A Brief History of the Chinese Growth Model

Any discussion of economic growth policy in China immediately reminds me of my first visit to China, in 1982, when very little economic growth had happened for about three decades. Going from the United States to Taiwan earlier in that same year gave me a whole new appreciation of what "poor" means. But then going from Taiwan as it was in 1982 to Guangzhou (via Hong Kong) the same year even more more starkly showed me what real poverty looks like. China's economic growth model of the most recent thirty years has been very consciously patterned on the growth model of Taiwan that began in the 1950s. Three books that I read during my first stay in east Asia helped me understand what I was observing all around me in 1980s Hong Kong, Taiwan, and China. The first book was an abridged edition of Adam Smith's The Wealth of Nations,

http://www.amazon.com/Wealth-Nations-Adam-Smith/dp/161382081...

which was very illuminating about why Hong Kong, Taiwan, and Guangdong Province, areas with similar cultures but very different governance, could have such different economic levels. The second book was How the Other Half Dies, now available as a free download of the original book,

http://www.tni.org/tnibook/how-other-half-dies-0

which I saw on the bookshelf of a student from France who lived in the same international dormitory I lived in in Taipei. That book has some interesting details about the successful land reform in (South) Korea and Taiwan, details expanded in the book Island China,

http://www.amazon.com/Island-China-Ralph-N-Clough/dp/1583483...

a more detailed study of Taiwan's development. Successful economic development doesn't have to be rocket science, especially when there are examples to imitate with varying mixes of natural resources and natural disasters and demographic challenges, of varied cultural backgrounds, all over the world.

The economists never get it right.

Being in China for more than 30 years I can tell the Chinese growth model is really simple: #1 An international economy and market so that we have a common currency to measure. The government also controls foreign exchange so that the "valuation" can be bumped to a high level. #2 A billion slaves so that you can get things done really quick and nobody would ever challenge. #3 No cost. In China pretty much everything is owned by "the public", so that those "country owned" companies can get the land and other resources with a very low price or even free. Labor is cheap. And you don't need to clean up the waste you produce: you can just throw them anywhere. The companies have no incentive for efficiency improvements so that the resources consumption is fast.

Before the "economic reform" in 1990s #1 didn't exist so you only see the growth in recent years.

This is a damn simple business and even a dog can make a lot money out of it easily. It is not replicatable (#2/#3) so it only happened in China. This is of course unsustainable. The minerals are exhausted, the environment is polluted and most of the people are still poor and the population getting old due to the one child policy. I would say we may see a collapse in the future 5 years or even less.

The author cherry picks countries to suit his he mentions 19th century Chile failing while embracing free trade, but Argentina in the 19th century also embraced free trade and reached 1900 nearly as wealthy as America despite starting with a less well educated populace.

I'm not sure why he lists Japan as a protectionist success here either, since Japan was famously importing as much as possible in this period. They also were far more keen on importing laissez faire British advisors.

Not to say that protectionism can't work. As a backdoor way of transferring money from farmers to industrialists it can work, but if your country has the beaurocratic sophistication to engage in direct subsidies those will work better, as they did in Japan or the USSR.

Another benefit of tariffs in practice was that they allowed the government to raise money relatively efficiently, compared to other means of taxation then available. This allowed a larger government, which allowed more advanced commercial institutions. Good luck getting someone to enforce a commercial contract in China in the 19th century! But again, most modern states can pull off having an income tax, so this isn't as much of a concern these days.

Looks like a crashed server. Short url of the google cache link http://bit.ly/WcTSWk

EDIT: site seems to be back again

Print money to fund productive activities, it's as simple as that.