In China, Democracy's On The Horizon

Helen WangBio
Author, consultant, and expert on China's middle class, business, culture and politics. 

Twenty-one years ago, thousands of Chinese students gathered at Tienanmen Square demanding more democracy. The world still remembers the stunning image of a lone student standing in front of armed tanks in an attempt to block the tanks from entering into the Square.

At the time, I had just arrived in the United States as a student and watched the entire demonstration on TV. Like other Chinese students in the U. S., I protested with them on the streets and wept with them when the crackdown came.

Today China has become a very different country. The new middle class has little in common with those idealistic students.


They are the beneficiaries of China’s economic reform. Most of them approve what the government has done. They are all busy trying to keep up with the swirling changes.

Geng Hui, an interior designer in Beijing, told me that he couldn’t care less about democracy. “I have all the freedom to do the things I want,” he said. “I have more opportunities than I can pay attention to.”

“People don’t care about politics now,” Veronica Chen, a young woman who started her own executive search firm in Shanghai, said. “They only care about having a good life and being trendy.”

Some people I talked to said they wished that their rights were better protected, but they also understand that China is a big country and it has a lot of complex problems. They are concerned that if the Communist Party is not in power, no one else is capable of running such a large country with so many challenges.

The truth is that the Chinese middle class and the Chinese government want the same thing--continuing economic growth and stability of the country. When it comes to choosing between democracy and stability, they choose the latter.

Although the Chinese middle class does not want radical changes, it has started to voice its opinions and show signs of power that never existed before. The Internet and mobile phones have played a significant role in this process.

In November 2008, China pushed through a 4 trillion yuan ($585 billion) economic stimulus package. People debated vigorously in blogs and online media about how well the plan was constructed. Critics inside and outside the Communist Party pressed for details about the spending and demanded the right to follow the money.

A Shanghai-based lawyer, Yan Yiming, filed a lawsuit against the National Development and Reform Commission (NDRC), China’s de facto central planning agency. Although Yan’s suit was rejected by the Beijing High People’s Court, a lawsuit against the central government was unprecedented.

In May 2009, the Chinese government issued a statement to require all the computers sold in China to pre-install spyware called “Green Dam Youth Escort.” China’s 300 million Internet users strongly opposed installation of the software. After weeks of criticism from the public, the Chinese government backed off, and later announced that “Green Dam” was no long required to be pre-installed on new computers.

These are just a few examples of how the Chinese middle class pushes back and demands more protection for their rights, property and privacy.

Many people I talked to expressed the sentiment that “only when we have economic freedom, will we have political freedom.”

Evidence from other countries, such as South Korea and Taiwan, suggests that when countries advance economically, they begin to change politically around the time that the incomes of their middle class reach somewhere between $5,000 and $10,000. If this rule applies to China, it will not be too long before we will see some sort of democracy movement in China.

In fact, a former Tienanmen Square demonstrator/student leader told me that he believes China will have a democratically elected government in 10 years. I am hopeful that as the Chinese middle class continues to grow, democracy will arise in its time.

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The Real Culprit Behind BP's Oil Spill

America's unstoppable dependence on oil.

 

Coastal animals covered in oily filth have given us a visceral sense of what the BP oil disaster means for our natural environment. The more disturbing news is that this oil spill represents a drop in the bucket--a small fraction of the petroleum that enters the world's oceans every year.

A NASA estimate found that roughly 6 million tons of petroleum products enter the world's oceans every year, or 0.25% of total world oil production. Water sewage treatment plants, for example, spew far more oil into the oceans than tanker spills in most years. Even leaving aside truly catastrophic spills like Deepwater Horizon and Exxon Valdez, estimates of average annual spills from rigs and tankers range as high as 250 millions gallons per year. These spills tend to attract far less attention. We don't see haunting photographs of oil-stained dragonfly's wings when a Nigerian tanker explodes. But irreplaceable forms of life are endangered all the same.

Armed with righteous indignation, a large and growing number of Americans are demanding that we end our reliance on oil and build a new energy economy in its place. The problem is that the American middle class can't afford sudden and abrupt change.

This past year the U.S. Department of Commerce published a fascinating report for the White House Task Force on the Middle Class. To provide a more vivid illustration of the choices facing middle-class families, the report's authors present three two-parent, two-child families at three different income levels: $80,600 for the median family, $122,800 for the family at the 75th percentile and $50,800 for the family at the 25th percentile. For all three families the cost of owning and maintaining an automobile is staggeringly high. The 75th percentile family spends $15,400 a year on two large sedans or SUVs at a purchase price of $30,000 and drives them a total of 25,000 miles a year. If this sounds profligate, consider that mobility enables a family like this to earn as much as it does: Both parents commute and work long hours, both make trips to the grocery store to stock up on prepackaged meals. The family winds up devoting far more resources to mobility than to medical care, college savings or retirement savings.

