By Callick, Rowan
The American (Washington, DC) , Vol. 1, No. 7
From Vietnam to Syria, from Burma to Venezuela, and all across Africa, leaders of developing countries are admiring and emulating what might be called the China Model. It has two components. The first is to copy successful elements of liberal economic policy by opening up much of the economy to foreign and domestic investment, allowing labor flexibility, keeping the tax and regulatory burden low, and creating a first-class infrastructure through a combination of private sector and state spending. The second part is to permit the ruling party to retain a firm grip on government, the courts, the army, the internal security apparatus, and the free flow of information. A shorthand way to describe the model is: economic freedom plus political repression.
The system's advantage over the standard authoritarian or totalitarian approach is obvious: it produces economic growth, which keeps people happy. Under communism and its variations on the right and left, highly centralized state-run economies have performed poorly. The China Model introduces, at least in significant part, the proven success of free-market economics. As citizens get richer, the expectation is that a nondemocratic regime can retain and even enhance its power and authority. There is no doubt that the model has worked in China and may work as well elsewhere, but can it be sustained over the long run?
The Communist Party of China, or CPC, rose to power in the mid-20th century after decades of civil war, starvation, and eventually the invasion of the Japanese. But under Mao, communism fell far short of its economic promise. Then, after the bitter chaos of the Cultural Revolution, which began in 1966 and culminated with the death of Mao in 1976, Deng Xiaoping carefully devised and implemented the formula through which the CPC today retains its legitimacy: the party ensures steadily improving living standards for all, and, in return, the Chinese people let the CPC rule as an authoritarian regime. This economic basis for the party's power gives it a treaibility that is being projected well beyond its own borders, with all the more success because of the recent decline in the international standing of the United States, focused as it is on its tough and increasingly lonely task in the Middle East.
The economic portion of the model works like this: open up the doors--kai fang--and let in foreign capital, technology, and management skills, guiding the foreigners to use China initially as an export base. Engage with global markets. Let your manufacturing and distribution sectors compete with the best. Give farmers control over their own land, and support the prices of staples.
Do everything you can to lift living standards. Give your middle class an ownership stake in the newly emerging economy by privatizing most of the government housing stock for well below the market price. Corporatize as much of the state sector as you can, and then list minority stakes on the stock market to provide a new outlet for savings. But don't let the central bank off the leash; use it to maintain a hold over the currency exchange rate and other key policy levers. Keep ultimate control over the strategic sectors of the economy; in Chinas case, these include utilities, transportation, telecommunications, finance, and the media.
The leaders of the Deng and post-Deng years have mostly been engineers, people of a practical bent with a particular enthusiasm for pouring cement and building infrastructure. The salient features of China's economic system, which is still evolving, include increases in inputs, improvement in productivity, relatively low inflation (with the state maintaining a grip on some prices while others are gradually exposed to the market), and rising supply, especially of labor. The country has a large pool of surplus rural workers, as well as many millions more who were laid off as state-owned enterprises underwent rapid reform, emerging from welfare-focused loss centers to become market-focused profit centers. …