Dispatch

Is This Any Way to Treat Your Banker?

China recoils in horror at America's fiscal dysfunction.

SHANGHAI — At the last possible instant, the White House and Congress reached a compromise that prevented the United States from falling off the "fiscal cliff" -- or, as we in China have been calling it, caizheng xuanya.

By raising taxes on households that make more than $450,000 a year, the negotiations will save middle-class families from tax increases and also will likely prevent the United States from going into another recession. China can relax -- for now. Given how deeply the Chinese and U.S. economies are intertwined -- in 2012, the United States imported more than $350 billion of goods from China while exporting just under $90 billion -- a U.S. recession would hurt China's labor force. China's exports to the United States grew at 9.4 percent from 2010 to 2011 and at a similar speed in 2012; if that number slows significantly or becomes negative, it would undercut China's economic prospects and even impair China's social stability.

Why hasn't the United States been able to keep its financial house in order? The United States is the richest country in the world, but since 2009, the U.S. government has spent at least $1 trillion more than it took in. In its first term, the Obama administration aspired to solve all of its country's problems at once: addressing the financial crisis by bailing out businesses and stimulating the markets, wrapping up the wars in Iraq and Afghanistan, and reforming social security and health care. But the weak economy sent the U.S. federal debt soaring from roughly $10 trillion to $16.4 trillion in just four years. Real reform of the U.S. entitlement system has yet to happen. And the fiscal cliff deal merely locked in George W. Bush's unsustainable tax cuts for most Americans. All this has Chinese elites worried.

Frankly, China is fed up with the performance of U.S. democracy. People's Daily, the mouthpiece of the Communist Party, warned the United States in a recent article not to scare the world so frequently. In Beijing's eyes, the financial crisis instigated by the fall of the U.S. firm Lehman Brothers in 2008, followed by years of slow growth, 2011's debt-ceiling fight, and 2012's fiscal cliff showdown have weakened America considerably. Xinhua, China's national news wire, weighed in on the matter Wednesday: "So the politicians have chosen to kick the can down the road again and again. But as we all know, the can will never disappear. Sometime and somewhere, you might trip over it and fall hard on the ground, or in the U.S. case, into an abyss you can never come out of." By focusing on their own constituents and not making hard decisions for the benefit of the country, America's lawmakers are making things worse; another People's Daily article, published Dec. 31, called the fiscal cliff crisis "auto-sadism" arising from the U.S. political system.

One hopes that the United States can work out a sensible solution. The total 2012 federal budget of $3.8 trillion accounted for roughly a quarter of U.S. GDP. To be sure, the United States can keep sustaining its unbalanced federal account by printing money and selling Treasury bonds. By printing more dollars, the U.S. government stimulates its markets, as well as exports and employment, by increasing its liquidity. But much of this liquidity will actually go abroad, pushing inflation overseas.

Is that any way to treat your banker?

China helps the U.S. economy by lending money to the United States by buying Treasury bonds - it now holds $1.16 trillion of U.S. debt. U.S.-China cooperation has helped save the United States from financial insolvency -- and China has benefited from this system by keeping its currency competitive -- but this enablement has come with risks, including weakening the credibility of the U.S. dollar. To fundamentally improve its economy, the United States needs to stop the financial gimmicks and boost its exports the old-fashioned way, through innovation, while encouraging its citizens to increase their incomes and decrease their spending. China wants to partner with a healthy, balanced United States, not a profligate, irresponsible one.

And even if America's day of reckoning has been postponed, China still faces the risk that the United States could fall off one fiscal cliff or another in the future. Without a fundamental restructuring of the U.S. budget that significantly raises income while cutting expenses, the United States looks like a disaster waiting to happen.

No wonder many Chinese see an America in decline, even if many Americans don't believe it yet. We see few signs that the United States is ready to reinvent its national narrative and mission. But here in Shanghai, we understand basic math pretty well. The United States needs to balance its consumption and savings; weigh its pursuit of al Qaeda in Afghanistan with other foreign-policy goals; and cut its spending on defense and social welfare. How can Washington be responsible for the rest of the world if it can't even take care of itself?

