How Chinese bumblebee ignores economic laws
By Khalid Malik (China Daily)Updated: 2007-07-04 15:45 There's been a fascinating way of building constituencies for reform and compensating individuals. There's never been a big dramatic shift from one point to another.
On the vision side, rather than the big bang, a dual track was followed. There was not a dramatic shift from the State-owned enterprises to the market sector in one go. It was gradual.
The role of the State in non-agricultural employment is lessening. The private sector is increasing. This is actually being done as a very conscious strategy. China has two tracks - the market track along with a planned track.
China was permitted to outgrow the planned track by harnessing the market forces of its own dynamism. Of course there was a transition period to shift people away from State-owned enterprises to the market sector. It was not meant to be immediate and dramatic.
China has used very strong results incentives. Provincial officials' futures are affected by whether or not targets are met. As part of China's investment in human development, literacy rates have risen dramatically. And this was not just in the past two decades. This started in the 60s, and the big jumps were in the late 70s onwards.
China had a very pragmatic approach to economic policy making and transformation. Deng Xiaoping and all the associated planners saw that it was vitally important to reorganize the bureaucracy as a precondition to reform.
When the reforms were introduced in the late 70s, in two years the ages of the ministers, governors, mayors and department heads were lowered. This meant thousands of younger leaders, because the top leadership felt that without that the reforms would not succeed.
There's a lot of debate in economics on the meaning of "social capital". It basically means social cohesion. If a country's social cohesion is good, a country has good social capital.
China's investment in health and education in the 1960s and 70s was critical in maintaining this cohesion. The link between investment in human development and economic growth is well established.
Deng Xiaoping's reforms would not have succeeded without the foundation laid by Mao Zedong. What happened in the first stage of reform was that the equality structure was totally transformed, allowing policies to bear fruit. Mindsets were changed. Since many reforms had not succeeded, including the Great Leap Forward, people wanted something that worked.
So what you had was an attempt to align - align institutions, align policies.
No one would say the policies were first best policies, as economists like to
say, or even second best; but they were appropriate.
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