Yasheng Huang on the Development of the Chinese State | Conversations with Tyler

Hello everyone, and welcome back to Conversations with Tyler. Today I am here with Yasheng Wang, who is professor of management at the MIT Sloan School. He has written the famous book Capitalism with Chinese Characteristics on the history of Chinese economic reforms, and he has a forthcoming book coming out, which I found fascinating. It is called The Rise and Fall of the East: Examination, Autocracy, Stability, and Technology, due out this summer. Yasheng, welcome.

Thank you, Tyler. So good to be with you on the podcast.

I have so many questions about China. Let's start with one. Why did the Chinese state fiscally centralize so late in its development?

Well, so you could say that the Chinese state, it depends on your definition of development. In one definition, you can say It was overdeveloped in the sense that you essentially only have the state and you don't really have private economy. You didn't have a real meaningful society. You didn't have an independent intellectual class, intelligentsia in Russian word, and you didn't have organized religion. So all you had was the state and there were pockets of the society the state was not able to reach. That's true. But where the state was able to reach, it was all-dominating. So in that sense, the Chinese state was overdeveloped. I think it was probably underdeveloped in the sense that in part because of this dominance of the state, it didn't really develop the kind of administrative capacity to tax the population. It didn't develop the institutionalized support for public services, even though the state did provide some public services comparable to what was available in Europe. And it was not able to, for example, have a proper army. So that's why Chinese history was full of northern nomadic tribes taking over the country. So it was not that professionalized in the modern sense of the word. So it was underdeveloped in that sense.

Let's take, say, the middle of the 1990s. What percentage of GDP is federal government revenue in China?

Well, it was very small.

What would the numbers say?

I don't know the number, but if you go to the economic historians' work on Qing Dynasty, their rough estimate is that China had a much smaller state in terms of the physical capacity as compared with Europe during that comparable period of time. But here, I think, and to some extent we struggle with the same issue today, if you look at the tax revenue relative to GDP, even China today is not an excessively high ratio. But if you look at the ownership role of the state, it has a big state sector, It has a big influence over the private sector. So I would argue that Chinese state in the 19th century did not derive all its power from taxation. It had the power to appoint officials. It had the power to control the private sector, control the merchants. So that kind of administrative power was quite substantial.

But say when China needs to fight Britain in the Opium Wars or come the 1920s, is that lack of fiscal capacity what's holding back China? China?

Well, it was the overall lack of economic development, right? So, and the, the lack of physical capacity was a part of that. But the, the, the bigger picture is, by our own data, the Chinese, uh, uh, state, it didn't have a naval power as it used to have back in the Song Dynasty. And in the Ming Dynasty, there was a famous event, the Seven Voyages, where the Chinese ships were able to travel to Africa, to Arabia. And China relinquished all that naval power by 19th century.

I read so many experts insisting that China should rebalance its economy toward consumption, yet China never seems to do this. Are the experts right? Is China right?

No, the experts are not wrong, but the problem is that the low consumption to GDP is a symptom. It is not a cause of the imbalances of the Chinese economy. The bigger issue, I believe, is the fact that the household income share of the GDP is very low, right? So you have to save a fixed proportion of your household income. When the household income relative to GDP is, is low, and at some point was declining, the consumption out of the mathematical necessity is accounting for a smaller and smaller share of the GDP. So the issue is really the household income. So if you look at the government and the corporate sector and the household, the household sector as a proportion to the GDP was never high. And during certain periods in Chinese history, it was a losing sector relative to the other sectors of the economy. And that gets to a deeper issue about essentially the power of the government vis-à-vis the household, the power of the corporate sector vis-à-vis the household. That's a bigger political economy question rather than a narrow fiscal issue.

What's the biggest misunderstanding that American business elites have about the Chinese economy?

