How China Avoided Being Like Russia: The New Economy Saturday
Comment of the Day

May 24 2021

Commentary by Eoin Treacy

How China Avoided Being Like Russia: The New Economy Saturday

This article from Bloomberg may be of interest to subscribers. Here is a section:

Weber: What puzzles me about the idea that the problem lies in Chinese “state capitalism” or China’s active state participation in the market is that this is not unique to China. Other states also have historically had quite extensive industrial policy and state engagement. It seems that the tensions between China and the West have been mounting since China moved from being the workshop for companies headquartered in the West toward trying to establish its own companies that can reach the technological frontier. That of course required the state, as China was starting from a position of relative technological under-development.

Browne: Local experimentation accounts for much of China’s early economic success. But these days, the approach is more top-down. Is that a problem?

Weber: First of all, I think we have to recognize that the 1980s is really this moment of great openness before a new paradigm has settled. This is a little bit like what we might be observing right now in the U.S. context, where suddenly all of the premises that we used to have in economics, especially in economic policymaking, seem to be up for debate. Obviously, this moment of openness cannot last forever. Eventually the mist settles, and you get a new, more consolidated system.

Eoin Treacy's view

China is a country populated by large numbers of industrious, inventive people who are ruled by an autocratic regime that is terrified of the peasant revolts that have toppled many previous dynasties. The only way for them to ensure control is maintained is clamp down on any form of protest while simultaneously attempting to sustain productivity growth. It’s a tall order and will require continued political evolution if they are to succeed.

I agree that many countries are going through an existential crisis today because the globalization that prevailed since the end of the Cold War did not answer the basic premise of all democratic systems; “what have you done for me lately?” The reality is politicians have relied on successively more generous social subsidies to placate populations as the foundations of the economic base were exported to cheaper less regulated economies. Social progressives want to double down on that policy while conservatives wish to cut taxes and become self-sufficient. Repatriating businesses and deploying protectionism to defeat competition from overseas seem to be something both have in common.

The fact that these transitions are going on at the same time greatly increases the potential for stress at a minimum and ultimately for armed conflict.

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