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The China price (updated)
My wife's new favorite food is fresh yogurt, which comes in individual ceramic pots at the local grocery store. (Full one in the middle; already-enjoyed ones on the sides.)
The pots are about four inches tall, and quite solidly made. Empty ones could serve as nice little vases or general knick-knacks and could easily go for a dollar or two apiece, or more, in a U.S. housewares store. Here each yogurt plus its pot costs two and a half RMB (35 US cents). It's either two RMB (28 cents) for the yogurt and one-half RMB (7 cents) for the pot, or vice versa. My wife didn't remember which the sign said. We're building up quite a supply. Maybe the foundation of a specialty-import business if we can get them back to America? The spirit of Chinese entrepreneurialism is infectious.
Update: Several correspondents have usefully pointed out that the pots can be returned for a deposit, just like beer bottles. Makes sense! It turns out that my wife knew this (I have never bought them myself) but just didn't mention it to me! Now I know -- the real communications problems are within one language, not across language boundaries -- and we can haul a bunch of them back to the store for pockets full of cash.
Not about NC/Indiana: significant air-taxi update
The excellent industry newsletter AVweb has just reported that DayJet, subject of this story in the current Atlantic, is scaling back expansion plans and laying off (an undisclosed number of) employees. Here is the story from AVweb:
Start-up air taxi operator Dayjet has announced it will "scale back" its immediate growth plans and lay off employees in all areas of its operations. In an email release today, company founder and CEO Ed Iacobucci did not detail the numbers of people let go. Iacobucci blamed weak capital markets and not the company's early performance for the decision. He said expanding the company to the point of profitability would require a $40 million capital infusion and he apparently couldn't find that money. "I won't dwell on this point, but suffice it to say that given the current state of the U.S. capital markets, the timing of our planned financing could not have been worse," he said.
Iacobucci said the "proof-of-concept phase" the company is now in has proved the market is there for the small-jet people mover system he envisioned but it has to grow from its current fleet of 28 aircraft serving 11 "Dayports" to as many as 50 aircraft branching out from up to 30 hubs to be profitable and that's why it needed the $40 million. While DayJet seems confident that it will eventually find the money and markets it needs, the larger question might be what the delay in doing so will do to Eclipse Aviation. DayJet is reported to be Eclipse's largest customer with orders for 1,400 of the estimated 2,500 aircraft on Eclipse's order book. Calls requesting comment from Eclipse were not immediately returned.
When I was at the DayJet headquarters three and a half months ago, the company was hiring like crazy and talking about its month-by-month expansion plans in cities served, passengers carried, and aircraft in the fleet. At the time it had five (I think) "DayPort" centers -- bases from which flights go to a variety of smaller cities. Apparently it has now grown to 11 DayPort centers serving 60-plus cities. The plan that was laid out to me was to get to 30 DayPorts serving 100-plus cities by the end of the year.
Whether this is a "growth slowdown" or an actual cutback, and what it portends, I obviously don't know. For now just passing on the news.
The horror
CCTV just ran a news feature on the nightmare possibility that someone might copy the official broadcast of Olympic events and then distribute it in a pirated or unauthorized form. The newscaster pointed out that this would be in flagrant disregard of the intellectual property rights of the Beijing Olympics themselves and of CCTV, the official broadcaster.
I can barely imagine the horror of some group in China copying someone else's proprietary material and distributing it outside the proper channels.
(Below, from the latest trip to the local video store. Click for larger version.)
For the record: stupidest moment in policy ever?
Usually I see no reason to chime in on an issue that many other people have discussed. But, perhaps because I've just come back to China, I feel obliged to register a view for the record about destructive nuttiness in my homeland:
The pandering and ignorance-across-party-lines represented by the John McCain-Hillary Clinton united front for a temporary reduction in the gasoline tax should make Americans hold their heads in their hands and moan. No one who has thought about this issue thinks that it will actually reduce prices or -- more important -- help the the people disproportionately hurt by $100+/barrel oil and $4 gasoline. And to the extent it has any effect on America's long-term approach to energy policy, transportation, oil dependence, and climate change, the effect will be perverse.
I can imagine that John McCain, who boasts about his sketchy command of economics, might consider this a good idea. But the master of policy, Hillary Clinton??
Please. This is embarrassing. It makes me long for the good old days of debating about flag pins on the lapel. And I wonder: has there been bipartisan agreement to stupider effect in, say, the last fifty years? The US Senate's 88-2 vote in favor of the Gulf of Tonkin resolution in 1964 doesn't count: they didn't know what lay ahead. Hillary Clinton, at least, knows why what she is saying is wrong. I will pay for a year's subscription to the Atlantic for anyone who can come up with a more foolishly destructive bipartisan example.
