David Goldman (“Spengler”) replies to comments by Fudan University Professor Wen Yang on ‘You can never be China’s friend’: Spengler, an interview the columnist gave to a Swiss publication. Wen Yang’s comments were serialized by Asia Times in three parts. Read part 1 herepart 2 here. Goldman’s remarks below make particular reference to part 3.

First, I should like to thank Prof. Wen Yang for his lengthy and well-considered response to my interview in Weltwoche. I am honored that a prominent Chinese scholar has given my views serious consideration.

Mutual understanding is not necessarily conducive to peace; the European statesmen of 1914 understood each other all too well, as did the Athenians and Spartans before the Peloponnesian War. Unlike the Germans and French of 1914 or the Athenians and Spartans of 431 B.C.E., though, China and America have scant reason to go to war, and better understanding may prevent miscalculations.

I am the first to say that the consensus American view of China is terribly distorted, and I have heard equally distorted views from prominent Chinese analysts. This sort of dialogue therefore may be of great benefit, all the more so because the public can listen in and participate.

I cited the participation of Chinese engineers at the Mongol siege of Baghdad in 1258 (reported by all the standard historical sources) not to compare today’s China to the 13th-century Mongols, but to illustrate a far simpler point. Western critics often contend that China lacks the capacity to innovate. I do not believe this is true, but whether it is true or not is entirely irrelevant. Like the Mongols, China today can hire whatever skills it may lack at home.

As it happens, Huawei’s 50,000 foreign employees conduct most of the company’s basic research and development. Huawei bankrupted most of its European competition and hired its talent. It is not so much a “Chinese” company as an imperial company, and reflects China’s bid for technological preeminence. If Prof. Wen doesn’t like the reference to the Mongols, I might mention instead the enlistment of German rocket scientists by the United States after World War II.

Monopolies exact rent

Prof. Wen writes that China “is not a Western-style hegemonic country.” China did not create the winner-take-all world of technology business, in which there room for only one Microsoft, one Facebook, one Google – or one Huawei. By attributing to China the goal of collecting rent from the rest of the world, I simply referred to a basic economic definition: Monopolies exact rent. That is true of the American technology monopolies, and China hopes that it will be true of Huawei as well.

Of course, Huawei’s spearhead in telecommunications is the first step towards dominance in artificial intelligence, with applications in manufacturing, mining, healthcare, supply chain management, urban planning, and a dozen other fields. It was America that created the first generation of great technology monopolies. China hopes to leapfrog America and dominate the next generation, and on a global scale.

This surely is not the Yellow Peril of the comic strips, but it is a formidable challenge to American preeminence, and as an American I have urged my compatriots to meet the challenge. I want China to be prosperous, secure and weaker than the United States.

For 5,000 years, China has adapted to its unique geography by building a centralized state with the resources to control its floods and irrigate its fertile plains. Only a centralized state could command the labor required to wrangle with China’s unruly rivers and uncertain climate. By no means do I believe that geography is destiny, but China’s political model – from the Xia dynasty of legend to the Qin dynasty of historical record and beyond – was founded on a massive riparian infrastructure that was the true wonder of the ancient world, compared with which the irrigation canals of Egypt and Mesopotamia seem like child’s play in a sandbox.

Centralized state

This imperial system suited Chinese circumstances so well that the Chinese have reconstructed it countless times after it dissolved into apparent chaos. Like the ancient empires of the West, all of China’s dynasties fell, but unlike the Western empires, the Chinese recreated them in the same form. That fact is sufficient to dispel the notion that China’s political system arose by accident.

From that perspective, it does seem inadequate to compare the Chinese polity to the Sicilian mafia, as I did in the Weltwoche interview. I note Prof. Wen’s objection. The interview format elicits aphorisms rather than analysis in depth. Nonetheless, there is a good deal of truth in the mafia analogy. My point was not to explain China to the Chinese but to disabuse westerners of the widespread misperception that a handful of wicked Communists rule 1.4 billion Chinese people who long for Western-style democracy.

