The China Play–A Safe Investment? (The Hungarian Lesson)

Almost daily you can hear financial pundits advising to invest some of  your money in the “emerging” markets because they have great rates of growth and tremendous demands for goods to bolster their growing domestic economies.  Some of that is certainly true.  A bit of historical perspective might also be useful in considering whether or not you think that is a good place to invest your money.

It is still  the People’s Republic of China.  It is still controlled by the Communist Party.  There is no established rule of law the way we would think of it in the West.   Legal outcomes have to accord with the policy decisions of the Politburo, the ruling body of the Communist Party.  No major industry or enterprise can operate without the express sanction of the Communist Party.  Many have already forgotten one of the key catch phrases of Communist doctrine–the dictatorship of the proletariat.   The proletariat is the masses, the middle class and any bourgeoisie they wish to include.  That is not merely a slogan it is a policy direction.  It is fundamental to the Communist belief system that the masses are too naive and ignorant to know what is best for them and that the benign leadership of the Party is necessary to make decisions for them.   Sure, they have “elections” but so did the Soviet Union under Stalin or Khrushchev.  

The Party does not want and will never abide a truly free and independent market place because that would mean ceding power to an unknown and uncontrollable force.  They may slacken the leash on occasion but rest assured the leash is never removed.

Following WWII the Hungarians were invaded by the Soviet armies.  It had been an ally of the Germans during the war.  Maybe a bit reluctantly but an ally none the less.  Hungarians generally were eager to join the Germans in invading the Soviet Union and opposing the Communists.  After the war the Soviet armies assured that the Communist Party was in control of Hungary.  Tens of thousands were sent to concentration camps, mostly teachers, journalist and anyone considered an “intellectual”.  Hungary was forced to join the Warsaw Pact with the Soviets and its economy languished at best.  The standard of living was worse than during the thirties during the Great Depression.  It was a bleak and dreary place with little prospects for the future.  It was a pawn of the Party and the centrally planned economy caused super inflation and loss of jobs and too many people working for the government. 

The Poles in ’56 had stirred to action against the repression of the Soviets but were quelled.  Nevertheless the inspiration spread to Hungary.  People were right dissatisfied with everything–mostly the lack of any freedom and a sense of control over their own destiny.  Uprisings began with demonstrations in Budapest in October of ’56.  A large statue of Stalin was torn down and the tens of thousands of demonstrators took over a radio station to make known their demands.  They rebelled against the Communists and arrested many of the secret police and removed other party officials.  A new government was established quickly and for a couple of weeks it appeared the revolt would succeed and Hungary would be free of the Soviet oppression.   Unfortunately this occurred at about the same time as the Suez Canal crisis where Israel, Great Britain and France had seized the canal from the Egyptians and the US sided with the Arabs because the grab was so flagrant and there was no support for alleged “colonialism” of England or France.   The US encouraged the revolt but took no active role.

In early November the Soviets sent in the army.  A large force was dispatched from Poland into Hungary.  The tanks rolled right into Budapest and all other major cities across the land.  You can still look up and see the fighting in old black and white photos from the era.  People were throwing Molotov cocktails at the tanks and fighting back.  The Soviets were not worried about world opinion or collateral damage the way we are today.  They crushed the revolt in a matter of a couple of weeks.  A new round of arrests were made.  Tens of thousands more were sent to the firing squad wall or the concentration camps again.   Anyone suspected of involvement was imprisoned or disappeared.  Hungary slipped back into a centrally controlled government dominated by the Communist Party.  This whole era is the time frame for those famous Kafka novels of note.

The current data you get out of China is controlled by the Party. The justice you would get in any dispute with a Chinese company in a Chinese court would be that approved by the Party.   This is the same party that makes deals with Iran and supports Kim in North Korea.  If you do business in China you may think you have a Chinese “partner” but rest assured the partner is the Party.  Every civic organization in China still has a political officer attached to it–the Army, the industries and even down to the street level.   Note some of the troubles Google has had with the Party regarding the openness of it operations.  That is only a small slice of the influence the Party has on the entire Chinese economy.  What do I know?  Maybe you can invest there and get rich but it wouldn’t hurt to read some history and at least make sure you know who you are doing business with and who you are relying on to deal honestly with you and follow the rules of law.

It is of note that one of the issues that concerned the Soviets so much about the Revolt was that the workers had immediately taken control themselves of their councils (unions).  This was anathema to the Communist doctrine.  Unions could only exist and function under the direction of the Party.  That proletariat couldn’t be trusted.

1 Comment

Filed under business, Economics, government, history, Politics

One response to “The China Play–A Safe Investment? (The Hungarian Lesson)

  1. Well , Hungary had suffered a lot during the 1950’s but in the 60 ‘s 70’s it was called the most cheerful barrack .It was better off than other countries in the area .

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