This analysis is based on a lot of very shaky assumptions: e.g., (a) That "start ups" are somehow automatically better than other uses of capital; (b) That smart government employees don't add value to the Chinese economy; (c) That wasting electricity is the best measure of true GDP.
Meanwhile, all the empirical data says that China is miles ahead in manufacturing and infrastructure. If anything, I'd be inclined to believe that GDP methodology overstates the U.S. economy by overvaluing financialization, services, and asset bubbles.
Your statements about the post's assumptions are unwarranted, as none of those things is assumed. In fact, posting something like (c) seems like you're actively joking or choosing to be ignorant.
Your second paragraph is unsupportable, so I'm interested in seeing how you'll support it.
I can't tell if you're objecting that you didn't make those arguments or that you did, but they are proven, and not just assumed. But anyway,
First, you supported your claim that Business is "dying" in China based on the FT chart showing fewer start ups. You have some caveats about whether the data is accurate, but the premise is clearly that start ups generate more value than investing in existing companies. Otherwise, why would fewer start ups supposedly prove lower growth is inevitable. Unless that's your assumption, the data means nothing. And unless you've got proof that start ups (including the 99% that fail) have a higher average return on capital, it's just an assumption.
Next, you say "China is funneling its best and brightest into government and that makes them weak." But the CCP basically manages the economy, and the government owns or runs many companies. Government employees are thus in position to have huge impacts on economic efficiency by making smarter decisions. In a non-Democracy perhaps they actually try to maximize production instead of virtue signaling and posing for the public.
You said: "Using nightlights, we can see that GDP per person is generally accurately reported across free countries, but it’s highly discrepant in countries that are clearly not free, like China." C'mon man. You are literally saying that the quantity of waste photons beamed into space is a proper way to measure GDP. I guess that makes streetlights the #1 return on investment for any economy. 99% of economic activity doesn't beam light into space. And there is no reason to think every culture or economy spends an equal percentage of GDP on night lights. So that's just weak.
You say: "Why is America so seemingly singularly capable of dragging the rest of the world into the future? Because no one else is trying." I am a proud American and I enjoy triumphalist jingoism as much as anybody. But let's stay on the plane of reality. China is 100% kicking our ass in making EVERYTHING. This is common knowledge. just look up the gross production of anything from cars to solar cells to concrete. Per Fig. 2 of the linked article, China manufactures more than the next ten countries combined:
"When it comes to gross production, China’s share is three times the US’ share, six times Japan’s, and nine times Germany’s. Taiwan, Mexico, Russia, and Brazil now have higher gross output than the UK. Canada is further down the ranking, in 15th place."
Getting the facts right is important because The Deep State wants to disparage China to support the idea that they are bad and can be hurt with tariffs and sanctions. In reality we are totally dependent on them and would kill our own economy with sanctions.
First, I never said business is dying in China. The section mentioning the FT chart is all about reservations about it. You cannot have read it and missed that. Anyway, if you cannot understand that the worry in the FT article about start-ups is worry about a decline in the numbers of the sorts of innovative companies that are known to drive innovation and thus growth, then there's really no discussion. Do not confuse this with anything about average returns on capital for particular firms.
Second, central planning is inevitably inferior to allowing the market to operate. There's no point dancing around this. Plenty of people spent the 20th century talking about calculation problems with good reason.
Third, you should try to understand the utility of nighttime luminosity and its convergent validity with all of the other indicators mentioned in the linked articles. Criticizing it is isolation when it clearly works just fine is a waste of your time and mine.
Fourth, China is not "kicking [America's] ass in... EVERYTHING" and it is delusional to think that. Looking at your favorite gross production figures is only going to tell you that if those are "EVERYTHING". To most people, they are not. To China, they are increasingly not, as it transitions towards being a service economy.
Don't be a conspiracist who talks about nonsense like "The Deep State". But on the topic of the rest of that paragraph, you know what's fun? Tariffs reduced China's nighttime luminosity: https://x.com/cremieuxrecueil/status/1846363614737059985
Nighttime luminosity in China matters less because they operate entirely dark factories. A consequence of technological innovation. But since you claim that such innovations can't occur, I can see why you might be incapable of logically acknowledging this.
Just one point: Sometimes the ability to actually make stuff matters more than performing services for one another. For example, in the Ukraine War Russia (another country we are supposed to disparage) is out producing all of NATO in shells, artillery, and actual weapons systems. If we could bomb them with flaming piles of financial derivatives and dog grooming services, we'd have that war in the bag. But sadly it doesn't work that way.
The US cannot easily produce if it wanted to. Kind of an absurd thing to state. China is better than any other country in the world at producing things. All of its neighboring countries would love to replace them as manufacturers, and none of them can. Their manufacturing exports are exceptionally resilient against tariffs and sanctions that would destroy another country and seemingly defy economy consensus. One should wonder why. Maybe it is simply a superior manufacturing economy. In fact, it is probably a world-historically superior manufacturing economy, that outperforms in size, quality and price, every single economy that has ever existed in the history of the world.
"Don't be a conspiracist who talks about nonsense like "The Deep State"."
It is hard to believe that there is still someone who denies the existence of the Deep State. Who the hell do you think is running this country...Biden?
I read the nighttime luminosity (NTL) paper when it came out, and obviously the mechanism makes sense- we know China's GDP data is exaggerated from multiple sources, but I haven't seen a good quality discussion on how reliable it is.
NTL obviously has to be biased against certain forms of economic activity, and I don't know how you'd test whether it works in countries where you don't have reliable underlying economic data. The fact that basically all poor countries are unfree means that it's surely difficult to avoid systematic bias there.
