A Planned Chinese Supercity Hinging on Technology

A Kansas-sized supercity of 82,000 square miles and 130 million people, with Beijing at the center, is in the vanguard of economic reform, Liu Gang said from Nankai University in mid-2015.[1] Six times the size of New York City’s metropolitan area, the planned regional economy would require nothing short of a feat of urban planning. The economic synergy anticipated from the planned integration is the main benefit. The sheer scale alone presents its own challenges, however, and the complexity in coordinating the various shifts of people and services suggests that unintended excesses and shortages will demand immediate action. Even so, I contend that the application of technology will make or break the viability of the anticipated supercity.

The economic diversity within the region gives economic integration tremendous potential. Lui Gang explains that the supercity, named Jing-Jin-Ji, “reflects the senior leadership’s views on the need for integration, innovation and environmental protection.”[2] The plan calls for regional integration of Beijing’s research facilities and creative culture with Tianjin’s port-city economy. “Beijing is to focus on culture and technology. Tianjin will become a research base for manufacturing.”[3] In other words, the links from university and industrial research to manufacturing are to be tightened. Hebei province is also included—the relatively cheap land being fertile ground for relieving the environmentally-hostile population density in Beijing.

The project relies on constructing a subway and a high-speed rail, and connecting 18 dead-end highways to link the major cities, including Beijing, Yanjiao, Handan, Xingtai, Tangshan, and Zhengijakou. With speeds of 150 to 185 miles per hour, 37 minutes will get a commuter from Tianjin to Beijing (and vice versa) by rail.[4] The geographical scope of the supercity, or urban region, consistent with tight economic integration can thus expand, much as military technology extended the reach and thus territory of early-modern European kings. The Chinese urban-policymakers were essentially pinning their hopes on the shift of practical integrative scope—in particular, that the technology will make the energy needed to transport people over so large an area worthwhile. The true cost may be an externality if the carbon emissions increase substantially as a result. Yet even in this respect, communications technology, such as the ability to hold meetings in virtual reality, may make it possible for the planned supercity to reap the benefits of the added economic integration without warming the planet appreciably more.

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[1] Ian Johnson, “Pain and Hope as China Molds Its Capital into New Supercity,” The New York Times, July 20, 2015.

[2] Ibid.

[3] Ibid.

[4] Ibid.

The Greek Proposal on the Heels of the Referendum on Austerity: A Case of Avoidable Betrayal

Only days after appealing to the will of the people, Greece’s prime minister put forward a proposal to the state’s creditors that contradicts the people’s rejection of further austerity. To be sure, the referendum was nonbinding, and the need for compromise was well justified by the seizing up of the state’s banking system and economy after the “No” vote. Furthermore, one of the virtues of representative as distinct from direct democracy is that officeholders can pursue policies contrary to the immediate will of the people but in line with their best interest. Alexis Tsipras faced immanent economic catastrophe, and so he can reasonably be credited with acting in his constituents’ best interest. Nevertheless, the sting of betrayal (and the larger theoretical point of governmental sovereignty being subordinate to popular sovereignty) warrants attention in this case.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Property Rights in China: On the Separation of Ownership and Control in the Stock Market

It is too simplistic to say that economies around the world converged as capitalistic after the collapse of the Soviet command-and-control economy. Even the notion that China’s communist party has embraced capitalism does not do justice to the ways in which China’s capitalist system is unique. This became particularly apparent in early July 2015, when the bubble burst in the Chinese stock market.

Already down by more than 30% since early June 2015, the benchmark Shanghai Composite Index lost another 5.9% on July 8, 2015 and Hong Kong's Hang Seng index closed down 5.8 percent.[1] Hundreds of companies halted trading in their stock after emergency measures announced by the central government the previous weekend failed to stop the rout. The measures themselves are particularly noteworthy, for they illustrate the unique way in which capitalism under communism regards property rights.

The Chinese government directed “state companies and executives to buy shares, raised the amount of equities insurance companies can hold and promised more credit to finance trading.”[2] On July 8th, the Cabinet agency that oversaw China's biggest state-owned companies said it had told them to avoid selling shares and to buy more "in order to safeguard market stability."[3] Ordering companies and their senior managers to not only not to sell stock, but also buy more, runs against the assumed linkage between economic liberty and property rights. Because the managers of state enterprises are essentially state employees, the government’s encroachment on freedom to buy and sell assets is mitigated.

However, “(i)n a separate order, the securities regulator told directors, executives and senior managers of publicly traded companies who have sold shares in those companies within the past six months to buy them back and said they are barred from selling. It said they are required to buy more if the price falls by more than 30 percent in the next 10 days.”[4] Here, the government reaches individuals receiving money from private companies—albeit publically traded ones having charters granted by the government.

To force people to buy and sell assets does not mean that their respective markets are replaced by a Soviet-style command-and-control economy. Changes in supply and demand still affect pricing. The value of an asset of which some of its buyers and sellers have been forced to buy or sell is at an intersection of a supply and demand that does not reflect preferences and thus utility curves—not only for the given asset, but also, moreover, for economic liberty in being able to make and implement purchase-decisions. Put differently, the preference of the government, both regarding the asset-class and control, is also in the mix.

Because the individuals ordered to buy rather than sell stock in their respective companies owned the stock, private property is cleft from control pertaining to the buying and selling of the stock. Were the purchased an asset usable, such as a car, the owners could still control that sort of use, so economic liberty is not lacking; rather, it has been restricted. We can conclude, therefore, that private property and private markets can exist and function even when economic liberty is limited.

In 1932, Berle and Means wrote a book pointing to the separation of (stock) ownership and (managerial) control in American corporations.[5] The control here pertains to policy decision at the corporate level. In the Chinese case, the control at issue pertains to being able to buy and sell stock; such control remains intact in the American system of managerial capitalism.

The Chinese government’s order may seem counterintuitive  not because ownership is distanced from control, but, rather, because of the type of control—that over buying and selling rather than use per se. Moreover, the order calls into question earlier academic predictions that the fall of the U.S.S.R. and China’s adoption of capitalism would lead to a singularity or isomorphism of the world’s economic systems. Simply changing what is to be controlled separately from the ownership can make an economic system look quite different. Lastly, this case demonstrates just how interlinked political and economic variables are. The twentieth century witnessed empiricism take hold both in economic and political “science”—the reductionism itself distancing the two disciplines from each other.

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1. Joe McDonald, “China Stock Market Plummets As Sell-Off Continues,” Associated Press, July 8, 2015.

2. Ibid.

3. Ibid.

4. Ibid.

5. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (New York: Macmillan, 1933).  The book's theme is the separation of ownership from control of the modern corporation and its consequences. Berle and Means point out the divergent interests of directors and managers, and of each of these from the owners (i.e., stockholders) of the firm.