Um, Well, I wouldn't say it's the biggest, but one of them is, is that they look at the Chinese R&D spending and they look at the, uh, for example, some of the impressive technological progress the country has made, and then they drew the conclusion that Chinese economy is driven by productivity and innovations. And in fact, studies show that the total factor productivity contributions to the GDP have been declining in the last decade and even more. So as China has begun to invest more in R&D, the economic contributions coming from technology, coming from productivity have been actually declining. So in that, in the, in the economic sense, it's not a productivity-driven economy. It is an overwhelmingly investment-driven economy. And I think that's one of the biggest misunderstandings of Chinese economy, and it has to, uh, it has entails implications about the future prospects of the country, right? Whether or not you can sustain this level of economic growth purely on the basis of massive investments.

Why don't the Chinese want to have more children? Urban areas, the TFR can be below 1 even, right?

Yeah.

You're lucky if it's 1.

Well, I think, by the way, this is an East Asian phenomenon. As well. So part of it is the socialization of the norm because of the one-child policy that they instituted in the late 1970s, and they only lifted that policy in 2015. So essentially you had many, many years in which people were socialized in the norm that one child is the norm.

But South Korea has done the same, right? They didn't have one-child policy.

Yeah, I know. So that's the point I was trying to get, right? Japan didn't have a one-child policy. Japan has a very low fertility rate. But for some reason, it's comparing apple with orange. Japan is much more developed a society. The per capita GDP is much higher. So essentially the fertility rate would probably be lower naturally as a result of that difference in per capita GDP. But I think it's probably more than that. The land-intensive— the nature of the Chinese economy and Japanese economy is it's very land-intensive. So the urban costs of living are very high. Because of the very high housing costs, right? So the common complaint we hear from young people in China is that they cannot afford the children. And there's a cultural norm that you need to have your own housing to be able to get married, and that may also deter family formation and therefore, uh, uh, producing production of children, right?

What's the future of immigration into China as population declines? And it's just started declining, right? Who wants to go there?

Yeah, well, it's not a very attractive country to go now, right? So look at what happened during the COVID um, public health crisis. And this erratic policy from Zero COVID to essentially no policy in place to control any kind of virus transmission. And now China is reporting 60,000 deaths related to COVID. And most people believe that's a vast underestimate of what the true number is. The erratic policy on economic management is also incredibly jarring. It undermines the credibility of the policy management of the government. I think that the bigger worry is foreign capital ahead of foreign migrants. Foreign capital, the reorganization of the supply chain, and China used to be factory for the world. Now many companies are rethinking about whether or not they should rely so heavily on supply chain China. And for example, if you look at the recent iPhone 14, parts of it are made in India rather than in China. I have heard from many companies that they are going to move out the part of the production that caters to the world market, to other countries, they are going to have the production catering to the domestic market stay in China. So China increasingly is becoming a factory for itself rather than factory for the world. So I think from an economic, from the immediate economic perspective, the reluctance of foreign capital is a bigger concern than the lack of immigration. In the long run, probably the labor supply is becoming an issue, and they may rethink about the immigration policy.

What are the possible Chinese origins of the phrase laissez-faire?

Well, I'm not a historian per se. I'm not a historian of that particular particular phrase, but there is at least this belief that that phrase originated from China in the sense that there was a European belief that the meritocracy, the Chinese meritocracy, conferred a lot of autonomy meritocrats. They could do the things that they wanted to do without the close supervision from the emperor. And so one version of the origin of that word is the Chinese meritocrats, the Chinese court officials, the Confucian mandarins enjoy a lot of operational autonomy. And they could do whatever that they wanted to do. And we know for a fact that's just not true. The Chinese court officials didn't have any autonomy, operating autonomy, nor did they have any ideological autonomy.

Why did Chinese literacy appear to stagnate in the 19th century?