It's interesting that tariffs reduced NTL, but surely you could interpret this as a shift from light-emitting economic activity to non-light emitting activity. (It would be weird if manufacturing for export was identically light-intensive as service work, right?)
NTL could be like the the Li Keqiang index - a good proxy until something abnormal happens. For the LK index, we know that COVID-19 screwed it up because the decline in retail sales, air travel and the property market was worse than the slowdown in industry, electricity use + rail freight. NTL could be affected by similar shifts.
Isn't your latter claim an example of the same thing you criticize in (a) i.e. assuming that manufacturing is automatically better than other uses of capital like services?
My main point re manufacturing is that it's easier to measure actual stuff and it tends to be tradeable across economies and has a market value on the world market. So I am inherently skeptical that an economy which so massively dominates making stuff is supposedly a laggard.
Services mostly have to be performed locally so their contribution to GDP tend to be skewed by local wage rates. For example, if you pay an American $50 to walk your dog in NYC that adds $50 to U.S. GDP. If you pay a Chinese guy $4 to walk your dog in Beijing that adds $4 to China's GDP. Theoretically, they can do a Purchase Power Parity (PPP) adjustment to attempt to account for this stuff but, again, I'm skeptical it captures values correctly. I mean, what are all these great services enriching our lives in the U.S. that they don't have in China? I'm not feeling it.
I disagree - think about all the fantastic products and services that exist thanks to venture capital - but my point was that it seems inconsistent to criticise picking winners and then praising exactly that.
"I disagree - think about all the fantastic products and services that exist thanks to venture capital -"
There are some useful products thanks to venture capital, but also some crap. And most of those products are made in foreign countries.
My comment about financial products was a reference to schemes designed to make the people who start them wealthy and few others. At one time, NYC had a thriving manufacturing base; now, the city is dependent on financial products and the service industry. What manufacturing is left in this country is in medium-sized cities, mostly in the Midwest.
(b) It's not that they do not add value, they're not net negatives. It's just that those individuals would better contribute to the economy and society by opening companies and innovating in the market, not being a bureaucrat that has to overstate growth and promote the creation of useless patents.
(c) The paper named is a bit iffy (not enough correlation imo) but it does control for most variables you can think of.
America isn't riddled with bubbles. Services and golds wich are expensive are so because supply is lacking or there is too much demand, like healthcare or housing.
"It's just that those individuals would better contribute to the economy and society by opening companies and innovating in the market, not being a bureaucrat that has to overstate growth and promote the creation of useless patents."
Your use of the term 'bureaucrat' tells me you do not understand the concept of a meritocratic government.
Well DEI exists here so you are partially right. But the way we contract governement workers is very much through meritocratic tests and our politicians have scientists as their advisors.
One just has to look at historical examples of Japan, S. Korea and China where funneling top talent to government economic bureaucracies such as MITI, or EPB lead to massive catch up growth, industrialization and leadership on the technological frontier in critical high value-add industries.
Meanwhile American talent allocation has lead to rent-seeking or glorified scams, from Juicero, FTX, WeWork, to tech firms that basically depend on zero-interest rates and labor exploitation (Uber, Grubhub et al.) Not to mention financialization and asset bubbles. It’s pretty well bemoaned that more of the American elite go into management consulting and finance than engineering.
"China is funneling its best and brightest into government and that makes them weak."
This is a bad take. China is a developing country that depends heavily on state led investment. That requires highly capable people running the government. Having a smart civil service that can put the interests of the development of its people first is how they lifted hundreds of millions of people out of poverty. Compare that to the civil service in Latin America, Middle East, or Africa. Do you think there are enough smart people in government there?
Singapore's civil service is also highly competitive and highly paid. Its ministers are paid millions of dollars comparable to CEOs of private companies. That attracts talents. Now China doesn't pay its ministers millions, but there's a prestige associated being a high rank government official.
> Having a smart civil service that can put the interests of the development of its people first is how they lifted hundreds of millions of people out of poverty.
No, liberalizing is how they lifted people out of poverty. They have underperformed due to their governance.
They needed a government that was smart enough to liberalise, though; otherwise they could've been another India.
The better move than making their civil service less selective would be to shrink it. Using lazy maths, they should have about 45,000 people per annual cohort with 130+ IQs (possibly higher if they have a higher mean), and they take in about 30,000 graduate civil servants every year. Knocking that down would be really controversial, but less so if you gave people somewhere to go that was equally prestigious(and thus an equally acceptable outcome of parental investment). I'm tempted to suggest a minimum age for civil service recruitment (eg. 26), combined with an understanding you'd get a black mark for having a CV gap. Then all the Tsinghua/Peking grads would have to go and do something else, some of them wouldn't drift back, and you'd have a smaller fast-track in the civil service accommodating the ones that did.
This would, of course, be wholly anathema to the regime, which can't really put a price on having all the talent being on the inside pissing out (or at worst pissing on each other).
> Having a smart civil service that can put the interests of the development of its people first is how they lifted hundreds of millions of people out of poverty
.... poverty that the very same government and civil service created in the first place? Yeah, China doesn't win points for climbing out of a hole they dug themselves.
You should read some more history. The communists won the civil war in 1949. China was dirt poor before then due to all the reasons and events I mentioned.
Yes, and it stayed dirt poor until the communists (mostly) gave up on communism. That was a choice made their current generation of leaders. Sure, they weren't responsible for the problems created by prior generations, but they observed a centralized monarchy, replaced it with a centralized dictatorship (same difference), and got the same results. Qui bono?
