Teaching Comparative Government and Politics

Monday, March 21, 2011

One take on Chinese successes

The theme of The Economist's analysis is "China is often held up as an object lesson in state-directed capitalism. Yet its economic dynamism owes much to those outside the government’s embrace." That matches the magazine's editorial point of view, but that doesn't make it right or wrong. It is a thesis that is supported by plenty of examples.

BTW, do your students know what the title refers to?

Let a million flowers bloom

[W]ealth is created quietly in… places that not long ago were wretchedly poor. None of the people interviewed for this story wanted to be named. Their companies tend to be small and privately owned. They make ordinary (but increasingly good) products under their own names, or sophisticated ones under the strictest anonymity for well-known foreign companies which demand silence as a condition of doing business…

The right of China’s private companies to exist is by no means clear. Private companies with more than eight employees… were not officially sanctioned until 1988… and China has a brutal history of ideological retreats. Today’s entrepreneur can become tomorrow’s convict. Best, therefore, to avoid too much attention…

The government owns the biggest companies: as the economy grows at double-digit rates year after year, vast state-owned enterprises are climbing the world’s league tables in every industry from oil to banking. Yet alongside the mighty state engine myriad smaller ones are whirring—and probably more efficiently…

According to China Macro Finance, a research firm in New York, the number of registered private businesses grew by more than 30% a year between 2000 and 2009…

Like any growing venture, China’s private businesses need capital, and in much bigger amounts than 30 yuan for a job agent or 360 yuan for a couple of noodle machines. Its sources are a bit of a mystery… a huge gap, which has been filled by an unofficial system that is discerning, vibrant and… even illegal…

This freedom from financial bureaucracy should not be underestimated. Transactions can unfold at breathtaking speed… Businesses can be created or liquidated overnight. Rather than pay taxes, he adds, many companies make nominal payments to the local government…

Nevertheless, this form of business has inherent limits. To the extent that firms operate outside the law, they are vulnerable to shakedowns from local officials and mood-swings in Beijing. Although success brings praise, too much of it can invite envy and scrutiny…

It is often said in China that a new economic era has recently begun, described as guo jin min tui: state advances, private retreats. The government has reasons for such a change: it is tightening laws, building infrastructure and providing strategic guidance it considers necessary for the country’s next steps. Many in the West applaud the expansion of the government’s sway, believing in the wisdom of the state in pushing China’s economy forward. But behind China’s remarkable success has been an odd and often unappreciated experiment in laissez-faire capitalism.