Yeah. So, this is a a deeply puzzling development. So let me make the argument why there was a potential for China to raise its literacy. They implemented the examination system back in the 6th century, and the state began to provide not universal education but something closer to universal education. It was more like a preparatory education for boys and men to be able to take the civil service examination, right? And the costs were subsidized by the state, and the apparatus, the infrastructure was quite widespread and developed. And there was a cultural premium placed on being able to read and write. So they had all the conditions for further literacy and even universal literacy. Number of factors hindered the further development of literacy. One of the bigger factors was that this entire system was designed for half of the population only. For the male half of the population. And so the females didn't have access to the preparatory schools and they couldn't take the civil service examination system. Also, there was some spillover from the male to the female in terms of basic literacy, but the scale was not that big. The other was that the the entire education was organized around memorization rather than teaching people how to think. And one problem with that was that there was never any kind of liberalizing value that came from rote memorization, memorization of the Confucian texts, and those texts were usually extremely conservative and backward-looking. So not only the female half of the population didn't benefit from that, there was no kind of liberal value that came from this apparatus of education that would sort of over time advocated for universal education beyond the male half of the population. So there was almost like a self-contained restriction on the scale of the literacy to the male sector of the population. I think the third reason is economics. And Chinese economy didn't develop commercialization, didn't develop at a scale that we saw in Europe. And that didn't really increase the demand for human capital, for basic skills. If you run a bureaucracy, you know, for a country the size of China, you may need 10,000 people, 20,000 people, 40,000 people, 100,000 people. But if you run a commercial economy, you need millions, you need tens of millions of people working in the factories and doing this and that, producing this and that, right? So the demand for human capital when you don't really have a commercial economy is always going to be limited if all you need is the human capital to run the bureaucracy, right? So I will say that all these factors combined together restricted what could have been an earlier literacy revolution that failed to occur in China. If you look at, for example, going back to the 16th century, China had a decent literacy as compared with some European countries, but the difference is that in Europe, you had this explosion of literacy, whereas in China, it stayed at the same level. That, the initial level didn't translate into a higher level, whereas in Europe it did.

Now, you argue in your new book that the Imperial Exam system weakened the horizontal structure of Chinese society, prevented China from developing civil society. What's the mechanism for how that works? So, I can see that the exams might pull away some smart people. But there's still plenty of people left in China. Why don't the remaining people develop some kind of civil society?

Well, so, yeah, but the norms are shared beyond the select few who eventually succeeded at the exam, right? If you— it's kind of the bottom of the pyramid, the bottom of the pyramid It is not the people at the bottom of the pyramid didn't aspire to become a bureaucrat, didn't aspire to excel at exam. They all wanted to become a bureaucrat. They all wanted to be educated in Confucian ideology.

But why are the norms so homogeneous? You go back to the Song Dynasty. Southern China is extremely commercial, very diverse. The whole world passes through China, the Silk Road. Why do the norms end up so stultified, so homogenizing?

Well, so I think, I didn't quite say it in my book, but I think this is a plausible explanation. What the examination system did was it was homogenizing the smartest people. Right? So essentially the smartest people were socialized and their ideology was homogenized into this very stratifying Confucianist ideology. If you begin with a worldview that, you know, smart people are the people who begin to make breakthroughs in ideas, in the organization of the politics, in the organization of the economy, those people in China, the smartest people in China, were completely homogenized, right? So yes, you have a lot of other people that were not able to be part of this system, but they were the other ones that were sort of naturally disposed toward making transformational changes, toward coming up with revolutionary ideas, toward coming up with a new religion, new way of thinking, right? Um, so in that sense, the civil service examination system was incredibly successful, even though the number that eventually made it is not that big, but the bottom of the pyramid is big, and the people who are most at risk of making societal ideological breakthroughs are completely homogenized.

Does the history of civil service exams in Korea and Vietnam run the same way, or is that different?

Yeah, they were less watertight. As compared with the Chinese system, and they were probably less well organized as the Chinese system. Also in Japan, they also had a version of the civil service examination system, but they didn't really continue the system beyond the 12th century, 13th century. So essentially, in the 19th century, when Japan embarked upon modernization, it was a Japan similar to China at the very beginning stage of the civil service examination system, rather than toward the end of the civil service examination system, when the exam system was extremely watertight, was extremely homogeneous. Was extremely well organized, right? So Japan kind of evolved into a modern society with a looser system of the Chinese system as compared with China in the 19th century, which responded to the challenges from the West from a very, very rigid system that China began to consolidate around the Ming Dynasty and the Qing Dynasty.

If I think of China, economically speaking, in the 17th century, it still seems broadly on a par with Western Europe. And by the 19th century, that has changed. Is it that the civil service exam system in China became more negative, more dangerous, or is it simply Europe raced ahead and China stayed put?

