Chrystia Freeland

This piece first appeared in The Washington Post.

Forget the “Ground Zero mosque,” Michelle Obama’s Spanish holiday and even the oil spill in the Gulf of Mexico. When future historians look back to the summer of 2010, the event they are most likely to focus on is China’s emergence as the world’s second-largest economy.

Mostly, this is a very good thing. The rise of China, and the related, albeit slightly slower, emergence of India, is the story of hundreds of millions of very poor people joining the global economy and getting a little richer. Gross domestic product per capita in those two countries was basically stagnant from 1820 to 1950. Then, it increased 68 percent from 1950 to 1973, and a whopping 245 percent from 1973 to 2002.

But we need to be careful not to draw the wrong lessons from China’s resurrection. The most dangerous one is that authoritarianism works.

That notion has become particularly tempting at a time when so many Americans, on the right and the left, are skeptical of the efficacy of their government. By contrast, many, particularly in the U.S. business and political elite, openly admire the effectiveness of China’s state-controlled version of capitalism. Indeed, a popular intellectual trend, as Stefan Halper, Ian Bremmer and others have noted, is to suggest that, especially in the wake of the global financial crisis, China’s economic model — a.k.a. “the Beijing consensus” — could replace the U.S. model.

That’s plain wrong. Centrally planned economies tend to be good at wrenching societies out of agricultural poverty into the industrial age — especially when the technologies needed to accomplish that shift have been invented elsewhere. Remember that in the 1930s, ’40s and even ’50s the Soviet model seemed viable, for precisely that reason.

So far, China’s rise has mostly been about industrializing an incredibly poor, rural economy. Even today, China’s $3,600 per capita GDP is roughly on par with those of El Salvador and Albania. We haven’t seen whether centrally run China will be able to take the next step and compete at the cutting edge of technological and financial innovation. When South Korea went through the same transition in the 1980s, it also shifted to a much more democratic form of government and freer version of capitalism.

One reason state capitalism may falter as China gets richer is that it may be hard to allow people to become consumers without letting them become real citizens, too. One of China’s big economic challenges over the next decade will be to allow its domestic market to grow. That will mean giving the Chinese people more spending power. As the Chinese become more bourgeois, they may demand more political rights, too.

A second constraint on state capitalism will be innovation. The American political economy has many flaws — collapsing infrastructure, a hollowed-out middle class. But America has one great virtue that no other country has yet to replicate: When it comes to innovation and its translation into things people want, America is unbeatable. This is the country of Apple, Google and Facebook. These are the inventions driving the technology revolution, and only an open society can create them.

In fact, China is an object lesson in the threat that centralized, authoritarian states pose to revolutionary technological development. One of the big questions historians wrestle with is why China, which was on the brink of industrial revolution in the 14th century, then seemed to give up on radical technological change, ceding the initiative to Europe.

A favorite explanation for those centuries of stagnation is the same one we offer for China’s current dynamism — its centralized, authoritarian state. As economic historian Joel Mokyr has written, “the absence of political competition did not mean that technological progress could not take place, but it did mean that one decision maker could deal it a mortal blow.” Meanwhile, in chaotic, divided, inefficient Europe, when one ruler decided to repress his innovators, “they did no more than switch the center of economic gravity from one area to another.” Dictatorships aren’t so great at self-correction.

The United States shouldn’t be complacent about China’s rise. At the very least, it means that American companies, American politicians and the American people need to adapt from the comfortable role of the globe’s sole hyper-power to the tougher task of working in a multi-polar world. China’s fans are right when they point to some of that country’s dazzling infrastructure projects and ask why Americans, whose average income is more than 12 times greater than that of the Chinese, can’t come together to achieve something so grand.

But America can respect China without imitating it. Dictators are easy to admire, especially at a distance. Free markets and free societies always look messy and inefficient, especially up close. But when it comes to inventing the modern world, and living at its edge, so far the best model the world has come up with is democratic capitalism.