Update: The 2002 Authorization for Use of Military Force vote that paved the way for war in Iraq doesn't count either. That vote reflected terrible judgment, in my view, but not outright stupidity or, as with the current gas-tax charade, certain foreknowledge that the policy being recommended would do no good.
Just a little data point
I have been planning on making a quick trip to Russia, which for reasons unrelated to my comments here will not occur. But in preparing to apply for my visa at the Russian embassy in Beijing, I was just adjusting to the quite amazingly thorough visa form ("List every educational institution you have ever attended... Give name, supervisor, and supervisor's telephone number for everywhere you have worked for the last XX years...") when I encountered the real problem. US cash!
Depending on how quickly I needed the visa, the fee would be $150 (for five-day service) or $300 (same-day). But the fee had to be in cash, U.S. greenbacks, and not just any old dollars but "new bills with the watermark and large portrait." Hmmm.
Since I have about $28 in US cash with me in China, I was asking American friends for help ... when I recently learned that the policy has changed. No more Yankee dollars! Only Chinese RMB accepted -- no word on required newness. And at a punitive exchange rate too. (The rapidly-sinking dollar is worth just about 7 Chinese RMB now, so $300 would be 2100RMB. But the Russians are multiplying it at the rate that applied more than a year ago, 7.8 to 1. So the "$300" visa now costs 2340RMB, or about $334.)
Of course the exchange rate is not the issue. It's the "your money is no good here" aspect that I found interesting. Another round in the Bush-Putin war of nerves? Just a scheme to profit on exchange rate arbitrage? A sign of respect to their local Chinese hosts? Or maybe the Russians are reading the U.S. financial pages too?
Reality check
This is the kind of scene I wish I could convey to people who worry about China as the all-conquering juggernaut that has coped with every internal challenge and is sitting around thinking about how to take over the world.
My wife and I spent the afternoon at a public "High Tech Middle School" in Ningxia autonomous region, in western China bordering Inner Mongolia. The students could not have been more charming or open-spirited. Here's how a few of the girls looked:
There are wearing school uniforms in the picture -- it's a Sunday afternoon, and they'd returned from their homes and villages in a 25-mile radius, to spend the next six days at school. During the week they live in dorms eight to a room. But you'll notice something about the uniforms:
Continue reading "Reality check" »
The Atlantic's motto (cont.): Today's news three years ago
Just one last reminder, this one prompted by the Bear Stearns news and the collapse of Asian stock markets around me as I type, of the Atlantic's "Countdown to a Meltdown" cover story, by me, from the summer of 2005.
The point of steering readers toward the article once more is its attempt to explain, while it was going on, the origins of the credit bubble whose collapse is now causing problems.
Some "predictions" in this fictional history are looking pretty shaky now -- for instance, the assumption that the first black American with a serious chance at the presidency would be a four-star Army general running as a Republican. (Our 45th president in this scenario, the "Desert Eagle," becomes a hero by leading the raid that captures Osama bin Laden just before the 2012 elections.) But some of the other predictions, about the spread of panic from the real estate markets to the international financial system.....
Life in the gray zone, aka Region 5
About a third of the pirate videos we get in China are fine, in the sense that they play properly and are in the advertised language. About a third are studio-promo copies, which were originally handed out "for your consideration" at Oscar time. When you watch these, you see "Property of Columbia Pictures" or some such label across the screen every few minutes, like this.
The other third of the videos are in Russian. (The really cheapo videos, shot by somebody sitting in a movie theater with a concealed camera, and chock-full of audience noise and people walking around, are pretty rare now.) I don't mean movies made in Russia or starring Russians. I mean the standard American or British studio film dubbed into Russian language. For instance, the lightweight Hollywood aerial-action movie about the WW I Lafayette Escadrille, Flyboys. Here's its opening menu
Russian? Why so many films in Russian, and not, say, Spanish or Thai? What does it say about a country that China looks to it as a source of pirated videos? I wonder this every time I play pirate-video-roulette and wonder whether this new video will be another unintended step in my familiarity with the Russian language.
Reader Ed Fisher helpfully provided the answer, which appears to check out:
Regarding your knockoff DVDs: The reason so many of them are dubbed into Russian is because the studios have started releasing movies for Region 5 (which includes Russia) much earlier than in the US, to combat piracy. Of course, it's had the opposite effect - Russian releases are immediately pirated and then either distributed as-is or merged with US audio from the theatrical release.
