Approach Shanghai from the sea in the middle 1980's. The _rst impression is of old movies set with New York around 1940 as a backdrop. There are Art Deco skyscrapers. The steel and glass towers of the post-World War II era are absent. Instead, buildings have steel frames but stone interiors. The waterfront is crowded. The buildings are twenty stories tall. But they look like buildings of _fty years ago. The _rst reaction is that China is building itself up, but because it is a poor country it is using less materials and more labor intensive construction methods, and so its buildings look like buildings of two generations ago in the United States.

Then, peaking over the riverfront, the new construction becomes visiblethe new joint venture hotels and of_ce buildings. The _rst reaction passes to a second: the Shanghai waterfront looks like it was built in the 1930's because it was built in the 1930's. That hotel is where Noel Coward _nished writing his comedy Private Lives. This department store was _nished in 1936. In the 1930's, Shanghai was a city of six million people, the richest in China, and the entrepôt for trade throughout Asia. Hong Kong was a relatively small, poorer settlement of a couple of hundred thousand. In the 1940's after World War II, it looked like Shanghai was set to resume its old role as middleman and manufacturing center for the Paci_c rim. Then Mao came.

Today Hong Kong is a city of six million people with a material standard of living about half that found in the United States. It has taken over Shanghai's role as entrepôt for Asia. Shanghai's export manufactures and trading industries were shut down in the _rst few years of Communist rule. Shanghai today is a city of fourteen million people, and still the richest in China outside of the regions adjacent to Hong Kong. Its physical infrastructure appears unchanged from the 1940's: no new sewers, no new transportation systems, no new buildings (and little maintenance on existing buildings). Judging from the lack of investment in public infrastructure and by the number of rusting hulks on the riverbank downstream, it was not until the 1980's that prosperity in Shanghai again reached its level of the 1930's. This may be true of the Chinese countryside as well: some peasant reports suggest that peasants ate better in the 1920's and 1930's than they have since.

If we credit World Bank estimates of levels of production at current exchange rates, China halfway through the period of Communist ruleChina in the late 1960's, after the collectivization of agriculture, the "Great Leap Forward," and the _rst stages of the cultural revolutionhad a level of material wealth a third of India at that time and below the poorest countries like Mozambique, Zaire, or Bangladesh today. Hong Kong then, in the late 1960's, had a level of material wealth perhaps ten times that of Shanghaian edge that it has maintained to this day. Yet there is no doubt that Hong Kong was the poorer city in the 1930's. If Shanghai today were as prosperous and productive as Hong Kong, then three small regionsHong Kong, Shanghai, and Taiwan, with 4% of China's populationadded together would produce as much total product as all of China. Taiwan and Hong Kong together produce, by themselves, more than half as much total production as does all of China.

Crossing from Hong Kong to Shanghai, or from Taipei to Beijing is like passing through a reality warp that leads to some horrible alternate universe that should never have been. Levels of material well-being fall by a factor of at least _ve. The headquarters of the Hong Kong and Shanghai Bank in Hong Kong is steel and glass, forty stories tall, and is a bank: a place where savings are deposited and then committed to support productive enterprises and investments. The former headquarters of the Hong Kong and Shanghai Bank in Shanghai is half a century old, twenty stories, made of steel, stone and concrete. Its facade is crumbling. It looks unrepaired and unmaintained. It holds the of_ce of the key factor making the difference between Hong Kong and Shanghai today: the Communist Party.

It is hard to measure the degree to which Communist governments have impoverished their nations in general. It is very dif_cult to measure material wealth in Communist countries. The structure of prices is very different from what it is in market economies. Some commodities are nearly free. Other commodities are completely unavailable. The quality of goods is low, and uncertain. Many commodities can be acquired, but not for their prices of record. Perhaps they can be acquired in exchange for bribes or favors. Perhaps they are allocated on the basis of status. The work week is very longespecially if time spent standing in extra lines is counted as "work" rather than "leisure." ÿ