In live in a third world country and the selection process for governement workers is actually very selective here, it's one of the best ways to escape poverty. Our politicians are also adviced by scientists whenever they want to pursue policy.
> This is a common "own" against the US but this is really a function of the US having very good mechanisms for allocating human capital where it's needed most (meritocracy). Bad subways are good because it means American EHC is in business, law, politics, academia, medicine, etc.
From the NLSY data, above 100 IQ there is very little correlation of IQ with income and effectively none with wealth. This i very surprising since intelligence is the capability to solve problems, and (Rasch) measures of intelligence are also measures of the difficulty of problems one can solve. IQ is the best predictor of productivity in hiring decisions (even better when combined with conscientiousness, validity about 0.7), but when invalid measures such as education, resumes or experience are used to screen applicants their validities of 0 to 0.2 set a ceiling on productivity, even if higher validity measures are used after the initial low-validity screening. The opportunity cost of this can be calculated, and it's huge, on the order of $1T/ yr, many trillions over time and with indirect effects.
You know that the NLSY data is public so we can see you're wrong, right? You should also know that you've shown you don't understand what "difficulty is" or that you have a grasp on the literature on test validity either, and that you're willing to just make up numbers.
You decided to throw an insult in while digging a deeper hole that illustrated you would rather bring up irrelevant factoids about Rasch scoring, inaccurately eyeball a graph than go download a publicly available dataset and see if a position you've taken on an empirical matter is correct, and try to prove you understand something you just Googled and continued to misunderstand.
You chose to be unnecessarily rude to me, while being demonstrably wrong. I referred to your opinion, not you and did so in ver y mild terms. Now you not only reject but delete exceptionally good sources that support each point of what I wrote earlier. I'll write up a post on the points I made, no need to tolerate such behavior from a pseudonymous enemy.
You never demonstrated I made any error, whereas it is possible to download the NLSY data and notice that you are incorrect, but you still persisted in your mistaken belief based on incorrectly eyeballing a graph.
Your post is about how China misallocates talent by hiring its top-scorers into the government. I point out that Singapore also hires its best people into the government. The implication is that the problem is not top people going to work in the government, but rather that the PRC government they're being hired into is not using its workforce to improve the country the way Singapore does.
Their governments differ radically in size. Singapore would not benefit from siphoning off huge amounts of its top talent into government roles and telling them to engage in coordinating central objectives.
"and telling them to engage in coordinating central objectives"
That's the real problem.
Singapore has a different governing philosophy than China, so its smart government workers behave different and have a different effect on society. There really is no substitute for LKYs liberalism with Chinese characteristics versus some authoritarian marxists with grudging capitalist characteristics.
It's still a good idea to have smart government workers, it's just a bad idea for them to be setting five year plans all the time.
Part of being a smart government worker is knowing that you should leave more of society to private markets. If you have dumb government workers they are unlikely to grok the idea. And having low state capacity doesn't mean having a smaller or less obstructionist government.
"The way these work is that if it takes me more than one hour to complete the post, an applet that I made deletes everything I’ve written so far and I abandon the post."
You are truly a nut, but a brilliant one, and I will savor this post, thank you!
It's probably better for their state capacity than if the government were incompetent, but since state capacity is also heavily dependent on the economy, I think there's a chance they're impeding state capacity with this pattern of human capital concentration.
Cremieux, I follow you on Twitter and respect your writings. You're not the first person that has trouble explaining the rise of China. This is a hard problem. This year's Nobel Prize winners in Economics Acemoglu and Robinson's book "Why Nations Fail" struggled with this as well. Their explanations simply do not work and does not explain China.
Francis Fukuyama has been trying to explain China for the past 20 years as well. The triumph of liberal democracy apparently is not necessary to lift 800M out of poverty. Nor is it a precondition to the establishment of Internet giants like Alibaba, Tencent, ByteDance. And now DJI, BYD, and CATL in drones, EVs and batteries.
And now we are witnessing that liberal democracy is not necessary for building a space station and landing rovers on the Moon and Mars. And maybe even putting a man on the moon. China is also building more nuclear power plants than the rest of the world combined. If they manage to use this knowledge and solve fusion first, it is game over for the west.
I live in a liberal democracy. I am very much a defender of the western culture and traditions and institutions. But anybody who is not blinded by confirmation bias must see and deal with the reality of China as it is.
I think you have to take it into account that China has a very smart population (genetic iq), with high discipline+non-violent (outside of state) culture. A country like that, which also happens to be huge, is expected to be exceptionally better than others. Maybe China could be much better if it was a capitalistic liberal democracy instead of state-sponsored capitalism+illiberal country. Compare China to Taiwan, south Korea and Japan.
In my opinion, the optimal government size for China should be lower than now but still much larger than USA. They have a high density population, so they need efficient infrastructure and public transport. In the USA, there is just room to build more and buy cars and not give a fuck.
Also, I am not sure if Cremieux admitted it in his article, but China is able to do important stuff infinitely better than USA (like building infrastructure). USA government sucks so much that (not in size, but straight up lack of competence) I think having some more elite human capital in government would be better for USA.
This isn't fair because those countries had a 40 year headstart while china was still wasting away on communism. Is China still going to be poorer then these places in 40 years, that's less clear.
China's task is also harder in that they are too big to just export a few things they concentrate on to America. That might work for smaller nations but they literally need to reinvent the entire world economy if they want a billion Chinese to reach first world living standards.
China's scale creates challenges but also an opportunity: the economies of scale of what could be the world's largest internal market.
