Sunday, February 15, 2009

Capitalism With Chinese Characteristics

The conventional view of China is one of a country undergoing a continual process of "reform" and economic growth. I've just read Yasheng Huang's new book, "Capitalism With Chinese Characteristics," which is a useful corrective to the standard picture.

Huang argues that China's growth in the 1980s was based on liberalization which allowed entrepreneurial capitalism to develop in rural areas. In the 1990s, however, China turned in the direction of state-directed urban-biased development. While GDP has continued to grow impressively, living standards have lagged (for example, illiteracy has risen). 1990s China was less favorable to private business, and much more prone to corruption. Huang argues that China's development path has taken a turn more akin to Latin America than the East Asian success stories like South Korea.

In chapter four, "What is Wrong with Shanghai?" he writes:
Being urban in this book does not just refer to a geographic characteristic; it is also an ideology. At the political and economic levels, urban China represents the strong hand of the state, a heavy interventionist approach toward economic development, an industrial policy mentality, and an aversion to the messy and often unsightly processes of a free market and low-tech entrepreneurial activities.... Rural entrepreneurship reflects the extent of urban controls. It thrives when urban controls are loose and it languishes when urban controls are tight. Shanghai is the consummate urban China in the sense that it has almost completely emaciated its rural entrepreneurship.
Although visitors are impressed by the skyscrapers and trains, Huang argues that India's "soft infrastructures" are ultimately more important:
The most important implication from an Indian miracle in the making is the importance of what I call "soft infrastructures" to understand economic growth. Soft infrastructures, such as rule of law, financial institutions, and China's directional liberalism in the 1980s, matter more for growth than the massive investments in hard infrastructures.
Here is The Economist's review.

No comments: