How Flawed Leadership Selection Harms the Economies of China and the US

Sometimes you read one thing in isolation and it doesn’t make much impression, but then you read something else and the pieces click together. That was the case for me this week with two disparate articles on how nations select leaders.

The first was written by Jon Huntsman, former Governor of Utah, Ambassador to China, and Republican presidential candidate. During the GOP primaries, Huntsman’s candidacy was distinguished by two things: An unusually high ratio of sense to nonsense during the debates, and an unusually low number of votes at the polls. Now he is free to speak out. In a Financial Times comment this week entitled “True Conservatives Despise America’s Crony Capitalism,” he wrote that Republicans should do the following:

• Protect America’s economic dynamism by rolling back the power of incumbent business and political interests
• Reform the tax code by closing loopholes and flattening individual rates
• Open markets to allow clean fuels to compete with gasoline and diesel
• Reform the financial system so that the country is not held hostage by banks that are too big to fail
• Instead of pointlessly ranting against “Obamacare,” start slogging toward alternative healthcare solutions, with an emphasis on cost control measures like ending fee-for-service medicine
• Make sure defense budgets are driven by long-term strategic threats, not lobbyists
• Endorse term limits for Congress, campaign finance reform, and an end to the revolving door that blurs the distinction between regulators and regulated

Great ideas, all of them, but in the unlikely event Huntsman had won the nomination, how many of these points would he have dared to hammer away at in his campaign speeches? How much money would his Super PACs have brought in if he had openly backed all of them?

The second article was by Minxin Pei, a professor of government at Claremont McKenna College. Pei’s article asks why China can’t pick good leaders.

China, like the United States, needs structural reforms. It has a housing bubble that is proving hard to deflate in an orderly manner, a fragile financial system, and a distribution of income that is becoming ever more unequal. Pei doubts that the leadership is up to dealing with these issues.

Of course, China’s political system is different from that of the United States in many ways. Where China has a one-party, authoritarian government with scheduled changes of leadership, the United States has a two-party, democratic government with scheduled changes of leadership. Beneath these obvious differences, though, there are similarities.

Pei thinks China’s problem lies in the fact that it does not select leaders on the basis of demonstrated abilities, but rather, on the basis of political patronage and ties to powerful interest groups. He writes that the most damaging effect of this Byzantine system is a “leadership prone to factional compromise, even policy paralysis.” That is why China has failed to undertake much-needed economic reforms to rebalance its economy.

The problem that afflicts both countries is one that Mancur Olson wrote about in The Rise and Decline of Nations. As economies grow strong and political systems mature, leadership becomes more and more beholden to coalitions of special interests that are more interested in dividing up the pie than in enlarging it or improving the quality of the stuff it is filled with. Once interest group politics becomes entrenched, nations decline.

It has been a quarter of a century now since Olson wrote that book. In the United States, factionalism has hardened and policy paralysis has become the norm. Over the same period, China has had a run of success that Olson could hardly have imagined, but it, too, is showing signs of the same factionalism and paralysis. In both countries, very different but equally flawed systems for selecting leaders exacerbate the problem.

Originally posted at Economonitor.com