Economies of scale from the size of our internal market probably have a good amount to do with America's wealth vs. other Anglosphere countries, for example.
China hasn't been able to take full advantage of this because its private sector is too small and there are diseconomies of scale to a disproportionately large government sector in a very large country. Large countries should be able to operate with a smaller civil service in relative terms because some tasks aren't helped by throwing manpower at them. Instead the bloated civil service can't coordinate and is unmanageable, leading to crap like what's described in this article.
Those countries also did go through illiberal phases but are now fairly liberal. So you might even argue that to become a developed country liberal country you must go through a period of dictatorship or something like that. Or that East Asians need it.
But we don’t have a large world full of East Asian countries that had different trajectories to get perfect natural experiments. Here, I was just using the « communism=authoritarian and regulating big government » reasoning for the comparison and made some shaky comparisons. You can say it is an unfair comparison but we can’t do much better comparisons.
I am not bullish or bearish on China. Their real problem will be the birth rate and how they can solve it. Comparing the rate of innovation or GDP to USA is meh
"Liberal" is pretty squishy of a concept anyway. Many of these Asian countries would fail various "liberal" tests both in the past and today.
Even democracy is sketchy. Singapore is a one party state. Japan was "1.5 party state" with the LDP. Korea and Taiwan were one party for a long time. Hong Kong famously didn't even have one man one vote before the takeover. Yes, I get many of these examples are less authoritarian then the CCP, but they are certainly less democratic past and present then what the democracy boosters claim in the secret sauce to development.
What you need is capitalism, basic rule of law, IQ, and a little bit of time. Some way of throwing out really bad performing people at the top without needing a revolution. The rest of East Asia got these in the 50s but it took China until the 90s.
>You read that right: Companies in the EU attract a mere 5% of global private funding versus over 50% for American companies
Perhaps I am mistaken, but doesn't it actually say that only 5% of funding comes from the EU? "Many EU companies with high growth-potential prefer to seek financing from US VCs".
"Th[e Gaokao] is hard compared to standardized tests like the SAT and ACT, and the people sitting it tend to be a very selective bunch relative to China as a whole."
Forgive the nitpick. It probably could have been called selective a few decades back when China was a lot more rural, but about 70% of 18 year olds (13 million) took the Gaokao in 2023.
I think, if you actually lived in China from 2006 to now, this entire exercise is self-evidently refuted. I don't see the point in this form of "China denialism." It's not a fake country. Their inventions aren't' fake.
"The probability of founding a firm is higher for those majoring in economics, finance, and law than for those in the humanities and STEM."
Those with the highest intelligence major in STEM. Those who major in economics, especially finance, tend toward rapaciousness and megalomania, and many lack integrity.
The one thing the United States needs is more intelligent government employees with integrity.
"One of the bad things China’s civil servants are encouraged to do is to lie."
The most evil, corrupt government on the face of the earth is right here in the UNited States.
"If you actually believe that America's government is more corrupt than China's, you are delusional and there's no room for discussion."
Just one point out of a thousand. The Deep State that controls this country is presenting Biden as the Commander in Chief, the one calling the shots when only a goddamn idiot would believe that. In China, it is evident that Xi Jinping is capable and indeed in command. There are many more examples of severe, rampant corruption in the United States; if you don't see that, you are delusional.
Which will change its system to unlock its full potential first Europe or China? IMO China, will be interesting to see how their post housing bubble strategy plays out
I don't think China will unlock its full potential, nor will Europe. I suspect China may just slowly eclipse Europe. But that won't happen in per capita terms for a veeeery long time, and perhaps ever. Among China, Korea, and Japan, China is the failure at generating wealth. This makes total sense given it is the least free.
Those countries had a 40 year headstart. China wasted away on communism and didn't become a real country until it tossed it. It's not clear to me that China will be poorer then Japan of Korea once its had the same amount of time being "capitalist".
I'm afraid they've been at this for about 1500 years, having literally invented the standardized test and used it to shunt talent into the emperor's service for over a millennium before the Brits even thought of having a civil service exam.
2000 years later, there are still Chinese people speaking some form of Chinese, eating with chopsticks, and burning incense to their ancestors, so they evidently are doing something right.
This analysis is based on a lot of very shaky assumptions: e.g., (a) That "start ups" are somehow automatically better than other uses of capital; (b) That smart government employees don't add value to the Chinese economy; (c) That wasting electricity is the best measure of true GDP.
Meanwhile, all the empirical data says that China is miles ahead in manufacturing and infrastructure. If anything, I'd be inclined to believe that GDP methodology overstates the U.S. economy by overvaluing financialization, services, and asset bubbles.
Your statements about the post's assumptions are unwarranted, as none of those things is assumed. In fact, posting something like (c) seems like you're actively joking or choosing to be ignorant.
Your second paragraph is unsupportable, so I'm interested in seeing how you'll support it.
I can't tell if you're objecting that you didn't make those arguments or that you did, but they are proven, and not just assumed. But anyway,
First, you supported your claim that Business is "dying" in China based on the FT chart showing fewer start ups. You have some caveats about whether the data is accurate, but the premise is clearly that start ups generate more value than investing in existing companies. Otherwise, why would fewer start ups supposedly prove lower growth is inevitable. Unless that's your assumption, the data means nothing. And unless you've got proof that start ups (including the 99% that fail) have a higher average return on capital, it's just an assumption.
Next, you say "China is funneling its best and brightest into government and that makes them weak." But the CCP basically manages the economy, and the government owns or runs many companies. Government employees are thus in position to have huge impacts on economic efficiency by making smarter decisions. In a non-Democracy perhaps they actually try to maximize production instead of virtue signaling and posing for the public.