More on the Region 5 topic here.
Next on the trail of gray-zone inquiry: Who, exactly, in China controls the business that makes these billions of DVDs, and how are they so thoroughly protected against enforcement? Like most people here, I have my suppositions; and like most people here, I prudently keep them to myself.
The $1.53 Trillion Question
The perils of even a modest lead-time: when my article in the latest Atlantic about China's holdings of foreign assets went to press, the best and safest estimate we could find of the size of these holdings was $1.4 trillion. Thus the title: "The $1.4 Trillion Question."
This weekend the People's Bank of China, China's equivalent of the Federal Reserve, announced that the holdings had now reached $1.53 trillion. They went up by more than $460 billion in 2007, and they're still rising by more than $1 billion per day.
In any case, the forces explained in that article still apply -- and maybe we'll have to update the title for the web version of the piece (which is free, outside the normal firewall), to reflect the mounting total month by month. By the end of the year: "The Almost-$2 Trillion Question"? Which would mean that, on average, each American would not have borrowed about $4,000 from China; the figure would be closing in on $6,000.
Passage from the original, days-of-innocence article:
This is the real meaning of the vast trade surplus-$1.4 trillion and counting, going up by about $1 billion per day-that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.
On the actual, you know, "issues" the next President will face
Enough of this campaign hubbub! Whoever is left standing to be sworn in 377 days from now will suddenly have to worry about things like.... the Chinese government's enormous hoard of U.S. dollar assets.
My attempt to explain how exactly that pile of money was stacked up, and what the Chinese government has in mind for it, in this article from the Atlantic's new January-February issue. If you been yearning to know how the dollar you spend at Wal-Mart or CVS is eventually reincarnated as a Chinese-held Treasury note, or why Stephen Schwarzman of Blackstone is about the most reviled foreigner in China at the moment, your dreams have come true.
Unlike most previous such announcements, I don't have to say "Subscribers Only" for this one. It's in the free section of our site. Nonetheless, as always, Subscribe! Among other reasons, you'll get to see the wonderful full-sized version of the wonderful Guy Billout's illustration for the piece, reproduced in miniature online and below.
By their tiny banknotes you shall know them
Odd little Shanghai/Beijing difference:
In Shanghai, the smallest currency bill I routinely saw was the 5 kuai (RMB) note. It's the violet-colored, Mao-adorned one at left in the picture below. (Click on the photo to see it enlarged.) It's worth about 67 cents US. Anything smaller was a coin.
In Beijing I very rarely get coins and instead wind up with pockets full of amazingly penny-ante notes. The 1 kuai note (13.5 cents) is omnipresent. It's the greenish one with Mao on the right, above. What I still can't quite believe are the 1/2, 1/5th, and 1/10th kuai notes, the latter worth just over one cent, that I virtually never saw in Shanghai and frequently get in change at stores in Beijing, as I have in rural China. The 1 jiao note, one tenth of an RMB, is the brownish one at top, featuring ethnic peoples rather than Mao. Indeed this afternoon my wife and I used the very bills in this picture to pay all-paper-money exact change for purchases of 2.3 kuai (31 cents) and 3.5 kuai (47 cents) at a the local outdoor produce market. And we came home with a lot of onions, apples, and potatoes...
No master theory here, but the difference is striking. It may help explain why Shanghai thinks it is more moderne -- and why there are so many more coin-operated vending machines there. And I suppose the use of 1 jiao notes is no odder than the continued existence of the U.S. penny, which costs more to produce than it is worth.
Executive hypercompensation: this time it's personal
So it appears that Stanley O'Neal will leave Merrill Lynch with > $160 million in stock options and other retirement benefits, after being paid nearly $50 million last year and immediately after the company reported a gigantic loss, based largely on sub-prime mortgage risks O'Neal had decided it should take on.
I know that markets are markets, that financiers go into finance because they like the dough, that compared with 99.9% of people on earth I myself am rich, and so on. But every now and then one of these sticks in the craw. For me, it's this one -- and probably because of the years-long struggle I have waged to get my retirement-style savings out of ML, where I put some of them 15 years ago and where the meter immediately started running on high and not very well disclosed fees.* You would think that a brokerage itself would not be too comfortable with so flagrant a reminder of how hefty its fees must be, if it can afford this kind of payout.
