundamental investors, relative value investors, and speculators. 

It is now 2019.  I don’t follow the Chinese stock market, and perhaps Pettis now has a different view.  But the fundamental conditions seem unchanged to me, if not more destabilizing than they were in 2015 and before.

He defines the three segments as follows –

  • Fundamental investment, also called value investment, involves buying assets in order to earn the economic value generated over the life of the investment. When investors attempt to project and assess the long-term cash flows generated by an asset, to discount those cash flows at some rate that acknowledges the riskiness of those projections, and to determine what an appropriate price is, they are acting as fundamental investors.

These investors are buying the long term trend of the economy, or the long term prospects for an individual company.  They want good financial information on companies.

  • Relative value investing, which includes arbitrage, involves exploiting pricing inefficiencies to make low-risk profits. Relative value investors may not have a clear idea of the fundamental value of an asset, but this doesn’t matter to them. They hope to compare assets and determine whether one asset is over- or underpriced relative to another, and if so, to profit from an eventual convergence in prices.

These investors are buying the shorter term trend in the market, and perhaps choosing among individuals stocks in one industry, based on what information they have.

  • Speculation is actually a group of related investment strategies that take advantage of information that will have an immediate effect on prices by causing short-term changes in supply or demand factors that may affect an asset’s price in the hours, days, or weeks to come. These changes may be only temporarily and may eventually reverse themselves, but by trading quickly, speculators can profit from short-term expected price changes.

These investors are looking at price changes over a span of minutes, hours, or days.  They respond to signals that are clearly not fundamental to the growth of the economy, such as insider behavior or political announcements.

Michael Pettis. The Difficult Politics of Economic Adjustment. China Financial Markets, November 11, 2013. Now at Carnegie Endowment for International Peace as When Are Markets Rational?  Note – versions of this newsletter are available online, but for the most part they do not include this stock market analysis.  The stock market portion of the post is at Naked Capitalism.

Pettis argues that stock markets in China are inefficient because the data necessary for fundamental investors – good macroeconomic data, honest financial statements, clear corporate governance – is lacking; and China has few value investors, because the conditions they need – ability to trade frequently and quickly at low cost, and ability to short securities – is also absent.  Speculators, he says, trade against very short term trend information, and are unconcerned about long term market fundamentals for a particular company.  China stock markets are dominated by speculators.

One could categorize these three investor types as having long, medium, and short term horizons.  Each type of investor looks at different information or analyzes the same information differently, and an efficient market can result when all information is available on which to trade.  Without a good mix of all three, markets lose flexibility, and don’t allocate capital well.  The Chinese markets are necessarily dominated by speculators – roughly 80% of stocks are held by retail traders, mostly individuals. The top ten listed companies on the Shanghai exchange are SOE, and most of the companies and the values are in government owned companies.  China has pension funds and insurance companies that can take a long term view; but even those industries cannot get access to trustworthy and general fundamental information on companies.  As a result, markets can be very volatile.

Example from Financial Times, September 27, 2017 –


When China’s vice-minister of industry said this month that Beijing was considering setting a deadline to ban sales of fossil fuel-powered cars, most auto industry experts did not overreact. The official did not offer any timetable, and rich countries such as Britain and France have set distant deadlines of 2040. Judging by the market reaction in Hong Kong, however, investors could be forgiven for thinking the statement was a bombshell. Shares in BYD, China’s largest producer of electric vehicles, surged to a record that day and are up more than 60 per cent this month. After BYD’s chairman speculated China’s deadline could be 2030 — in what experts said was more of a lobbying effort than a prediction — shares in the group’s separately listed mobile-handset unit also hit a record, despite the fact the company is not even involved in cars.

Not even involved in cars.

Even today, 80% of the listed companies on exchanges are SOE.  There can be little investor confidence in any market data, from government or an individual company.  Pettis notes that even credit decisions must become speculative, because when bankruptcy is a political decision and not an economic outcome, lending decisions are driven not by considerations of economic value but by political calculations.  See the example of Pudong expressway construction above. 

There are plenty of other ways in which “economics with Chinese characteristics” is different from that in the US – some of those ways make much more sense than what we think of as normal economics.  I thought it would be fun to point out some differences – for good or for ill – that could lead to cultural, institutional, and even economic change in the US.  After all, we import just about everything else from China.  Ideas may be next – after all, Mr. Trump and the GOP follow Mr. Xi and CCP in political philosophy in so many ways now.  Lightning speed and mystery and decision-making for the oligarchs and financial instability – no infrastructure, so far, though.

Are you getting hammered from the typhoon?

The constant question from the US in fall of 2015 …

Hangzhou, Xihu District, Shui Mu Qing Hua residential development.  Reporting from the front.  On the fifth floor.

Liu hé lu, the street right outside the school and our apartment complex, was flooded today. That is the only exit from our development.  Late in the day, there was occasional traffic in each direction in the west bound lanes only; a few of the brave drivers who made the attempt did not stall or get flooded out.  Other major local streets were also flooded, and closed.  There is no other way in or out of our development, and all the other developments to the west of us.  The thousands of us were stranded, at least for the rest of the day. The street floods a couple of time a year anyway, so this was not unexpected. 

Source: Englishsina.com

Source:  chinadaily.com.cn

We have no school tomorrow morning, since the school felt that many teachers, who live just a few minutes away but have to travel liu he lu to get here, will not be able to make it. Maybe have school in the afternoon.  Contact everyone by wechat, and teachers should stand by, ready to respond.

Literally closer to home, we had some ceiling leaks coming from the apartment above.  We are on the fifth floor of a six-story walk-up.

So, lessons about real estate in China –  the apartment above is owned by a woman from Guangdong, in the south of China.  Currently, no one lives in the apartment above.   The owner will not decorate it – do the buildout – because it is not worth it to get the rent.  One reason why apartment construction is so much faster in China than in the US is that the work done by the developer is so much less – excavation, foundations, concrete block walls, plumbing risers with stubs into units, same for electricity, poured concrete floors, stairs, windows, exterior doors to apartments, c’est fini. At a point when an American developer would be about 50% complete with the project, the Chinese developer is walking away.  The apartment above us is left in its pristine original unfinished condition.

The owner above us rents the apartment out as is, bare concrete walls, sort of a makeshift squat toilet and tiny sink.   No kitchen at all.   No furniture, of course.  No lights, no gas.