You said: "Using nightlights, we can see that GDP per person is generally accurately reported across free countries, but it’s highly discrepant in countries that are clearly not free, like China." C'mon man. You are literally saying that the quantity of waste photons beamed into space is a proper way to measure GDP. I guess that makes streetlights the #1 return on investment for any economy. 99% of economic activity doesn't beam light into space. And there is no reason to think every culture or economy spends an equal percentage of GDP on night lights. So that's just weak.
You say: "Why is America so seemingly singularly capable of dragging the rest of the world into the future? Because no one else is trying." I am a proud American and I enjoy triumphalist jingoism as much as anybody. But let's stay on the plane of reality. China is 100% kicking our ass in making EVERYTHING. This is common knowledge. just look up the gross production of anything from cars to solar cells to concrete. Per Fig. 2 of the linked article, China manufactures more than the next ten countries combined:
"When it comes to gross production, China’s share is three times the US’ share, six times Japan’s, and nine times Germany’s. Taiwan, Mexico, Russia, and Brazil now have higher gross output than the UK. Canada is further down the ranking, in 15th place."
https://cepr.org/voxeu/columns/china-worlds-sole-manufacturing-superpower-line-sketch-rise#:~:text=Source%3A%20OECD%20TiVA%20database%2C%202023,how%20the%20world%20has%20changed.
Getting the facts right is important because The Deep State wants to disparage China to support the idea that they are bad and can be hurt with tariffs and sanctions. In reality we are totally dependent on them and would kill our own economy with sanctions.
First, I never said business is dying in China. The section mentioning the FT chart is all about reservations about it. You cannot have read it and missed that. Anyway, if you cannot understand that the worry in the FT article about start-ups is worry about a decline in the numbers of the sorts of innovative companies that are known to drive innovation and thus growth, then there's really no discussion. Do not confuse this with anything about average returns on capital for particular firms.
Second, central planning is inevitably inferior to allowing the market to operate. There's no point dancing around this. Plenty of people spent the 20th century talking about calculation problems with good reason.
Third, you should try to understand the utility of nighttime luminosity and its convergent validity with all of the other indicators mentioned in the linked articles. Criticizing it is isolation when it clearly works just fine is a waste of your time and mine.
Fourth, China is not "kicking [America's] ass in... EVERYTHING" and it is delusional to think that. Looking at your favorite gross production figures is only going to tell you that if those are "EVERYTHING". To most people, they are not. To China, they are increasingly not, as it transitions towards being a service economy.
Don't be a conspiracist who talks about nonsense like "The Deep State". But on the topic of the rest of that paragraph, you know what's fun? Tariffs reduced China's nighttime luminosity: https://x.com/cremieuxrecueil/status/1846363614737059985
Nighttime luminosity in China matters less because they operate entirely dark factories. A consequence of technological innovation. But since you claim that such innovations can't occur, I can see why you might be incapable of logically acknowledging this.
You're saying I claimed something I'm certain you'll never be able to source me saying because I didn't say it.
Source the claim about dark factories.
Just one point: Sometimes the ability to actually make stuff matters more than performing services for one another. For example, in the Ukraine War Russia (another country we are supposed to disparage) is out producing all of NATO in shells, artillery, and actual weapons systems. If we could bomb them with flaming piles of financial derivatives and dog grooming services, we'd have that war in the bag. But sadly it doesn't work that way.
America could easily produce more if need be. Manufacturing has been doing well, in line with that capability.
You are not "supposed to disparage" any country.
The US cannot easily produce if it wanted to. Kind of an absurd thing to state. China is better than any other country in the world at producing things. All of its neighboring countries would love to replace them as manufacturers, and none of them can. Their manufacturing exports are exceptionally resilient against tariffs and sanctions that would destroy another country and seemingly defy economy consensus. One should wonder why. Maybe it is simply a superior manufacturing economy. In fact, it is probably a world-historically superior manufacturing economy, that outperforms in size, quality and price, every single economy that has ever existed in the history of the world.
"America could easily produce more if need be. Manufacturing has been doing well, in line with that capability."
Do you live under a rock or are you a paid propagandist for the U.S.?
The United States depends on foreign manufacturing for a large part of its necessities.
"Don't be a conspiracist who talks about nonsense like "The Deep State"."
It is hard to believe that there is still someone who denies the existence of the Deep State. Who the hell do you think is running this country...Biden?
At some point ignorance becomes stupidity.
I read the nighttime luminosity (NTL) paper when it came out, and obviously the mechanism makes sense- we know China's GDP data is exaggerated from multiple sources, but I haven't seen a good quality discussion on how reliable it is.
NTL obviously has to be biased against certain forms of economic activity, and I don't know how you'd test whether it works in countries where you don't have reliable underlying economic data. The fact that basically all poor countries are unfree means that it's surely difficult to avoid systematic bias there.
It's interesting that tariffs reduced NTL, but surely you could interpret this as a shift from light-emitting economic activity to non-light emitting activity. (It would be weird if manufacturing for export was identically light-intensive as service work, right?)
NTL could be like the the Li Keqiang index - a good proxy until something abnormal happens. For the LK index, we know that COVID-19 screwed it up because the decline in retail sales, air travel and the property market was worse than the slowdown in industry, electricity use + rail freight. NTL could be affected by similar shifts.
Isn't your latter claim an example of the same thing you criticize in (a) i.e. assuming that manufacturing is automatically better than other uses of capital like services?
