The Olympic Games are a huge psychological issue for China. It's their national coming-out party. It's a validation that after 30 years, "China" is back.
For most of the last 3,000 years, the most dominant civilization--until 1500--was China, anyway you cut it. Medicine, prosperity, health, trade--they simply dominated the west. As technology began to rear its head, they missed the ball. They had the largest navy, but they came to believe the rest of the world was uninteresting. The emperor proceeded to basically destroy the navy and the shipyards and put more money into building the Great Wall. In terms of the actual size of the economy, the U.S. has been the largest economy since 1892. We knocked off China. The whole 20th century was basically consumed with the fall of the last dynasty.
"China" itself is a funny label. In many ways, it's the last of the great empires. In 1900, the great empires were the British, the Russian, the Austro-Hungarian and the Chinese; the others have all kind of gone the way of history. China is actually physically bigger than it's been in almost any point in its history.
It's a place that when I first went there in 1979, the distance between the top and bottom was very, very slim. Today, it's considerably greater than it would be in the U.S. When we think of the great wealth of China, we think of what's gone on in the east, and in the large urban cities like Shanghai and Beijing. Go 50 miles outside Beijing into the countryside, and you're in an entirely different world. Go out west and it's the dollar-per-day kind of environment. So there are big gaps between rural/city and east/west, and the government is working hard to put incentives in place that will neutralize that.
After 30 years, they've run into a scenario where the limits of growth begin to impinge on them. Depending on how you count it, 16 or 19 of the world's 20 most polluted cities are in China. You've got air pollution, which is the easiest thing to see. You have water pollution in the lakes and oceans. The desert is steadily moving in from the west. Dealing with those infrastructure problems is going to be extraordinary.
We're on the other side of the Pacific, but we're getting the soot in the Rocky Mountains. But the people being hurt worse by the pollution are the Chinese. We need to be careful in thinking that people who live in glass houses shouldn't throw stones.
In 1910, we had 130,000 miles of railway in the U.S. In China, at that time, they had 233 miles. Basically, they have lagged us 50 to 75 years in the development of the economic infrastructure. Along with that, you look at Pittsburgh in 1950--it was an absolute horror, in terms of a cesspool of pollution from the steel mills, etc. The last killer smog took place in London in 1951, just before they eliminated coal-burning stoves. When coal burning stopped, the killer smog stopped. The signs of a rapidly emerging industrial society, for the last several hundred years, have come with problems of pollution, which then had to be addressed because they became a huge detriment to quality of life. They're working through that problem.
The question I keep my students focusing on is, how are Chinese businesses going to be able to manage the limits to growth? It's not an accident today that the words "harmonious society" is what the president is hammering on, because the inequalities have grown up in visible kinds of ways. Different ships are being lifted at different rates in the tide. That's again why the Olympics are important for them: it's a symbolic thing, where they can take pride that they can do all these things.
Warren McFarlan is the T.J. Dermot Dunphy Baker Foundation professor of business administration and Albert H. Gordon professor of business administration, emeritus, at the Harvard Business School. This article was adapted from a wide-ranging discussion between McFarlan and CIO Insight Online Editor Brian P. Watson.