The median family is hit even harder by car ownership. Though this family purchases less expensive vehicles, it has to drive just as much. The $12,400 it spends on mobility matches what it has to pay in taxes. And for the family at the 25th percentile, which still has to drive 25,000 miles a year, the cost of mobility dwarfs the amount of taxes owed: $7,900 for two small used sedans against $6,000 in taxes. Consider what happens when you ask these two families to pay a much higher gasoline tax. Or what happens when you offer a tax credit to buy a new fuel-efficient hybrid vehicle. Given how little these families are able to save in an average year, there is no asset cushion that would allow you to buy your way out of oil dependence. The Commerce report sheds light on the angst and anxiety caused by spikes in the price of gasoline, and why efforts by congressional Democrats to pass cap-and-trade have met such ferocious resistance.

It also tells us why environmental outrage tends to dissipate after the networks stop showing footage of baby pelicans weighed down by thick globs of oil. Think of how a working parent at the median income or at the 25th percentile must feel every time she sees the price at the pump, and how it determines how much she can save for her child's college education or for her own retirement. Once a symbol of freedom and independence, the automobile is increasingly seen as a punishing and inescapable burden. It has an appetite almost as bottomless as that of a child, only it never loves you back.

All hope is not lost. We can reduce our dependence on oil and reduce the danger it poses to our natural environment. The surest route to that end is to make more families--here and around the world--affluent enough to bear the very high transition costs. Because that process will take a very long time, we need to consider a more urgent approach.

Decades of mortgage subsidies pushed homeownership to levels approaching 70%. Though the number of homeowners has declined in the wake of the recent housing bust, millions of Americans are still tethered to homes they can't afford in weak job markets. Rather than increase overall spending, thus pushing up the tax burden on middle class households, we'd do well to shift some of the $200 billion we spend a year on housing subsidies to easing the economic costs of clean mobility.

Lisa Margonelli, author of Oil on the Brain, has crafted a reform proposal designed to reduce oil dependence without overburdening working and middle class families. A broader package could include everything from generous subsidies for transit to loans designed to encourage the purchase of fuel-efficient vehicles, perfectly targeted to meet the needs of households at the 25th and 50th percentiles. This approach is far from perfect. But it may just give us the political capital we need to fight pollution.

By Reihan Salam, who is a policy advisor at e21 and a fellow at the New America Foundation. The co-author of Grand New Party: How Republicans Can Win the Working Class and Save the American Dream, he writes a weekly column for Forbes.

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"Volcker rule" at issue as reform bill nears finale

Paul Volcker, chairman of the newly formed Economic Recovery Advisory Board, attends a speech by U.S. President Barack Obama about Wall Street reforms at Cooper Union in New York April 22, 2010.
Credit: Reuters/Natalie Behring

Paul Volcker, chairman of the newly formed Economic Recovery Advisory Board, attends a speech by U.S. President Barack Obama about Wall Street reforms at Cooper Union in New York April 22, 2010.

Credit: Reuters/Natalie Behring

 
WASHINGTON (Reuters) - As Congress got to work crafting a final Wall Street reform bill on Tuesday, new tensions surfaced over the proposed "Volcker rule" that aims to curb risky trading and investing by banks.

White House economic adviser Paul Volcker, in a letter obtained by Reuters, said he firmly opposes exemptions to his rule being sought by banks that say they make only small investments in private equity and hedge funds.

At the same time, some Senate Democrats were moving to toughen the Volcker rule by reducing the latitude given to regulators in implementing it once it becomes law -- a prospect now widely seen as all but certain, likely within weeks.

Conflict over the rule -- which threatens the profits of banking giants such as Goldman Sachs and Morgan Stanley -- came as a congressional conference committee prepared for its first meeting on merging House and Senate reform measures into the biggest bank regulation overhaul since the 1930s.

After days of behind-the-scenes talks among conferees, the committee will hold its first public meeting on Thursday, with the goal of completing its work by June 26, Representative Barney Frank, the committee chairman, said on Tuesday.

House of Representatives Speaker Nancy Pelosi will appoint Democratic members from that chamber to the joint Senate-House committee on Wednesday, Frank told reporters.

Frank and other conference committee leaders will have the difficult job of balancing Democrats' desire for a hard-hitting bill with the need to retain some support from Republicans who have generally sided with Wall Street in resisting changes.