I also wasn't crazy about the news, during the 2004 election, that O'Neal had ginned up nearly $300,000 in donations to the Bush-Cheney campaign from Merrill Lynch employees -- you know, the people whose future and careers he controlled. I probably also would have objected if he had been pressuring his own people to give to Kerry-Edwards. In either case, the idea of my (steep) account fees supporting this kind political activity didn't sit well.
Enjoy the money, Mr. O'Neal. That's what it's all about.
* Where are they now? It would not be very hard to guess: a well-known low-fee, not-for-profit investment organization. Why is the fight still going on? Because ML tied some of the money up in annuities that I still must spend several years waiting out -- while the fee meter keeps turning over.
Maybe the dollar's stronger than we thought!
Or else they're taking pity on us.
Luggage-cart rental stand, Tegel Airport, Berlin, this afternoon:
So, if you want to rent a cart, you can pay: one Pound, one Euro, one Swiss Franc, or one shiny American quarter, which at today's rates means:
Brits pay ~ $2.06
Europeans in general pay ~ $1.44
Swiss pay ~ $1.16
And my wife and I paid $0.25 each for our two carts, delighted as we were to find two quarters wedged into our pockets after the redeye from the U.S., en route to our new home in Beijing.
Is this legacy pricing from the days when the dollar really was strong? A means-tested scheme, reflecting Europe's patronizing view toward the puny dollar of modern times and what Yanks can afford? An expression of karmic gratitude for the American role in defending Berlin through the long decades of the Cold War and the intense months of the Berlin Airlift, when planes full of supplies for hungry Berliners landed at this very Tegel airfield?*
Could be any of 'em. But -- oooops! Five minutes later it turns out that when you return the cart, you get back whatever coin you put in. So technically all the chart means is that the quarter is physically about the same size as the other, mightier coins. Still, in the era of the shrinking dollar, something about this chart sticks in your mind.
* Before anyone feels obliged to mention it: Yes, I know that Tegel was in the French sector of Berlin, while Tempelhof was the main airport in the American sector. But you get the point. Footnote update!!: Andrei Cherny, who has a book on the Berlin Airlift out next year, reminds me that the airport was in French-controlled territory but most of the airplanes were of course American. I guess this is why we don't hear so many references to "the vast French air force darkened the skies" in accounts of the post-war era...
Now this truly amazes me (Commentary magazine and AIPAC)
Yesterday I mentioned the parallels among the lobbying efforts and influence of three special interest groups, or "factions": the (mainly Orthodox) Armenian-Americans who pushed the Armenian Genocide resolution; the (mainly Catholic) Cuban-Americans who have pushed the US embargo of Cuba; and the (mainly Jewish) supporters of AIPAC who have been making a case for a military showdown with Iran.
Today Gabriel Schoenfeld of Commentary Magazine quotes only the part about AIPAC -- and then asks why I am singling out the Jews!?!?! "Why is this game played only one way, with America’s Jews the primary target?" (Full text after the jump)
Not much amazes me any more, but....
I wonder which is the more plausible interpretation: That the author heard I'd written something objectionable and attacked it without reading it? Or that he did read it -- and deliberately left out everything that didn't fit his case, including through artful cutting of quotes?
I took it for granted that Commentary wouldn't see the Iran issue the way I do, given their recent cover story on "The Case for Bombing Iran" etc. But wow, this makes me nostalgic for the comparative "honesty" of the Chinese state media I've been dealing with recently.
Continue reading "Now this truly amazes me (Commentary magazine and AIPAC)" »
Maybe I was too hasty on this "world is not flat" business?
The debate will go on about whether the world is merely "flattening" in an economic and cultural sense, as everyone would agree it is; or whether it has in any meaningful way become "flat," as Thomas Friedman has so prominently argued. Before a TV appearance with Friedman last year, I calculated that more than a billion pages of his thoughts about the "flat earth" now exist. A big thick book, millions of copies in print, it adds up. Not nearly as many pages as the Harry Potter series, but still.
(And since I'm disagreeing with Friedman on the shape of the world, I should probably say that in his current "geo-green" campaign he is truly doing the Lord's work. On this theme his worldwide audience makes him a force for enormous good.)
On a recent very long, very draining, very interesting Chinese tour-bus trip through Xinjiang Province, China's northwest frontier, with all-Chinese travel companions and all-Mandarin language operations (except for the lessons in how to greet people in Uighur), my wife and I saw evidence on both sides of the flat-world case. I'll leave for another time the many, many, many illustrations of how bumpily different things can be from country to country and city to city. Instead, I'll stick with a heartening reminder of the common heritage that connects the diverse peoples of the modern world.