My main point re manufacturing is that it's easier to measure actual stuff and it tends to be tradeable across economies and has a market value on the world market. So I am inherently skeptical that an economy which so massively dominates making stuff is supposedly a laggard.
Services mostly have to be performed locally so their contribution to GDP tend to be skewed by local wage rates. For example, if you pay an American $50 to walk your dog in NYC that adds $50 to U.S. GDP. If you pay a Chinese guy $4 to walk your dog in Beijing that adds $4 to China's GDP. Theoretically, they can do a Purchase Power Parity (PPP) adjustment to attempt to account for this stuff but, again, I'm skeptical it captures values correctly. I mean, what are all these great services enriching our lives in the U.S. that they don't have in China? I'm not feeling it.
Manufacturing and mining industries, as opposed to financial products, make a country great and benefit society in general.
I disagree - think about all the fantastic products and services that exist thanks to venture capital - but my point was that it seems inconsistent to criticise picking winners and then praising exactly that.
"I disagree - think about all the fantastic products and services that exist thanks to venture capital -"
There are some useful products thanks to venture capital, but also some crap. And most of those products are made in foreign countries.
My comment about financial products was a reference to schemes designed to make the people who start them wealthy and few others. At one time, NYC had a thriving manufacturing base; now, the city is dependent on financial products and the service industry. What manufacturing is left in this country is in medium-sized cities, mostly in the Midwest.
(a) Fine, that should be evidentiated.
(b) It's not that they do not add value, they're not net negatives. It's just that those individuals would better contribute to the economy and society by opening companies and innovating in the market, not being a bureaucrat that has to overstate growth and promote the creation of useless patents.
(c) The paper named is a bit iffy (not enough correlation imo) but it does control for most variables you can think of.
America isn't riddled with bubbles. Services and golds wich are expensive are so because supply is lacking or there is too much demand, like healthcare or housing.
"It's just that those individuals would better contribute to the economy and society by opening companies and innovating in the market, not being a bureaucrat that has to overstate growth and promote the creation of useless patents."
Your use of the term 'bureaucrat' tells me you do not understand the concept of a meritocratic government.
I live under one
Bureaucratic governments are indicative of Democracies, not Meritocracies.
Perhaps the government you 'live under' is meritocratic in name only.
Well DEI exists here so you are partially right. But the way we contract governement workers is very much through meritocratic tests and our politicians have scientists as their advisors.
"Well DEI exists here so you are partially right."
Dei would never be allowed in a Meritocracy.
One just has to look at historical examples of Japan, S. Korea and China where funneling top talent to government economic bureaucracies such as MITI, or EPB lead to massive catch up growth, industrialization and leadership on the technological frontier in critical high value-add industries.
Meanwhile American talent allocation has lead to rent-seeking or glorified scams, from Juicero, FTX, WeWork, to tech firms that basically depend on zero-interest rates and labor exploitation (Uber, Grubhub et al.) Not to mention financialization and asset bubbles. It’s pretty well bemoaned that more of the American elite go into management consulting and finance than engineering.
Excellent points. Those are my exact thoughts.
"China is funneling its best and brightest into government and that makes them weak."
This is a bad take. China is a developing country that depends heavily on state led investment. That requires highly capable people running the government. Having a smart civil service that can put the interests of the development of its people first is how they lifted hundreds of millions of people out of poverty. Compare that to the civil service in Latin America, Middle East, or Africa. Do you think there are enough smart people in government there?
Singapore's civil service is also highly competitive and highly paid. Its ministers are paid millions of dollars comparable to CEOs of private companies. That attracts talents. Now China doesn't pay its ministers millions, but there's a prestige associated being a high rank government official.
> Having a smart civil service that can put the interests of the development of its people first is how they lifted hundreds of millions of people out of poverty.
No, liberalizing is how they lifted people out of poverty. They have underperformed due to their governance.
Well underperformed I wouldn’t call it. They might struggle in the future one could say perhaps
They needed a government that was smart enough to liberalise, though; otherwise they could've been another India.
The better move than making their civil service less selective would be to shrink it. Using lazy maths, they should have about 45,000 people per annual cohort with 130+ IQs (possibly higher if they have a higher mean), and they take in about 30,000 graduate civil servants every year. Knocking that down would be really controversial, but less so if you gave people somewhere to go that was equally prestigious(and thus an equally acceptable outcome of parental investment). I'm tempted to suggest a minimum age for civil service recruitment (eg. 26), combined with an understanding you'd get a black mark for having a CV gap. Then all the Tsinghua/Peking grads would have to go and do something else, some of them wouldn't drift back, and you'd have a smaller fast-track in the civil service accommodating the ones that did.
This would, of course, be wholly anathema to the regime, which can't really put a price on having all the talent being on the inside pissing out (or at worst pissing on each other).
Honestly 26 is not a bad idea. Many Chinese go grad school anyways due to the involution educational arms race.
Maybe all these would be beurocrats can go work for Mihoyo and make me more video games while they are young.
> Having a smart civil service that can put the interests of the development of its people first is how they lifted hundreds of millions of people out of poverty
.... poverty that the very same government and civil service created in the first place? Yeah, China doesn't win points for climbing out of a hole they dug themselves.
Blaming the fall of the Qing dynasty, the Japanese invasion of Manchuria, World War II, and their subsequent civil war on their civil service. Really?
I blame the communist policies that kept them dirt poor on their government, yes. Who do you blame for that?
You should read some more history. The communists won the civil war in 1949. China was dirt poor before then due to all the reasons and events I mentioned.