She rents this apartment to students, and to construction workers (farmers) working on local projects.   The rent is clearly unstable, and the apartment has been vacant for a few months now.   When students were living there, the owner had divided the apartment with makeshift walls and doors into five or six separate units, each about 10 square meters, that student couples rented.   Sort of “starter” apartments for couples.  The students or workers run some bare wires, attach some light bulbs.  Take some plastic tubing, lay it on the floor, and that is water supply to a sort of kitchen and a bathroom.  Tape some plastic pipe to the concrete wall to get a shower effect in the bathroom.  You get the idea.  Not quite up to code.  But no problem in libertarian China.

With no one living there, the owner gave the key to the management company for our development that hires people to take care of landscaping, general cleaning, trash removal, and the guards.

It appears that people from the management company, or their contract workers, would use the apartment from time to time.  In any case, it appears that some of the windows above us were left open during the typhoon, hence the inch or two of water on the floor, hence our ceiling leaks.   Since the apartment above ours is the top floor, it is also distinctly possible that the leaks are coming from the roof, probably not the flat parts but from flashings or places where pipes go through the roof, maybe with little or inappropriate flashing.   There are also a couple of windows out in the unit upstairs, certainly a big source of water in a typhoon. 

Whatever the source, the problems became evident yesterday morning, when the dining room ceiling began to leak.   Qing called the management company – three times – before someone came over to take a look.   First call – call answered, promise to send someone over, but no physical response; second call, not our problem, call the owner;  third call, this time a bit more insistent, then five people show up, with little dust-cleaning pans and brooms that one might use to sweep the kitchen floor. Very light duty if all one were doing is mopping the floor as part of a daily routine.  This was ceiling leaks in five or six places in our apartment. Chinese response -lots of labor, few or poor tools. 

But sometimes throwing labor at a problem works.   In about an hour, they had the floor about as dry as it was going to get.   The leaks have stopped in our apartment.  We asked the management company to keep the door to the unit open, so we could inspect over the next couple of days.   They agreed.

Joking, I told Qing to call her insurance company.   There is no property insurance.   The owner of the apartment above does not have insurance either.   In these cases, as with the car accidents, the parties are supposed to meet and try to come to some settlement, on their own, without lawyers or police.   There is no concept whatsoever of government building or housing inspectors.

The bureaucratic response of the management company to Qing’s phone calls is familiar.  Qing finally resorted to the “I pay you, you should do something”  approach, and that seemed to work.  In China, many of the people who own apartments do so at no out-of-pocket cost, other than the mortgage – there is no property tax, they carry no insurance, and they refuse to pay the small monthly management and maintenance fees.  There are apparently some abilities to get owners to pay the maintenance fees, but the measures are not used much, as I understand it.   Just too hard to go after people.   So property management companies tend to be underfunded – not only a Chinese complaint – without recourse.   Garbage gets picked up, guards function as guards, some cleaning is done – but anything else, apartment owners are at the mercy of whether their fellow owners have paid their dues, in addition to the usual bureaucratic delay.   It should go without saying that the budgetary processes are opaque.  It is not at all clear how to find out whether the property management company is getting money and not spending it, or just not collecting, or just using it elsewhere.  

The owner of the apartment above will send over a friend, today, to have a look and discuss some settlement.   The friend, and Qing, will use their extensive construction expertise to decide on the costs of fixing our ceiling and remuneration for any problems that might show up next week.

So, lessons –

  1.  owners have no responsibility to take care of property.  Nor do management companies.  All is caveat emptor.
  2.  management companies do not maintain “common areas” beyond some light cleaning.  If the roof leaks, the owner below the roof should fix it.  This is one reason that the top couple of floors in a building tend to be priced less than units a few floors down – more risk for maintenance costs.
  3.  “local knowledge” can be effective at solving problems – lots of labor and no proper tools does work, sometimes
  4.  bureaucratic response is bureaucratic response, no matter what country
  5.  owning apartments is easy if there are no – zero – costs of operation
  6.  but zero costs of operation means that the common elements, even the landscaping and the guards, are at the mercy of how many people decide they will make the (ridiculously small) monthly dues payments
  7. so China suffers from standard tragedy of the commons problems – it is in no one’s personal interest to make dues payments, hence the property as a whole suffers
  8. in libertarian China, problems should be resolved by discussion and negotiation between the parties.  How charming!  How civilized.  How ignorant of the details of problems, and their resolution, and particularly, how ignorant of the role of power in personal negotiations.  It is not clear to me that more lawyers and legal processes always make the world fairer, or better.   But no lawyers and no rules certainly constitute a libertarian heaven. 
  9. it is important to see these elements – construction, management, repairs, evaluation of performance – operating as a system.  As a result, poor performance in construction, or anything, is excused – a solution can always be negotiated later, when the problem occurs.  This reminds me of the “fatalism” thought to be part of eastern culture.  There is little thought to the consequences of actions, or impact on others.  What happens, happens.  Who could have predicted?  In the US, friends of mine had a fire in a townhouse they own, the result of poor wiring.  They are considering the liability of the original contractor who built all of the units, in their fire discussions.   There is no such concept here.  
  1.  In the system, you see the importance of face – landscaping is well maintained, the guards have uniforms.   But real maintenance – painting of railings on fences or balconies, roof repairs, repair of broken sidewalks, securing window openings with no glass – those things are never considered.
  2. there is the ultimate tragedy of the commons problem – it is assumed (as we do in economics, generally) that everyone is doing the best they can, most or all of the time.  It is assumed that people do not intentionally do less than that of which they are capable.  But the bar for “the best that one can” is very low here.  As a result, everyone goofs off.   There is no inspection, evaluation, auditing, testing, checking up – that is worth the time spent doing it.   There is a lot of reporting, and checking, and looking over somebody’s shoulder – but the results of that are often left in the pile of monthly reports, and never make it to real action in the world. I have some knowledge of this beyond experience with our own apartment. Qing’s brother-in-law, who lives with us, is a construction inspector.  So is his son, and I have interviewed both at some length. To confront someone with not having done as good a job as is possible is a loss of face.   I am making a bit much of this – there is plenty of yelling and screaming at each other over quality – but that seems to be discussion about work in process.   Discussion of what has already occurred is considered too difficult – requires expertise and power, and often best just to preserve the relationship and accept the consequences.   So, anything in which quality is difficult to assess at the point of purchase – construction, teaching, cars, food – is suspect.

Anyway, this is what I was thinking about while I watched women use dust pans to scoop up water that was otherwise going to be coming through our ceiling in a few minutes, if they did not move quickly.

