{"id":547,"date":"2009-01-04T17:51:09","date_gmt":"2009-01-04T21:51:09","guid":{"rendered":"https:\/\/freedom24.org\/rationalpost\/?p=547"},"modified":"2009-09-25T01:33:40","modified_gmt":"2009-09-25T05:33:40","slug":"china-inc","status":"publish","type":"post","link":"https:\/\/freedom24.org\/rationalpost\/china-inc\/","title":{"rendered":"china inc."},"content":{"rendered":"

This counter-factual analysis of China’s path toward capitalism reveals that the country’s biggest cities aren’t necessarily the engines of dynamic Asian progress that modern commentators have suggested, and that the country’s future may lie in rural areas where entrepreneurship and competition have thrived since Deng Xiaoping’s Four Modernizations<\/a>…
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Private ownership: The real source of China’s economic miracle
\n<\/strong>December 2008<\/a> \u00e2\u20ac\u00a2 Yasheng Huang<\/p>\n

\"china_stocks\"<\/a>The credibility of American-style capitalism was among the earliest victims of the global financial crisis. With Lehman Brothers barely in its grave, pundits the world over rushed to perform the last rites for US economic ideals, including limited government, minimal regulation, and the free-market allocation of credit. In contemplating alternatives to the fallen American model, some looked to China, where markets are tightly regulated and financial institutions controlled by the state. In the aftermath of Wall Street\u00e2\u20ac\u2122s meltdown, fretted Francis Fukuyama in Newsweek<\/em>, China\u00e2\u20ac\u2122s brand of state-led capitalism is \u00e2\u20ac\u0153looking more and more attractive.\u00e2\u20ac\u009d Washington Post<\/em> columnist David Ignatius hailed the global advent of a Confucian-inspired \u00e2\u20ac\u0153new interventionism\u00e2\u20ac\u009d; invoking Richard Nixon\u00e2\u20ac\u2122s backhanded tribute to John Maynard Keynes, Ignatius declared, \u00e2\u20ac\u0153We are all Chinese now.\u00e2\u20ac\u009d<\/p>\n

But before proclaiming the dawn of a new Chinese Century, leaders and executives around the world would do well to reconsider the origins of China\u00e2\u20ac\u2122s dynamism. The received wisdom on the country\u00e2\u20ac\u2122s economic miracle\u00e2\u20ac\u201dit was a triumph of technocracy, in which the Communist Party engineered a gradual transition to the market by relying on state-controlled businesses\u00e2\u20ac\u201dgets all the important details wrong. This standard account holds that entrepreneurship, private-property rights, financial liberalization, and political reform played only a small role. Yet my research, based on a detailed analysis of the Chinese government\u00e2\u20ac\u2122s survey data and government documents at the central and local levels, indicates that property rights and private entrepreneurship provided the dominant stimulus for high growth and lower levels of poverty.<\/p>\n

We often read that gradualism was the key to China\u00e2\u20ac\u2122s successful transition from Marx to the market; many accounts laud Beijing for eschewing Russian-style shock therapy in favor of a more pragmatic approach that created a hospitable business environment and allowed private companies to grow organically. This narrative suggests China\u00e2\u20ac\u2122s economy grew progressively more liberal and market-oriented through reforms that were introduced on a small scale in the 1980s and gathered momentum in the later half of the \u00e2\u20ac\u212290s. Not so. What actually happened is that early local experiments with financial liberalization and private ownership, in the 1980s, generated an initial burst of rural entrepreneurialism. Those earlier gains\u00e2\u20ac\u201dnot the massive state-led infrastructure investments and urbanization drive of the 1990s\u00e2\u20ac\u201dlaid the true foundation for the Chinese miracle.<\/p>\n

Although many experts contrast China\u00e2\u20ac\u2122s grand infrastructure projects and gleaming factories built using foreign money with India\u00e2\u20ac\u2122s dilapidated highways and paltry foreign-direct-investment flows, this point of view overstates the contribution of public spending and foreign investment to China\u00e2\u20ac\u2122s growth. Neither of these forces assumed huge proportions in China until the late 1990s\u00e2\u20ac\u201dlong after relaxed financial controls and rural entrepreneurship prompted the initial growth surge, during the 1980s.<\/p>\n

In that decade, China\u00e2\u20ac\u2122s economy grew more rapidly than it did in the 1990s and brought better social outcomes: poverty declined, the gap between rich and poor narrowed, and labor\u00e2\u20ac\u2122s share of GDP\u00e2\u20ac\u201da measure of the way average people benefit from economic growth\u00e2\u20ac\u201drose substantially. From 1978 to 1988, the number of rural people living below China\u00e2\u20ac\u2122s poverty line fell by more than 150 million. In the 1990s, their number fell by only 60 million, despite almost double-digit increases in GDP growth and massive infrastructural construction. What\u00e2\u20ac\u2122s more, in the 1980s China\u00e2\u20ac\u2122s growth was driven far less than it is today by investments as opposed to consumption. In other words, entrepreneurial capitalism, unlike state-led capitalism, not only generated growth but also dispersed its benefits widely. Entrepreneurialism was virtuous as well as vibrant.<\/p>\n

Big cities like Beijing, Shanghai, and Shenzhen are routinely extolled in the Western press as vibrant growth centers (exhibit). China\u00e2\u20ac\u2122s rural areas, if mentioned at all, typically figure as impoverished backwaters. But a close analysis of the economic data reveals that these breathless descriptions of China\u00e2\u20ac\u2122s modern city skylines have it exactly backward: in fact, the economy was most dynamic in rural China, while heavy-handed government intervention has stifled entrepreneurialism and ownership in the urban centers.<\/p>\n

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