In this past weekend’s New York Times, Chrystia channels Mikael Blomkvist, the muckracking protagonist in Steig Larsson’s Millenium trilogy, and argues that he would be horrified that the best writing on the financial crisis — Michael Lewis’ The Big Short and Andrew Ross Sorkin’s Too Big to Fail — has come from insiders with access:

Lewis is “eternally grateful” to his subjects for their cooperation. Sorkin, a reporter and columnist for The New York Times, is “truly grateful” to his. One can imagine Blomkvist sputtering with rage, but you don’t have to be a fictional Scandinavian social democrat to wish that business journalism in the United States was more about afflicting the comfortable and less about cozying up to them. In the spring, the high priests of American journalism at the Columbia Journalism Review published a tough critique of Sorkin by Dean Starkman, who argued that “Too Big to Fail” was on one side — the wrong side — in the “mini-struggle” between “deal journalism and the work of accountability-oriented reporters.”

Chrystia goes on to say that the most worrisome divide is not between “access” and “investigative” business journalists, as Blomkvist would have us believe. Rather, in an interconnected, global economy, what differentiates the best reporters from the rest is the ability to make sense of data and complex systems:

We are drawn to stories about people, not systems. When it comes to the financial crisis, we want heroes and villains and what-he-had-for-breakfast narratives; we are less enthralled by analytical accounts of the global financial system and the cycle of boom and bust. Some critics juxtapose the approaches of “access” and “investigative” journalists. But the real divide may be between storytellers and system analysts.

We are living in the age of number-crunchers, not narrators. On Wall Street, in Silicon Valley, in Bangalore and in Shanghai, the new technologies and the capital flows that are reshaping our world are dominated by the people who master data dumps. This split — more than geography, more than gender, more than what your parents did for a living — may be the real class divide of our time.

Read the entire piece here.

I appeared on PBS’s Nightly Business Report yesterday to talk about a serious fault line that’s running through the U.S. economy: businesses have figured out how to thrive in a global economy while workers have been left behind. Unless American businesses can find a way to include the sagging middle class in their success, they will soon face a populist backlash which will make Barack Obama look like Milton Friedman. Below is the video and my full remarks:

Watch the full episode. See more Nightly Business Report.

My full remarks:

Here’s the good news about China’s emergence as the world’s second largest economy — U.S. business has figured it out. And here’s the bad news– while U.S. companies can go global, most U.S. citizens can’t. The result in this age of globalization, is a growing tension between the interests of America’s business leaders and the interests of much of its middle class. Indeed, the most important fault line in American politics today may not be between Democrats and Republicans. It is between those businesses and business people who are succeeding in the global economy and those who aren’t.

This clash of values and interests upends our usual ideas of left and right. Consider immigrants. It’s no accident that Mike Bloomberg and Silicon Valley bosses are squarely on the side of diversity and liberal immigration laws. But CEO’s are less thrilled about the Democrat-driven imposition of more regulation and the promise of higher taxes.

The irony is that the globalization of American business is surely a good thing. Imagine how much worse things would be if U.S. companies hadn’t figured out how to play and win on the world stage.

But the equally important truth is that the twin revolutions of globalization and technological change are disproportionately benefiting the global super-class and the middle class in emerging markets like China and India — while leaving much of America behind. America’s business leaders need to figure out how to help America’s middle class join the global economic party or face a populist backlash which will make Barack Obama look like Milton Friedman.

On “This Week” with Christiane Amanpour, Chrystia says President Obama’s speech in support of the Cordoba House mosque that would occupy a building two blocks from Ground Zero in downtown Manhattan displays leadership and conviction.

Later on “This Week” during a roundtable discussion on mid-term elections, Chrystia says the real question is, can an American political party or political movement come up with a powerful economic plan?

Chrystia asks, doesn’t this all come down to the economy? She picks up on what former governor of New Jersey Jon Corzine said earlier about this recession. It is not only following a financial crisis, but also is the final act of America’s structural adjustment to globalization and the technology revolution.

Richard Holbrooke, U.S. Special Envoy to Afghanistan and Pakistan, and Fred Kempe, president & CEO of Atlantic Council, emphasize that securing Afghanistan is impossible without the help of Pakistan.