So which is the more civilized – that the government regulations force behavior, with ability to sue and be sued, or that people should talk with each other, and discuss, and come to some agreement about a solution?   Are people born good, or not?  Do people learn goodness, or evil?  Does regulation remove moral responsibility?  We talk about this all the time in the US.

The key issue is power – tenants cannot turn on the heat in a central heating plant, and they don’t know a good roof from a bad one, a dangerous situation from a benign one.   When functioning well, the government serves to equalize power relations, which includes technical expertise. 

And you see the enormity of the Chinese development model problem – I mean, with so many people, you expect capital to garner a large share of profits. Scarce capital is worth more, relatively.  But even now, how can so many people be kept so poor, even in the face of opportunities to make money and improve – fix buildings, test for quality, provide evaluation services?   The answer lies in both culture and organizations.  Chinese organizations work for the benefit of capital – it is illegal for a group of us to put money together and build a building, even in the face of enormous demand. It is illegal for us to organize to get better treatment.   It is difficult, if not impossible, to sue over poor conditions. 

 And Chinese do not want to trust a small company over a big one.   A big company has power, stemming from obvious relations with the government.   A small company has no relationships.    So the culture biases in favor of the big over the small.

And one more note on our leak problem –  four inches of concrete serves as a decent water barrier, in these conditions.   Socialist concrete construction works better in poor water conditions than American capitalist three inches of concrete on steel joists.   That is one reason why roof coverings are so poor in China – no one feels they need to maintain roofs, because the concrete does an ok job, except at joints, and any leaks are either the responsibility of the person suffering the problem, or are in common areas, which no one cares about.

And yes, on the scrutiny of consumer products – I have seen many people do that here, students from IIT and Qing and others.   They are looking for an indication of quality,  expiration dates, some hint that the product they are buying might be ok to use.   I saw this among IIT students, and Qing, in stores in China.  In the grocery store in the US, I grab a bottle of milk or bread from the shelf, and pay and walk out. Chinese pursue the fine print. Government regulation and culture.

A Note on City Size and Political Economy

Among the China superlatives that we have heard for the last two decades is the fantastic growth in city size – Pudong in Shanghai from fishing and farming villages to the world’s most recognizable skyline; similarly for Shenzhen, Guangdong, and literally dozens of places most of us have never heard of. 

 
Source: Lujiazui 2016.jpg

The US has ten or eleven cities now with a population of at least one million; China has scores, and many of them growing from seemingly nothing.  China has about four times the population of the US, but far more than four times the number of larger-than-1,000,000 population cities – by 2018, well over a hundred.  100 cities bigger than Liverpool.  What gives?  We think we understand the concept of growing economies, and the concept of city growth; but how can these superlatives be so?   A couple of ideas, and some clarification on terms –

1.  urbanization is not only a global phenomenon, it is a modern economy phenomenon – farm-to-factory increased densities of cities a great deal in the Industrial Revolution, but the modern service-oriented economy demands (and allows for) even much greater densities of people, and, moreover, pulls people into the biggest and most diverse cities at a higher rate than in past decades.  There are scale effects – the biggest and most successful tend to get even bigger. (We will ignore the ancient forces that created megacities of a thousand or two thousand years ago – Kaifeng (largest city in the world early in the Song Dynasty, with a population of about 600,000) and Hangzhou, the largest city in the world in the late Song and Yuan dynasties, and into the early Ming,  and Rome, about a million population until the collapse;  and after the collapse of Rome, no place in western or northern Europe until London, about 1700)

List of Cities in China        List of Largest European Cities in History

There was a time in China when manufacturing was conducted each within its own walled danwei, and inside the urban area. Each danwei had its own housing, entertainment areas, and shopping.  Each danwei was the Chinese version of Pullman, the ideal city created by George Pullman in the 1880s)  Pullman, Chicago  This was the Maoist era when land had no value. In the opening and reform under Deng, land began to have realizable value.  In the last three decades, Chinese local governments have undertaken policies to encourage or force manufacturing to relocate to the outskirts, opening large swaths of urban land to development of housing and offices and shopping.  This is American suburbanization of industry conducted at pace and at a time when necessary manufacturing access to river transport had long past.  So, a frenzied catching up.  Think of the demand for oil, before and after invention of the internal combustion engine.  The oil just laid around for millions of years, before it suddenly achieved value.

2.  government fiscal policy matters – After Mao, Chinese cities became the focus of development.  “If we want development, we want cities to grow.”  China supported cities and helped them grow.  “Stadtluft macht frei,” the old saying about the medieval urban place, that “city air makes one free,” was true in China in both senses – that of opportunity for the individual and relative independence of the place from domineering control by a greater unit of government.  In the US, cities were strangled by federal policy, administrative law, and political fragmentation.  The strangulation continues today – Chinese laugh at our inability to build tunnels under the Hudson, fix subways or airports, or let cities grow.  Among cities in China, as in the US, there is the rough and tumble of leader and administrative negotiation over infrastructure expansion and competition for location of business and facilities.  A difference is that in China, there is always a leader with enough power to say yes, and then all the pieces fall into place, and development can happen.  In the US, with heavily fragmented political power buttressed by rule of law, everyone has the power to say “no,” and no one has the power to say “yes,” and force implementation.  Delay is built in to American growth in a way that does not exist in China. The political fragmentation that starves American cities in favor of its suburbs doesn’t exist when the political boundaries of cities in China are so much greater than boundaries in America.

3.  definitions matter – This is the most important distinction between American and Chinese cities for understanding the proliferation of huge Chinese cities.   Briefly, counties in the US are generally larger than cities, and counties are contiguous across the US – one moves from one county into another.  In China, counties are subunits of cities and cities are contiguous – one moves from Hangzhou (city) to Jiaxing (city).  In the US, cities are generally quite small – Chicago is only 225 square miles (590 square kilometers) and New York is only 302 square miles (784 square kilometers). The surrounding suburban area dwarfs central city area.