I think there are debates about whether in 17th century China was really on a par with Europe. There was a famous California school that made that point, and their argument was it is not right to compare the whole China with Europe. You need to compare the most developed part of China with Europe. And if you do that, the level of economic development was comparable with each other. I think there's some recent research that challenges that view. Using better data, more fine-grained data, that shows that per capita GDP by 17th century in China was much lower than per capita GDP in Europe, even among the most developed regions of China. Our own data do not support the view that China in the 17th century was comparable to Europe. We don't use economic data, but we use inventions data. By 17th century, China was already not very inventive as compared with 6th century. The level of inventions declined dramatically in the 17th century. So I tend to lean toward the view that by 17th century, China was already quite backward.

If I think of the Chinese exam system today, not just for civil service, But more generally, it seems fairly meritocratic to me. I often meet smart Chinese graduate students. I ask, where are you from? The answer is not, I'm from a wealthy family in Shanghai. They're from some part of China I've never heard of. Am I wrong to think that it's currently quite meritocratic?

No, you're not wrong at all. It is one of my central points in the book is that the power of the Chinese civil service examination system was that in a very narrow sense, very meritocratic, very well proctored. Corruption— there was public corruption, but the corruption was not endemic, and there were guardrails making sure that the integrity of the exam was at a level sufficient sufficient to attract the interest and the participation from the masses of the people. So we showed that family background— and this is from the data from the Ming Dynasty, 14th century, 15th century— the family backgrounds didn't affect the performance of the candidates who took the exam, right, which is quite remarkable, right? If you think about SAT today, you know, even today there's some correlation between the exam performance and the backgrounds of the people who took— who take the exam. So Chinese had a very well-developed system to make sure that the economics didn't affect the performance through a subsidy program, through a very well-administered protocol of the civil service examination system, anonymization. China invented a double anonymization system. The examiner didn't know who the examinee was. The examinee didn't know who the examiner was. So it was a very sophisticated system. They also hired scribes to copy the exam papers to make sure that the handwriting did not provide any information about the identity of the candidates. So from that tradition, China now has a college examination system, which is very, very tough, which is very, very strict, which is one of the, one of the justifications for having that system is that because China is so corrupt, this is one of the few areas where corruption has not affected the outcome and therefore we should keep the system, right? So when you make the argument that maybe we should change the examination system to allow more creative thinking, less emphasis on memorization. The pushback has always been, look at the country, it's so corrupt, the corruption is so pervasive. This is one area that is not corrupt. Let's not destroy that isolated area of cleanliness and the capabilities, right? So yeah, so I have no problem with with what you have just said, which is that Chinese exam system is very meritocratic.

If I look at China today, I'm never quite sure how much civil society I should think China has. So one sees the zero COVID policy being repealed quite suddenly, possibly because of all the demonstrations. Could it be there's a lot of civil society in China? It much more often takes the form of demonstrations, which are highly numerous and frequent in China, at least before Zero-COVID. And then a lot of the rest of it takes place on WeChat, which is not quite visible. But isn't Chinese civil society much stronger than it looks if we apply, say, Western benchmarks?

No, actually, if you apply Western benchmark, it is a very weak civil society, right? So there's a difference between a civil society consisting of isolated individual actions. And a civil society that consists of organized activities that have a program, that have financial support, that have the capability to operate independently. By the second criterion, China has none of that, right? So if you look at the recent protests against COVID, COVID controls, zero COVID controls. Let's keep one number in perspective. By various estimates, in 2022, there were probably 400 million people under some sort of long-term quarantine, right? And let me just concretize that word quarantine. That means you are essentially locked up in your home, sometimes for weeks, in some cases for 2 months.

Okay?

