A potential problem for the development of democracy in China is, like quite a few other nations, it doesn't have the same types of heritage that many "successful" democracies have eg centuries of democratic development, independent arms of government, public services with a sense of independence and accountability etc. Not that these are always present.

From another perspective, I think China suffers the same problem as many other ex-socialist nations ie you had 50-80 odd years when the only ways get rich were (i) crime or (ii) join the party/government/bureaucracy (with a lot of crossover between the two). So you had people driven by materialism (who, in another country, might become business men or entrepreneurs of some other type) channelled into government/party/bureaucracy, which then contributed to the overall culture of those institutions. As a result, in 2005, those with the wealth and/or power, and those institutions that will produce the potential leaders of tomorrow, are heavily flavoured with self-interested materialism. In sort, the after effects of authoritarian socialism on culture and institutional culture live on well after its death.

These are broad arguments and not particularly comprehensive. But I think both have an element of truth in the context of China's democratic development.

On top of these broad, apply-to-any-culture, arguments, you have to take into account that we Chinese have a culture which is, at least today, largely self-interested, insular (from a familial level right up to the national level), greedy and short-sighted. These adjectives apply to all human beings, but more so to the modern Chinese in HK and the Mainland than other cultures I've encountered (although perhaps I just encounter it more in Chinese people because I encounter more Chinese people). This is fuel to the aforementioned fires.

Interesting. There have been continuous reports about India on NY times recently which have basically touched the same topic. It seems that Indian engineers, who are building their interstate highway, are not happy with their democratic system. The transaction fee for the business is too high.
By the way, not many chinese people understand the difference between populism and democracy. I myself am trying to understand the relationship of populism and democracy, but I am still not very clear.

Hi Tiu Fu Fong, thanks for your contribution. Firstly, I do agree with you that China is going through a 'selfish' phase, for lack of a better word, with capitalistic self-enrichment and Ayn Rand type thinking the bywords for modern society - I think, as a reaction to decades of mismanagement under suboptimal socialist strategies. But I do not think that individualistic capitalism and democracy are exclusive to one another - democracy, after all, is simply the aggregation of an entire electorate voting in his or her own self-interest.

I think I more or less agree with you that China is not ready for democracy today - but it has less in my view to do with particularistic cultural reasons of it being unfamiliar to Chinese people, and more to do with the aggregate level of socioeconomic development.

Ultimately, as I have mentioned before in these pages, a successful democracy and the desire for democracy has to be generated from within, and not imposed from the outside. And it is generally not until the middle class of a country (created by economic progress) makes its needs heard and expressed to its leadership in a comprehensive way that a country is ready for democratic development - as we have seen from numerous examples throughout history. Even where it was imposed (i.e. postwar Germany and Japan) there was already a middle class that was willing to express its views.

Countries that do have thriving democratic cultures today, including Korea, Spain, Portugal and yes even Taiwan, did not have them twenty years ago and you could have made the same argument. The Chinese in particular of Taiwan have proven themselves fairly adept at maintaining a polity that has achieved economic progress steadily throughout its years of democratization. I gave the credit card issue as an example of a suboptimal democratic outcome but there is no doubt that they have done well despite the external threat of China's manufacturing base in continuing economic growth and in reducing corruption in the country.

Lin, you bring up an interesting point, and I would argue that the difference between populism and democracy is this - populism, or mob rule, is simply the victory of Tocqueville's 'tyranny of the majority' over the few. A proper democracy prevents this by a legalistic system of checks and balances, of robust institutions, which while seeming inefficient to outsiders, tends to prevent the worst aspects of mob rule. The Supreme Court of the US, for instance, is not a mass-elected court, and its views of jurisprudence prevent overzealous legislators from undermining the integrity of the US constitution. That would be my short answer. I would highly recommend you read Robert Dahl (an eminent political scientist) and his book Ployarchy, where he defines the difference between "Praetorianism" and "Democracy". (Praetorianism refers to a period in the Roman Empire circa 250 AD when it was the army that decided the next emperor and was characterized by mob rule).

