Arnold Kling  

China--authoritarian capitalism?

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Robert Reich writes


The gap between China’s rich and poor is turning into a chasm. China’s innovators, investors, and captains of industry are richly rewarded. They live in luxury housing developments whose streets are lined with McMansions. The feed in fancy restaurants, and relax in five-star hotels and resorts. China’s poor live in a different world. Mao Tse Tung would turn in his grave.

So where are the Chinese communists? They’re in government. The communist party is the only party there is. China doesn’t have freedom of speech or freedom of the press. It doesn’t tolerate dissent. Authorities can arrest and imprison people who threaten stability, as the party defines it. Any group that dares to protest is treated brutally. There are no civil liberties, no labor unions, no centers of political power outside the communist party.

China shows that when it comes to economics, the dividing line among the world’s nations is no longer between communism and capitalism. Capitalism has won hands down. The real dividing line is no longer economic. It’s political. And that divide is between democracy and authoritarianism. China is a capitalist economy with an authoritarian government.


This would be an excellent discussion topic in a freshman class, I should think. My guess is that the capitalism in China ultimately will collapse. I think that the government actually allocates a lot of the capital, and at some point that will cause significant problems.

Thanks to Brad DeLong for the pointer.


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COMMENTS (18 to date)
Eli writes:

Something definitely will have to give; however, I take a more optimistic view. I think authoritarianism will ultimately collapse in China. Whenever wealth increases, there is a commensurate increase in the exchange of information. Once the exchange of ideas reaches a certain potency, the toothpaste is out of the tube.

Dog of Justice writes:

Whenever wealth increases, there is a commensurate increase in the exchange of information. Once the exchange of ideas reaches a certain potency, the toothpaste is out of the tube.

I wouldn't take this for granted; see Bueno de Mesquita and Downs' excellent article on coordination goods.

That said, I think Arnold is wrong. Singapore, South Korea, and Taiwan all had systems that could be described as authoritarian capitalism for decades, and they're doing okay.

Steve writes:

"Mao Tse Tung would turn in his grave"

And this is a bad thing?

Reich is a tool.

Glen Raphael writes:

I haven't been to China since 2000, but back when I was spending a lot of time in Guangdong and Hong Kong I had the impression that Hong Kong was taking over China more than the reverse. Ever since the 1978 China has been in the habit of periodically declaring new areas to be "special economic zones". The dirty little secret is that China declares SEZs to save face; such a declaration mostly just legitimizes what everybody was doing anyway. Local autonomy is contagious. Regions and even individual companies started conducting their own economic policy without regard to what the national chinese government did. Once one region did it, towns and companies just outside the current "zone" started doing it too. So the zone has to expand over time. With any luck, the entire nation of China will one day be a "special economic zone".

It's also worth noting that China is very loosely coupled. It's more like a huge federation of small countries than one large one. So it makes less sense to say "go visit china today, and you'll find X" than even "go visit America today and you'll find Y". Where in China did Reich visit? If "capitalism fails in china", it won't be everywhere in china but in one or two high-profile locations that something changes. Or perhaps only appears to change.

China Law Blog writes:

The divide between rich and poor is not what brings down governments, it is the belief by the poor that they can never themselves become rich. China is right now a land of tremendous opportunity and hundreds of millions (not everyone, obviously) are buying into this.

Dezakin writes:

What brings down governments is when large sections of the population are capable of violence and have nothing to lose.

The notion that capitalism and freedom really are synonyms is hopelessly naive. China will continue to thrive whatever happens to the concept of political liberty in that country, just as the US can continue to grow even if all political liberties are stripped away.

RogerM writes:

I take exception to calling China capitalist. I guess that no official definition exists, but it would seem that at the least capitalism should include the rule of law and institutions that protect private property rights. China has neither. I think we should call China, and many of the economies of SE Asia, such as Thailand, Indonesia and Malaysia, traditional economies, because they follow the tradition of most economies from ancient history until the advent of capitalism in the 17th century. In traditional economies, limited free markets exist, but no rule of law or institutionalized property protection. Opportunities and protection go to those with access to powerful government officials and the money to bribe them with. Corruption rules. That describes China perfectly.

Robert Speirs writes:

Without principles and rights, majoritarian democracy is both futile and dangerous. Enough Chinese must agree on principles of property and rules of commercial exchange to make possible a thriving capitalist sector. The lack of press freedom and public debate on political matters obviously doesn't get in the way of making money, when most Chinese agree on the usefulness of entrepreneurship. Reich appears to be confusing democracy with a principled, disciplined and, what is perhaps the same thing, a homogeneous society. North Korea is homogeneous, but what it lacks is not democracy but the right set of principles. Lebanon is neither homogeneous nor principled. So I'm afraid it's doomed.

