How does China do it? The world's most dynamic economy has doubled in size — after discounting inflation — every seven to eight years for the past 30 years.
I don't need to remind you how the rest of us are doing.
True, China was wretchedly poor in 1980 — and it is far from wealthy today, with a daily income per head of around $10. It's easier to be a follower than a leader when it comes to the game of economic growth. But many other poor countries have failed where China has succeeded. So what is the secret of China's growth? The answer is complicated, but I think I can simplify: the secret is trial and error.
After reformists took power in the late 70s, local experiments were tolerated and, if they worked, were allowed to spread. The 'household responsibility system', which gave rural farmers the right
to profit if they were able to generate extra crops, was used in one per cent of collectives in 1979 and was almost universal by 1983.
Deng Xiaoping's industrial reforms did not demolish the planned economy, but carefully worked around it. If corporate managers could produce more than the central plan required, and if they could find a buyer for the surplus, they were allowed to do so. The brilliance of this
idea was that it provided all the traditional free-market incentives for efficient producers to grow and find new markets — and yet the parallel market did not undermine the central plan itself. Instead the plan slowly became irrelevant as the economy around it grew.
Another experiment was the creation of special economic zones. These were designed to encourage foreign investment and industrial development, without requiring the entire Chinese economy to be thrown open to market forces.
The contrast with China's earlier Maoist system could scarcely be greater. During the 'Great Leap Forward', Mao personally redesigned China's system of agriculture. Everyone had to implement Mao's insane schemes at once, and any attempt to modify his ideas was ruthlessly suppressed. Tens of millions of people starved.
China is far from being a free-market economy, but it shares an important characteristic with more market-oriented places: it has encouraged pragmatic and diverse economic experiments. That is what markets themselves do when they are working well — indeed, it is the only way that complex problems are ever solved.
Deng Xiaoping described economic reform as "crossing the river by feeling for stones." The waters of economic change are rapid, and I do not know whether China will slip. But I suspect that if it does so,
it will be because it runs into
a problem that it cannot solve step by careful step.
Tim Harford is a Financial Times columnist
and author of Adapt: Why Success Always
Starts With Failure (Little, Brown, £20).
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