China wrestles with the rule of law


    IN my last column, I raised some questions about Francis Fukuyama’s work and promised to return with the answers this month after speaking with the professor himself.

    First, I asked, does the increasing number of very large industrial enterprises in China belie what Fukuyama wrote in one of his early books, Trust? There he likened the low-trust Chinese economy to that of southern Italy, where only shoes, belts, gloves and the like can be produced by small, family-run businesses. Lacking the levels of trust that typify small family businesses, neither China nor southern Italy could build the aerospace or automobile industries that would demand large numbers of unrelated employees. But since the publication of Trust in 1995, the Chinese have in fact created vast enterprises across a range of industries. How could this be so?

    Second, I asked, “Will the growth of China’s middle class generate louder calls for democracy, or can authoritarian capitalism persist?”

    After returning from his recent trip to China and reviewing my column, Fukuyama agreed to have a conversation addressing my questions.

    The importance of trust abides

    In response to the first question, Fukuyama’s beliefs about trust and its importance in Chinese society haven’t much changed. “It’s still important. Because there is a relatively weak rule of law, personal relationships are still the glue that holds the society together.”

    Nor did he expect the status quo of Chinese politics to change. Fukuyama reported that his Chinese students at Stanford don’t predict much protest from China’s middle class anytime soon. “A lot of them are pretty nationalistic. The only disruptive scenario is if the performance of the regime deteriorates.”

    There could be a hard landing for the Chinese government, of course. And if it appears to have lost the legendary “mandate of heaven,” bad things could happen. But for now, at least, and in the foreseeable future: “The last thing most people in China’s new middle class want is a redistribution of their newfound wealth to the hundreds of millions in China who still remain poor.”

    The way these two issues relate to each other — the importance of trust, on the one hand, and the endurance of authoritarianism on the other — bears closer examination. In businesses, large, medium and small, trust rather than the rule of law is still the glue that binds deals. But as deals get bigger, both trust and the big stick of authority are necessary.

    In this light, it’s not hard to see why Chinese President Xi Jinping’s anti-corruption campaign is needed precisely to the extent that the Chinese are constitutionally inclined to distrust strangers.

    The old ways of relying on family and friends are giving way to new, more cosmopolitan ways, but the transition requires strong guidance from on high. And these days, many people are struggling to keep up with the changing times: Thousands are being indicted for doing things the way they’ve always been done, and the old ways of relying on “guanxi,” or close relationships, are being reframed as corruption. And now that the hammer is starting to fall, those who are still in office feel paralyzed.

    “So many people have been arrested. They don’t know what the rules are. As a result, no one is making decisions,” Fukuyama reported. “The way you make a business investment is you go to dinner with the party secretary, have a few drinks, then say you are going to plunk down 100 million. But you have to have that direct personal relationship before you can make the investment.”

    Same resources, different allocation

    This description of doing business in China reminds me of an observation made by a very accomplished Chinese businessman at a small conference some years ago. He said he’d done a lot of business in both China and the United States, and that he had found that the path to sealing a deal is different in each country. In the United States, he said, you hire a bunch of lawyers and hammer out a contract. If it doesn’t work out, you hire the lawyers again to sue or be sued. But in China, much as Fukuyama described, you take the time to get to know your potential business partner. You share meals, maybe some drinks, and only after trust has been established — an endeavor that may require high entertainment expenses — do you get down to business.

    In other words, reaching a deal will take a lot of time, effort and money in either country. But the sequencing and allocation of resources is different. “And if you ask me,” the Chinese businessman added, “I’d much rather spend the time and money on food and drink and country clubs than on a bunch of damn lawyers.”

    From this vantage point, boasts about the rule of law in the West and condescension about its absence in China take on a new light. Perhaps the old Confucian preference for the rule of man over the rule of law had something going for it after all.

    Most in the West will interpret the difference between rule of man (renzhi) and rule of law (fazhi) as the difference between the ancient and the modern, or as the difference between the warlord or tyrant and the authority legitimated by a system of democratic governance.

    From the Western perspective, it’s easy to get righteous and arrogant about the view that OECD nations are more advanced and China is somehow retrograde. “They’ll achieve the rule of law someday,” goes the refrain. “They’re just not there yet. Sooner or later, democracy and the rule of law will come to China.”

    Tempering the developmental perspective

    But things aren’t as simple as the developmental framework would suggest. The rule of man isn’t just about some atavistic attachment to tyranny or feudalism. As Fukuyama shows in Political Order and Political Decay, the distinction between renzhi and fazhi can be traced all the way back to disputes between the early Legalists and Confucians, “in which the former argued for clear procedures while the latter argued in favor of a more flexible and contextually based leadership morality.”

    This is not a distinction between the ancient and the modern, or between the less developed and the more developed. This is a philosophical distinction between whether the world works in such a way that laws can cover all possible circumstances or whether contingency, luck and the uniqueness of particular situations require that some degree of personal discretion be left to leaders. And this is a debate that continues to this day.

    Consider, for example, the current debate in the United States over the three-strikes law that removes judicial discretion and requires harsh sentences for the possession of small amounts of marijuana. There were 8 million marijuana-related arrests in the United States between 2001 and 2010, leaving the country with the highest incarceration rate in the world. Lives have been ruined, homes destroyed, and all in the name of the rule of law that leaves no opportunity for a judge’s discretion.

    Fukuyama does not share the West’s easy condescension toward the Chinese system:
    “In the hands of good leaders, such a system can actually perform better than a democratic system that is subject to rule of law and formal democratic procedures like multiparty elections. It can make large, difficult decisions without being hampered by interest groups, lobbying, litigation, or the need to form cumbersome political coalitions or educate the public as to their own self-interest.”

    Neither in Brussels nor in Washington is it particularly easy to make “large, difficult decisions” these days. But a little autocracy can go a long way when it comes to siting a nuclear power plant, or building a high-speed rail, or limiting carbon emissions.

    Of course, there are trade-offs. As Fukuyama notes, now as always, China has not solved “the bad emperor problem.” The quotation above begins, “In the hands of good leaders …” But what if, sooner or later, a leader comes along who is not so good? Then it is best to have the rule of law in place, leaving the leader no opportunity to act above it.

    But democracy has its problems, too, as we are seeing from the dysfunction in the United States and Europe. I do not wish to sound anti-democratic; I’ll opt for democracy every time. But as I argued in an earlier column, there are deep historical reasons for China’s resistance to democracy. Now, I want to recast the debate in an ahistorical way to get us beyond the developmental bias.

    We are still learning how to get along with one another, and there are several paths toward modernization. No path is perfect. In the ongoing debate between China and the world’s democracies, we need to renounce the arrogance of framing it in terms of the more advanced rule of law versus the less developed rule of man. Instead, we in the West need to see that there are good reasons for the rule of man. Once we have a better understanding of its Confucian roots, then the East-West dialogue is more likely to be one of mutual respect — something that can only benefit us all.

    Jay Ogilvy joined Stratfor’s editorial board in January 2015. In 1979, he left a post as a professor of philosophy at Yale to join SRI, the former Stanford Research Institute, as director of research. Dr. Ogilvy co-founded the Global Business Network of scenario planners in 1987. He is the former dean and chief academic officer of San Francisco’s Presidio Graduate School. Dr. Ogilvy has published nine books, including Many Dimensional Man, Creating Better Futures and Living Without a Goal.



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    1 Comment

    1. It all in the 3,000 year old culture. The Chinese regard these personal relationships as a tool for judging your character, while the 200 year old American civilization is concerned only with potential profits, confident that their rule of law will take care of the snakes in the grass. So which one is the more litigious society, the Chinese or the American?