Joseph Stiglitz writes:  For 200 years, there have been two schools of thought about what determines the distribution of income – and how the economy functions. One, emanating from Adam Smith and nineteenth-century liberal economists, focuses on competitive markets. The other, cognizant of how Smith’s brand of liberalism leads to rapid concentration of wealth and income, takes as its starting point unfettered markets’ tendency toward monopoly.

For the nineteenth-century liberals  individuals’ returns are related to their social contributions. Capitalists are rewarded for saving rather than consuming. Differences in income were then related to their ownership of “assets” – human and financial capital. Scholars of inequality thus focused on the determinants of the distribution of assets, including how they are passed on across generations.

The second school of thought takes as its starting point “power,” including the ability to exercise monopoly control or, in labor markets, to assert authority over workers. Scholars in this area have focused on what gives rise to power, how it is maintained and strengthened, and other features that may prevent markets from being competitive. Work on exploitation arising from asymmetries of information is an important example.

In the West in the post-World War II era, the liberal school of thought has dominated. Yet, as inequality has widened and concerns about it have grown, the competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works. So, today, the second school of thought is ascendant.

After all, the large bonuses paid to banks’ CEOs as they led their firms to ruin and the economy to the brink of collapse are hard to reconcile with the belief that individuals’ pay has anything to do with their social contributions.

In today’s economy, many sectors – telecoms, cable TV, digital branches from social media to Internet search, health insurance, pharmaceuticals, agro-business, and many more – cannot be understood through the lens of competition.

US President Barack Obama’s Council of Economic Advisers has attempted to tally the extent of increase in market concentration.  The top ten banks’ share of the deposit market, for example, increased from about 20% to 50% in just 30 years, from 1980 to 2010.

Some of the increase in market power is the result of changes in technology and economic structure: consider network economies and the growth of locally provided service-sector industries. Some is because firms have learned better how to erect and maintain entry barriers, often assisted by conservative political forces that justify lax anti-trust enforcement and the failure to limit market power on the grounds that markets are “naturally” competitive.  Large banks, for example, lobbied the US Congress to amend or repeal legislation separating commercial banking from other areas of finance.

The consequences are evident in the data, with inequality rising at every level, not only across individuals, but also across firms.

Joseph Schumpeter, one of the great economists of the twentieth century, argued that monopolies would only be temporary. There would be fierce competition for the market and this would replace competition in the market and ensure that prices Today’s markets are characterized by the persistence of high monopoly profits.

The implications of this are profound. If markets are based on exploitation, the rationale for laissez-faire disappears. Indeed, in that case, the battle against entrenched power is not only a battle for democracy; it is also a battle for efficiency and shared prosperity.

Dani Rodrik writes: The global trade system faces an important turning point at the end of this year, one that was postponed when China joined the World Trade Organization almost 15 years ago. The United States and the European Union must decide whether they will begin to treat China as a “market economy” in their trade policies.

China’s WTO accession agreement, signed in December 2001, permitted the country’s trade partners to deal with China as a “non-market economy” (NME) for a period of up to 15 years. NME status made it a lot easier for importing countries to impose special tariffs on Chinese exports, in the form of antidumping duties. In particular, they could use production costs in more expensive countries as a proxy for true Chinese costs, increasing both the likelihood of a dumping finding and the estimated margin of dumping.

Today, though many countries, such as Argentina, Brazil, Chile, and South Korea, have already rewarded China with market-economy status, the world’s two biggest economies, the US and the EU, have not.

Economists have never been fond of the WTO’s antidumping rules. From a strictly economic standpoint, pricing below costs is not a problem for the importing economy as long as the firms that engage in the strategy have little prospect of monopolizing the market. That is why domestic competition policies typically require evidence of anti-competitive practices or the likelihood of successful predation. Under WTO rules, however, pricing below costs on the part of exporters is sufficient for imposing import duties, even when it is standard competitive practice – such as during economic downturns.

This and other procedural considerations make antidumping the preferred route for firms to obtain protection from their foreign rivals when times are tough. The WTO does have a specific “safeguard” mechanism that enables countries to raise tariffs temporarily when imports cause “serious injury” to domestic firms. But the procedural hurdles are higher for safeguards, and countries that use them have to compensate adversely affected exporters.

