China Too

http://www.nytimes.com/2010/01/20/opinion/20friedman.html?emc=eta1

So, we're reading Thomas L. Friedman because we like to keep up with the only multiple Pulitzer Prize winner who could explain the Middle East and still make sense on other subjects as well, and, we discover that Friedman wrote last week a defense of the Chinese economy that goes something like this: "I'd be wary of the argument that China's economy today is just one big short-inviting bubble, a la Dubai."

Just as we were about to dispute his overly optimistic interpretation of China's real estate bubble and overall economy, we get: "Is China an Enron? (Part 2)". This week's version of Enron China gives Friedman an opportunity to reevaluate "shorting" China. Why? The Google situation.

Our "title" today is a take off on Friedman's "China 2" so that we might emphasize that there is the "other China" (China Too) that Friedman tended to forget last week as he extolled the economic miracle that continues. "Authoritarian Capitalism" was a catchy phrase prior to the worldwide financial crisis because China was doing well by allowing competition where it benefited the authorities but stopping short of full "freedoms". China was the model for "Authoritarian Capitalism" because it had an economy that grew dramatically while supplying cheap products to the world. Russia too, but less so because nobody wanted Russia's products and all Russia had was "oil".

With the Google situation, Friedman was reminded that freedom of information is part of the capitalistic experience because it is part of the competitive experience.

S0: "If China forces out Google, I'd like to short the Chinese Communist Party." Why? Because (never start a sentence with "because"!) Chinese companies today are both more backward and more advanced than most Americans realize. According to Friedman, "There are actually two Chinese economies today. There is the Communist Party and its affiliates; let's call them Command China. These are the very traditional state-owned enterprises. Alongside them, there is a second China, largely concentrated in coastal cities like Shanghai and Hong Kong. This is a highly entrepreneurial sector that has developed sophisticated techniques to generate and participate in diverse, high-value flows of business knowledge." Friedman calls this "Network China."

Friedman argues that "... Command China, in its efforts to suppress, curtail and channel knowledge flows into politically acceptable domains that will indefinitely sustain the control of the Communist Party - i.e., censoring Google - is increasingly at odds with Network China, which is thriving by participating in global knowledge flows. That is what the war over Google is really about: it is a proxy and a symbol for whether the Chinese will be able to freely search and connect wherever their imaginations and creative impulses take them ..."

Friedman concludes that Command China, which wants to censor Google, will have its way. That means Network China, which thrives on Google, won't be able to sustain its very high level of competitive effectiveness. Friedman, therefore would "short" the Communist party.

This moves Friedman toward his namesake, George Friedman, whose long awaited book published in 2009 - "The Next 100 Years" - sees China falling back to where it was in 1937 (perhaps as soon as 2020).

We think Thomas L. Friedman's "second thoughts" are on the same level as the very high quality definition of "Globalization" he gave all of us as the 21st century began. This time he's defining economic freedom.