So that's the level of the suffering and sometimes you can't get food, sometimes you cannot get patients into the emergency room because the hospital also shut down, refused to take in patients who are tested positive or who cannot show a negative test on COVID. Some people have died. There are suicides. There are fires and all these collateral damages from the Zero COVID control. Relative to that, China experienced a wave of protests, by one estimate, in 17 cities. And I don't really have a good idea how many people were involved, but we are not talking about millions of people. We're talking about maybe 10,000 people or tens of thousands of people. Contrast that with Iran, right? In the case of Iran, one woman died in the hands of the moral police, and there were other grievances, but that was the trigger. And the protests are still going on. Millions of the people took to the street, right? And in Iran, the religion played a big role. If you look at the color revolution in In Tunisia, it started with a peddler whose assets were confiscated by the government official, and then he committed suicide. That sparked the Color Revolution. Those kinds of brutalities toward small peddlers happen almost on a daily basis in China. So it's very important to specify relative to the grievances and the level of the misery, we are not talking about large-scale social movements here. These are individual actions. These are spontaneous actions. The complaints on WeChat, these are not organized. These are Essentially individuals expressing their frustrations. They are not really using WeChat to coordinate their actions. Maybe they are implicitly coordinating their messages by supporting each other, but we don't really see any evidence of organized activity. In that sense, the civil society is quite weak.

But the CCP and the governments, the local governments, they are quite responsive to citizens. On some but not all issues, right? So there's a kind of embedded civil society where a message is sent. You don't need to do all the organizing. You get a fair amount of response, and it's like a kind of shadow civil society.

Yeah. But that's a different framing, right? So this is about a government, even though it is autocratic, that is still reasonably responsive to the demands of the citizens. And therefore the argument is that you don't really need organized civil society to press their demands, to press their policy preferences. I think in some sense that's correct, right? So if you look at what the CCP has been doing, it is actually quite clever, right? So it's not, it's not the case that they don't take input from the society. They create portals, they create websites, they create phone numbers for the citizens to call in. They also do surveys, right? What they want to do is they want to solicit opinions and information from the citizens without creating conditions for the citizens to get organized, Right? So if you think about all these opinions you express to the government through the government-controlled portals, you are doing it as an individual. You're not doing it as a member of a larger group. The CCP has no problem with that. And sometimes those opinions can be quite negative. The CCP has no problem with that, right? The beauty of the system is that once you express those opinions, convey that information. As a CCP official, I have a number of choices. I can act on them to alleviate your concerns, and I also make sure that you don't find it necessary to organize protests and demonstrations. But that's only true on traffic pollution, things like that, right? So COVID, Zero COVID, the difference there, the big difference between Zero COVID and these other issues such as traffic and pollution is that so many people are affected by the policy simultaneously and to a similar extent. Therefore, they can relate with each other much, much more than the previous situation when you think about your own treatment mostly as an isolated individual situation rather than something that you can generalize. And that, I believe, is the main reason why you see this level of demonstrations and protests. Yes, China has had a lot of protests, but those protests tend to happen in rural areas, in less urban settings, in isolated situations, and on single issues, right? So usually in the 1990s, it was about the land that the government took away. And then it was about the salary that the employers were late in paying my salary. So there were protests about that. Very single issue, very focused. But this time around, you're talking about people demanding the CCP to step down, demanding Xi Jinping to step down. That's something entirely different from what we saw before.

Now, in your book, you write of what you call Tullock's curse, Gordon Tullock having been my former colleague, namely embedded succession conflict in an autocracy. Why has Chinese succession been so stable up to now, and will we see Tulik's curse whenever Xi steps down, passes on, whatever happens there?

So I do want to modify the word that you use, stable, right? So there are two ways to use that term. One is to describe the succession process itself. If that's the situation we are trying to describe, it is not stable at all. So if you look at the entire history of the PRC, there have been so many succession plans that failed and at a catastrophic level, right? One potential successor was persecuted to death. Another fled and died in a plane crash. Others were unceremoniously dismissed, and one was put under house arrest for almost 15 years, and he died.

But no civil war, right?