As I read it, maybe the credit card bill by Taiwanese legislators could end up being good for the banks. The 'sluggish' banks won't be able to rest on profits from credits and may actually be forced to find new revenue streams--in turn making them more competitive.

Could be, Shenzhen Whitey. But the Taiwan market investors don't seem to confident about the banks' ability to turn things around!

My first time here, so greetings to the gracious host.

Just a point to Tiu Fu Fong about the role of "heritage" in becoming fully democratic. I think that the Chinese people have millennia worth of heritage in one important aspect of "successful democracies" which is free enterprise (or whatever has passed for the skills needed to survive in past epochs.) Everywhere there are overseas Chinese,they seem to be the merchants and middle men between locals and the far-away and exotic. Under Mao that tradition perhaps was indeed suppressed, but the explosive growth we see today is surely the effect of just SOME liberalization, mainly in opening up to and connecting to the rest of the world. I think the phenomenon of rampant piracy in China can be looked at with some degree of optimism in that it shows a competent imitativeness, and eagerness to become a part of the rest of the world. I think the key is to accelerate that process by exporting more MTV, CSI and Oprah to China -- a cultural offensive as it were to encourage such integration into the wider global culture. I think in this sense greed and self-interest are good things since those are the same sorts of things that motivate everyone else, as you've already pointed out. I first traveled to China in 1971, when it was the Gang of Four in control and Shen Tzen (don't know if that's the spelling nowadays) was a goat herd's shack. It's amazing to find a stock exchange and traffic jam of Mercedes and BMWs there now (well Hondas anyway).
Thanks!
No blog is an island!

I will defend Taiwan's populist democracy this time over the 10% spread issue.

your fund manager friend has his right to rant, banks of course wants less regulation.

but is taiwan discriminating foreign banks by setting different threshold? if so, they can deal with it in WTO.

if not, this is just a regulation which would limit credit card market growth, on th eprudent side. if you look at consumer risk management as a continuum spectrum, e.g. there is no risk issuing card to people like you. (I always pay my full dues before the deadline and APR is irrelevant for me) there is always a profitable segment, depending where you make the cut. Taiwan is asking the banks to cut the segment on the safe side.

as for the banks, they have the right to not enter if their risk management skill is not as sophisticated.

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to generalize populist democracy, i would rather look at 50 democracies statistically. and point out that after some trial and error, taiwan would find the best solution for its people. as for today, the people believe 10% is a sound spread. after 12 month, if many credit card applications were rejected due to this reason, the votes would change and they may increase 10% to 15%, or lift the control totally.

Sun Bin, absolutely I agree with you that in the long run, Taiwan's parliament does and will do the right thing. But every once in a while it does come up with a decision that is difficult to understand in terms of the aggregate good of the country - I had to concede to my friend that this was one of them. I do not think it will make local banks more efficient by making delinquent payers have less of an interest bill at the end of the month. I find it difficult to feel sorry for these banks given how poorly managed they are, but to take away their one bright spot might be a bit harsh. still, as you say, if it turns out to be a bad policy, they will probably scrap it in the course of time, but then governments (whether democracies or not) have a nasty habit of not fixing problems they've caused themselves.

Rizalist, welcome to these pages. I hope you find food for thought and intellectually stimulating sparring partners here! Your trip to China in 1971 must have been quite an eye-opener. I have heard the intellectual property argument before and can sympathize with it, but I do think that China needs to start thinking about a timetable now about when it will actually start enforcing the statutes on its books properly. But then again, that would go for a host of other issues (toxic spills, etc).

dave,

10% spread is not too bad.
e.g. considering the LIBOR yield for USD is clsoe to 5% now, that would make the APR 15%. while many US credit card has APR from 16-20%

this does not hurt the banks, since they do not have much business in credit cards anyway. it just curbs the growth of credit card market (and has an impact on scale economy).