The global trade regime has to address issues of fairness, in addition to economic efficiency. When domestic firms must compete with, say, Chinese firms that are financially supported by a government with deep pockets, the playing field becomes tilted in ways that most people would consider unacceptable. Certain types of competitive advantage undermine the legitimacy of international trade, even when (as with this example) they may imply aggregate economic benefits for the importing country. So the antidumping regime has a political logic.

Trade policymakers are deeply familiar with this logic, which is why the antidumping regime exists in its current form, enabling relatively easy protection. What trade officials have never taken on board is that the fairness argument extends beyond the dumping arena.

If it is unfair for domestic firms to compete with foreign entities that are subsidized or propped up by their governments, is it not similarly unfair for domestic workers to compete with foreign workers who lack fundamental rights such as collective bargaining or protections against workplace abuse? Aren’t firms that despoil the environment, use child labor, or provide hazardous employment conditions also a source of unfair competition?

Such concerns about unfair trade lie at the heart of the anti-globalization backlash. Yet legal trade remedies permit little room for them beyond the narrow commercial realm of below-cost pricing. Labor unions, human rights NGOs, consumer groups, or environmental organizations do not have direct access to protection in the way that firms do.

Trade experts have long been wary of opening up the WTO regime to questions about labor and environmental standards or human rights, fearing the slippery slope of protectionism. But it is becoming increasingly clear that excluding these issues does greater damage. Trade with countries that have very different economic, social, and political models raises genuine concerns about legitimacy. Refusal to acknowledge such concerns not only undermines these trade relationships; it also jeopardizes the legitimacy of the entire global trade regime.

None of this implies that democracies should not trade with non-democracies. The point is that commercial logic is not the only consideration that should govern their economic relationships. We cannot escape – and therefore must confront – the dilemma that gains from trade sometimes come at the expense of strains on domestic social arrangements.

Public discussion and deliberation are the only way that democracies can sort out the contending values and tradeoffs at stake. Trade disputes with China and other countries are an opportunity for airing – rather than repressing – these issues, and thus taking an important step toward democratizing the world’s trade regime.

That is why President Obama is calling on Congress to take four critical actions to strengthen what the U.S. can do about exploitation of the financial system.

1. Pass legislation to require “beneficial ownership” transparency: On behalf of the Administration, the U.S. Department of the Treasury is sending a new legislative proposal to Congress that would require all companies formed in the U.S. report information about their beneficial owners to the Department of the Treasury. That step would make information about beneficial owners readily available to law enforcement.

2. Pass legislation to give law enforcement better anti-corruption tools: We are also seeking legislation to advance our ability to fight corruption both here in the United States and abroad. The new legislative proposals would enhance the ability of our law enforcement officials to obtain information from domestic and foreign banks so they can investigate and prosecute money laundering. This will also allow the Justice Department to prosecute money laundering linked to a broader set of crimes, including ones that involve corrupt public officials.

3. Approve eight tax treaties:  Eight tax treaties have been awaiting Senate approval for several years. Without those treaties, U.S. officials don’t have a complete set of tools to fully investigate and crack down on tax evasion by Americans with offshore accounts, including secret Swiss bank accounts.

4. Strengthen existing law to improve reciprocal transparency: In 2010, President Obama signed legislation that established the global standard for financial reporting by requiring foreign financial institutions to automatically report to the IRS information about financial accounts held by U.S. persons. But right now, the U.S. doesn’t provide the same information to its partners under this law that they provide to the United States. Congress can strengthen this law by requiring U.S. financial institutions to provide that information to our partners.

Howard Davies writes: Central banks have been on a roller-coaster ride in the last decade, from heroes to zeroes and back again. Is another downswing in their fortunes and reputations now starting?

In 2006, when Alan Greenspan retired after his 18-year reign as Chair of the US Federal Reserve Board, his reputation could hardly have been higher. He had steered the US economy through the dot-com boom and bust, had carefully navigated the potential threat to growth from the terror attacks of September 11, 2001, and presided over a period of rapid GDP and productivity growth. At his final Board meeting, Timothy Geithner, then-President of the New York Fed, delivered what now seems an embarrassing encomium, saying that Greenspan’s stellar reputation was likely to grow, rather than diminish, in the future.

The early reactions by central banks to the deepening financial crisis in 2008 were unsure. The Bank of England (BoE) lectured on moral hazard while the banking system imploded around it, and the European Central Bank continued to slay imaginary inflation dragons when almost all economists saw far greater risks in a eurozone meltdown and associated credit crunch.

