Does China’s Autocratic Government Provide an Economic Advantage?

It’s a question you often see timidly asked, in an almost guilty fashion.  Don’t you think, just maybe, setting aside all of its problems and just focusing on the economic question, that China’s government gives it an advantage over our messy democratic republic? Liberals in the United States are often criticized for their breathless infatuation with technology, intelligence, education, and a belief that top-down government inspired projects and policies are the main way to affect lasting and dramatic changes within society.  They point to examples including the Transcontinental Railroad, New Deal’s Tennessee Valley Authority, the Apollo Project,  and the impact that DARPA and other government funding had on the internet.

No one today cheerleads the economic advantages of China’s autocratic government more than Thomas Freidman, author of The World is Flat, and Hot, Flat and Crowded. Reading these books is to experience a breathless optimism that surrounds India, China, and other developing countries as he examines their education systems, massive economic investments in infrastructure, and the desire of their citizens to compete in a global economy.  No country receives quite as much praise as China, however, and the message both implicit and explicit throughout his columns and books is that this is all a product of a single-minded focus from a strong central government that’s dedicated to improving the lives of its citizens.

Are We Losing Our Edge to China?

China watchers (both admiring and fearing) can usually list off the following in quick abandon: China has the world’s second largest and second busiest airport, the fastest train, the fastest computer, the largest dam, and is using most of the world’s concrete (PDF).  There are other impressive economic stats as China is now the world’s largest exporter, makes the most cars, and has the world’s second largest economy.  The Chinese people and Chinese government relish statistics, particularly those that point out how they’re the best, and they have a flair for announcing large projects like the construction and logistical integration of several cities into the world’s largest mega-city that leave foreign observers stunned at the sheer scope of such projects.  If you read the previously linked Telegraph article, you can clearly see in your mind’s eye a vision of editors going back to each number and checking that they have the right number of zeros, all while softly cursing to themselves at the absurd size and scale involved.

Lets Look at Real Statistics

But for all of the admiration, large projects, and grandiose announcements, Friedman and others tend to forget a simple fact: China and India are still by any standard exceedingly poor.  Equating scale of projects without taking into account relative size is just, well, stupid.  Of course China and India should have the largest of everything – they have the largest populations.  The public works that everyone salivates over are all driven by the monumental sized populations that each country is responsible for.  People forget that China is still the 95th poorest country in the world when ranking by per-capita GDP.  Lest we become guilty of not adjusting for relative purchasing power (in other words, everything’s cheaper in China so you can earn less but still feel richer), when we look at their per capita GDP adjusted by Purchasing Power Parity, China climbs two spots to number 93.  These are imperfect estimates, but are directionally correct, and are prepared every year by the International Monetary Fund.  The United States, by contrast, is in the top ten for both measurements, with none of the countries besting the United States having a population of over fifteen million.

Can We Really Know the Effects of Communism on China?

Note that these bad (both absolutely and relatively speaking) individual economic indicators are despite nearly thirty years of constant economic growth, many of these years being close to ten percent or greater.  Not exactly the picture that tends to be painted, is it?  The point is this – there are two words that accurately describe China’s current economic progress: catch up. Decades of autocratic rule, political unrest, warfare (China was continuously at war from 1927 through 1950) have actually intensely harmed the country and its economic prospects.  In fact, these are often pointed to by outsiders (and even some Chinese) as reasons to why China is currently lou hou or backward.  

However, there is a decent control scenario that we can use to contrast with the current Chinese economy: Taiwan.  Both countries were founded the same year, 1949.  Both had participated in the ravages of civil war.  It can be argued that Taiwan may have left the mainland with some economic advantages: the best and the brightest, and possibly more administrative experience, but that case seems hard to make due to how poorly they had previously run the mainland.  They also left with China’s gold reserves, but the mainland received economic aid from the Soviet Union the first decade of its existence, and if the economic development stats were at all close it might be relevant.  In any event, Taiwan, having always pursued a free market with limited government interventions is today is one of the world’s strongest economies and near the top of the lists we just ran for the United States and China.  In other words, historically, China’s autocratic government has been nothing but a hindrance.

Today we are told, that all has changed.  China’s embrace of new economic policies (and priorities) is the new paradigm: that of the state guiding the economy along long term goals, inspiring its citizens with great public works while simultaneously providing a stimulus to the economy as a kind of dual pronged weapon of economic good.  This is contrasted against the herky-jerky, short sighted, messy and error prone proclivities of democratically elected governments that are so obviously wrong. However, when you really stop to consider this, it’s extremely puzzling.  We’re essentially saying that the element that prevented China’s economic growth for thirty years (a planned economy) is now it’s key advantage when competing globally.  

Keep in mind that when people decry the fact that the free market hasn’t arrived with something, they’re generally pushing an agenda that is economically incompatible with reality.  Friedman and friends are pushing carbon reduction due to a belief in global warming.  Others push social agendas for things like public housing.  Still more push redistribution of wealth for the betterment of the working and lower classes.  While we can debate the merits of these agendas, the reality is that if they were economically viable, someone would have found a way to monetize them. Here’s the general conclusion (to be followed I’m sure by a few more posts on this topic): it’s easy to make double digit gains when you’re in last place.   It’s also easy to cherry pick smart development deals when your whole country is undeveloped or underdeveloped.  In a hyper complex, massive economy like the United States that also happens to be very diverse, this type of top-down management is practically impossible.  China makes their share of stupid investments too, we just tend to not hear about them.


One thought on “Does China’s Autocratic Government Provide an Economic Advantage?

  1. Mao’s China spent a lot of efforts on politics and self-relying economy without much foreign capital investment; it was definitely a failure. After Mao’s death, China changed course to embrace the specific capitalism, as outlined by Dr Sun Yet-Sen, by luring foreign capitals to set up factories in China, train their people for manufacturing, provide foreign investors with excellent tax benefit, and essentially help reduce the total cost of manufactured products. As a result, China becomes the "world factory" econimically, but politically, she is still autocratic with not much regard to human rights. China is striving to prove that she is establishing a far better model for a country to out-shine all others, in line with her 2000 years of belief that China is the "Center of the World", to be envied by all others. Majority of Chinese people may not mind human right issues as long as the communists can restore them back to the status of "Center of the World".

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