China shows what public spending can help create

By Steven Conn 7:40 PM Thursday, June 23, 2011

I’ve just taken a ride on the world’s only commercially operating maglev train. As its name suggests, it uses high-powered magnets to float — levitate — on its track. No wheels, no friction and it moves fast. Really fast. The trip was about 19 miles long and it took eight minutes.

I took this ride in Shanghai, from the edge of the Pudong district out to the airport to catch my plane. It felt like riding the future.

So does China as a whole when you visit places like Shanghai and Hong Kong. You can see and feel the energy walking down the streets. China’s meteoric economic rise has a lot of Americans worried, and politicians have increasingly tried to scare us by railing against the Chinese “threat.”

But here’s the paradox about China: According to the Republican economic orthodoxy, China’s economy simply can’t be working. It violates every tenet of their free-market ideology.

When you visit China, it becomes obvious pretty quickly that the economy there is being built not by the miracle of the free-market and the private sector, but by public spending on a huge scale.

Forget that many of the key sectors of the economy — like big banks — are still largely controlled by the state, though that is certainly true. (And forget for a moment that China’s banking sector weathered the financial collapse better than many big American banks).

Where you really see the role of government spending is in infrastructure projects of all kinds. Shanghai, for example, has grown rapidly as workers have poured into the city’s factories. They travel in a city that would otherwise be choked by using an efficient subway system and a network of huge new roads.

Most major Chinese cities are now connected by high-speed rail, often starting and stopping in impressive new train stations.

Air travel also is easy around China. When you take an internal flight, you fly a state-run airline in and out of dazzling new airports, any one of which would be the nicest, most efficient airport in this country.

These things all make it possible for people to move, and as people move, so does the economy.

Of course, much of China’s economy right now is built on exports, and to position China even more advantageously, the government is investing in new port facilities.

My host in Shanghai informed me that the government there is building a brand-new port which, when it is opened, will be the largest deep-water port in the world.

The public investment by China doesn’t stop with transport projects. Because of government initiative, China will soon become the largest generator of renewable energy in the world (if it isn’t already). There are now more solar cells producing electricity in China than in any other country.

Chinese universities and research institutes are already big and they are growing enormously, because the government has decided to invest heavily in them.

Chinese scientists are on track to publish more articles in scientific journals than their American counterparts in the near future.

And all of this because of government spending. In other words, the Chinese economy has taken off because the Chinese are doing what we in this country used to do: make large-scale public investments in order to stimulate and foster the private market.

We used to build railroads and highways and we used to fund our educational system, making it the envy of the world. Now, of course, we don’t.

In the last 30 years, our economic policy has shifted away from public investment toward enriching big corporations and the wealthiest individuals through tax breaks and giveaways.

For proof of that, look no further than the education budget just signed by John Kasich. Compare that gutted budget with the growth of spending on education in China and you have a pretty good measure of who will win the future.

Meanwhile, of course, the governor managed to find money for the corporate executives of Bob Evans and Diebold.

My host in Shanghai told me that the Chinese have a different conception of time than Americans. They think in the long term. They look ahead in decades rather than toward the next quarterly earnings report.

That maglev train to the airport doesn’t make money yet. But it will eventually, and as with so much else going on in China, the public investment will pay handsome dividends.

Steven Conn is a professor and director of public history at The Ohio State University.

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