Yet, despite these missteps, when governments around the world considered how best to respond to the lessons of the crisis, central banks, once seen as part of the problem, came to be viewed as an essential part of the solution. They were given new powers to regulate the financial system, and encouraged to adopt new and highly interventionist policies in an attempt to stave off depression and deflation.

Central banks’ balance sheets have expanded dramatically, and new laws have strengthened their hand enormously. In the United States, the Dodd-Frank Act has taken the Fed into areas of the financial system which it has never regulated, and given it powers to take over and resolve failing banks.

In the United Kingdom, bank regulation, which had been removed from the BoE in 1997, returned there in 2013, and the BoE also became for the first time the prudential supervisor of insurance companies – a big extension of its role. The ECB, meanwhile, is now the direct supervisor of more than 80% of the European Union’s banking sector.

In the last five years, central banking has become one of the fastest-growing industries in the Western world. The central banks seem to have turned the tables on their critics, emerging triumphant. Their innovative and sometimes controversial actions have helped the world economy recover.

But there are now signs that this aggrandizement may be having ambiguous consequences. Indeed, some central bankers are beginning to worry that their role has expanded too far, putting them at risk of a backlash.

There are two related dangers. The first is encapsulated in the title of Mohamed El-Erian’s latest book: The Only Game in Town. Central banks have been expected to shoulder the greater part of the burden of post-crisis adjustment. Their massive asset purchases are a life-support system for the financial economy. Yet they cannot, by themselves, resolve the underlying problems of global imbalances and the huge debt overhang. Indeed, they may be preventing the other adjustments, whether fiscal or structural, that are needed to resolve those impediments to economic recovery.

This is particularly true in Europe. While the ECB keeps the euro afloat by doing“whatever it takes”, governments are doing little. Why take tough decisions if the ECB continues to administer heavier and heavier doses from its monetary drug cabinet?

The second danger is a version of what is sometimes called the “over-mighty citizen” problem. Have central banks been given too many powers for their own good?

Quantitative easing is a case in point. Because it blurs the line between monetary and fiscal policy unease has grown. We can see signs of this in Germany, where many now question whether the ECB is too powerful, independent, and unaccountable. Similar criticism motivates those in the US who want to “audit the Fed” – often code for subjecting monetary policy to Congressional oversight.

There are worries, too, about financial regulation, and especially central banks’ shiny new macroprudential instruments. I

Others, notably Axel Weber, a former head of the Bundesbank, think it is dangerous for the central bank to supervise banks directly. Things go wrong in financial markets, and the supervisors are blamed. There is a risk of contagion, and a loss of confidence in monetary policy, if the central bank is in the front line.

That points to the biggest concern of all. Central banks’ monetary-policy independence was a hard-won prize. It has brought great benefits to our economies. But an institution buying bonds with public money, deciding on the availability of mortgage finance, and winding down banks at great cost to their shareholders demands a different form of political accountability.

The danger is that hasty post-crisis decisions to load additional functions onto central banks may have unforeseen and unwelcome consequences. In particular, greater political oversight of these functions could affect monetary policy as well. For this reason, whatever new mechanisms of accountability are put in place will have to be designed with extraordinary care.

Zephyr Teachout, corruption expert, writes: This week, the Supreme Court heard McDonnell v. United States, the case of Bob McDonnell, the former governor of Virginia who is appealing his 2014 conviction for public corruption. Although the court’s ruling is not expected until June, in Wednesday’s hearing several justices seemed set on undermining a central, longstanding federal bribery principle: that officials should not accept cash or gifts in exchange for giving special treatment to a constituent.

Justice Stephen G. Breyer dismissed the idea that, in the absence of a strong limiting principle, federal law could criminalize a governor who accepted a private constituent’s payment in exchange for intervening with a constituent problem. Justice Samuel A. Alito Jr. expressed disbelief that an official requesting agency action on behalf of a big donor would be a problem. A majority seemed ready to defend pay-to-play as a fundamental feature of our constitutional system of government.

In September 2014, after a six-week trial, a federal jury convicted Mr. McDonnell and his wife, Maureen, on multiple counts of extortion under the Hobbs Act, a key statute against political corruption, and honest-services fraud. It was not a complicated case. Jonnie R. Williams Sr., the chief executive of a dietary supplement manufacturer, Star Scientific, had showered the governor and first lady with gifts in return for favors.