The completed House-Senate package must win passage in each chamber before it can be sent to Obama to be signed.

FRANK, DODD VOW OPEN PROCESS

Frank said conferees will aim to work for six to eight days between Thursday and June 26. He and his Senate counterpart, Democrat Christopher Dodd, said they would make committee sessions as open as possible.

Using the Senate-passed legislation as a starting point, conference members will have to propose changes a day before they are voted on, in an effort to avoid the secret deal-making that has marked past conference committees, Frank said.

"We certainly have no reason to try to keep the public out," Frank said. "We've benefited from its presence, he added," noting that public attention so far has had the effect of making the legislation tougher on Wall Street.

Dodd said the Senate conferees, who have already been appointed, will hold an initial meeting on Wednesday.

The Volcker rule was first proposed in January by Volcker and President Barack Obama, stunning capital markets.

It would curb proprietary trading by banks for their own accounts unrelated to customers' needs; bar them from sponsoring hedge funds and private equity funds; and limit their future growth through a new cap on market share.

The Senate bill, approved last month, endorsed the rule, but subjected it to a two-year study by regulators that critics said left the door open to watering it down later.

The Volcker rule is not in the House bill, but the bill has language that would let regulators bar proprietary trading at institutions that threaten financial stability.

Senate aides said large banks are pressing for "de minimis" exemptions to the Volcker rule that would let them invest in outside funds for marketing or relationship purposes.

VOLCKER "ABSOLUTELY" OPPOSES EXEMPTIONS

"I absolutely oppose any such modification" of the Senate bill, Volcker said in his May 17 letter sent to Dodd.
"Allowing a bank to invest in a speculative fund goes against the very intent of the (Senate) bill as we seek to define those activities that are worthy of government protection," he said in the letter.

The fight over the Volcker rule was unfolding in tandem with efforts by banks to kill another proposed measure that would force them to spin off their swap-trading desks.

Swaps are derivative contracts that allow wagering on the direction of interest rates or the likelihood of a borrower defaulting on its debt, known as a credit default swap.

Credit default swaps were blamed in the 2007-2009 financial crisis that hammered economies worldwide, triggering taxpayer bailouts and a global wave of financial reform initiatives.

The swap-desk measure from Democratic Senator Blanche Lincoln could be dropped if the Volcker rule is toughened, some sources said, but the interplay between the two was unclear.

"We should correct the derivatives language independent of the Volcker rule and then try to get the Volcker rule right, which is also a complex issue. I don't think the two should be linked," Republican Senator Judd Gregg told Reuters Insider.

A key factor will be the outcome of Lincoln's difficult primary election race back home in Arkansas on Tuesday.

Analysts have said for weeks that her swap desk "push-out" measure would likely be dropped, something that would be even more likely if she loses in the primary.

MERKLEY: TOUGHEN VOLCKER RULE

Senator Jeff Merkley told Reuters on Tuesday that the Volcker rule is crucial to reform and should be toughened.

He and Senator Carl Levin, both Democrats, want to give regulators less discretion in implementing it. Merkley said he and Levin would meet on Tuesday with Volcker "to discuss the conference committee and how we're going to get this done."

Volcker, in a May 19 letter to Merkley and Levin, expressed support for their proposal, saying it would "clarify and enhance the proprietary trading restrictions" in the bill.

Levin told reporters on Tuesday that he was not linking the measure he and Merkley support to the Lincoln provision. "We're not arguing that it's one or the other," Levin said.

Banking industry analysts estimated last month that the sweeping financial reforms then being debated in Congress, taken together, could reduce big banks' profits in a range of 12 to 35 percent, depending on the institution.

Other banks whose profits could be hit by the Volcker rule, include Citigroup, JPMorgan Chase and Bank of America.

On another front, Dodd said discussions were under way about a possible transition period that would help banks comply with new capital standards being proposed in the Senate bill under an amendment by Republican Senator Susan Collins.

"I don't know if it's been resolved yet. We're working very closely with Senator Collins," Dodd said.
Both the House and Senate bills call for higher capital requirements on banks and financial firms as they get bigger and assume more risk. Neither bill has much detail, however, largely leaving that up to regulators -- with one difference.

The Collins amendment would make bank holding companies adhere to the same capital standards as bank subsidiaries. It would also bar bank holding companies from counting certain hybrid securities in meeting a key measure of strength.

(Additional reporting by Caren Bohan, Rachelle Younglai, Thomas Ferraro and Charles Abbott; Editing by Leslie Adler)

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