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Making China Great Again

Summary:
It is not totally impossible that, despite diminishing economic freedom and near-zero free speech, the Chinese economy will continue to grow at high rates. That these rates will reflect genuine economic growth, that is, increased production that responds to consumers’ demand. That some other way than free markets will be discovered to express consumers’ demand. That industrial policy will coerce businesses into efficiently satisfying consumers’ demand. That the centralized Chinese state will find a solution to the central planner’s information problem—what individuals prefer, which trade-offs each is willing to make, and what are all the production functions and all local conditions in the economy. That a dictatorial central government will erase the experience of

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It is not totally impossible that, despite diminishing economic freedom and near-zero free speech, the Chinese economy will continue to grow at high rates. That these rates will reflect genuine economic growth, that is, increased production that responds to consumers’ demand. That some other way than free markets will be discovered to express consumers’ demand. That industrial policy will coerce businesses into efficiently satisfying consumers’ demand. That the centralized Chinese state will find a solution to the central planner’s information problem—what individuals prefer, which trade-offs each is willing to make, and what are all the production functions and all local conditions in the economy. That a dictatorial central government will erase the experience of two millennia of Chinese empires stifling liberty and economic growth. That Chinese businesses will out-compete free Western entrepreneurs (assuming that the latter still exist), and that the fears of American statists that China will (in some real sense) overcome America will be realized.

Perhaps three hundred years of economic analysis have been wrong. In a Popperian way, we must view our current beliefs as conjectures that have not been proven wrong.

It is however much more likely that the current Chinese state is a giant with clay feet and that the country’s economy will suffer the effects of strengthened authoritarianism. The suspicion that a Wuhan laboratory accidentally released SARS-CoV-2, if it turns out to be true, and the incident at the Taishan nuclear power plant last week are consistent with the hypothesis of a fragile economy run by an inefficient central planner. The Chinese government wants to make China “great” again—as it was under Mao and the preceding two millennia of stifling imperial government. (On imperial China compared to the West, the recent books of Joel Mokyr and Walter Scheidel are worth reading.)

In a Regulation article three years ago, I wrote:

As the Chinese government has veered back toward authoritarianism, the prospects for continuing growth have dimmed considerably, even if this does not yet show in economic statistics. Those who, often for invalid protectionist reasons, fear the economic growth of China can relax.

The main danger is that, in order to hide its failures and keep its grip on its subjects, the Chinese Leviathan would excite the latter’s nationalist emotions and lead the world into war. But note that Western protectionism against China—that is, against Western consumers and against Chinese producers who want to open to the world—won’t help.

Freedom of speech is as important for economic efficiency as it is in the search for truth. In their 2012 book How China Became Capitalist, a title that now looks more like an optimistic prediction, Ronald Coase and Ning Wang prudently wrote that “without a free and open market for ideas, China cannot sustain its economic growth.” The intimidation and closing of the last anti-government newspaper in Hong Kong further point to where the system is heading (Elaine Yu, “Honk Kong’s Apple Daily Newspaper Prints Last Edition as Free-Press Era Ends,” Wall Street Journal, June 23, 2021).

One question can still be raised for the future: Is it possible that, past a certain point, a tightly regulated and crony “capitalist” economy could become less productive than an economy dominated by an openly tyrannical government that allows for some limited and closely monitored economic entrepreneurship by state corporations?

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