We’re not talking about a few ham sandwiches. The McDonnells took expensive vacations, a Rolex, a $20,000 shopping spree, $15,000 in catering expenses for a daughter’s wedding and tens of thousands of dollars in private loans. In exchange, the governor eagerly promoted Mr. Williams’s product, a supplement called Anatabloc: hosting an event at the governor’s mansion, passing out samples and encouraging universities to do research.

There was ample evidence of connection between the favors and the governor’s actions. In one instance, Mr. McDonnell emailed Mr. Williams asking about a $50,000 loan, and six minutes later sent another email to his staff, requesting an update on Anatabloc scientific research. For the jury, that was more than enough to find Mr. McDonnell guilty.

The former governor has claimed on appeal that he had a First Amendment right to accept these gifts. He also disputed that holding meetings, hosting events at the governor’s mansion and recommending research were “official acts.” There were quids, he argued, but no quos.

And the justices seem poised to agree. Their main worry appeared to be that Mr. McDonnell’s prosecution had criminalized what they perceived as normal, day-to-day political behavior — seemingly more concerned for the chilling effect of federal bribery law on an elected official who accepts a Rolex than for the citizens who are hurt by such self-serving behavior.

To overturn the McDonnells’; convictions, however, would also overturn more than 700 years of history, make bad law and leave citizens facing a crisis of political corruption with even fewer tools to fight it.

The legal principles involved date from England’s Statute of Westminster of 1275, which said that no officer of the king should take any payment for his public duties except what was owed by the monarch. In 1914, the United States Supreme Court held that official acts included situations “in which the advice or recommendation of a Government employee would be influential,” even if the official did not “make a binding decision.” In other words, an official may still be guilty of accepting a bribe even if he is not the final decider.

As modern corruption law developed, the axiom that an official shouldn’t accept gifts for public duties, broadly understood, was a basic feature of American law. The Supreme Court has held that under the Hobbs Act, “the Government need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts.”

Otherwise, only the most unsophisticated criminal would ever get caught. A clumsy influence seeker might write an email offering “five diamonds for five votes in Congress,” but the powerful corrupting forces in our society would avoid explicit deals and give lavish gifts tied to meetings and speeches, winking and nodding all the while.

In its Citizens United ruling, the court gutted campaign finance laws. It acknowledged that American politics faced the threat of gift-givers and donors trying to corrupt the system, but it held that campaign finance laws were the wrong way to deal with that problem; bribery laws were the better path. Now, though, the court seems ready to gut bribery laws, saying that campaign finance laws provide a better approach. But if both campaign finance laws and bribery laws are now regarded as problematic, what’s left?

With the Supreme Court apparently imagining that there is some other, simple-to-enforce bribery law, we citizens are left empty-handed. This is the first case since Justice Antonin Scalia’s passing to directly address what corruption is; the issue is a critical test of the court.

At the Constitutional Convention in 1787, the framers devoted themselves to building a system that would be safe from moneyed influence. “If we do not provide against corruption,” argued the Virginia delegate George Mason, “our government will soon be at an end.”

Today, Virginia’s former governor proposes that there is a “fundamental constitutional right” to buy and sell access. If the court finds in his favor, it will have turned corruption from a wrong into a right.

Matt Levine comments on guaranteed basic income: There are a lot of different ways to advocate for a universal basic income: as a socialist-ish equalization of resources, as a libertarian-ish replacement for the welfare state, a techno-utopian social engineering for the coming robot-driven end of work.  Bill Gross is a little techno-utopian, but he also argues for the universal basic income as macroeconomic policy: helicopter-money UBI.

Money for free! Well not exactly. The Piper that has to be paid will likely be paid for in the form of higher inflation, but that of course is what the central banks claim they want. What they don’t want is to be messed with and to become a government agency by proxy, but that may just be the price they will pay for a civilized society that is quickly becoming less civilized due to robotization. There is a rude end to flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, instead of die.