The 14th-century Romance of the Three Kingdoms occupies a place in the Chinese canon comparable to Homer, Shakespeare, Machiavelli and Clausewitz combined. In a superficial Western reading, it might seem like a blend of The Sopranos and Game of Thrones, with its 800,000-word narrative of power struggles and betrayal during the decline of the Han Dynasty during the first two centuries of the Common Era.

Above the violent and sometimes sordid events it recounts, its attributed author Luo Guanzhong offers a philosophical conclusion about Chinese statecraft: “It is a general truism of this world that anything long divided will surely unite, and anything long united will surely divide.” More specifically, “The empire long united must divide, long divided must unite; this is how it has always been.”

China is not a nation-state but rather an imperial structure composed of highly diverse peoples and tongues, always subject to centrifugal pressures which in time of crisis have led to the division of the empire at frightful human cost. The object of every dynasty, including the committee of mandarins that constitutes the Chinese Communist Party, is to forestall the eruption of these centrifugal forces.

Beijing threatens war over the South China Sea to demonstrate, a fortiori, that it will go to war over Taiwan, because one breakaway province may lead to many breakaway provinces and the dissolution of the empire.

Nature has had a great deal to do with the tragic cycle of Chinese history. China’s riparian plains supported the largest population of any political entity in the history of the world, thanks to flood control and irrigation, but the best efforts of Chinese hydraulic engineers were not sufficient to prevent devastating floods at frequent but irregular intervals, as well as famines due to drought. A major famine occurred in some part of China on average of once a year during the past two millennia.

The consequences of flood and famine were horrendous; the large populations supported by improved land declined sharply, whole provinces became depopulated, and local warlords, as well as barbarian invaders, exploited the resulting weakness wrest control of the empire. The Mongols under Kublai Khan did so in 1271, and the Manchus did so four centuries later.

China’s rulers presided over an empire where loss of life on a catastrophic scale was commonplace and regarded as a mere overhead cost of management. This was true of Chiang Kai-Shek as well as Mao Zedong. The cruelty of Chinese governance astonishes and disgusts Westerners who do not know Chinese history. I ask Prof. Wen: Is it not time to break the tragic cycle and put such cruelty behind you?

Chinese history has validated Luo Guanzhong’s cyclical pessimism – until now. Western writers speak of the supposed “end of history.” One might say by contrast that Chinese history is just beginning. This is the first generation of Chinese that need not fear mass destruction of life through famine, flood or earthquake.

Technology has improved to the point that Green Revolution crop yields ensure adequate food supply, and civil engineering can mitigate floods. China no longer needs a Qin Shi Huang to unify warring kingdoms or even a Li Bing to conscript tens of thousands of workers to divert rivers through hand-hewn channels through mountains.

The imperial model with its disregard for the lives of individual Chinese may have been justified by historical circumstances. These circumstances no longer are present. China persists in its ancient model updated with new technology, and its people accept the ancient model because they do not know any other.

‘Jewish thinking’

Prof. Wen refereed caustically to my “Jewish style of business thinking.” He is beguiled by the perception sadly common in China that Jews have a special capacity to make money.

As Clarissa Sebag-Montefiore has written: “’Most Chinese will think Jews are smart, clever or good at making money, and that they have achieved a great deal,’ Professor Xu Xin, director of the Institute of Jewish Studies at Nanjing University (one of over half a dozen centers in China dedicated to studying Judaism) told me … ‘Revelations of Jewish People’s Wisdom,’ an account on China’s largest microblog site, Sina Weibo, has nearly one-and-a-half-million fans. Its revelations include: ‘Make a fortune under adverse circumstances.’ This logic – that the Jews are admired for their success despite their small numbers and historical oppression – has also led to a burgeoning industry of self-help books that use Jewish culture and the Talmud to preach business tips.”

This says less about the Jews than it does about the materialism of Chinese, who – when they consider a small people whose spiritual and intellectual influence on the world has vastly exceeded their tiny numbers – focus only on pecuniary success. But there is a particular way in which the Jews are good at money, although it is not what Prof. Wen seems to believe.

