Chinese and U.S. Models

Many aspects of our respective societies and governments follow different rules and approaches to organizing our communities. We presumably prefer (most of) our choices over theirs and vice versa. In explaining why we prefer ours, we might freely criticize theirs. But we generally have no right to demand that they abandon their approach and adopt ours.

Consider China’s Social Credit System.  In the U.S. we are “well accustomed to credit checks: data brokers such as Experian trace the timely manner in which we pay our debts, giving us a score that’s used by lenders and mortgage providers. We also have social-style scores, and anyone who has shopped online with eBay has a rating on shipping times and communication, while Uber drivers and passengers both rate each other; if your score falls too far, you’re out of luck.

“China’s social credit system expands that idea to all aspects of life, judging citizens’ behaviour and trustworthiness. Caught jaywalking, don’t pay a court bill, play your music too loud on the train — you could lose certain rights, such as booking a flight or train ticket.”  “China social credit system explained”

A good Social Credit score will ease access to loans and other good things. Compared to our approach to collecting information on our likely credit worthiness, the more comprehensive and centrally organized rating is more efficient and comprehensive. But we are very aware of the Chinese Communist Party’s sensitivity to criticism and its potential (if not certainty) for abusing such extensive access to information on our personal behavior. So, we would never allow such a system.

But what about the U.S.’s strong support (and push) for AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) laws and procedures?  How do we (how can we) justify that? The U.S. requires that all financial firms collect information about their customers (KYC–Know Your Customer) that facilitates the government’s tracing payments of potentially illegally gained money and it has forced this requirement on all countries using U.S. dollars. The cost of these requirements is enormous. But why follow allegedly illegally gained money when the government can’t prove that it was illegally gained in the first place? If it could, the government should attack the illegal activity at its source. Thus, it claims, but cannot prove, that the money was illegally earned. Not only are AML requirements very expensive but the benefits (identifying criminals) are negligible and morally indefensible. “Operation Choke Point”

The issue of whether to require a so-called vaccination passport to document that the bearer has been vaccinated in order to enter facilities that require such proof, provides another example of a clash between efficiency and convenience and privacy. The pros and cons of such documentation are currently being debated in the U.S.  “vaccine passports”

My point is that each country has its own models for organizing and sharing information and for enforcing its laws.  We have every right, and should, carefully evaluate our own practices. What China chooses to do, is China’s business. Fortunately, we live here.

About wcoats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My most recent book is One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.
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4 Responses to Chinese and U.S. Models

  1. 27rpringlegmailcom says:

    What China chooses to do, is China’s business. Fortunately, we live here. As a general guideline, I agree. However, there are exceptions. What Hitler started doing from Jan 30 1933, notably the treatment of Jews, but also the bluster and threats, should have been treated as everybody’s business.

    >

  2. Warren, this is one of the most entertaining blogs you have written, anchored in pragmatism and humor – close to a Garcia Marques rendition of Macondo. I do agree with your description of both systems, and the fact that most citizens in both systems believe their own (system) is best suited for the local needs. Further, I do that the US system (our system) is not perfect but is more open and can be criticized and improved over time. Even if it takes more time and therefore, be less “efficient”.

    • Arthur Lake says:

      Its amazing how rapidly both the American and Chinese systems are changing in recent years. Both countries suffer from an inability to devise a way of meeting both rural and urban demands while sustain both in long termequilibrium.

  3. Arthur Lake says:

    I also found your comments humourous. The systems of both countries derive from history and inheritance of a multiplicity oif approaches to money, privilege and management. The US is dominated by Roman legal and administrative precedence, some British investment in early years with an oversupply of militaristic and top down attitudes and and a huge admiration of French anti-royalist ideals and bottom up politics, while the Chinese have monster problems they superficially strive to surmount. When they use American and British methods of finance and industrial organisation they fail miserably with waste, damage to life and limb, and enormous corruption. The Chinese do best when they work together to solve problems, such as flooding that others cannot. However, by employing an American style profit oriented approach, this has lead to deaths and disaster. They do best at oriental despotism that is benign and has no resemblance to American nor European methods, which the Chinese are hopeless in imitating.

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