Every city in China has a substantial rural area – even Beijing and Shanghai.   A city in China can have mountains and large lakes, in addition to farm land.  As you know, there are no mountains or farmland in New York or Chicago.  There are historical reasons for the large area of subprovincial and prefecture-level cities, but another reason for concentration of people and development is the historical government fear over food security.  By law, and enforced pretty fiercely, each province must maintain at least 84% of its land in rural, or let us say, non-urban development land.  This regulation is passed on to cities under the province’s jurisdiction.  The Land Bureau in each city receives an allocation of land each year that can be converted to construction land; without the allocation from the central government and the province, no additional land conversion can take place.  Some of you know about the truly enormous fill-in-the-ocean projects in some Chinese cities – Dongtou County in Wenzhou is one example, but there are others.  This project calls for filling in hundreds of square miles of ocean, creating land for development.  Why?  Wenzhou is a fast growing city (despite the overbuilding of the last decade) and it is surrounded by hills and mountains that make expansion impossible.  So, a solution- create more land.

With unitary government – all power derives from Beijing – it is feasible, and relatively common, for cities to merge and become one administrative place, and for formerly rural counties to become districts of cities.  So areas of cities and population totals are a bit less reliable than those in the US, since change in areas and even definitions is more frequent.  I encountered problems establishing a population for Hangzhou, a place I know pretty well.  For example, Xiaoshan was a county-level city, an independent unit of government (sort of).  In 2001, it became a district of Hangzhou, and Xiaoshan as a separate city disappeared.  The population and the area of Hangzhou increased substantially. Similarly for the Yuhang district of Hangzhou – merged into Hangzhou in  2001, and Lin’an in 2017.  Population and area can grow substantially just by administrative fiat. 

4.  comparing apples with apples – What makes sense from a political science or administrative perspective is to compare roughly similar sized areas.  Hangzhou has a population of 8.7 million, about the same as New York, and three times that of Chicago.  But Hangzhou is 16,847 square kilometers; New York is 784; Chicago is 590.  What is roughly comparable in area with Hangzhou is the metropolitan planning area of Chicago, including seven or ten counties.  The seven counties of northeastern Illinois still have some farmland, and are about 10,387 square kilometers – that is Chicago plus all the land around its satellite cities – Waukegan, Elgin, Aurora, Joliet, Gary.   And still, Hangzhou is substantially larger, at 16,847 square kilometers.  The population of that larger Chicago planning area is 9.5 million for the seven counties.

5.  examples, using area and population –

Hangzhou is the capital of Zhejiang province, and one of the most economically developed cities in China.  Dalian, in Liaoning province, is a rarity in China – a city that is better known than its provincial capital, Shenyang. Dalian, too, is a growing city.  I pick these two places because I know them reasonably well, and they are certainly characteristic of the size relations in Chinese cities.  See the table below.  Data is from published sources, wiki and Chinese government estimates, but I make no claims to precision.  The urban population of Hangzhou (means what?) is said to be about 5.6 million in the 2010 Census; Shenyang, about 5.7 million, Shanghai 20.2, and Dalian, 3.9.  For “urban,” my own preference is to use the districts of a city, as inexact as that may be.  Some comparisons –

Place                           Area, km2                   Population, x 106       Population density, per km2

Liaoning Province          145,900                        43.9                         300                        

Zhejiang Province          101,800                        55.6                         550

Illinois State                  150,000                        12.8                          89.4

New York State              141,300                        19.9                        159

Note that Liaoning and Zhejiang are of roughly similar size as the States of Illinois and New York.   Here you see the roughly 4x greater population in China.  Zhejiang has significantly larger GDP than Liaoning; New York, more than Illinois

Shenyang                         12,980                         8.3   (2010)                  640

 – urban districts                     571                        3.8                            6,655

Shenyang

Dalian                               13,237                         6.7   (2010)                   532

 – urban districts                    550                          2.1  (2015 est.)          7,721

Dalian

Hangzhou                        16,847                         9.4   (2017 estimate)     570

 – urban districts                   706                          3.7                              5,240

Hangzhou

  List of Cities in China by Population and Built-up Area

Shanghai                           6,341                       24.0  (2017 est.)            3,800

 Shanghai

note – these data define Shanghai as only urban, which is not the case from casual observation.  Better data would show Shanghai urban area as much more dense than indicated above.

New York                            784                         8.7                           10,400

Shanghai is close to twenty times the size of New York City in area, with about three times the population.

Cook County                      4,230                        5.2                              2,129

City of Chicago                      590                        2.7                              4,594

Chicago planning area       10,387                        9.5   seven counties

The “urban districts” of Hangzhou are reported at 706 km2, and 3.7 million people.  I know the Yuhang district quite well, and that is not included in the urban district data.  Yuhang is now quite densely built-up suburban, with the main offices for Alibaba and many other companies, and thousands of new apartments.  So, as always, data is only … data.

But one can see that the urban and suburban part of Hangzhou (districts) is much closer to the size of Chicago, and much closer in population.   The population densities of the urban districts of Shenyang, Dalian, Hangzhou, and even Shanghai are reasonably close to those for New York and Chicago.  Again, some liberal allowances are needed for interpretation of the data. 

6.  for decades, political career advancement was partly determined by GDP advancement – Chinese have always valued cities as seats of power, in a way that Americans have not.  Without exception – I think – the provincial capital is the largest city by population in any province. Political power is united with economic power. Compare with American state capitals.  After Deng, and opening up, the advancement of political careers depended in part upon achieving a target rate of GDP growth in the province, city, county, or district.   In addition to feeling modern economic pressures, leaders in China competed to grow their own economies, and growth was most easily defined by real estate growth.  So, the pressures to urbanize in a country with no history of suburban trains-to-downtown to permit office sector workers to live far from their jobs.  Concentration was important for GDP growth as well as for satisfying the needs of a modern economy.  (Don’t get me started on short term v long term GDP growth, or the impact of excessive bad debts.  Careers are made or lost in five years). 

7.  GDP growth is easy when you have determined goals and the power to achieve them –  as a last note, I want to point out that the development goals in American urban planning and Chinese urban planning were at one point broadly similar –  to provide for more people, more GDP generated, more taxes paid locally.  There have always been local exceptions, and quality of life is more of a concern in planning now in the US than was the case thirty or forty years ago, and certainly more of a concern than is currently the case in China.  But let me leave you with an understanding of how easy it can be to achieve GDP growth, if one has the power to control land and location of people and businesses and the growth goal is quantifiable.

As you might know, the National Development and Reform Commission, the economic planning arm of the central government, establishes a target GDP growth for each year in the Five Year Plan.  Five Year Plans  That national growth rate is then allocated, with some give and take, to individual provinces, and from provinces to cities.  A mayor of a city understands what his targets are, and he has five years in which to perform, at which time he is judged on performance and suitability for advancement in governance.