Yes, and it stayed dirt poor until the communists (mostly) gave up on communism. That was a choice made their current generation of leaders. Sure, they weren't responsible for the problems created by prior generations, but they observed a centralized monarchy, replaced it with a centralized dictatorship (same difference), and got the same results. Qui bono?
"Compare that to the civil service in Latin America, Middle East, or Africa."
I very much agree with your comments, but you left out the United States.
In live in a third world country and the selection process for governement workers is actually very selective here, it's one of the best ways to escape poverty. Our politicians are also adviced by scientists whenever they want to pursue policy.
I had similar thoughts. America amongst other things just has the world's most efficient human capital filtration machine. https://x.com/powerfultakes/status/1675678997592645632
> This is a common "own" against the US but this is really a function of the US having very good mechanisms for allocating human capital where it's needed most (meritocracy). Bad subways are good because it means American EHC is in business, law, politics, academia, medicine, etc.
From the NLSY data, above 100 IQ there is very little correlation of IQ with income and effectively none with wealth. This i very surprising since intelligence is the capability to solve problems, and (Rasch) measures of intelligence are also measures of the difficulty of problems one can solve. IQ is the best predictor of productivity in hiring decisions (even better when combined with conscientiousness, validity about 0.7), but when invalid measures such as education, resumes or experience are used to screen applicants their validities of 0 to 0.2 set a ceiling on productivity, even if higher validity measures are used after the initial low-validity screening. The opportunity cost of this can be calculated, and it's huge, on the order of $1T/ yr, many trillions over time and with indirect effects.
You know that the NLSY data is public so we can see you're wrong, right? You should also know that you've shown you don't understand what "difficulty is" or that you have a grasp on the literature on test validity either, and that you're willing to just make up numbers.
Comment removed for insults.
You decided to throw an insult in while digging a deeper hole that illustrated you would rather bring up irrelevant factoids about Rasch scoring, inaccurately eyeball a graph than go download a publicly available dataset and see if a position you've taken on an empirical matter is correct, and try to prove you understand something you just Googled and continued to misunderstand.
You chose to be unnecessarily rude to me, while being demonstrably wrong. I referred to your opinion, not you and did so in ver y mild terms. Now you not only reject but delete exceptionally good sources that support each point of what I wrote earlier. I'll write up a post on the points I made, no need to tolerate such behavior from a pseudonymous enemy.
You never demonstrated I made any error, whereas it is possible to download the NLSY data and notice that you are incorrect, but you still persisted in your mistaken belief based on incorrectly eyeballing a graph.
Try to be accurate!
Singapore seems to do well by hiring the most capable citizens into its government.
Explain how your comment is relevant.
Your post is about how China misallocates talent by hiring its top-scorers into the government. I point out that Singapore also hires its best people into the government. The implication is that the problem is not top people going to work in the government, but rather that the PRC government they're being hired into is not using its workforce to improve the country the way Singapore does.
Their governments differ radically in size. Singapore would not benefit from siphoning off huge amounts of its top talent into government roles and telling them to engage in coordinating central objectives.
"Their governments differ radically in size."
Probably a lot to this.
"and telling them to engage in coordinating central objectives"
That's the real problem.
Singapore has a different governing philosophy than China, so its smart government workers behave different and have a different effect on society. There really is no substitute for LKYs liberalism with Chinese characteristics versus some authoritarian marxists with grudging capitalist characteristics.
It's still a good idea to have smart government workers, it's just a bad idea for them to be setting five year plans all the time.
Part of being a smart government worker is knowing that you should leave more of society to private markets. If you have dumb government workers they are unlikely to grok the idea. And having low state capacity doesn't mean having a smaller or less obstructionist government.
"The way these work is that if it takes me more than one hour to complete the post, an applet that I made deletes everything I’ve written so far and I abandon the post."
You are truly a nut, but a brilliant one, and I will savor this post, thank you!
Given the brain concentration in Chinese government, does this improve Chinese state capacity?
It's probably better for their state capacity than if the government were incompetent, but since state capacity is also heavily dependent on the economy, I think there's a chance they're impeding state capacity with this pattern of human capital concentration.
Great read, very interesting how both Europe and china both manage to stifle entrepreneurship and innovation, but in different ways.
Europe hand cuffs their best talent while china diverts it entirely.
Cremieux, I follow you on Twitter and respect your writings. You're not the first person that has trouble explaining the rise of China. This is a hard problem. This year's Nobel Prize winners in Economics Acemoglu and Robinson's book "Why Nations Fail" struggled with this as well. Their explanations simply do not work and does not explain China.
Francis Fukuyama has been trying to explain China for the past 20 years as well. The triumph of liberal democracy apparently is not necessary to lift 800M out of poverty. Nor is it a precondition to the establishment of Internet giants like Alibaba, Tencent, ByteDance. And now DJI, BYD, and CATL in drones, EVs and batteries.
And now we are witnessing that liberal democracy is not necessary for building a space station and landing rovers on the Moon and Mars. And maybe even putting a man on the moon. China is also building more nuclear power plants than the rest of the world combined. If they manage to use this knowledge and solve fusion first, it is game over for the west.
I live in a liberal democracy. I am very much a defender of the western culture and traditions and institutions. But anybody who is not blinded by confirmation bias must see and deal with the reality of China as it is.
I think you have to take it into account that China has a very smart population (genetic iq), with high discipline+non-violent (outside of state) culture. A country like that, which also happens to be huge, is expected to be exceptionally better than others. Maybe China could be much better if it was a capitalistic liberal democracy instead of state-sponsored capitalism+illiberal country. Compare China to Taiwan, south Korea and Japan.