SAM YEH/AFP/GettyImages

Dispatch

Midnight in Havana

Will the Cuban government fall in 2013?

HAVANA — Just outside the Virgin of Regla temple, here in Havana, a fortune-teller throws shells for passersby in exchange for money. Every day she gets the same questions: Will they find love? Will they be able to buy a home? Will they be able to travel in the near future? And above all, when will "this" end?

With a simple demonstrative pronoun, the fortune-teller's clients refer to what some call "the revolution," others, "the dictatorship," but what most simply refer to as "The System." It's a difficult question for the white-turbaned woman with her intensely red nails to answer with any specificity, partly because she can never be sure if the questioner is a State Security agent in civilian dress. So she looks at the position of each shell and says, in barely a whisper, "Soon. It will be soon."

It's increasingly obvious that the biological clock of the Cuban government -- a slow and agonizing journey of the hands that has lasted 54 years -- is closing in on midnight. Every minute that passes brings obsolescence a little nearer. The existence of a political system should not be so closely linked to the youth or decrepitude of its leaders, but in the case of our island, both ages have come to be the same thing.

Like a creature made in the image and likeness of a man -- who believes himself to be God -- Cuba's current political model will not outlive its creators. Every decision made over the past five decades, every step taken in one direction or another, has been marked by the personalities and decisions of a handful of human beings -- two of them in particular. One, Fidel Castro, 86, has been convalescing for six long years in a place few Cubans could find on a map.

Although in the last five years Fidel's brother Raúl, 81, has installed some younger faces in the administrative and governmental apparatus, the most important decisions remain concentrated in the hands of octogenarians. (Raúl's successor, Jose Ramon Machado, is 82.) Like a voracious Saturn devouring his children, the principal leaders of the revolution have not allowed any favored sons to overshadow them.

The last to be ousted due to the paranoia of the Castro brothers were Vice President Carlos Lage, a figure who enjoyed popular sympathy, and the foreign minister Felipe Perez Roque. Both might have made promising successors, but were accused by Fidel Castro himself as having been "addicted to the honey of power" and removed from their positions in 2009.

Their own selfishness has left Cuban leaders without a plan for succession and time has run out to develop it, at least one not sincerely committed to continuing along the path set by old men dressed in olive green.

For Raúl, the picture is worrisome, and he has declared that "time is short" to ready the generation that will replace him and his comrades. In 2013, he will be forced to accelerate this process, and his obvious desperation about the future is contributing to the ideological weakening and the loss of whatever popular support the Castro regime still enjoys.

Meanwhile, Castro's tentative economic reforms are also contributing to the loss of control over the population. Together, the expansion of the private sector, the imposition of taxes, the distribution of land leases to farmers, and the authorization of cooperatives in businesses other than agriculture, are gradually reducing the state's influence in the daily life of Cubans.

Raúl may see these as a desperation move to jumpstart the Cuban economy, but one consequence will be the diminished ideological commitment of the people to a government that provides fewer and fewer subsidies and benefits. Every step the authorities take in the direction of greater flexibility is like pointing a loaded gun at their own temples.

A system based on keeping every tiny aspect of our national life under tight control cannot maintain itself when some of these bonds are loosened. Reform is the death of the status quo and maneuvers to guarantee financial survival by opening the system to private capital are a death sentence written in advance.

The year 2013 will be a decisive one in Cuba's move from economic centralism to the fragmentation of production, from absolute verticality to its dismantling. Those who cease to receive their salaries from a state institution and come to support their families through self-employment will undoubtedly gain more political autonomy.

Despite the best efforts of the political police, the opposition today is more energized than it has been since the so-called Black Spring of 2003 -- when 75 regime opponents were rounded up, most sentenced to long prison terms. Although 2012 closed with the unfortunate loss of Oswaldo Paya, the leading figure of the Christian Liberation Movement, other faces are beginning to gain prominence. The number of activists is increasing -- and they are bringing fresh, modern ideas to the struggle. 