Yeah, that's right. That's right. So there's, there's another, uh, sort of way to talk about stability, which is stability at the system level. And that, you're absolutely right, despite all these problems with these successions, the system as a whole has remained stable. The CCP is in power, right? And there's no coup And there were not even demonstrations on the street associated with the succession failures. So we do need to distinguish between these two kinds of stability. By one criterion, it was not stable. By the other criterion, it is quite stable. The reason for that is, I think, although it's a little bit difficult to generalize because we don't really have many data points. One reason is the charisma power of individual leaders. Mao and Deng Xiaoping, right? So these were founding fathers of the PRC, of the CCP, and they had the prestige and the, using Max Weber's term, charisma, that they could do whatever they want and while being able to contain the spillover effects of their mistakes, right? Um, so the issue, the big uncertain issue now is whether Xi Jinping has that kind of charisma. To contain future spillover effects of succession failure. So since 1970— and this is a remarkable statistic— since 1976, there have been 6 leaders of the CCP. Out of these 6 leaders, 5 of them were managed either by Mao or by Deng Xiaoping. So essentially, the vast majority of the successions were handled by these two giants who had, you know, outsized charisma, outsized prestige, and unshakable political capital. Now we have one leader who doesn't really have that. He relies mostly on formal power, and that's why he has accumulated so many titles, whereas he's making similar succession errors as the previous two leaders, right? So, you know, obviously we don't know because He hasn't chosen a successor, so we don't really know what will happen if he chose a successor. But my bet is that the ability to contain the spillover effect is going to be less rather than more down the road because Xi Jinping does not match, even in a remote sense, the charisma and the prestige of Mao Zedong and Deng Xiaoping. There's no match there.

In Chinese history, if we look at the years 220 AD to 581 AD, why is that your favorite period in Chinese history?

Well, some people may say that's my European bias. That period was quite similar to Europe after Western Roman Empire collapsed. China at that time was more of a federation of states rather than a unified empire. It had multiple governments rapidly replacing each other or simultaneously existing parallel with each other. There was a lot of human capital moving around. The intellectual environment was quite free. And there was not one dominant ideology lording over other ideas and other ideologies. Confucianism was powerful, but it was first among equals rather than a monopoly ideology. And in fact, there were many intellectuals at the time who openly challenged the authenticity and legitimacy of Confucianist ideology. It was also a period of enormous creativity, right, in terms of poetry, in terms of humanities, and crucially, in our measure, in terms of technological creativity. China reached its peak in terms of inventions divided by population during that period.

Why so few female emperors in Chinese history?

Well, so let me answer that question by relating my answer to your prior question. During the period we were talking about, Buddhism was a formidable ideology competing with Confucianism. Buddhism was actually quite friendly to the female half of the population. The only female emperor of China— formerly there were some female regions, but the only formalized emperor who was female was a Buddhist. And also during that period of time, there were other Asian, East Asian states that had female rulers. And then Confucianism took the control and weaponized by the civil service examination system. Confucianism was extremely hierarchical, extremely hostile toward women, and very rigid in terms of the social hierarchy, in terms of gender treatment, and it marginalized the women. So you can actually see that according to art historians, you can see the evolution of Chinese art from sort of painting women in relatively free style in the Tang Dynasty to a very, very paternalistic portrayal of women beginning in 10th century, 11th century. And then the civil service examination system chose one of the most chauvinistic versions of Confucianism as its curriculum starting around 14th century, maybe even 13th century. And then that curriculum continued until the civil service examination system was itself dismantled in 1905. I think it was really because of the ideological hold of the stringent version of Confucianism that prevented any liberalizing, the emergence of any liberalizing forces, women being one of them, right, but also liberalism, also other ideas. And it was, you know, going back to our earlier discussion, the civil service examination system contributed to the male dominance of Chinese politics and society.

Why do Chinese like ghost stories so much?

Well, I think it's, it's a, um, it's part of, uh, really it's at least in part related to the ancestor worship, essentially backward-looking way of looking at the world rather than kind of forward-looking way of looking at the world. So you always think about what happened in the past. It could be your ancestor, it can be Confucius. And ghost is a kind of a negative version of that because ghosts typically emerge from dead people. That will be my very simplistic explanation why ghost story is popular. I'm not a fan of ghost story.

Where's the best food in China?

Where?

Where? You pick your favorite. I say Yunnan Province, but of course opinions differ.