After trekking for hours across a stark, lunar desert landscape awesome in its harsh beauty, our bus rolled into a former Silk Road waypoint where today's craftsmen still specialize in hand-knotted rugs. We passed through a beaded curtain to see, on the place of honor on the main wall, this:
`
Yes, around the world, people truly are brothers and sisters, united by their love of poker-playing dogs.
(For context, the 4' x 6' rug in its natural setting:)
Golden Oldies: the world is not flat
This in a sense old news, since the academic review I'm about to mention was officially published a few months ago, and a working version was available a year before that and was discussed at many economic sites. But it is so much worth reading that, on the off chance some people might not have come across the March, 2007 edition of Journal of Economic Literature, let me heartily recommend: "A Flat World, A Level Playing Field, a Small World After All, or None of the Above?" by Edward Leamer of UCLA. (An abstract, from the Journal's subscriber-only site, is here. An authorized full text PDF, from a UCLA site, here.)
Leamer's topic is of course Thomas Friedman's ubiquitous The World Is Flat. I have known and liked Friedman personally for years. As an opinion-shaper, he can only inspire awe -- even, or especially, when you disagree, as I obviously have about Iraq. But the flat-world concept has bothered me from the beginning, since in my view and experience it is so imprecise a version of what is going on economically these days. This would not shock Friedman: I tried to indicate as much when we appeared together on the Charlie Rose show last year.*
But I have not seen anything that put the case against flatness as clearly as Leamer's very, very long review does. Usually I am grateful to be a journalist and not a professor. We can be clear; they have to hem and haw. A paper like this shows what professors are for.**
(Notes and excerpt from the review after the jump.)
Continue reading "Golden Oldies: the world is not flat" »
How to protect your children against those lead-covered Chinese toys?
Take it from me, someone who lives on scene (Shanghai) and has been through scores of Chinese factories: I have no idea.
No family without its own metallurgy lab can reliably tell safe toys from risky ones. This is a useful reminder that while market forces are marvelous, they're not the answer to all problems. (Let's spell it out: a strictly market-based answer would mean waiting to see which kids got sick, hoping parents could figure out why, and assuming that their knowledge would guide future parents' purchases.) Public health regulations, enforced in both China and America, are a crucial part of the answer.
But I know who's responsible at the moment: less the Chinese manufacturers than the American "outsourcing" purchasers. China is a big, sprawling, under-regulated, and still very poor country. Its factories can produce first-rate products: if you own any hardware from Apple, Sony, Siemens, HP, Bose, or any fancy-sounding brand name, chances are it came from China.
When those products are good, that is because the brand-name company insisted that they be good. This is essentially the saga I laid out in my recent Atlantic article on Chinese factories. (Article itself subscriber-only; free slide-show here.) The companies I wrote about came to China because its suppliers were fast, and cheap. But to make their output good, the purchasers invested the necessary time, money, and effort.
Purchasers just looking for something cheap from China will get it -- cheap in every sense of the term. That's not China's fault: it's early stage industrialization. Britain's factory life was dirty, slipshod, and dangerous in Charles Dickens's era, and America's was in the day of Upton Sinclair. And, frankly, American consumers just looking for something cheap will get it too.
So avoid Chinese toys if you feel you must. But let's not make this the basis for a big fiesta of anti-China-ism. The factories here can be perfectly safe -- as the best ones are, when middlemen and consumers around the world are willing to pay the price. And before you imagine a giant Chinese plot to poison Americans, think of the people who pay the greatest personal price for unsafe food and products: the average Chinese citizens who eat and use this stuff every single day. Along with me.
More on the "smiley curve": China makes, Apple takes
My current Atlantic article about the Chinese factory-world of Shenzen talks about the famous-in-China concept of the "smiley curve." This is a way of expressing the principle that although Americans import huge volumes of manufactured goods from China, most of the money spent on those imports stays in American hands. (Quote from the article, explaining the smiley curve, after the jump.)
An academic study I had heard about during my reporting, but which wasn't ready in time for my article, sets out a detailed and dramatic illustration of "smiley curve" principles. It involves the Apple iPod (which I have seen manufactured in China).
According to a summary of the report, in the new issue of Richard McCormack's Manufacturing News:
Not much of Apple's iPod is manufactured in the United States, but the majority of value added is captured by Apple... Apple made $80 in gross profit on a 30-gigabyte video iPod that retails for $299. Its profit is 36 percent of the estimated wholesale price of $224. [Not to mention the retail profit, if it is sold in an Apple store.] The total cost of parts was $144.
