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China’s Boldest Experiment

Summary:
The conventional wisdom among social scientists is that the demands of advanced economies and growing middle classes can be met only through greater political freedoms and competition. By doubling down on authoritarian single-party rule, China is now testing that proposition. BEIJING – Forty years ago this month, China’s leaders set the country on a path of reform that has produced the most dramatic economic transformation in history. Mao Zedong had died two years earlier, in 1976, and the newly rehabilitated Deng Xiaoping succeeded in stamping his vision of economic development and modernization on the Third Plenary Session of the Eleventh Central Committee held in December 1978. In the four decades since, China has transformed

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The conventional wisdom among social scientists is that the demands of advanced economies and growing middle classes can be met only through greater political freedoms and competition. By doubling down on authoritarian single-party rule, China is now testing that proposition.

BEIJING – Forty years ago this month, China’s leaders set the country on a path of reform that has produced the most dramatic economic transformation in history. Mao Zedong had died two years earlier, in 1976, and the newly rehabilitated Deng Xiaoping succeeded in stamping his vision of economic development and modernization on the Third Plenary Session of the Eleventh Central Committee held in December 1978. In the four decades since, China has transformed itself into an economic powerhouse, portending an equally momentous makeover of the global economy and geopolitics.

China’s reforms started in agriculture, where the crushing burden of state controls was relaxed. Through the dual-track pricing mechanism, farmers were given market incentives. The household responsibility system allowed them greater control over the land they worked. Farmers responded quickly, increasing their efficiency and output.

Reforms were subsequently broadened and extended into other areas. Non-agricultural production incentives were bolstered through a hybrid form of ownership called Township and Village Enterprises (TVEs). As the reforms spread to cities, state enterprises gained more autonomy and were encouraged to become entrepreneurial. Incentives were created for provinces and localities to invest and spur economic growth. And the growth of Special Economic Zones (SEZs) in the 1990s turned China decisively toward integration with the world economy.

The general thrust of these reforms was to increase the economy’s market orientation and external openness. But while China’s share of international trade and private investment grew and that of the state sector steadily shrank in relative terms, the authorities retained a firm hand in managing the economy. Economic restructuring and diversification were promoted through a range of industrial policies. Foreign investors were required to enter into joint ventures with domestic...

Dani Rodrik
I am an economist, and a professor at the Harvard Kennedy School. My most recent book is Economics Rules: The Rights and Wrongs of the Dismal Science (Norton, 2015). I was born and grew up in Istanbul, Turkey. I still follow Turkish politics very closely, as you will find out if you spend any time with this blog.

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