Beyond the socialist/libertarian/tech/macro cases for UBI, its deep appeal is the possibility of redefining human worth and dignity without reference to work. People in modern capitalist economies are expected to work, and their self-conception is bound up in the job they do and how good they are at it. In a post-scarcity world where the robots do the labor, how will we fill our time? How will we find meaning in life? Gross has his own ideas, which apparently involve drum circles:

How to live a life – this Shakespearian brief candle? Should I listen to the beat of a bass drum instead of an ancient tom-tom? Would I dare dance to strange new music with a different step? “Forward” is my futile response. Forward – with difficult questions. John Denver expressed it succinctly, “If there’s an answer, it’s just that it’s just that way”.

Imagine a young Bill Gross, offered a basic income, free of the constraints of needing to earn a living. Would he still have become an obsessive bond manager? Yes of course he would have, come on.

Gross sold some fancy stamps the other day and donated the proceeds to the Pimco Foundation, presumably in part so he could throw this shade at his old employer:

“I have a special affection for the Pimco Foundation, which I co-founded in 2000 and 100 percent funded for its first two years,” Gross said in the statement. “Irrespective of my current employment status, I am still a firm believer in the Pimco Foundation’s mission to help people around the world reach their full potential by engaging, empowering and investing in communities.”

James McCormack writes: One of the most prominent questions concerning the global economy today is whether monetary policy is approaching the limit of its effectiveness. Inflation remains well below target in the eurozone and Japan, despite aggressive quantitative easing (QE) and negative policy interest rates, and both the euro and yen have appreciated against the US dollar since the start of the year.

The problem with the debate is that it has focused solely on the effectiveness of policies, without considering the need for prudence. The credibility and independence of monetary authorities are essential to the effectiveness of their policies. And yet some of the proposals being fielded call for central banks to stray further into uncharted territory, expanding and extending their deviation from careful balance-sheet management. This could inflict reputational damage that may be difficult to rectify, with real financial and economic consequences.

Structural reforms to support growth typically have long gestation periods, and the economic dislocations that accompany them reduce their political appeal.

An old idea, first proposed by Milton Friedman in 1969, is making a comeback: “helicopter money.” Advocates envisage central banks creating money and distributing it directly to those who would spend it, resulting in immediate increases in demand and inflation.

The direct funding by central banks of fiscal deficits or purchases of government debt would result in the monetization of fiscal policy. Monetization unambiguously weakens central banks’ balance sheets by adding assets that carry no real value (claims on government that will never be repaid), offset by liabilities (newly created money) generated to acquire them.

Advocates of helicopter money rely on two claims. Some believe that policy can be calibrated to stop short of inflicting meaningful harm, usually because the resulting improvement in economic conditions will obviate the need for continued stimulus. For others, central banks’ balance sheets are not a constraint, because the exclusive ability to create additional unlimited and cost-free liabilities guarantees long-term profitability.

There are problems with both claims. Relying on a calibrated approach counts on stimulus being withdrawn before any evidence of concern over the central bank’s finances appears. But there is no certainty that monetized fiscal spending will spark an economic recovery.

Nor can it be known beforehand that expansionary fiscal policy would be curtailed if economic prospects do not improve. In fact, in the absence of negative public or market commentary on central-bank finances, the fiscal authorities may be tempted to expand their use of cost-free funding in what looks from their perspective very much like the proverbial “free lunch.”

There are also serious reasons to doubt the claim that seigniorage – the profit to central banks from having zero-cost liabilities (and at least some income-generating assets) – would guarantee profitability in the long term. Never in the post-gold standard era has there been greater focus on the limits of monetary policy. This focus could easily turn to the health of central banks’ balance sheets if they continue to expand. The concept of seigniorage is poorly understood outside a relatively small community; it should not be used as the first line of defense.

None of this comes as news to central banks, which attach the utmost importance to their reputation for having robust finances, carefully managing risk, and ensuring the soundness of money. Indeed, the financial prudence that underpins policy credibility and confidence in central banks is ultimately what makes seigniorage possible. Only institutions that are perceived as financially viable can expect their liabilities to be held by others as assets; central banks are no exception.

At stake is the value of money. Helicopter money would transfer risk from governments’ balance sheets to those of central banks, blurring the lines between policies, institutions, and their relative autonomy. Its appeal lies in being able to exploit the unique financial structures of central banks.

At a time of heightened sensitivity to the implementation and effectiveness of monetary policy, it would be a mistake to embark on a path that jeopardizes central banks’ very viability.