Many more dollars-and-cents details in the Manufacturing News story and the original academic study, from the Personal Computing Industry Center at the University of California, Irvine, here.
Continue reading "More on the "smiley curve": China makes, Apple takes" »
Last word on "two-class" ownership structure
At least the last word here -- at least unless something new and interesting turns up. It's not just newspapers, or Google, or the Ford Motor Company, or a slew of other firms where a family or group of founders want to retain disproportionate control. After the jump, details from a reader in Ohio about a successful real estate firm in Cleveland and its use of the technique.
Continue reading "Last word on "two-class" ownership structure" »
Why we love the Chinese press
Today’s front-page English-language headlines, from the (state-controlled) China Daily and Shanghai Daily:
Why we love them:
Continue reading "Why we love the Chinese press" »
Observer vs. Economist, or Yanks vs Redcoats yet again
The fraternity of American journalists who have dared speak irreverently of The Economist in public has just grown by 25%:
Previous members were: Michael Lewis (soon after Liar's Poker); Richard Stengel (in his pre editor-of-Time days); "Humphrey Greddon" (not in Zuleika Dobson but in yesteryear's Spy, under what must have been a pseudonym, and if I were a New York guy I'd know who the writer really was); and me, 15+ years ago. We now welcome to the club Tom Scocca of the Observer, on the strength of this offering, which (disclosure) refers back to other members, especially Stengel and me.
The 1991 Washington Post article of mine that Scocca mentions is here, and the updated intro to it is here.
If I've lost track of other people who meet the eligibility standards, sorry! And, by the way, the people I've come to know from The Economist are actually very nice. You can't help admiring the feat they have pulled off.
Market Crash Day in Shanghai
As I write it is Wednesday morning in Shanghai. Last evening, on Tuesday night, my wife and I went to dinner at a local Thai restaurant with three foreign friends, two young Americans and a European. It was 7pm here, and the Shanghai Stock Exchange had already closed after its 9% drop. It was 6am in New York, and the markets there had not yet opened for what would become the 400-plus point drop in the Dow.
Continue reading "Market Crash Day in Shanghai" »
Archive: "Tough but fair" article about The Economist Magazine, from 1991
"The Economics of the Colonial Cringe," published in the Washington Post's Outlook section on October 6, 1991, now in archives section, here. (Posting is largely for my own convenience, since it's not otherwise available online.) Main update: In the 15 years since have met and become friends with a number of Economist editors, who are generally wonderful folk! One is now a close colleague at work. Still.....
"The Economics of the Colonial Cringe," about The Economist magazine; Washington Post, 1991
The Economics of the Colonial Cringe: Pseudonomics and the Sneer on the Face of The Economist.
By James Fallows; Washington Post "Outlook"section; October 6, 1991.
Last summer, a government man who helps make international economic policy told me (with a thoughtful expression) he was reading "quite an interesting new book" about the stunning economic rise of East Asia. "The intriguing thing is, it shows that market forces really were the explanation!" he exclaimed in delight. "Industrial policies and government tinkering didn't matter that much."
By chance, I had just read the very book -- Governing the Market by Robert Wade. This detailed study, citing heaps of evidence, had in fact concluded nearly the opposite: that East Asian governments had tinkered plenty, directly benefiting industry far beyond anything "market forces" could have done.
I knew something else about the book: The Economist magazine had just reviewed it and mischaracterized its message almost exactly the way the government official had.
Had he actually read the book? Maybe, but somehow I have my doubts.
What I saw that day, I suspect, was just another illustration of the power of Washington's current Sacred Cow: The Economist magazine, which each week unwholesomely purveys smarty-pants English attitudes on our shores.
Like other sacred cows, The Economist obviously has its virtues. Compared to any of the American newsmagazines, The Economist gets by with a skeleton staff of mainly young writers, who turn out a prodigious amount of copy each week. The news stories have lots of informative tidbits, and the "leaders," or editorials, in the front of the magazine often take up usefully quirky subjects. My recent favorite is one explaining why the rise of English as an international language is a short-term convenience but a long-term disaster for Americans and Englishmen. The Koreans, Russians, Japanese and even Dutch can listen in on what we're saying. We have no private language to scheme in, as they do.
But what signifies a sacred cow is that people revere it for fashionable reasons, and out of all proportion to its real strengths and weaknesses. The Economist, whose American circulation has risen from 40,000 to 183,000 over the last 10 years, seems to have reached that point among America's professional class.
