In a new book by James McGregor, the author gives his insights and (more realistically) criticisms concerning China’s development. In an argument that has become all too familiar to us in this class, McGregor claims that the government plays too big of a role in the success of the economy, and doesn’t believe that relying on state-owned entities and government subsidies will work in the long run. An interesting result of this form of government that he touches on is how this hampers the intentions and abilities of entrepreneurs and multinational companies, as they are at a disadvantage in the country. At a time when China may be nearing its “Lewis Turning Point”, the country must be able to rely on these entrepreneurs and businesses to help the country continue growing.
Mancur Olson believed that protectionist rules, regulations, and groups ended up causing the downfall of the greatest countries and empires throughout human history. With the current environment, McGregor claims that regulations in place seem increasingly protectionist. It will (as always) be interesting to see what happens over the course of our lives.
2 Responses to China’s Market Model
If china does turn down its government influence on the economy I wonder if the freer markets will lead to a freer political system with a relevant party other than the Communist Party.
The argument on “government” needs to be made more concrete. Clearly when it comes to externalities there’s too little government. Perhaps the same thing is true of contract enforcement and intellectual property rules and many other things. Then there’s social insurance: China needs a national pension system and a national healthcare system (relying on local and provincial governments won’t work, given the disparity in resources). Those can’t be readily provided by private markets (in the long run, private health insurance is not feasible, absent universal coverage provisions, while cost controls are possible only with a single provider). And how about basic education?
Now there’s likely too much military, and too much infrastructure investment, the latter in a feedback loop with corruption. But all of this is a couple steps removed from Mancur Olson, who spoke of the power of special interests (in developed economies) and not of government itself. Over time that would in his view lead to stalemates over any and every policy initiative, and a swaying of policy towards those able to pay the most (viz. the special treatment of the financial sector in the US, despite its role over the last decade as a value destroyer). China of course has its domestic lobbies, but more of an unstable, ad hoc money grab than of policy biases.
Or perhaps you could view pollution as an all-too-successful effort by private parties (ignore titular state ownership, that’s a red herring since the state can’t influence management!) to prevent the growth of government?