An emerging community of alternative bloggers and performance artists is blending social criticism into its creations, and increasingly bold musicians are using the lyrics of hip hop and reggaeton to narrate a reality far removed from the official discourse. Meanwhile, alternative information networks, including Twitter and other social networks via mobile phones, are helping to break the state's monopoly on opinion and to communicate the truth about what is happening on our island to the rest of the world.

The aging of the nomenklatura, the growing opposition, and the expansion of the private sector are not the only influences that will weaken the system in 2013. The worsening health of Venezuelan leader Hugo Chávez is a catalyst for collapse. In the absence of his great patron -- and provider of subsidized petroleum -- in Caracas, Raúl will have to speed up economic reforms even more quickly to spur growth, further weakening the Communist Party's authority. The emergence of their Venezuelan acolyte was a godsend to the Castros, who lost their original benefactor with the collapse of Soviet communism. But there doesn't appear to be another country on the horizon willing to shoulder the burden of 42,000 square miles and its 11 million inhabitants.

U.S. President Barack Obama will also have a part to play. If the United States finally lifts -- or softens -- its decades-long embargo, it may give the government a temporary financial respite. But on the other hand, such a move would also take away the Castro regime's favorite political excuse for its economic failures. The country's sad state could no longer be blamed on our neighbor to the north. It would be a hard ideological blow.

Given all these factors, it's difficult to see how The System can survive the coming year, much less ensure its long-term viability. But it's worth noting that the regime in Havana has long demonstrated its skill in surviving even the most unfavorable predictions. After all, the Cuban economy has been in a state of crisis for the last 20 years. One could even say that our leaders find tension soothing and perform better under emergency conditions than under prosperity. Material needs can also serve to paralyze people who must spend hours waiting for a bus or standing on line to buy a couple of pounds of chicken instead of organizing.

Those expecting to see Tahrir Square break out in central Havana in 2013 will probably be disappointed. Cuba's social explosion may end up looking like an emigration explosion. Given a choice to take to the streets to overthrow the government or to throw themselves into the sea on a flimsy raft to get to Florida, millions of Cubans prefer the latter. Our frustration is more likely to be observed in the lines outside embassies waiting to get visas than in mass demonstrations.

Of course, The System often seems to be collapsing in on itself without any help from crowds in the street. Like a nauseating stench, corruption is permeating every aspect of today's Cuba. Government workers are increasingly helping themselves to the till in state-owned enterprises -- without doing so, the majority of Cuban families couldn't make it to the end of the month. Money is constantly leaking "out the back door" via adulterated accounts, falsified production figures, and the illicit enrichment of administrative cadres.

After decades of denying that corruption exists in our country, the government has come to recognize that it has reached unsustainable levels. Raúl has launched a crusade against all these practices, though obviously it doesn't include an audit of corruption at the highest levels.

Still, the campaign to eliminate corruption is starting to touch powerful "chiefs" -- people who have lived a life of luxury for too long. Thus, the general-president wins new enemies among his own ranks every step of the way, enemies that include those in military uniforms. Could Raúl's moves provoke a reaction?

Even numerology seems to be against the regime. One less tangible factor you will rarely read about in the press, but which is very much on the minds of the fortune-teller's clients outside the Virgin of Regla temple, is that cursed number 13 -- identified by many with key moments in Fidel's life, from the date of his birth, Aug. 13, 1926, to the same day in 1993 when he was forced to dollarize the Cuban economy. Given his delicate health, one can expect that the coming years will bring Cubans the news of his "grand funeral" -- an event, at this point, with connotations more symbolic than political.

For now, we Cubans are clinging to our supernatural predictions, looking to what the oracles and fortune-tellers can divine from their decks of cards and thrown shells. But the clients are starting to get impatient.

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