BT writes:

According to Maslow, (I know he is not an economist but his principles are relevant) people have a hierarchy of needs. China is well on its way to meeting the basic needs (food, shelter, clothing, etc) and security needs for its populace. However, the totalitarian regime in China (or anywhere else) is unequipped to meet the higher needs of its populace. Although the 1989 student protest is the most famous example, strife (especially in rural areas) seems to be very common 17 years later. As of 2005, marriage (third in Maslow’s hierarchy) no longer has to be sanctioned by the employer, though the one child policy remains strong in the urban areas. China is making a Faustian bargain; be well behaved and you will be rich. This can work fine for a while but eventually people begin to demand more. Change can happen peacefully, though the 1989 killings make this highly unlikely.

Dezakin writes:

"I take exception to calling China capitalist. I guess that no official definition exists, but it would seem that at the least capitalism should include the rule of law and institutions that protect private property rights. China has neither."

China certainly is committed to private property rights. The government (rightly) sees it as a lure for foreign capital.

"Opportunities and protection go to those with access to powerful government officials and the money to bribe them with. Corruption rules. That describes China perfectly."

That describes nearly every state on the planet.

"China is making a Faustian bargain; be well behaved and you will be rich. This can work fine for a while but eventually people begin to demand more."

People en mass never demand more when they have something to lose.

Mr. Econotarian writes:

Indeed, Chinese courts have more respect for private property than many developing world democracies. China still has a long way to go, but their brand of authoritarian capitalism is performing neck-and-neck with India's slowly-reforming yet still highly regulated capitalism.

Hundreds of millions of people pulled out of absolute poverty in China continues to amaze me. Too bad tends of millions had to starve to death under Mao before China woke up to economic reality.

Tracy W writes:

China’s innovators, investors, and captains of industry are richly rewarded. They live in luxury housing developments whose streets are lined with McMansions. The feed in fancy restaurants, and relax in five-star hotels and resorts. China’s poor live in a different world. Mao Tse Tung would turn in his grave.

Mao Tse Tung starved to death an estimated 50 million Chinese. The evidence is that Mao Tse Tung couldn't have cared less about the fate of Chinese poor, as long as he remained in power.

The only thing about this scenario that would have upset Mao Tse Tung is the rich capitalists.

RogerM writes:

China certainly is committed to private property rights. The government (rightly) sees it as a lure for foreign capital.

Only this year did China pass legislation to legalize private property. But China has had a lot of good laws that they never enforced. The testimonies of people who live and work there is that most judges take bribes, primarily from local communist officials. China has succeeded only because expatriot Chinese in SE Asia had developed the skills of bribery necessary to protect their property before going into China to invest. Most of the FDI in China comes from expatriot Chinese in SE Asia. In addition, expatriot Chinese only invest with other relatives or very close friends. Often, those reltives or friends have connections with local authorities. It's these connections and bribes that enable expatriot Chinese to protect their investments.

That describes nearly every state on the planet.

You sound like an anarchist. That statement is not true on either a qualitative or quantitative level.

Dezakin writes:

"That describes nearly every state on the planet."

"You sound like an anarchist. That statement is not true on either a qualitative or quantitative level."

You're kidding right? What state is this statement not talking about:

"Opportunities and protection go to those with access to powerful government officials and the money to bribe them with. Corruption rules."

Here we can only argue to the degree of corruption; China is corrupt, yet less corrupt than India.

BT writes:

“Here we can only argue to the degree of corruption; China is corrupt, yet less corrupt than India.”

On what do you base that there is more corruption in India than China? China controls its media very tightly, India has a very independent and muck-rakish press. From what I remember from my visit, every evening news broadcast carried a sting of some sort on corruption. The Chinese gov’t naturally never reveals the levels of corruption while Indian gov’t has to confront its problems. As a democracy, politicians have to appear to be honest and even step down when caught. Because of public outrage and pressure, the level of corruption will be lower in India than any totalitarian country.

The more a government restricts individual freedoms the more people are motivated to corrupt the gov’t. China controls its citizen in who they are to marry, how many children to have, what religion to practice (the Catholic Church for instance is still outlawed by the gov’t) and even the internet sites to visit (i.e. the great firewall of China). As a result, the citizens are more motivated to offer bribes to bypass these restrictions. In India or any other democracy, many of these conditions do not exist, so no need to bribe.

Problems exist in every society, but democracy creates the incentives and mechanism to overcome these problems. Totalitarianism just compounds these problems until they blow up as a revolution.

Ajay writes:

It's good to hear you talk about the real problems China has, when they seem to be getting a lot of hype nowadays. My understanding, from reading a couple of Economist articles a while back, is that the bigger problem is that, like Japan, failing industries are allowed to continue on, losing money and performing inefficiently. So while the current boom and fast growth in other industries will buoy them for a little while, the larger structural issues will ultimately curtail growth and cause other problems.

Bill writes:

If he does, in fact, turn in his grave, someone is sure to see it.

(-_-) writes:

I disagree. The people of China have already experienced some amount of freedom generously given through means of capitalism. There is no chance of China to turn back to more socialist reforms without there being a revolution, and, should the government succeed, devolving to a North-Korean like state.

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