Ishah   writes:  Nearly two years after oil prices began their precipitous decline, leading global producers are facing the prospect of major adjustments that will have far-reaching economic, social, and political consequences.

It seems that Saudi Arabia has embraced this challenge. This week, it issued its  VIsion 2030  plan for ensuring sustainable long-term growth. One key way Saudi Arabia hopes to achieve growth is by diversifying its asset portfolio, selling shares in the state oil giant Aramco to create a sovereign-wealth fund.

But Vision 2030 fails to address one critical issue: low labor-force participation. Only 41% of the working-age population is currently employed.

The key will be not just to increase employment, but also to boost productivity. After all, unlike more sparsely populated Gulf Cooperation Council (GCC) members, such as the UAE and Qatar, Saudi Arabia, with its population of nearly 20 million (excluding non-nationals), can no longer afford low labor productivity. Indeed, oil revenues now amount to only $5,500 per capita – far from enough to act as a sustainable alternative.

The Kingdom’s underlying political settlement depends on the royal family’s alliances with businesses, which have a free hand to import labor, and guaranteed public-sector jobs for citizens.

This settlement is traceable to the 1970s, when ambitious infrastructure programs turned local trading families into contractors, which then lobbied for more visas to staff up.

As a result, the Kingdom’s reliance on foreigners has no parallel in modern economic history.  In few other countries would nationals accept such open competition by foreign labor. Saudi nationals do, because they are employed by the state at above-market “reservation” wages.

But whenever the Kingdom has tried to reduce public-sector hiring, unemployment has increased. Under the current incentives system, the authorities’ plans to privatize companies and improve civil-service productivity will actually destroy jobs occupied by Saudis.

The challenge of creating jobs for Saudis may seem like a problem of riches. Some would argue that all the Kingdom needs to do is to substitute Saudi for foreign workers in existing positions. But simple substitution will not do. Current jobs are either too skill-intensive or not skill-intensive enough.

Structural change will be needed to upgrade manual jobs. Greater reliance on capital and technology will also eliminate many menial positions. At the same time, many high-skill jobs, largely a product of massive energy and capital subsidies, need to be downgraded to create more medium-skill positions.

The Kingdom has thus embarked on a “Saudization” program that requires businesses in some sectors to hire nationals. So far, the private sector has largely resisted these policies.

More than 200,000 young people enter the labor market annually. And as education levels continue to rise – nearly two-thirds of Saudi youth go to university – social pressure is set to grow as well.

The real constraint to job creation in Saudi Arabia is found in its particular political economy. With lower oil rents to share, the domestic social contract is coming under strain. Cutting support for either businessmen or the population will weaken it further.

How the ruling House of Saud will adjust remains uncertain.

Investigative journalists in radio and print in Cologne, Germany have joined forces to explore whether or not Big Pharma has colluded with regulatory authorities to suggest that expensive modern drugs to thin blood are any more effective than cheap aspirin.

Critical questions are sometimes obscured by arguments over the price of drugs.  Are expensive drugs necessary at all.  In the US, pediatricians now prescribe saline solutions for colds and low-grade bronchial coughs.  Salt in water is too easy a solution to a problem for which Big Pharma has come up with expensive solutions.  Many doctors in the US gives tiny doses of peanuts to children with potentially lethal peanut allergies.  Foremost US expert Dr. Hugh Sampson is chief scientific officer of a French company that is developing an expensive patch.  While the patch awaits US regulatory approval, Sampson and others declare peanuts themselves to be unsafe. Are they?  Or are they too cheap?

Now German investigative journalists are exploring blood thinners, which may even harm people.  They are probably no more effective than cheap aspirin.

More than halfway through his five-year term as president of China and general secretary of the Chinese Communist Party—expected to be the first of at least two—Xi Jinping’s widening crackdown on civil society and promotion of a cult of personality have disappointed many observers, both Chinese and foreign, who saw him as destined by family heritage and life experience to be a liberal reformer. Many thought Xi must have come to understand the dangers of Party dictatorship from the experiences of his family under Mao’s rule. His father, Xi Zhongxun (1913–2002), was almost executed in an inner-Party conflict in 1935, was purged in another struggle in 1962, was “dragged out” and tortured during the Cultural Revolution, and was eased into retirement after another Party confrontation in 1987.