Yeah, opinions differ on that. I like Yunnan food. My parents, one came from Hubei, one came from Hunan, and they eat very spicy food. So, but I grew up in Beijing, I didn't eat very spicy food. So Yunnan food is a little bit too spicy for me. I like food in the Yangtze Delta area. It is a little bit gentle on your tongue. And I also like Cantonese food. There's more variety. The problem that I have with spicy food is that it overwhelms every other sense that you have. It's a little bit homogeneous, whereas the Cantonese food is very rich. The Yangtze River Delta food is very, very rich. You can have spicy food, but you can also have salty food. And so, I like variety. I like the food from that area.

Culturally, why do you think that Chinese and Chinese Americans have done so much less well becoming top CEOs of American companies than Indians and Indian Americans?

Yeah, so that's a running topic among Chinese American professionals like me and many others. Um, so I, I actually have a colleague, Jackson Lu, who has systematically studied this issue, and his conclusion, uh, is not surprising, but his method is quite innovative. His conclusion is, uh, basically everything comes down to communication. Um, the Chinese Americans are less able to communicate their ideas, place less value and premium on communications. They are technically very competent, very capable, very accomplished academics, but this is something I have noticed among my friends who are engineers and who are scientists. They are very systematic when they are talking about chemistry, when they are talking about physics. But once you take them out from their discipline, they are actually not that systematic in the way that they describe the world, in the way they analyze the world, right? So if you ask them to analyze food, analyze sports, analyze politics, analyze international relations, analyze economy, the way that they approach these topics is not that different from someone who has not gone through a PhD program in physics and PhD program in chemistry. Whereas, you know, when I talk to my Indian friends who are in science and technology, they apply the same scientific mindset and methodology to social issues, right, to political issues. And that gets you a lot of mileage in America where you need to communicate with a broad spectrum of the people, not just your fellow academics. But, well, maybe they're fellow academics, but they are not academics strictly in your discipline. If you want to be a leader, You have to learn how to communicate with all sorts of people, not just with other people in your own discipline. And my view is that we Chinese have a lot to learn in this regard. And I think one reason is that we grew up in a homogeneous society and in a society that does not place very high premium on trying to convince others of your point of view. Xi Jinping doesn't need to score points on debate to get his policy preferences executed, right? Well, he may execute people, but he doesn't need the communication skills to get his policy preferences through. He can just order. He can just issue commands, right? So it's a command-driven society. We don't need to convince people who disagree with you to come to your point of view. We didn't grow up in that society. Whereas Indians operating in a democratic society, very noisy, what Amartya Sen calls argumentative society, to get people behind you, you need to convince them of your point of view, right? To be able to do that, you need to rely on some sort of framework that both sides rely on, and that usually is logic, evidence, and the way of— systematic way of thinking. So I think Indians are better than us Chinese, uh, in part because of that.

Let's say you had an educated American friend The person had been to Beijing, to Shanghai, and you were planning a 2-week trip through China for them. Where would you send them?

Well, I would urge them to go to Xi'an, the city that has the famous terracotta sculptures. But it's not just because of that. I think what's very interesting about Chinese political geography is and economic geography is that the political geography is heavily northern. The economic geography is heavily southern, right? So you think about Shanghai, you think about Guangzhou, Shenzhen, these are heavy economic, economic heavyweights. They're in the southern part of the country. But Beijing is the northern part of the country, is the political capital. Xi'an used to be the capital of Imperial China for many, many centuries, right? So to understand kind of the political mindset, and by the way, Xi Jinping has very deep roots in that province. To understand the political mindset of China, you need to go to that part of the country, right? It is a country that is It is a part of the country that is heavily influenced by natural disasters, by flooding, by arid environment, very harsh environment that doesn't grow, doesn't cultivate agriculture very successfully, right? So it is very maybe a little bit like Ohio or places like that, very inward looking. And no matter how modern Chinese economy is, the politics is heavily colored by that particular perspective, right? It is a little bit paranoid. It is sort of suspiciously looking at the rest of the world. And it also has this very fond memory of China many centuries before when China was a unified empire that had that part of the country be the capital of the country, right? So I think to understand Chinese ideology and political mindset, we need to go there.