For example: Several weeks ago, The New York Times Magazine ran a profile of Bill Gates, the "boy billionaire" founder of Microsoft. Here is someone with many good reasons to be vain, but the main vanity he seemed to push in the article was his association with The Economist. (Gates said that he didn't have a TV in his house, because if he had one he'd never have time to read The Economist cover to cover, "as I do now.")
As part of a feud with Newsweek's Robert Samuelson, Robert Reich, of Harvard, wrote a letter-to-the-editor that said: "I, for one, don't get my economics news from Newsweek. I rely on The Economist -- published in London." Humphrey Greddon wrote of this episode in Spy: "If so, then Reich resembles many semipretentious undergraduates, bankers and newsmagazine business writers in this country. The omniscient tone and pedantry of The Economist must impress the insecure American cousins in its readership." [2006 Update: I was then in the middle of my own little squabble with Reich, long forgotten on both sides -- I think!]
In functional terms, The Economist is more like the Wall Street Journal than like any other American publication. In each there's a kind of war going on between the news articles and the editorial pages. The news articles are not overly biased and try to convey the complex reality of, well, the news. Meanwhile, the editorials and "leaders" push a consistent line, often at odds with the facts reported on the news pages of the same issue.
For The Economist, the tension is most obvious in its coverage of Japan. According to the editorial line, Japan is becoming more and more market-minded, its trade surplus is bound to disappear, its economic mandarins are losing power by the minute and its people are about to revolt against the onerous 'salaryman' life. Meanwhile the news stories point out that things aren't evolving quite according to editorial plan. [Update: Japan's financial markets and real estate were headed for problems right about then. But its exports and trade surplus have kept chugging right along, and its mandarins and salarymen have essentially retained their same roles.]
To give one example from several hundred possibilities, last year The Economist's correspondent in Tokyo detailed the Japanese government's plan to keep foreign companies from selling advanced "amorphous metals" to Japanese customers, until Japanese firms could gear up to make the products on their own. A few pages later in the same issue, a book review announced, with great confidence but without noticeable evidence, that Asia's "stunning growth was built on efficient investment and innovation, which in turn owed everything to openness to trade."
More recently, an Economist article pointed out that Japan's trade surplus is on the rise with nearly all its partners. Its conclusion was not that the magazine should revise its theories but that readers should prepare for "whining" (translation from the British "whingeing") from the small-minded protectionists in the rest of the world.
The editorial line pushed by The Economist is also functionally similar to the Journal's. Markets nearly always work, and government meddling nearly always fails. If some fact seems not to fit this schema -- for instance, the success of Asian governments in meddling with their economies -- the fact should be harumphed out of the way. [Updated example: China.] Political leaders must above all be firm, like the Divine Mrs. T. Writers and thinkers should above all be "clever," The Economist's highest term of praise. (The Journal's counterpart is "realistic.") Those who disagree are to be mocked -- as sissies by the Journal and dim bulbs by The Economist. The world should be viewed, from above, with a pitying amusement. Why can't they be as clever as we?
The real question about this editorial approach is why it's paid off better for The Economist than for the Journal. Why is it impossible to imagine a professor boasting in print, "I rely on the Wall Street Journal -- published in New York"? Why do people apparently buy the Journal (or The Washington Post or the New York Times) only if they want actually to read it -- rather than just to carry it around, as a suspiciously large number of Economist "readers" seem to do?
The roots of the explanation stretch back to 1776 and America's incomplete separation from the motherland. England is a perfectly nice little country, with many achievements to its credit. If you like to attend plays, want to read comic novels, hope to spare your skin the damaging effects of the sun, then England's the place for you. Countries once part of its empire, including America, are much better off than those that were under the Spanish or French. But England has two completely loathsome traits, which in exported form are involved in the reverence for The Economist.
The first is, of course, the English class system. Yes, America has its own tangled class problem, which is becoming worse as public schools and the military lose their democratizing function. But Americans can still be embarrassed by obvious reminders of class difference. Except perhaps in Beverly Hills and Manhattan, when the refrigerator repairman comes to the doctor's house, the doctor is supposed to treat him as if they're equals -- not as "My good man."
Perhaps it is not England's fault, or The Economist's, that those Americans who would love to have a similar class system here -- with themselves on top! -- take on English airs. (As Henry Allen of The Post has pointed out, the right response to this phenomenon is not Anglophobia but Anglophilophobia.) But The Economist has certainly, if only half-consciously, traded on the "published in London" snob appeal. "Americans imagine that The Economist is better written," says Time magazine's Richard Stengel, "because they impute an English accent to what they read."