In my opinion, the optimal government size for China should be lower than now but still much larger than USA. They have a high density population, so they need efficient infrastructure and public transport. In the USA, there is just room to build more and buy cars and not give a fuck.
Also, I am not sure if Cremieux admitted it in his article, but China is able to do important stuff infinitely better than USA (like building infrastructure). USA government sucks so much that (not in size, but straight up lack of competence) I think having some more elite human capital in government would be better for USA.
"Compare China to Taiwan, south Korea and Japan."
This isn't fair because those countries had a 40 year headstart while china was still wasting away on communism. Is China still going to be poorer then these places in 40 years, that's less clear.
China's task is also harder in that they are too big to just export a few things they concentrate on to America. That might work for smaller nations but they literally need to reinvent the entire world economy if they want a billion Chinese to reach first world living standards.
China's scale creates challenges but also an opportunity: the economies of scale of what could be the world's largest internal market.
Economies of scale from the size of our internal market probably have a good amount to do with America's wealth vs. other Anglosphere countries, for example.
China hasn't been able to take full advantage of this because its private sector is too small and there are diseconomies of scale to a disproportionately large government sector in a very large country. Large countries should be able to operate with a smaller civil service in relative terms because some tasks aren't helped by throwing manpower at them. Instead the bloated civil service can't coordinate and is unmanageable, leading to crap like what's described in this article.
Your comment is on the money.
Those countries also did go through illiberal phases but are now fairly liberal. So you might even argue that to become a developed country liberal country you must go through a period of dictatorship or something like that. Or that East Asians need it.
But we don’t have a large world full of East Asian countries that had different trajectories to get perfect natural experiments. Here, I was just using the « communism=authoritarian and regulating big government » reasoning for the comparison and made some shaky comparisons. You can say it is an unfair comparison but we can’t do much better comparisons.
I am not bullish or bearish on China. Their real problem will be the birth rate and how they can solve it. Comparing the rate of innovation or GDP to USA is meh
"Liberal" is pretty squishy of a concept anyway. Many of these Asian countries would fail various "liberal" tests both in the past and today.
Even democracy is sketchy. Singapore is a one party state. Japan was "1.5 party state" with the LDP. Korea and Taiwan were one party for a long time. Hong Kong famously didn't even have one man one vote before the takeover. Yes, I get many of these examples are less authoritarian then the CCP, but they are certainly less democratic past and present then what the democracy boosters claim in the secret sauce to development.
What you need is capitalism, basic rule of law, IQ, and a little bit of time. Some way of throwing out really bad performing people at the top without needing a revolution. The rest of East Asia got these in the 50s but it took China until the 90s.
"Even democracy is sketchy. Singapore is a one party state. Japan was "1.5 party state" with the LDP."
The United States is also a one-party state. However, the author of this article does not seem to live in a state of reality.
>You read that right: Companies in the EU attract a mere 5% of global private funding versus over 50% for American companies
Perhaps I am mistaken, but doesn't it actually say that only 5% of funding comes from the EU? "Many EU companies with high growth-potential prefer to seek financing from US VCs".
"Th[e Gaokao] is hard compared to standardized tests like the SAT and ACT, and the people sitting it tend to be a very selective bunch relative to China as a whole."
Forgive the nitpick. It probably could have been called selective a few decades back when China was a lot more rural, but about 70% of 18 year olds (13 million) took the Gaokao in 2023.
I think, if you actually lived in China from 2006 to now, this entire exercise is self-evidently refuted. I don't see the point in this form of "China denialism." It's not a fake country. Their inventions aren't' fake.
"The probability of founding a firm is higher for those majoring in economics, finance, and law than for those in the humanities and STEM."
Those with the highest intelligence major in STEM. Those who major in economics, especially finance, tend toward rapaciousness and megalomania, and many lack integrity.
The one thing the United States needs is more intelligent government employees with integrity.
"One of the bad things China’s civil servants are encouraged to do is to lie."
The most evil, corrupt government on the face of the earth is right here in the UNited States.
If you actually believe that America's government is more corrupt than China's, you are delusional and there's no room for discussion.
"If you actually believe that America's government is more corrupt than China's, you are delusional and there's no room for discussion."
Just one point out of a thousand. The Deep State that controls this country is presenting Biden as the Commander in Chief, the one calling the shots when only a goddamn idiot would believe that. In China, it is evident that Xi Jinping is capable and indeed in command. There are many more examples of severe, rampant corruption in the United States; if you don't see that, you are delusional.
I wish we had at least *some* smart people in our government
Which will change its system to unlock its full potential first Europe or China? IMO China, will be interesting to see how their post housing bubble strategy plays out
I don't think China will unlock its full potential, nor will Europe. I suspect China may just slowly eclipse Europe. But that won't happen in per capita terms for a veeeery long time, and perhaps ever. Among China, Korea, and Japan, China is the failure at generating wealth. This makes total sense given it is the least free.
"Among China, Korea, and Japan"
Those countries had a 40 year headstart. China wasted away on communism and didn't become a real country until it tossed it. It's not clear to me that China will be poorer then Japan of Korea once its had the same amount of time being "capitalist".
I'm afraid they've been at this for about 1500 years, having literally invented the standardized test and used it to shunt talent into the emperor's service for over a millennium before the Brits even thought of having a civil service exam.
2000 years later, there are still Chinese people speaking some form of Chinese, eating with chopsticks, and burning incense to their ancestors, so they evidently are doing something right.
Incredible that he banged this out in an hour