With a target of X% growth per year, how can one accomplish such a task?  Quite simple, really.  Every piece of the built environment – housing, offices, factories, subways, expressways, universities, hospitals, airports, ports, even recreational facilities – has some estimated cost of construction.  While urban planning in China can be quite detailed and sophisticated, planning and implementation are distinct.  If one needs to achieve Y billions of yuan in growth, representing X% GDP growth, all one need do is add up the potential projects, create some new projects if needed, and get started on building.  Not so hard when you control all the land, the developers and contractors and lenders are mostly state owned businesses with goals similar to your own, and there is little to no power to oppose what is decreed.  Lead, follow, or get out of the way is a known sentiment in China. 

If you have made it to the end of this piece, I hope you have the idea that while China is densely populated, the densities are not so far from those in normal urban areas in the US.  Much of the city growth in China in the last three decades is the result of policies to encourage urbanization, city consolidation, and the ability of governments to focus development in ways absolutely unavailable in the US.  Nothing mysterious here – just a different set of policies and priorities.  I tell my Chinese friends that Hangzhou is like Chicago; and Shanghai is like New York, except that there are more Chinese in New York.  Always good for a laugh.

The Mysterious Parking Garage Market

Tea party activists and Randians and market fundamentalist miss some things about the real world.   One is the distinction between free markets and competitive markets.  Free markets are for one-off deals with buyers and sellers who don’t know each other, have equal power in the market, will not see each other again, and don’t convey any information about the transaction to the rest of the market.  One-off deals are the métier for people like our current dear leader.  Except for the equal power in the marketplace bit.

All competitive markets have some rules.   Rules evolve, perhaps without the intervention from government regulation, and the system works repeatedly.   Supply shows up, demand shows up, demand and supply are satisfied, and markets clear.

This is a good story.   There are some details that get glossed over, however, and one of them is in whose interests the rules of the market are written.  And this is really about power – not just market power, but sometimes physical power or power to withhold service or power to delay.

Fundamentalists on these matters can claim that even the rules of the market are market-driven – that is, there is some discussion, bargaining, negotiation, over the rules. 

And that is true.   As long as supply needs some demand, there must be a way to make the demand come back the next time.   So “market-friendly”  rules consider some of the needs of the buyers in the market.

But, caveats.  Sometimes, the supply in the market does not create its own demand – Say, as we say, is wrong.   Say’s Law    (Yes, I know, Say was talking about a general glut of products, and later changed his view.  Here, I am only concerned about a general glut of parking spaces, with waiting demand, and … the market fails to work).

Sometimes, the supply could not care less about demand, because the supply exists for reasons other than to meet demand.   We don’t always see the reasons, but they certainly exist, even if shrouded in mystery.  Sometimes, artists just like to make art.  But there can be more prosaic reasons that excess supply exists in the presence of obvious demand.

Parking garages near the Hangzhou Pregnant Women’s Hospital are a good example.    The hospital, and two other big hospitals within two blocks, are all located close to xihu, the big lake that is the focal point of Hangzhou.   This is not really downtown, in the sense of lower Manhattan downtown, but it is Columbus Circle downtown, in terms of people on the street, taxis, bikes, motorbikes, buses, trucks, with the added challenge that it is China, and only free market rules about which side of the road to drive on, or walk on, or just stand still on.

There are thousands of people, sick, healthy, family, friends, doctors, nurses, garbage trucks, food supply trucks, medical supply trucks, all trying to get into or out of the hospital in the period 6:00 AM to 10:00 AM.

It is fair to say that parking for cars is limited.   In all of our visits to the area, and to the hospitals, I have found only two real public parking lots within, say, a mile.   There is other parking, but it is only for customers of a particular hotel, or restaurant, or business.    General public parking, for those who want to visit xihu, or go shopping on the street, or go to the hospitals, is tough.   The Pregnant Women’s Hospital does have a designated parking garage of its own, but that is for doctors and administrative staff.  Husbands of women who have already given birth are also allowed to park there.  One of the benefits of having a baby.

The two public lots – actually, they are one big underground lot, with two levels and entrances and exits on opposite sides of the street –  are very convenient to the hospitals – about a block away from all three hospitals.   And if you get there by 6:30 in the morning, you can drive right in, find a spot (there are plenty of parking lot attendants to guide you to empty spots on both levels) and be on your way.   But by 7:30 or so, the parking lot management decides to limit demand satisfaction – to ration supply.   They block off the entrances, and limit access to one car every few minutes, from 3 to 10 minutes per car.

One could understand some reasons to ration demand, if spaces are reserved for doctors, or hospital use, or something.  But even doctors come to work by 9:00, or 10:00, and the parking lots are still limiting entry, and the doctors would have no other way to get into the lot other than sitting in line with everyone else, so such a rule makes no sense.

I mean, it really makes no sense.   At 7:30, or 9:00, or 10:00, there are plenty of available spaces inside the garage.   Many.  Scores, to hundreds.   With no one parking in them.   During the course of the workday, the garage never comes close to capacity.

The parking is not free.   Not expensive, but you might think that the market rules in this case are being written by the forces of supply in the market, and the rules are written to maximize profit.    But that is clearly not the case, with so many available spots and dozens of cars lined up, around the blocks, in two lines, one line for each entrance, waiting to get in.    The wait to get into the parking lot, at 8:30 in the morning, ranges from 45 to 90 minutes.  (see note 1, below)

So there must be some other rule being observed, or some other principle maximized.

Maybe the parking lot management wants to raise fees, and is waiting to build demand before implementing a rate change.   But with so many cars waiting outside, every day, for months on end, that makes no sense.

It is China.  Maybe spaces are being reserved in case Hu Jintao (this was written in early 2012) or somebody, wants to come inspect the parking garage, and there will be 50 or 100 spaces waiting to satisfy demand from the entourage when they show up unexpectedly.   But even in China, that makes no sense.

It is China.   Maybe the parking lot attendants, unbeknownst to the management, are doing a little business on the side, taking some cars in before others, in exchange for a little hui lu- a bribe.   But again, there are no cars coming in any side entrance, or going around the other cars in line.   So that makes sense, but does not seem to be happening.

It is China.   The parking lot underground is really big, and on two levels, and the attendants are not using radios to communicate, so perhaps, in consideration of the customers, the attendants are making sure that there are spots available before letting the next car in.    Maybe there is a communication problem – the guys directing cars into spaces have to tell the next guy down the line that there is still another spot available, and that information gets passed to about six people, and takes about 3 to 10 minutes, before it gets to the guy who removes the “parking lot full” sign for the one next car.   It is China, and that could make sense, but even in China, the attendants would probably show enough initiative to count higher than one, and allow two cars in at a time.

