WITH Europe scrambling to save its common currency, Italian economist Loretta Napoleoni might be allowed some grim satisfaction. She was attacked from all quarters when she warned in June that the euro was likely to break.
"We have known this for months and yet nothing has been done to prevent it," Napoleoni says. "If you look at how the Europeans have acted in the last six months, you see the rigidity of the system.
"Europeans voted for the euro because they thought that the euro was going to bring integration at every level, and that was going to make Europe stronger and was going to prevent wars. But the economic indicators show we are further away (from integration) than we were in 1998."
The democratic nature of the European Union is the problem, Napoleoni says, the very political ideal the system embodies.
"In the newspapers we always read about France and Germany, but Finland is as important as Germany and Finland does not want to pay for the southern European countries," Napoleoni points out. "So at the end of the day, Germany may say yes, but if Finland says no, the EU still can't move."
Napoleoni's answer to the problem, contained in her new book, Maonomics, is startling and will be controversial. She argues we must look at the most economically successful country, China, in a new way: not as a threat, but as a model. (The title of the book is misleading, Napoleoni agrees, since it was precisely the overthrow of Maoist policies that led to China's ascent. English-language marketing departments, who thought the play on words catchy, won the day.)
Communist China is proving to be the most adept capitalist country of all: the result of a historic convergence of Marxist analysis, Confucian values and pragmatism. Despite the threat it appears to pose to the West - its burgeoning economic strength, the cynicism of its international relations, its human rights record - Napoleoni says China has set a new standard for capitalist success.
It is also redefining modernity. The French Revolution, with its groundbreaking Declaration of the Rights of Man and the Citizen, set the original political framework for the modern world. "But one could argue - and it is difficult to say these things because people will think I'm a fascist - but we may find that that kind of modernity applies to a world that doesn't exist any more," Napoleoni says.
Napoleoni became intrigued by China while researching her chilling 2008 book, Rogue Economics, which traces the rise of the shadow economy - in which drug sales, slavery and terror financing proliferate hand in hand - since the fall of the Berlin Wall. In that book she devoted two chapters to China, which became her next focus.
"I had this hunch that something was wrong with what people say about China," she says. "There was too much bad and not enough good.
"I decided I should write a book using China as a sort of benchmark to criticise our own system. How can we understand the things that have gone incredibly wrong in the West? The best way is to understand where things have gone much better."
In the book, Napoleoni traces the rise of Deng Xiaoping, who masterminded the liberalising of the Chinese economy after studying it from the sidelines for years after he was ousted during the Cultural Revolution.
As early as 1979, the grip of collectivisation was loosened when farmers were allowed to raise some pigs and poultry for private sale. It was a first step towards private property. With Mao gone, Deng was eventually able to win against heavy opposition from the Right and the Left of the Communist Party to create the first special economic zone. Some said he was opening a path to the neo-imperialism that Lenin described: colonialism by financial rather than military control.
Deng persisted and carried a core of the party. In the end, Deng's experiment has worked only too well, from the perspective of the outside world.
In her book, Napoleoni describes how Deng swapped the notion of class struggle for a new "social pact between party and citizen". In the new paradigm, a recalibration of the Marxist and capitalist models, the legitimacy of the Chinese Communist Party depends on citizens' wellbeing, just as the re-election of parties in the West does. A finely balanced trade-off was made between the certainties of the "iron ricebowl" of total welfare protection and the increasing precariousness of private business risk.
"In the West we didn't notice a thing. Why?" Napoleoni writes. "Because the world we live in remains steeped in the rhetoric of the Cold War, and Marxism remains ideologically linked to its Soviet incarnations: first Leninism and then Stalinism."
China performed its economic miracle and held steady during the global financial crisis, in Napoleoni's view, thanks to three millennia-old national characteristics: rugged independence and an essential practicality, which have insulated it from the moral pressure of the international community and from economic pressure from gyrating markets, and, above all, centralised decision-making.
Between 2006 and 2010, China drastically reduced its purchase of US treasury bills, Napoleoni points out. In 2006 it financed 47 per cent of US debt; by 2009 that figure had been reduced to 5 per cent. After the financial meltdown of 2008 steeply reduced Chinese exports to nervous Western consumers, the central government implemented a Keynesian stimulus package, using its massive reserves to maintain employment through public works. That in turn stimulated domestic consumer demand, which went some way to replacing international demand.
And tight control of the banking system meant that bailout money ended up consolidating bank liquidity and not in the pockets of speculators.
"When they buy toxic loans from the banks," one analyst told Napoleoni, "they don't pay full price; and the more a bank finds itself in the situation of having to ask for help, the worse the credit terms it'll receive."
The government was also able to move quickly to raise interest rates and curb credit as the moment demanded and without one eye on volatile financial markets.
The Chinese, in other words, took immediate action, even while Europeans were toing and froing between EU summits and their own parliaments, and the American president was arguing his policies with Congress.
Now we are approaching Napoleoni's dangerous idea. It is that Western leaders' inability to take emergency action has worsened a crisis already fuelled by laissez-faire policies.
China's authoritarian structure allowed it to act quickly and decisively. And Western countries need to be able to do the same.
"You have a general handling the war, not a committee of generals," Napoleoni says. "Imagine if Churchill had to take everything to parliament during World War II. And we are in an economic war."
Yet even emergency war powers have worried US policymakers in recent years. Ironically for critics of the previous Republican presidency, it is the two most recent Democratic presidents, Bill Clinton and Barack Obama, who have overridden the requirement to gain congressional permission to initiate armed action overseas.
China's human rights record is the elephant in the room in this conversation, but Napoleoni says that here too we in the West don't fully appreciate what is going on.
"Our idea of democracy is the ballot: you go and vote and you decide who is going to rule you. I am sure that if the Chinese population thought that voting would improve their economic conditions, that voting was the best possible way to come out of poverty, they would have staged a revolution. But they're not so fussed."
She also notes the low turnout in the US, where voting is not compulsory. "It's not true that everybody wants to participate, it's not true that everybody wants the responsibility of participating."
If ordinary people in China - or in Europe for that matter - could choose between having a say and getting this mess sorted out, securing their jobs and their homes, she has no doubt which they would choose. And don't forget a technocrat has just been appointed Prime Minister in Italy, without a poll, though Napoleoni points out that Silvio Berlusconi's majority in the Italian parliament will allow him to veto anything he doesn't like.
The people we see arrested for pushing the boundaries of free speech and political opposition in China, she says, are not ordinary people with everyday concerns, but part of the intellectual elite whose views appeal to ours.
In China, she says, "I don't see people shouting in the street because they want to vote. I see people shouting in the street because of conditions in the factories, because of environmental problems. And the party reacts to that."
What's more, she believes that the average Chinese citizen is savvier than we are, blinded as we are by the internal soft power of our governments.
"For us, who only vote, who no longer take to the streets or frequent the local branch of some party, politics has become completely voyeuristic," she writes in Maonomics.
The Chinese, by contrast, and despite the exigencies of their political system, are more highly politicised. "I think Chinese people know exactly where they stand, we don't any more," Napoleoni says. What we can learn from the Chinese is flexibility.
"It's a mental category that we don't have. We have to understand that nothing is perfect and we have to work at it constantly.
"In the European crisis, if we had had someone like Deng Xiaoping, instead of Angela Merkel and Nicolas Sarkozy, who at every single step have to go back to their Bundestag or their parliament in order to find out what they can and cannot say, if we had someone with true vision of what Europe can be next, I think we wouldn't be where we are.
"If we get out of the ideological box we are in, the sky is the limit. We can do anything."