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i think the difference between Taiwan, and, e.g., US, about this issue is perhaps a result of how corporate lobbying is done.
in US, the bank would lobby for its interests.
in Taiwan, such activities is immature, and business 'lobbying' often turn out to be "black gold" corruption.
this is just something they need to learn on its way of building a democratic civil society.

there are a lot of faults in th US lobbying system as well. e.g. halliburton and iraq.
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yes, there are quite a number of things in Taiwan's politic that defy logic. but i wouldn't be too harsh on this particular one, since there is certain logic to it.

let's compare this to HK's law of prohibiting loan shark by a ceiling of 40% p.a. in consumer lending interests, you can probably see some logic in the 10% spread.

Hi Sun Bin, due to Taiwan's own interest rates (at 2% for savings) the APR would be 12%. But your point is well taken that this is hardly draconian.

Overall, I agree with your belief that the democratic system will come up with reasonable solutions in the long run (with the exception of Medicare and Social Security, which extend beyond the tiem horizon of any politician). And certainly the Hong Kong loan shark industry chills the blood! (Having known examples of this personally, it is a cold, craven business.)

I think the really interesting point was the argument between the businessman and the writer of the OP. The banking issue is just a symptom of Taiwan's underlying banking problems -- there are way too many banks, they are incredibly inefficient, the credit information system is still undeveloped, the banks do not support new business formation very well, and the banks are subsidized by various laws and business practices, etc. Credit cards may be an important source of profitability, but only because banks abuse them like crazy. For example, one of my students recently had her mother steal her ID and then apply for five different credit cards in the girl's name, and promptly maxed them all out, leaving the daughter with the debt. The banks could not have checked the ID very closely -- Mom and daughter do not resemble each other, and if the credit information systems were more developed, she would have been red-flagged (Mom also ran the factory she owned into the ground, said factory also being in daughter's name). Cases like this are insanely common.

The credit card limit is actually a very common solution to a common problem in local society: there's no civil society, and cheating is rampant, so rules, instead of clarifying and guiding right action, set up restrictions to place limits on the amount of damage that can be done through wrong action. Another such solution: because theft from bank accounts through fraud is so common, there is now a limit on how much can be transferred in a single transaction between accounts. The limit is absurdly low, but then the cheating is absurdly high.

Chinese do not seem to view democracy as a thing worth having in itself, but instead see it as a means to an end, generally high economic growth or more $$ or something (not quite clear sometimes on just where the dissatisfaction lies). Despite growing up in authority-centered social systems, most of the Taiwanese and Chinese I have met simply don't get authoritarianism, which seems more or less the normal order of things and is generally unquestioned, its values being incorporated unconsidered into their personal views of the world. TEACHER: Give me an example of how you showed leadership, Lisa. STUDENT: I gave orders, didn't I? Lots of locals here in Taiwan tell me there was less crime under the KMT, even though they know, if you ask them, that the KMT's crime stats were the utmost bullshit. They don't seem to realize that the lower levels of reality management in a democratic polity means that the government inevitably looks less competent than it really is, by comparison with the previous KMT-run nightmare of inefficiency (as China is showing, 8% annual growth covers a multitude of sins). I think another issue is that there is a cultural preference for criticism (note: not critique) among the Chinese and democracy permits them to give vent to that. Further, there isn't any ideology of democracy that locals are wedded to, and thus, democracy has few defenders locally. I expect all this to change over time provided the KMT doesn't come to power.

Michael

dave,

i think we do not have much disgreement here. so this is just some minor info.

1. i do not know how they came up with a 10% spread, sounds arbitrary as a round number. -- perhaps more professional input are needed in Taiwan politics, but hopefully this would improve soon. and all the political parties are improving. (e.g. a lot less fighting in parliament today than 3 or 10 years ago)
2. i think the absolute number (12% or 19%) is not important, the spread is important, because that is the gross risk premium of the banks. i was using the US example to show that 10% may well be an educated guess. (in US the lowest APR I have seen was around 14%)
3. not to be ignored is there is the 2-3% fees charged by the credit card companies, which is good profit already for those who do not default.
however, APR, which only applies to the late payers, is the most profitable segment.
paradoxically, a ceiling in APR would significantly boost the competitiveness of foreign banks, which are much better in credit risk assessment and are able to identify the bad consumers.