CHINA
09 June 2014
Limits to China's authoritarian development
The recent slowdown in China's economic growth rate has highlighted the limits in the country's authoritarian growth model. Political change will be necessary for China to exploit its full potential.
The recent slowdown in China's economic growth rate has highlighted the limits in the country's authoritarian growth model. Political change will be necessary for China to exploit its full potential.
Back in the 1970s, in the midst of China's atrocious Cultural Revolution, no-one imagined that four decades later it could be on the verge of becoming the world's biggest economy.
Deng Xiaoping had the rare wisdom to know that the future of China and the survival of the Communist Party depended on developing a strong economy. And he could also see that a more market-oriented oriented economy was the path towards a stronger economy.
Deng's wisdom foreshadowed the research of Daron Acemoglu and James A. Robinson that:
"Inclusive economic institutions that enforce property rights, create a level playing field, and encourage investments in new technologies and skills are more conducive to economic growth than extractive economic institutions that are structured to extract resources from the many by the few and that fail to protect property rights or provide incentives for economic activity".
China's economic reforms may not live up to full ideals of "inclusive economic institutions". But the progress in terms expanded economic freedoms, private property, openness to international trade and investment, human capital, and physical infrastructure are very impressive. And they have certainly driven the dramatic economic growth these past three decades.
China's economic development has been driven by an inclusive approach in that much of Chinese society has participated in and contributed to this development. Indeed, this is at the heart of the Chinese development miracle. It has also been inclusive in that there have been a massive reduction in poverty and an expansion in opportunity for Chinese citizens.
China's development has also been "extractive" in that there has been an enormous widening in income inequality. Certain segments of society have better access to education, health and other social services, and also to jobs in state-owned enterprises.
Certain people also have more opportunities for corruption and other abuses of power. The rule of law is very weak in China, and this is reflected in things like the weak enforcement of environmental laws and regulations. The privileged elites include urban dwellers (rather than those from rural areas), the 80 million or so members of the Communist Party, and others with political connections.
The tensions of the extractive side of China's economic development are everywhere to see. Social unrest is widespread and growing, especially in response to environmental problems, labor and human rights abuses, and corruption. Discontent is also expressed widely on social media.
The Chinese Communist Party is well aware of these tensions. President Xi Jingping is waging a war against corruption. The government is relaxing certain policies like the one-child policy, labor camps, and the "hukou" household registration system which restricts access to social services in urban areas by people born in rural areas. But the government is also cracking down harshly on all signs of opposition to the regime, notably from dissidents, social media and ethnic minorities.
Fundamentally, China's continued economic development is threatened by the lack of inclusive political institutions, as Acemoglu and Robinson argue.
Sustained economic growth requires innovation. But innovation in China is inhibited by restrictions on freedom of expression and access to information, and an intolerance of social diversity.
Moreover, innovation usually involves creative destruction, as the new replaces the old. Just one example of creative destruction today is the progressive decline of retail stores due to rise of e-commerce suppliers like Alibaba and Amazon. But in China, state-owned enterprises and banks are protected by their connections to the Communist Party. It is not surprising that productivity in this state-owned sector is much lower than in the private sector.
Finally, the vast spoils enjoyed by China's extractive elites means that political power is highly coveted, like everywhere. But China's political struggles, rather than being played out in open public contests, is all too often conducted behind the scenes in internecine political warfare, destabilising the apparently stable authoritarian regimes. The battle between Xi Jingping and Bo Xilai is but one example.
In conclusion, there are many great limits on China's authoritarian model of development which are holding back economic growth, and threatening social and political stability.
Executive Director
Asian Century Institute
Back in the 1970s, in the midst of China's atrocious Cultural Revolution, no-one imagined that four decades later it could be on the verge of becoming the world's biggest economy.
Deng Xiaoping had the rare wisdom to know that the future of China and the survival of the Communist Party depended on developing a strong economy. And he could also see that a more market-oriented oriented economy was the path towards a stronger economy.
Deng's wisdom foreshadowed the research of Daron Acemoglu and James A. Robinson that:
"Inclusive economic institutions that enforce property rights, create a level playing field, and encourage investments in new technologies and skills are more conducive to economic growth than extractive economic institutions that are structured to extract resources from the many by the few and that fail to protect property rights or provide incentives for economic activity".
China's economic reforms may not live up to full ideals of "inclusive economic institutions". But the progress in terms expanded economic freedoms, private property, openness to international trade and investment, human capital, and physical infrastructure are very impressive. And they have certainly driven the dramatic economic growth these past three decades.
China's economic development has been driven by an inclusive approach in that much of Chinese society has participated in and contributed to this development. Indeed, this is at the heart of the Chinese development miracle. It has also been inclusive in that there have been a massive reduction in poverty and an expansion in opportunity for Chinese citizens.
China's development has also been "extractive" in that there has been an enormous widening in income inequality. Certain segments of society have better access to education, health and other social services, and also to jobs in state-owned enterprises.
Certain people also have more opportunities for corruption and other abuses of power. The rule of law is very weak in China, and this is reflected in things like the weak enforcement of environmental laws and regulations. The privileged elites include urban dwellers (rather than those from rural areas), the 80 million or so members of the Communist Party, and others with political connections.
The tensions of the extractive side of China's economic development are everywhere to see. Social unrest is widespread and growing, especially in response to environmental problems, labor and human rights abuses, and corruption. Discontent is also expressed widely on social media.
The Chinese Communist Party is well aware of these tensions. President Xi Jingping is waging a war against corruption. The government is relaxing certain policies like the one-child policy, labor camps, and the "hukou" household registration system which restricts access to social services in urban areas by people born in rural areas. But the government is also cracking down harshly on all signs of opposition to the regime, notably from dissidents, social media and ethnic minorities.
Fundamentally, China's continued economic development is threatened by the lack of inclusive political institutions, as Acemoglu and Robinson argue.
Sustained economic growth requires innovation. But innovation in China is inhibited by restrictions on freedom of expression and access to information, and an intolerance of social diversity.
Moreover, innovation usually involves creative destruction, as the new replaces the old. Just one example of creative destruction today is the progressive decline of retail stores due to rise of e-commerce suppliers like Alibaba and Amazon. But in China, state-owned enterprises and banks are protected by their connections to the Communist Party. It is not surprising that productivity in this state-owned sector is much lower than in the private sector.
Finally, the vast spoils enjoyed by China's extractive elites means that political power is highly coveted, like everywhere. But China's political struggles, rather than being played out in open public contests, is all too often conducted behind the scenes in internecine political warfare, destabilising the apparently stable authoritarian regimes. The battle between Xi Jingping and Bo Xilai is but one example.
In conclusion, there are many great limits on China's authoritarian model of development which are holding back economic growth, and threatening social and political stability.
Author
John WestExecutive Director
Asian Century Institute