Perhaps the vacant spaces are reserved for individuals, who own the space and would want to have it always available.  Perhaps.  But I don’t think ownership of parking spaces would work in a location such as this, and in any case, there were always scores of empty spaces.  Wouldn’t some enterprising parking lot manager make some deals?

Unlike my suggestions above, there could be simpler, even stupider explanations – air pollution regulations limit the number of engines running within the garage at any one time (sure);  the parking lot management is concerned about pedestrian safety (to exit or enter the garage, people on foot have to mix with the car traffic on the ramps, a no-no in the US) – (right – although it is certainly possible to receive such an explanation, given with a straight face);  the government of Hangzhou, in attempts to limit traffic, provides limits on parking garage access – this is actually sort of plausible, even if ridiculously stupid.   The heavy traffic jams within two blocks all around, due to cars lined up to get into the garage, would be eliminated with more “market friendly” access policies.

All the times my wife and I visited the hospital I parked in this lot, so I have some experience.  The 45 to 90 minute wait after 8:30 is no joke.  But parking is extremely tight everywhere.  One of the most ingenious ways of getting around the restricted supply of parking spaces was undertaken by a woman right in front of me in the line.  We were both sufficiently close to the entrance gate that no other car could pass us or take our space.  We were on the downward slope into the underground garage.  But the woman had no intention of parking in the garage.  She had an errand to run – perhaps ten minutes, or fifteen.  She waited in the line of cars until she was almost in the garage, then got out of her car, took the keys, and went and ran her errand.  Got back, nothing about the line had changed.  She got back in the car, did a u-turn in the combined entry-exit driveway, drove out, and was on her way.  Free parking.   I think this is what Bob Hariman, or James Scott, calls local knowledge.  Fabulous.  This is something about making the system work to your advantage.

About the parking lot – I confess to being at a loss.  I always say that there are many ways to solve any problem, but …. It is a mystery.   I would like to demonstrate the intricacies of the market, or of China, but I am stumped.    The point I want to make, though, is that in this market, such as it is, the supply makes the rules, and the demand can only choose to respond or go on driving around the block.    The rules don’t seem to be in the interests of the supply, either.  It is a puzzle.   A mystery.  This sort of thing should be undefined.     And it is at this point that Chinese themselves shrug their shoulders and utter the standard comment –  you know, it is China.  It’s fuza – complicated.   Say’s law is clearly wrong – there can be a general glut of parking spaces in this garage, even in the face of excess demand.  Somewhere, money must be involved.

Note 1- the line of cars waiting to get into the parking garage for the hospitals has plenty of precedents.  For many shopping malls – I am thinking of yintai near xihu (bastardized English as InTime), or the xichen square mall on wensan lu, or even MixMall in the new CBD, there can be a line of twenty or more cars waiting to get into the underground garage, on a normal evening at xichen, or weekend anytime at yintai or MixMall.   The parking lots can and do fill up, and the wait can be ten to twenty minutes even before the lot is full.

One has to question the design – it is not as if cars in modern China just appeared five years ago, and the shopping malls are very high standard in terms of store quality.  No one is walking in, or even taking a motorbike.   But there too, it is fuza – complicated. 

Academic Integrity in the International Civil Engineering Program at Zhejiang University of Science and Technology

This is the executive summary of a group research project conducted by students in my Modern Chinese Economic History course in spring of 2014.


This work could only have been conducted under my direction – no Chinese faculty member would dare to investigate the rampant cheating in the civil engineering department.   In addition to the widespread academic dishonesty, the investigation found that there seems to be no civil engineering program in China – with the possible exception of a program at Tsinghua – that meets international accreditation standards – meaning that no graduate from a school in China will be eligible to take the PE exam for most countries without significant additional training or experience. 

The full report is available.  Contact me if interested.

An Evaluation of Academic Integrity in the International Civil Engineering Program at Zhejiang University of Science and Technology

 

Prepared by

Students of Modern Chinese Economic History    Zhejiang University of Science and Technology

  Spring, 2014

William D. Markle, Ph.D.  Professor

 

Participating Students

Salman Wasir     Tong Xiaixia     Dancan Siparo Ntirra     Carine Sonia Barutwanyo     Ali Mohamed Ahmed     Chadya Lys Everole Okola Aha

Mary Nyamvumba     Matshik Isabelle Mbako     Mahad Abdullahi Mire     Musabao Kahingania David     Wang Xiaoyan     Ren Zhoudi

Zhou Zhenhao     Shen Bijia     Wang Chenyang     Bogdan Oprea     Mao Wanling

 

An Evaluation of Academic Integrity in the International Civil Engineering Program at Zhejiang University of Science and Technology

Executive Summary

      Accreditation is the process by which a university program is accepted into the academic community.   Is an academic program doing teaching, and research, that is consistent with the quality standards in the field?   Can an academic civil engineering program produce engineers who know enough, have experience enough, are trustworthy enough, to be trusted with the lives, projects, and financial resources of their clients in the future?

      Governments in much of the world do not decide whether an academic program meets the requirements of knowledge transfer and academic integrity.  Accreditation is a peer evaluation of the quality of a program. 

      Academics from other schools and professionals in the field review the teaching, research, students, and outcomes of a program to judge its effectiveness, quality, and correspondence to standards in the academic and professional communities.    Academic programs judged to meet the standards of the academic and professional community are accredited, and are considered part of the academic community.  A program that is not accredited does not necessarily close down; a program might actually be quite successful, and of good quality.   But non-accreditation means that a program has not been admitted to the academic community of scholarship and research, as judged by peers – other scholars.

      In this evaluation, we are looking at the ZUST civil engineering program, with regard to only one element – academic integrity.  Integrity is an essential part of professional and academic life in engineering.  A student who cheats on an exam, when only a grade is at stake, might be expected to cheat on design of a bridge or a building when a lot of money is at stake.   Engineering as a profession does not want such people.

      While individual cases of university cheating and plagiarism would not normally affect accreditation of an engineering program – an individual student can be failed in courses, or expelled from school – the assumption in academic life is that no department or program would permit failures of academic integrity to become epidemic.   Widespread cheating, in one course or over time in several courses in a program, would be cause for immediate attention from departmental leaders, college deans, and university administrators, including the provost.   Accreditation programs would certainly investigate reported incidents of widespread academic dishonesty, whether reported by faculty, students, or outsiders.  If such information becomes widely known, it would affect the ability of the university to attract quality teachers, and affect the ability of students to get better jobs when they graduate.

The goal of this evaluation is to determine whether there is widespread violation of academic standards for honesty in the ZUST civil engineering program.    There have been allegations of widespread cheating on exams and tests.  Is that true?  What response from the civil engineering department faculty or administration?  If true, have students been expelled or punished?   Are violations of academic standards for honesty tolerated at other universities?   How do other schools address the problem?    The results of this evaluation will not produce an answer, “yes,” or  “no.”    We will get information on the experience of students and teachers at ZUST and at other schools, report on our findings, and let others decide what to do as the next step.

The survey and interview results suggest that academic dishonesty is found in a rampant manner within ZUST. The surveys collected and interviews taken from students and teachers across ZUST’s learning environment seem to point that cheating is a serious and dangerous problem for the system, a problem that the administration does not take seriously at the moment. The consequences of such behavior by the administration are leading to a poor quality learning environment and a cheaper degree, which puts students graduating from this program in a difficult stance. All the results and conclusions are based on the surveys and interviews collected in ZUST and in the similar universities as a mean of comparison. The results mainly provide the idea that the unwillingness to control cheating defeats attempts by the school’s administration desire, to upgrade ZUST, from a college (xue yuan) to a university (da xue) level, creating an incentive for students to minimize their efforts in the learning process and engage in being dishonest.

A meaningful interview came from one of the graduates of 2014 promotion. He was asked through an email, what is his perspective on academic dishonesty in ZUST, based on the citation: “A student who cheats on an exam, when only a grade is at stake, might be expected to cheat on design of a bridge or a building when a lot of money is at stake.   Engineering as a profession does not want such people.”

After four years within ZUST civil engineering program, his answers could not be more sincere: “The statement above is, in my opinion, arguably right. I have seen a lot of cases like this in my university life, for about four years. I will not lie to you, I have also cheated two or three times in my exam. I do not quite remember which courses they were, but one of them was finite elements taught by Wang Ji Min. I did that because I could not understand his course, as a whole, due to the difficulty of the course and because the teacher was not competent with his English. For the other courses, I studied hard and did just fine until I graduated few days ago.

What intrigued me was, in four years of university life, I always find students who cheats on every exam. They use their phone (mainly wechat) to take photos then shared the answers. I have never seen anything like this before, so I am quite surprised. 

Cheating in class, based on my experiences, is the faulty of both students and teacher, lets just say 70% faulty on students and 30% on teachers. Students come from all over the world, so they have varied learning background, because we all finished high school. However, I find that the quality of students enrolled in the university (mostly from African continent) is surprisingly below average. It is not because they are not capable, but because they are lazy. They did not put much effort to learn in the courses. I also found something strange with students that applied for a major in ZUST and skipped most of the class because they are working or some other reasons, only showed up 2 or 3 times in class, then attended final exam and PASSED the course. Of course, they copied all the answers from others. This is all I know about integrity problems in ZUST, and sometimes Chinese students also do it, academics dishonesty.”

The conclusion drawn from his interview can be stated with the following quote: “The civil engineering degree then becomes not the first step to a progressive career, but a limiting step.   The graduate is confined to lower level work, without professional engineer status, unless significant additional education or experience is obtained.” 

The Light Touch of No Government Regulation

Summer, 2011 

In the socialist economy of China, government regulation is often as derided, or ignored, as in any of the tea party fantasies coming out of prole-land or Romney-Ryanville.

A key example is elevator operation in China, particularly in the non-western oriented buildings  (meaning buildings that have Chinese oriented businesses, not buildings that don’t have a western wall on the outside).    I can’t really speak to elevator safety, or emergency situations.   I don’t inspect limit switches, or floor leveling software, or cables, or brakes.   I have seen some heat-activated floor selection buttons, which have long been a no-no in the heavily regulated US, but what I really want to talk about is elevator floor selection software.

Back in the good old days, elevator floor selection programs were one of the homework problems for simulation courses in system dynamics.    You have several floors, and varying demands for service coming from those different floors, and pretty much everyone wants to go either up or down.   But some people on one floor could have demands to go up, and others to go down.   And some demand is to go all the way down, and some demand is to go down one floor.  And you could satisfy some of the down demand by chance, as it were, if someone on an upper floor happens to want to get off on a floor where someone who wants to go down is waiting to get on.  And you can have an elevator that has satisfied all its demand, the market for elevator service has cleared, and now the elevator is free as a bird, to do as it wishes.   What should it do?   And you have limited supply of elevators.   You want to serve your customers in the least time – or some other optimization.     It actually is a fairly complicated market problem.

I have absolutely zero knowledge of current US elevator operating software.  No doubt by this time, the programs used in the US are so standard that the tweaking is about how long the doors should stay open, and the tweaking is done by some two year community college graduate in Bangalore.

But you can see the heavy hand of the government in the heavily regulated markets in the US.   Ever try to use the “door close”  button in a US elevator?   Has this button ever worked on an elevator in the US, in the last forty years?   Why do we even have this button, except as a way to frustrate people, and remind them of the heavy hand of the government in the nanny state – “no, you can not choose to close the door faster, because someone might have their feelings hurt by the automatic-safety-sensor-door hitting their purse as YOU try to close the door.”  In China, the “door close”  button works, everywhere, and it works great.

Market fundamentalism works.    Is there demand for the door to close?  Ok, close the door!   No waiting and speculating about how someone’s feelings might be hurt.   Satisfy the demand.

Now I will admit to different operating conditions in China.   There are four times the number of people as in the US, and between 8:45 and 9:00 on a weekday morning, probably half of the Chinese population is trying to get on the elevator to go to work.   And one cannot design the market system to handle the peak demands.   I mean, even at the heavily regulated parking in suburban US shopping malls, there is sometimes no place to park on those peak days before Christmas.   Sometimes, the market just does not clear in a reasonable amount of time, even with government supervision.

And perhaps my experience is unusual, having lived here for only three years and really used, repeatedly, elevators in only about four different buildings.    I can’t claim operating experience in a statistically significant sample of Chinese elevators.   So don’t treat this as a scientific study;  it is anecdotal, only.   Caveat emptor.