Both father and son showed a commitment to reformist causes throughout their careers. Once Xi acceded to top office he was widely expected to pursue political liberalization and market reform. Instead he has reinstated many of the most dangerous features of Mao’s rule: personal dictatorship, enforced ideological conformity, and arbitrary persecution.

The key to this paradox is Xi’s seemingly incongruous veneration of Mao. With respect to Xi’s purge in 1962, the biography blames Mao’s secret police chief, Kang Sheng, rather than Mao himself, and claims that Mao protected Xi by sending him to a job in a provincial factory safely away from the political storms in Beijing. Xi’s respect for Mao is not a personal eccentricity. It is shared by many of the hereditary Communist aristocrats form most of China’s top leadership today as well as a large section of its business elite. Deng Xiaoping in 1981 declared that Mao’s contributions outweighed his errors by (in a Chinese cliché) “a ratio of 7 to 3.”

Their reverence for Mao is different from the simple nostalgia of former Red Guards and sent-down youth who hazily remember a period of adolescent idealism.  The children of the founding elite see themselves as the inheritors of an “all-under-heaven,” a vast world that their fathers conquered under Mao’s leadership. Their parents came from poor rural villages and rose to rule an empire. The second generation is privileged to live in a country that has “stood up” and is globally respected and feared. They do not propose to be the generation that “loses the empire.”

It is this logic that drives Liu Yuan, the son of former president Liu Shaoqi, whom Mao purged and sent to a miserable death, to support Xi in reviving Maoist ideas and symbolism; and the same logic has moved the offspring of many of Mao’s other prominent victims to form groups that celebrate Mao’s legacy, like the Beijing Association of the Sons and Daughters of Yan’an and the Beijing Association to Promote the Culture of the Founders of the Nation.¹

Xi holds office at a time when the regime has to confront a series of daunting challenges that have all reached critical stages at once. It must manage a slowing economy; mollify millions of laid-off workers; shift demand from export markets to domestic consumption; whip underperforming giant state-owned enterprises into shape; dispel a huge overhang of bad bank loans and nonperforming investments; ameliorate climate change and environmental devastation that are irritating the new middle class; and downsize and upgrade the military. Internationally, Chinese policymakers see themselves as forced to respond assertively to growing pressure from the United States, Japan, and various Southeast Asian regimes that are trying to resist China’s legitimate defense of its interests in such places as Taiwan, the Senkaku islands, and the South China Sea

Any leader who confronts so many big problems needs a lot of power, and Mao provides a model of how such power can be wielded. Xi Jinping leads the Party, state, and military hierarchies by virtue of his chairmanship of each. But his two immediate predecessors, Jiang Zemin and Hu Jintao, exercised these roles within a system of collective leadership, in which each member of the Politburo Standing Committee took charge of a particular policy or institution and guided it without much interference from other senior officials.

Xi emulates Mao in exercising power through a tight circle of aides whom he can trust because they have demonstrated their personal loyalty in earlier phases of his career, such as Li Zhanshu, director of the all-powerful General Office of the CCP Central Committee.

Xi has also followed Mao’s model in protecting his rule against a coup. His anticorruption campaign has made him numerous enemies. Xi has tightened direct control over the military by means of what is called a “[Central Military Commission] Chairman Responsibility System,” and he controls the central guard corps—which monitors the security of all the other leaders—through his longtime chief bodyguard, Wang Shaojun.³ In these ways Xi controls the physical environment of the other leaders, just as Mao did through his loyal follower Wang Dongxing.

Xi conveys Napoleonic self-confidence in the importance of his mission and its inevitable success. In person he is said to be affable and relaxed. But his carefully curated public persona follows Mao in displaying a stolid presence and immobile features that seem to convey either stoicism or implacability.

Above all, Xi has followed Mao in the demand for ideological conformity.  Xi wants “rule by law,” but this means using the courts more energetically to carry out political repression and change the bureaucracy’s style of work. He wants to reform the universities, not in order to create Western-style academic freedom but to bring academics and students to heel (including those studying abroad). He has launched a thorough reorganization of the military, which is intended partly to make it more effective in battle, but also to reaffirm its loyalty to the Party and to him personally. The overarching purpose of reform is to keep the Chinese Communist Party in power.

He may go even further. There are hints that he will seek to break the recently established norm of two five-year terms in office and serve one or even more extra terms.

Xi’s concentration of power poses great dangers for China.