Jews have a talent for finance, and several reasons are cited for it. During the Middle Ages Jews lent money when the Church forbade usury. Jews were outsiders, often forbidden to own land, who had to develop other means of making a living. In his 2010 book Capitalism and the Jews, Jerry Z. Muller observes that Jews had a towering advantage in international trade during the Middle Ages because they had international law: a judgment issued by a rabbinical court in Yemen would be valid for Jewish merchants on the Rhine.

Something more fundamental, though, explains Jewish success in finance. Like overseas Chinese in Asia or Greeks and Armenians in the old Levant, Jewish immigrants developed trading skills that became embedded in their culture and in countless jokes. (Ask a Jewish first-grader to add two and two, and he’ll reply, “Is that buying or selling?”) But there is nothing uniquely Jewish about this. The same jokes are told about Greeks and Armenians.

Jews distinguished themselves in finance in an entirely different way during the Industrial Revolution. They played a central role in the new government debt markets that followed on the Napoleonic Wars and made a modern economy possible. Jewish bankers such as the Rothschild, Mendelssohn, Bleichroeder, Warburg and Seligman families pioneered the new capital markets. Bonds issued by European governments provided a secure long-term store of value, and set a precedent for financing the great projects of the era: railways, canals and other infrastructure basic to modern industrial society.

This was not the mercantile economy of the preceding two centuries, where the basic unit of capital was the bill of exchange in trade, but an industrial economy that required long-term investment to achieve lasting gains in productivity.

Capital markets

Something other than mere trading skills was required for an investment-driven economy, and that was long-term credit, a concept that derives from the Latin credere, “to believe.” It is not an exchange of one peasant’s eggs for another peasant’s barley, or Mexican silver for Chinese tea or silk, but rather a commitment of the savings of whole populations to grand ventures that would pay interest because they drove growth.

Capital markets, moreover, create a kind of democracy. If the whole of society relies on public debt as a store of value, the value of all the savings of society is gauged directly or indirectly against the benchmark of public debt. But that also puts power in the hands of the market: the market has the power to tell the government whether it is doing well or badly, by selling or buying the public debt.

It is not simply that the government creates a market that provides convenience and advantages to the people; it becomes dependent on the people’s faith in its policies. When that faith is shaken, and confidence flees the government debt market, the result can be catastrophic. Free capital markets require governments to win the faith of the people.

Capital markets require belief in the viability of investments, trust among counterparties, and faith in the future. It is fitting that Jews created capital markets, because the Jews invented faith. The secret of Jewish success in public finance is to be found in the Jewish encounter with the divine. The gods of the pagan world did not require faith. The gods simply were there, as much so as the natural world that they personified.

The god-infested world of the pagans was simply the natural world as it presented itself to man, with all its arbitrariness and cruelty. To the extent a god demanded loyalty, it was in their capacity as the patrons of a particular policy protected by that god, for example, Athena in the case of Athens.

Nowhere in the pagan world, though, do we encounter a God who could instruct the Hebrew patriarch Abraham to leave his homeland, and his father’s house, and betake himself to a place that God would later show him. Never do we meet a god who offers his laws to a people, as the Lord did at Mount Sinai, and ask that people’s free assent to accept these laws.

In no other instance do we hear of a single, universal creator God who enters into a covenant of mutual obligations with humans. That is the origin of faith, emunah in Hebrew, meaning loyalty as well as belief. The Jewish concept of emunah implies not only that we conceive something to be true, but that we also must be steadfast in acting according to that truth.

That is the Jewish genius: to be able to inspire faith (or what is usually called “confidence” in markets) to make possible long-term investments in capital markets involving millions of participants. The investors in a bond or stock issue are not linked by ties of family or personal loyalty, but rather by contract, law and custom. Their obligations extend beyond the ancient loyalties of family and clan.

That may seem obvious on first reflection. But most countries in the world lack functioning capital markets because faith is absent. The public does not trust the government to enforce contracts, or the management of a company not to steal money. That is emphatically true in China, which is struggling to create modern capital markets rather than depend on state banks and shadow financing.

In backward countries, trust is inconceivable outside the narrow circle of blood relations. Firms remain small because trust is restricted to family members.