And for the next week, where do you send them then?

For the next week.

Let's say that's week 1. You have 2 weeks. Where do they go? You buy the ticket. Oh, okay.

So I was talking about 1 week. And then I would send them to Shenzhen just as an incredible contrast. Shenzhen was basically created by economic reforms. It is the capital, it's the economic capital of private entrepreneurship, of innovations, and of the incredible supply chains that China has been able to create in the last 30 years. And to understand the economic side of China, you need to go to Shenzhen, close to Hong Kong, just, you know, next to Hong Kong. And, and then I, I would argue that you go to Xi'an first to understand that political mentality, and then you go to Shenzhen, and then ask yourself the question, right? Can these two things coexist with each other for a long period of time? And under what conditions can they coexist with each other for a sustainable period of time? My own view is that these two things cannot coexist with each other for a long period of time. One of them has to give.

Do you have a prediction?

I have the prediction that Xi'an is going to give, and I think the economic side is going to win rather than the political side. And it's not It's not automatic. It's not the view that economics automatically raises the political, advances political progress. It is also because of a lack of political progress, the regime tends to make mistakes. It is those mistakes that will have a bigger educational effect. On the Chinese middle class, on university students, in how they think about whether or not the current political system is viable and desirable.

I have 3 final questions, all about you. First, how was it that you decided to come to the United States?

Oh, I mean, for young people in China, Even today, despite the tensions between U.S. and China, U.S. is always the dream country to come to. So I never really asked myself that question. Of course, if you want to get educated, if you want to achieve, accomplish something, you try to go to the United States. Although, you know, a lot of my friends have decided to go back to China because they see commercial opportunities there. They typically get a Western education and then go back to China to start businesses, and they have been extremely successful. I have chosen to stay because I'm an academic, and I don't think China is the right country for an academic. Not for a social science academic. Maybe if you're a scientist, you get support from the government, but not as a social scientist.

Second question: What did you learn from Janos Kornai?

Yeah, so Janos Kornai taught generations of not just Chinese students, but but many students from East European countries, from Russia, that there is a basic, basic illogic with socialism. And so before Janusz Korczak, we tended to think about socialist system in vague, general, and sometimes ideological terms. Janusz Kornai taught us that it is rooted in the system, right? The investment hunger, the soft budget constraints, right? It really gave us a new way of thinking about the socialist system and central planning system in that particular perspective. And that really was revolutionary because you You don't have to be an ideologue to be critical of central planning. You can be a good empiricist and good system thinker to be critical of central planning. And we didn't have that kind of language until Janos Kornai provided that language, right? The investment hunger, the soft budget constraints, and now soft budget constraints are being used not just by people who study central planning, but also by people who study other types of economic systems. And that was remarkable. And it helped us. It also helped us help a lot of Chinese students think why China was different from other centrally planned economies in terms of soft budget constraints. China seemed to have harder budget constraints as compared with Soviet Union, and there were a lot of debates about why this was the case. So that led us to look at the history of reforms in China, look at the Great Leap Forward, look at the decentralized organization of the economy even before the economic reforms in 1978.

I'll again mention your forthcoming book, The Rise and Fall of the East: Examination, Autocracy, Stability, and Technology, which I found one of the most interesting books on China. But to close, just tell us, what do you plan to do next?

Yeah, so I am collaborating with a number of professors, and some of them are based in China, on a book project looking at the history of Chinese technology using the dataset that I already used for this forthcoming book, but we are going to devote the entire book to this topic. And this is— the title of the book is The Needham Question. Joseph Needham famously asked the question in 1969 How come China failed to take off and had its own industrial revolution, even though it had, it had a very advanced technology, very advanced science? So we're trying to answer that question using the database that we have constructed. And I just learned from the Princeton University Press that they are going to award a contract to us, and we already have 3 chapters finished, and we hope to finish the book by the end of this year.

Congratulations, and Yasheng Huang, thank you very much.

Thank you, Tyler Cowen. This is such a wonderful conversation. Thank you. Thank you very much.