Anonymous Kumquat submits:

This edited introduction is from Han's latest book: The Economics of Competition: A Critique of Paul Samuelson's "Economics," published by Jingji Kexue, Chubanshe, 2002

"The Economics of Competition: A Critique of Paul Samuelson"

Han Deqiang, China Study Group

A Collective "Prisoners' Dilemma"

China has switched to a market economy for a whole decade now. People once
hoped, and may still be dreaming that, as the institution matures and
perfects itself, China would become a strong developed country, where
democracy rules and people enjoy high quality of life not only in material
terms but also in spiritual and moral terms.

But reality seems to be moving
farther away from such a dream. Since the late 1990's, all kinds of Chinese
enterprises have gone bankrupt en masse. With it came increased
unemployment, lower mandatory retirement age, lower wages for workers,
decreased income for farmers and slack domestic demand. With the influx of
foreign enterprises and foreign products, many Chinese enterprises have
switched their business lines because they no longer have the confidence to
run a high-tech business at a profit. They become de facto employees of
those foreign enterprises, earning meager fees for their efforts.

In the
meantime, there has been a staggering number of tragic mine accidents that
kill thousands year after year. Major accidents involving large number of
deaths, such as firework factory explosions, plane crashes, as well as fires
at cyber cafes, night clubs, theaters and shopping malls have occurred with
mind-numbing frequency; villages and small towns are flooded with fake or
poor quality products; drugs and AIDS are rampant. Not only has corruption
become a normal way of doing things among many officials, but it has also
become a normal part of the values/belief system of the collective national
psyche, marked by an egregious lack of civil-mindedness and ethical
awareness. Teachers, doctors, lawyers and accountants all share the belief
that " One must make use of one's position of power for self-enrichment
before one loses it"; schools have become agencies that sell diplomas;
hospitals force patients to pay up or leave.The lawyers are again edifying their clients by reverting to an old saying:
"court houses are for those who have money, not those who have a case";
accountants have learned to "twist the numbers for money"; reporters
routinely accept "gifts" of cash from those who desire a favorable write-up,
young girls are not ashamed of providing sex-related services as a source of
income and businessmen openly boast about their ability to concoct a
confidence scheme to lure unwitting investors.

As this tide of corruption
engulfs the nation, it is the workers and farmers who work the machines and
land that are left utterly powerless and unable to defend themselves. They
work more than twelve hours a day at the risk of death, maiming and
deterioration of health, earning a meager pay that is often reduced or
withheld by employer on arbitrary grounds. Their low income barely feeds
their families. Finally even the elite segment of the society, which has
ready access to state power, capital and knowledge, feels threatened by this
rising tide of corruption. Members of the ruling elite have now begun to
talk at length in the media about the importance of "honesty and integrity".
But the irony is that they only became rich because of their lack of honesty
and integrity. They don't have the right to talk about "honesty and
integrity" until they part with their ill-begotten wealth. When they,
however, become ordained spokespersons for integrity, the word integrity has
been rendered largely meaningless.

What went wrong? Why is it that where dragon's seeds were sown, only fleas
have been reaped? Many Believers of market economy, who are not blind to the
distressing realities of China today are wondering aloud: why has the market
economy, when transplanted to China, produced so many undesirable
consequences, just like the proverbial sweet orange trees, which would bear
only bitter fruits when transplanted to the soil on the other side of Huai
River? Is it because the soil of China is uniquely unfit for healthy growth
of market economy?

China, however, is by no means a unique place where market economy has gone
astray. Lately a huge bitter fruit has likewise been born in the United
States, which is widely regarded as paragon of market economy. Enron,
WorldCom Communications and Xerox Corporation have one by one been revealed
to cook their books. And it was the venerable eighty-year-old firm, Andersen
Accounting, that helped them do it. And before these were revealed, stocks on
the NASDAQ, a very mature stock exchange, lost more than 60% of their market
value, or about half of U.S. GDP.

This is by no means something new. Back in the
1980's, the US government was forced to infuse close to 100 billion US dollars
into saving and loan institutions in order to save them from bankruptcies.
During this time period, junk-bond king Milken launched many hostile
takeovers, causing well-run corporations to be broken apart or auctioned off
one after another.