February 12, 2010


The End of the Beijing Consensus: Can China's Model of Authoritarian Growth Survive? (Yang Yao, February 2, 2010, Foreign Affairs)

Many analysts attribute the country's economic success to its unconventional approach to economic policy -- a combination of mixed ownership, basic property rights, and heavy government intervention. Time magazine's former foreign editor, Joshua Cooper Ramo, has even given it a name: the Beijing consensus.

But, in fact, over the last 30 years, the Chinese economy has moved unmistakably toward the market doctrines of neoclassical economics, with an emphasis on prudent fiscal policy, economic openness, privatization, market liberalization, and the protection of private property. Beijing has been extremely cautious in maintaining a balanced budget and keeping inflation down. Purely redistributive programs have been kept to a minimum, and central government transfers have been primarily limited to infrastructure spending. The overall tax burden (measured by the ratio of tax revenue to GDP) is in the range of 20 to 25 percent. The country is the world's second-largest recipient of foreign direct investment, and domestically, more than 80 percent of its state-owned enterprises have been released to private hands or transformed into publicly listed companies. Since the Chinese Communist Party (CCP) lacks legitimacy in the classic democratic sense, it has been forced to seek performance-based legitimacy instead, by continuously improving the living standards of Chinese citizens. So far, this strategy has succeeded, but there are signs that it will not last because of the growing income inequality and the internal and external imbalances it has created.

The CCP's free-market policies have, predictably, led to major income disparities in China. The overall Gini coefficient -- a measure of economic inequality in which zero equals perfect equality and one absolute inequality -- reached 0.47 in 2008, the same level as in the United States. More disturbing, Chinese city dwellers are now earning three and a half times as much as their fellow citizens in the countryside, the highest urban-rural income gap in the world.

And at the end of the day all they achieved was a temporarily optimal sweatshop for assembling stuff we design.

Posted by Orrin Judd at February 12, 2010 11:28 AM
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