Damned lies

About 180 years ago, the great Danish writer Hans Christian Andersen published the last of his Fairy Tales Told for Children. “The Emperor’s New Clothes”.

There was no Facebook or Instagram at the time. Yet the storyline could not have been more fitting for our very own times right now.

Two weavers had promised an emperor a new suit of clothes. They told the emperor and everyone else that those clothes were very special. So special in fact that they were invisible to those unfit for their positions, stupid or incompetent.

The truth was that they made no clothes at all. When the emperor paraded his new clothes to the public, nobody saw them. No surprise as they did not exist. But everyone was afraid to be labeled stupid, incompetent, or otherwise unfit. Hence they all complimented the emperor for his magnificent wardrobe. Finally, a child cries out that the emperor did not wear anything at all.

Most of us know the story. Indeed, in my home country Austria, it’s taught in schools. And it never fails to bring a smirk to our faces.

How could people be so stupid? How could they allow themselves and the world to be so fooled by something that was so painfully obvious? I mean, it’s like looking toward the night sky and pretending the moon is made of cream cheese.

Preposterous. Who would fall for such a thing?

You?

Before you jump out of your chair now, let’s take a little test. Let’s use an example.

What comes to your mind when I mention China? I am not talking about its human rights record. No, it’s also not the environmental situation there. And no, we also don’t want to look at the geopolitical issues or the trade war.

I would dare to wager that it’s China’s stellar growth story that immediately pops up in your mind. A nation of poor peasants that has become the second most important economy on the planet. And one that rivals the US for supremacy now.

Yet, it all looks a bit stale once we take into consideration the fundamental nature of the Chinese system.

Because there have been and there still are plenty of rumors that the growth rate of China is not realistic. I believe that most people don’t believe the figures coming out of China to be realistic. Yet, when push comes to shove, most people like to pretend that it’s all fine as nobody wants to mess with an angry China.

How can we know? It might all be alright. I mean, many wondrous things happen in China. And those folks have a 5000-year-old culture so who knows what they have up their sleeves? So, is it all that surprising that we prefer to hold our noses and accept those figures? All this while knowing that they cannot be true.

We close our eyes and ears. Even when those in the know like Michael Pettis of Peking University say things like the debt overhang produces stagnation. Or a research paper written by economists at the University of Hong Kong and the University of Chicago. It says that you can’t trust China’s official GDP statistics.

Those provincial party leaders exposed over faking data like Liaoning, for example, are the tip of an iceberg. There is intricate machinery at work that must conceal such things from prying eyes.

But why does everyone lie? It’s not only a repressive system that accomplishes this. It’s much more the desire to not stick out. Imagine you are a party leader or a manager in a Chinese state-owned company. Or a low-level official in a village. Meeting the rather ambitious figures demanded by the Politburo turns to the impossible for them. They know it, but their careers depend on meeting or exceeding them.

Not meeting the figures is akin to sticking out. If you want to remain a cog in the system, you better fake the data and be fine. And this goes through all the ranks. Nobody has an interest in exposing his underling’s fakery as he needs it as a basis for his fumbled-up figures. The art is meeting the targets for an easy life. Or exceeding the targets for a career. But not too much as this would attract the wrong kind of attention.

One needs to pretend at the very least, that those numbers are achievable. Even when they are not. Otherwise, you start to look like a whistleblower.  And we all know that whistleblowers rarely ever have a nice ending. 

Being a whistleblower in China might cost you more than your career. But if you are working for a Western company that has pegged its fate to the Chinese market, you might feel the same kind of pressure to comply.

There are studies that say that China’s economy is far smaller than the official figures pretend. And that growth is far slower. I have a feeling that real growth is a thing of the past and that China is contracting for real by now. It contracted the Japanese disease before its average citizen got as rich as the average Japanese.

If you think that I am singling out China, you are mistaken. This is a very general mechanism that would work out the same in the US – if only it could. In open societies such as the US, failure is much quicker exposed. It also does not hold the same kind of stigma that it holds in countries such as China – or the Soviet Union.

You sure know the snowball analogy. The further the snowball rolls down the hill, the faster it grows. At a certain point, what would have been almost effortless to change, has become impossible. Open societies stop the snowball far earlier. Failings are exposed much earlier and then they are corrected. Open societies fail as much as any other society. But they don’t let them grow into monsters. That’s not always true but it generally works to some degree.

Have you watched the HBO series on the greatest nuclear accident ever? I have and I was shocked. Not because of the accident itself. Not even by the death and the misery.

It was much more the generalized system of lies and the brutality with which it was enforced. Communism could do no wrong, could make no mistakes. Any mistake that still happened, had to be covered up. They knew quite well that mistakes are unavoidable. And those cover-ups involved sending people to their deaths.

Many of those dying later must have known that they would not survive this. They still went along – some of them out of terror of what might happen if they didn’t comply. But they also harbored the hope that the system might still be right and they would somehow be alright. Their head told them that they would die if they went on that roof. Yet they clung to some irrational belief in the system. This made them prefer radiation poisoning over a quick bullet.

We like to believe in the infallibility of a caste. We trust a bureaucratic system so much that we cannot even fathom that someone might have misconstrued a nuclear reactor. It goes to the point where using the emergency switch-off transforms this reactor into a nuclear bomb.

We are told that nuclear power plants in Japan are safe. Even when we know that they are more than 10 years past their expiry date. And there was no major refurbishment because some managers wanted to save money. And we swallow it until some mediocre Tsunami comes and shatters our belief system.

We are not used to asking questions. We trust the data that has been adjusted so many times over, nobody knows anymore what the truth must look like.

When we get notions that Russian gas will always be the cheapest gas there is, we lap it up like ice cream on a hot summer day. We don’t ask how this gas can be so cheap when the new Russian gas fields are some of the most challenging upstream ventures on this planet. Remember – challenging means it costs a lot of money.

We are being told that LNG from the Arctic Circle is a bargain in today’s low-price market. This LNG must travel through some of the worst seas the planet knows. This requires extra-sturdy ships that are ice-rated. Then the LNG must be reloaded onto normal tankers. After all that, it can then be brought to its destination. This LNG is competitive with all the other LNG on earth that do not have to go through this logistical ordeal. And we accept it because we are told so and we want it to be true.

Many gas executives I worked with were convinced that Russian gas would always be the cheaper alternative. They did not lie as they swallowed this fable hook and sinker.

Does this make it a true lie?