Rule of law

That is what the Chinese can learn from Jews about business. The Jews have no special aptitude for trading. But we have a special gift for promoting the rule of law and public and private institutions that promote credit – that is, faith in future outcomes and the fair treatment of market participants.

In the absence of faith, there never will be enough lawyers to enforce contracts, or policemen to arrest embezzlers or watchdogs to extirpate government corruption. Something more fundamental is required: a sense that the law is sacred and, if any of us breaks the public trust, all of us are damaged.

Adam Smith’s invisible hand isn’t enough. Capital markets require more than the interaction of self-interested individuals: they require a common sense of the sanctity of covenant, of mutual obligations between government and people, and between one individual and the next. That is why the United States of America is the most successful nation in economic history. It was founded by devout Christians who hoped to construct a new nation in emulation of ancient Israel.

Jews are no longer particularly prominent in banking, to be sure. Israelis are more interested in the frontiers of technology than in financial markets. The paranoid perception of a Jewish banking conspiracy has faded because so few of the old Jewish banking houses are still in business. The ones that remain, like Rothschild, have little influence. But the Jewish idea that contributed to modern banking remains as powerful as it was in the past. That should be of special interest to the Chinese.

The individual

China’s government understands that it must reform its capital markets. Housing makes up 79% of urban and 61% of rural household wealth. By contrast, real estate is roughly one-quarter of US household wealth. The average Chinese home costs nine times the average annual income of Chinese households, and the Chinese Academy of Social Sciences warned in 2019 that any further increase would harm economic growth. By contrast, the average US home costs only four times average annual income in the United States. Stocks comprise only 8% of Chinese household wealth vs. a third in the United States. This reflects the Chinese people’s lack of trust in capital markets and corporate management. As a result, China depends far too much on inefficient state-owned banks to make credit decisions. All of these distortions arise from lack of trust.

Many Chinese understand the Jews better than does Prof. Wen. I serve on the advisory board of an Israeli non-governmental organization called SIGNAL, which arranges cultural and intellectual exchanges between Israel and China. In that capacity I have visited China numerous times and had the privilege to meet some of China’s most influential thinkers. In November 2019 I spent several days with a group of Chinese scholars in Tel Aviv.

Over dinner, I asked the senior member of the Chinese delegation why six million Israeli Jews command the attention of representatives of 1.4 billion Chinese. The Chinese education system, he said, is very good at teaching students to memorize answers, but it is not as good at fostering the highest level of creativity.  For example, Jews earned one in five Nobel Prizes, although they comprise less than one five-hundredth of the world population. Eight Israelis have won Nobel Prizes in science, while not a single Nobel Prize in the sciences has been awarded to a Mainland Chinese, except for an award to a practitioner of Chinese traditional healing. (Five scientists of Chinese descent have won the prize, but for work done in North America).

What makes the Jews so creative?, my Chinese interlocutor wanted to know. “I’m not sure I can explain it,” I told him, “but I can show you.”

After the conference, we went to Jerusalem, and our first stop was Yad Vashem, the Israeli memorial to the victims of the Holocaust. After viewing some of the historical exhibits we went to the Children’s Memorial, a tunnel through the living rock where a single memorial candle is reflected through a system of mirrors to become an infinity of lights. The first time I saw it many years ago I broke down and sobbed. The names and ages of the million and a half murdered Jewish children are pronounced quietly as the visitors pass through.

The secret of Jewish creativity, I told them, is that we regard every individual human being as an entire universe. The value of each human being is infinite; the worth of one life is commensurable with the worth of all lives. By the same token, one creative mind can transform the lives of the whole of humanity. Of course, not everyone will do so. But the Jews are predisposed to the possibility. Talent is everywhere. The hard part is to avoid crushing it before it has a chance to flourish.

It is not my job to instruct China as to how to run its affairs. I do not think the West will gain much by lecturing China about violations of human rights, although this Chinese government – like every Chinese government of the past – takes actions that horrify Western opinion. My question is: All the sacrifice of the individual to the collective, the frequent cruelty of the Chinese state, the ruthless suppression of minorities – is it all still necessary?

First published in Asia Times