There are certain English products whose quaintness is put on mainly for export purposes -- they're the equivalent of Ye Olde Tea Shoppe-style tourist traps, which the locals avoid. Something similar is going on with The Economist. The Economist now has considerably fewer readers -- and is strangely less influential -- in England than in America. Indeed, it is disdained by the very Englishmen whom many American readers would most love to emulate: the secure upper and upper middle classes.
In America, the magazine presents itself as a kind of voice of the super-confident English aristocracy, whereas its advertisements within England play on the status-anxiety of its readers there. For example, one billboard displayed in England reads in bold print: "I never read The Economist." The punch line comes in the identification of the hapless confessor of this dereliction, a "Management trainee -- aged 44."
Another key to the magazine's boom in America during the 1980s must lie in its sycophancy toward Ronald Reagan in particular and American culture in general. We are all so used to being sneered at by the French or Swedes. To hear someone who poses as a British aristocrat celebrating American vigor -- it's just irresistible! If it came from the Wall Street Journal or USA Today, we'd consider it plain boosterism, but it works from The Economist, since we imagine we're overhearing the foreigners' real views. I think the flattery is actually the most refined and vicious version of the old British condescension toward the colonies. These Yanks! They'll believe anything! Let's give them another dose of how the world looks up to them!
The other ugly English trait promoting The Economist's success in America is the Oxford Union argumentative style. At its epitome, it involves a stance so cocksure of its rightness and superiority that it would be a shame to freight it with mere fact.
American debate contests involve grinding, yearlong concentration on one doughy issue, like arms control. The forte of Oxford-style debate is to be able to sound certain and convincing about a topic pulled out of the air a few minutes before, such as "Resolved: That women are not the fairer sex." (The BBC radio shows "My Word" and "My Music," carried on National Public Radio, give a sample of the desired impromptu glibness.)
Economist leaders and the covers that trumpet their message offer Americans a blast of this style. Michael Kinsley, who once worked at The Economist, wrote that the standard Economist leader gives you the feeling that the writer started out knowing that three steps must be taken immediately -- and then tried to think what the steps should be.
A certain modesty would seem appropriate in The Economist's leaders these days, considering that after 10 years in which the Thatcher government essentially did what the magazine said, Britain has the weakest economy in Europe. (Remind me, again, why we're looking to the British for economic advice.) But the implied message of the leaders often seems to be, "I took a First at Oxford. I'm right."
The cover of anonymity for the magazine's writers is an important part of its omniscient stance, among other reasons because it conceals the extreme youth of much of the staff. "The magazine is written by young people pretending to be old people," says Michael Lewis, the author of "Liar's Poker," who now lives in England. "If American readers got a look at the pimply complexions of their economic gurus, they would cancel their subscriptions in droves."
This brings us back to Robert Wade's book. The crucial paragraph of The Economist review -- the one that convinced my friend the official, and presumably tens of thousands of other readers, that Wade's years of research supported the magazine's preexisting world view -- was this:
"The [Asian] dragons differed from other developing countries in avoiding distortions to exchange rates and other key prices, as much as in their style of intervening. Intervention is part of the story -- but perhaps the smaller part. That being so, Mr. Wade's prescriptions seem unduly heavy on intervention, and unduly light on getting prices right."
These few lines are a marvel of Oxbridge glibness, and they deserve lapidary study. Notice the all-important word "perhaps." Without the slightest hint of evidence, it serves to dismiss everything Wade has painstakingly argued in the book. It clears the way for: "That being so . . . " What being so? That someone who has Taken a First can wave off the book's argument with "perhaps"?
The "that being so" style of discourse is not wholly alien to the United States -- think of William Buckley on TV. But Americans know how to put his views in perspective. The complications of Anglophilic snobbery and Oxbridge-style swagger prevent most American readers from realizing that, when they read Economist leaders, they're essentially reading Wall Street Journal editorials, written with even less self-doubt.
Several months ago, when I was visiting Australia, I walked through the spectacular botanical gardens in Melbourne with a native-born Australian and a British expatriate. I was bedazzled by the lushness, and said how much I admired it. The Australian deferentially said to the Briton, "Well, I suppose it can't quite compare with Kew." "Ah, Kew!" the Englishman said, and then said no more, as if he were too polite to detail all the ways in which London's Kew Gardens were superior. A few seconds later, the Australian slapped himself on the forehead. "The colonial cringe!" he said. He'd made himself feel inferior about something that was objectively superb.
Ah, Economist! Ah, Kew!
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James Fallows is Washington Editor of the Atlantic Monthly. He used to live in England.
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