Openness key to China’s economic model

By John Ross Source:Global Times Published: 2016/9/14 0:33:39

Illustration: Peter C. Espina/GT

My article "China's socialist model outperforms capitalism" established two key conclusions for global economic and social development. First, that  the fastest growing economies (excluding oil-production dominated economies or countries with populations  under 5 million) since the putting forward in 1989 of the Washington Consensus - China, Vietnam, Cambodia and Laos - did not follow this model advocated by the IMF and World Bank but instead followed or were deeply influenced by China's "socialist development strategy." Second, that 85 percent of the reduction of those living in poverty in the world were in socialist countries and merely 15 percent in capitalist ones.

These facts have obvious key global implications. They establish that China's socialist development strategy is the world's most effective economic development model - far more than any capitalist one. They establish that China's model is more successful than capitalism in poverty reduction. The conclusion being that the central point of reference and study for global development strategy should be China and its socialist development strategy - not the Washington Consensus or any capitalist model.

Attempts by advocates of the Washington Consensus, who place themselves on the right of the political spectrum, to refute these facts I would expect. However the reply in the Global Times, "Rational economic policies drive growth" from Mike Cormack, doesn't advocate the Washington Consensus, but unfortunately, his response contains both huge and simple factual errors. Nevertheless, as these factual errors are sometimes stated elsewhere, and repeat confusions of the Western left, it is worth outlining what these errors express - demonstrating why China's economic thinking since Deng Xiaoping is so superior to that of the "Western left."

Cormack's argument is that China, Vietnam, Laos and Cambodia did not succeed because of socialism but because of protectionism: "The development model practiced by these developing Asian nations is the protectionist model that most every developed nation has pursued... By protecting their economic development behind a wall of tariffs, quotas, subsidies and legal protections, countries have been able to build their productive capacity and to prevent unbalancing deficits. This was true of China's astonishing growth in the reform and opening-up period after 1978."

This claim is simply factually untrue. A key feature of China is that far from being "protectionist" it is the most open of the world's largest economies - China's percentage of trade in GDP is 41 percent compared to 37 percent in Japan and 28 percent in the US.

Following 1978 not only did the percentage of trade in the country rise, but the percentage of imports in China's GDP rose extremely rapidly in line with its opening-up - from 5 percent in 1978 to 19 percent by 2015.

This opening-up also applies to the countries heavily influenced by China's economic model - Laos, Cambodia and Vietnam. Far from pursuing protectionism, starting with the earliest date for which data is available after 1978 up to 2015, the percentage of imports in Laos' GDP rose from 6 percent to 44 percent, Cambodia's rose from to 33 percent to 74 percent and Vietnam's from 17 percent to 89 percent, suggesting that these countries are extremely open.

Capitalist protectionism, which Cormack advocates, has been a disastrous failure in every major modern economy in which it has been applied - even reducing what were once advanced economies, such as Argentina, to middle income status. This was inevitable because division of labor in Adam Smith's terms, or socialization of labor in Marx's terms, is the most powerful force raising productivity - as modern econometrics confirms. In a modern economy such division/socialization of labor is necessarily international in scale - therefore protectionism, by cutting an economy off from this, has negative effects.

China, Vietnam and Laos declare themselves socialist. Cambodia designates itself a monarchy but is decisively influenced by China. The practical meaning is that China has State ownership of a large enough sector of the means of production to regulate its overall investment level. As the 3rd Plenum of the Central Committee of the 18th Congress of the CPC in 2013 reaffirmed: "We must unswervingly consolidate and develop the public economy, persist in the dominant position of public ownership, give full play to the leading role of the State-owned sector." No capitalist economy has this by definition - if private ownership of the means of production were not dominant it would not be capitalism.

Based on these facts the overwhelming success of China's development strategy in global comparisons can be seen to be because it was open and socialist, not closed and capitalist.

The author is a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of




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