But in China, elevator floor selection software is clearly written with the free market in mind.    Yes, the “door close” buttons work;  but it is far more market-friendly for the elevator cab than that.   Supply makes the rules.   No wishy-washy Keynesianism for the elevator cab.    You want me to provide supply for your elevator demand?  Play by my supply rules.

I have figured out the basic operating principle for free market elevator service in China.    It is, in fact, the Marshall Field dictum – the customer is always right.   The current customer, that is.    The customer you have now, in front of you, inside the elevator, is always right; anyone pushing a button on some other floor is only a potential customer;  you don’t know when demand from that customer will just fade away, and you stop and there is no one there.   So, stick with the customer you have, and don’t worry about the future.    Short termism.     That future customer might decide to go to the bathroom while waiting, and you stop, and the demand is gone.  In the meantime, you are delaying your current customer;  don’t do that.    That potential future customer could do something else – walk up or down a floor, and not tell you, the elevator operating software, about their changed behavior; or they could decide to take the elevator in a different building, or something.    No.  Don’t respond to speculative demand.   Dance with who brung you.

US government regulation would probably require some balancing of demand, and consideration of the feelings and the waiting time of the potential customers, and more such.   So there would be more stopping, and more weighing of the demands from future customers.   Not here.

So let me tell you about getting to my regular Wednesday morning location, the architect/engineering office GA in Hangzhou.    Today was a bit unusual, but not so much.

Went to Starbucks early, got some coffee and looked at some blogs and email.  Left for GA.   It took about 20 minutes to get to the GA offices, in heavy traffic about 8:30.   Distance of the GA offices from the Starbucks, about a mile.  But, rush hour traffic,  Ok.     Traffic in China is also free market oriented, but that is another story.

Parked in the basement garage of the office building where GA is located.   Parked on the B2 level, the lower basement, since that is where the unassigned parking is.    Usually, I get to park in one of the surface spots just adjacent to the main building entry, but today, at 8:50, the parking spots outside the building were filled with people (demand) waiting to get on one of the 5 elevators (supply).    In a sign of creeping government regulation in China,  the building manager has changed the way in which elevator demand at the first floor is satisfied.    In the good old days of a few months ago, when markets ruled, the appearance of supply (an elevator door opens) meant a wild dash for the door.   A hundred people would rush the door, and the strongest and closest to the door when it opened would have their demand satisfied.   (People getting off the elevator are former customers of the elevator, so they are old news.   Screw ‘em.   They have to fight their way out from the people rushing in.   Sometimes, I think people wanting to get off just don’t make it.   Not nimble enough for the market. The same is true, of course, for people getting off the subway train.)

Now, the building management has put in red velvet line control ropes, and everyone has to queue up, one by one, to get on the next elevator.   Hence, in the good old days, with survival of the fittest demand satisfaction, all the demand could fit in the elevator lobby in tight balls of humanity.   No one dared stand more than an inch from the person in front of them, or someone would use the free market to cut into the crowd in front of you.  Now, probably with government regulation creeping in, everybody in long straight lines, the demand at the first floor spills out of the building lobby into the parking lot spaces outside, where I would normally park.

GA is on the 11th floor.   I park in the subbasement.  I have 13 floors to go.

I push the elevator button on the B2 level, and wait.   For a while.  

As an American, conditioned to regulation,  I know elevator demand is being satisfied upstairs, I should wait my turn, so some delay is unfortunately necessary.

After about ten minutes, now about 9:00, I get a stirring.   Some long hidden, free market impulse comes over me.    I can play this game.   I am going to outsmart the market.   I will walk up, not to the first floor, where demand is still heavy, but to a different floor, say the 5th floor, where I can guess that some people will be leaving, and upward demand will be pretty close to zero.    Floors 2, 3, or 4 might not be high enough to ensure that some demand will be getting off, but by the 5th floor, I am pretty confident of getting my demand satisfied.

Now that is 7 floors, but in free market China, that is not a problem for most people.  I have seen 7 and 8 floor walk up apartment buildings, so I don’t feel too bad being part of the market demand. 

At 5, I get out of the stairway, and confidently wait for the elevator to satisfy me.   And, sure enough, an up supply elevator soon stops.  Success!

But, you know, the free market isn’t free.   Even in China, there are weight limits to elevator cabs, and when the weight limit is reached, the bell rings, and the elevator won’t move until someone gets off.   And Chinese are actually rather remarkably good about the last person who gets on taking responsibility for getting off, if the elevator cab decides that she weighs a kilogram too much.  Social mores.  And the elevator cabs, knowing that they are the only source of supply, can be pretty finicky about the weight limits.

But we have to keep in mind that market for elevator service works in favor of the elevator, not the customers.   Even free markets have rules, and the rules are written by the friends of the elevator cab, not the customers.  

The pretty full elevator cab stops for me at the 5th floor, and the door opens, but no one gets off.   I try to get on, but the bell rings, and I step off.   Have to wait for more supply, later.

But sometimes, the elevator cab decides that even with no one getting on, it just seems all a bit too much, and the supply chain breaks down.   I don’t get on, but the elevator weight limit bell rings anyway, and the elevator won’t move.   So a girl who probably got on at the first floor gets off, to ease the load on the poor overworked elevator cab.   But the cab is still not happy, and the bell rings again, and the cab won’t move.   So another girl gets off, and the cab is happy, and the door closes.

We now have three of us standing on the 5th floor, waiting to go up.   It is about 9:15 by this point, but demand is still heavy.

The first girl is smart, and finds a way around the market.   She pushes the down button, and supply appears, and she and I ride down to the first floor.  Our other 5th floor companion declined to join us, and waited on 5.  At the first floor, the horde tries to get on.   But we are on the elevator, so too bad for them.   A few of them make it. 

The rest of the ride is uneventful, except on the way up, we stop at 5, for the girl who did not join us on the ride down.   She tries to get on, but the weight bell rings.   Her demand will have to wait until even later to be satisfied.    You have to be quick-witted to survive in the elevator market.

So there you have the glory of market fundamentalism.   Supply tries to satisfy demand, and the market eventually clears, but those most willing to pay, with shoulder pushes and quick wit, still have an advantage over the “queue up” government regulators.    And I now have the advantage of morning exercise, walking up seven floors.   It really is the best of all possible worlds.

Got to GA about 9:25.   Took longer to get up to the 11th floor than to drive to the building in heavy traffic.    But I am happy, because I feel I was able to outsmart the elevator floor selection software design market fundamentalists.

I can play this game.