Conservative economists worship the market, but don’t like to talk about China, where state control over capital allocation and rigid controls on currency exchange rates have produced a record rate of economic growth.
Economists, particularly economists on the right, love to sound off about the alleged wonders of the market.
There is one area, however, where they are remarkably silent, and that is China.
Sure, you could say China is experimenting with capitalism, but anyone who has been to China, or invested in China (I spent six years living in China and Hong Kong and reported extensively on its business, politics and economy for Business Week and other publications) knows that most of the big decisions about what gets invested and where are made by politicians--and by that I mean Communist Party authoritarians--in Beijing and the provinces.
The allocation of capital by the state banking system is done almost exclusively on the basis of personal connections or "guanxi." Even the flood of foreign capital into the country gets largely invested where party officials and their network of friends and family want it to go (most foreign investors have to establish a joint-venture relationship with some Chinese enterprise, which normally ends up being a link to the Communist government authorities).
The state has also steered well clear of free trade. Import duties on foreign goods remain extortionate, and the currency remains firmly pegged to the U.S. dollar.
Despite this heavy hand of government and politics, China's economy has been growing at a blistering pace now for over a generation, defying both gravity and the repeated predictions of doom from China watchers (myself included, I might add). Over the past decade, entire cities, like Shanghai's Pudong district, have sprung up out of the mud and dust. Entire interstate highway systems and urban ring roads have been built and stuffed full of traffic. Dams on a scale not seen since Aswan or the heyday of the New Deal have been built. People have gotten fabulously rich. Others--especially urban dwellers--have seen their incomes soar. Even in the countryside, hundreds of millions have seen their lives improve economically as relatives who have moved to the city to take construction jobs and other work send home money.
Of course, there is a terrible downside to all this growth. Pollution threatens the wellbeing of almost everyone, destroying cropland and waterways, making urban air unbreathable and the aquifer--if it isn't simply drained--undrinkable. Public institutions like schools, colleges, performing arts groups, etc., are being defunded and killed off. And progress towards a more just and free society is put on hold as people grab at any opportunity to make money, and those who can't are left behind.
Now I'm not going to advocate China’s development model. I think freedom and protection of the most vulnerable in a society are two fundamental values that need to be given top priority in any society, and both get short shrift in the Peoples Republic of China. But that said, China astonishing economic growth has shown that the prescribed model pushed on the developing world by the U.S. and its agencies like the World Bank and International Monetary Fund--open markets, free trade, a freely convertible currency, openness to foreign investment, and no budget deficits--is a crock. Indeed, I’d have to say that the downsides in China, grievous and upsetting as they are, are for the most part less obscene than the horrors and misery inflicted on environment and the poor by the unfettered capitalism forced on most developing nations.
Most of those countries that have had those policies forced on them have watched their economies tank, their populations become impoverished, and their currencies collapse.
Meanwhile, China is hailed as an economic miracle and as the next economic superpower.
For the rest of this column and other stories by Lindorff, please go (at no charge) to This Can't Be Happening! .