When authoritarian states decide to liberalize, which should they tackle first, the economy or the political realm? Many economists think that China’s approach has been more successful than Russia’s, as does historian and filmmaker Gerry Sperling.
In 1964, a U.S. professor, Harry Schwartz, wrote, “To-day the Soviet Union [ Russia], while probing the planets with rockets, measures its economic and scientific strength boldly against that of the United States and dreams of achieving Utopian abundance by 1980. The China of today is a vast sink of poverty, dependent mainly upon the power of human muscles.” He went on to state that “the Chinese state is still not in a position to assure its people a ration of rice adequate for their strength and health.”
According to data released by the Chinese government, China’s gross domestic product is now US$2.4 trillion, making its economy the fourth largest in the world, larger than those of Italy, France, and Britain, and creeping up on Germany. It is a truism that China’s growth rate has been phenomenal, resulting in the astounding fact that “,” so that now, “a person in one of the richer cities enjoys a life expectancy of close to 80 years—the same level as in a middle-income country.” What has happened over the last twenty-five years has been the creation in China of a middle class with surplus cash to spend that is almost the size of the entire population of the United States.
There is no doubt that enormous problems have come in the wake of China’s economic miracle: inequality between the rich and poor, the deterioration of the social safety net, and vast differences between the (wealthy) coastal regions and the (poor) interior. And the ecological price of progress may be incalculable. Nevertheless, Harry Schwartz’s “vast sink of poverty” certainly now has large islands of prosperity.
And what of Russia? Since the fall of the Communist empire in the late 1980s and the administration of “shock therapy” economic policies, as advocated by Western advisers, the former Soviet powerhouse has become a shadow of its former self. Small family savings have been wiped out by price decontrol, and the massive uncontrolled privatization of large state industries has in fact put control of these enterprises into the hands of a few insiders (many of them former Communist Party functionaries). Whatever one has to say about the benefits of democratization in Russia, many more Russians are now living in absolute poverty than were doing so during the Soviet period, and Russians have been experiencing a noticeable decline in life expectancy. So much for “Utopian abundance.” As the MIT economist Olivier Blanchard and the Harvard economist Andrei Shleifer have observed, “Over the last decade, China’s GDP has grown at one of the highest rates in the world, Russia’s at one of the lowest.”
Curiously, the Chinese leadership decided on a course of serious economic reform in the late 1970s, a decade before the fall of Communism in Eastern Europe. How is it that China has thrived economically under its reform while Russia has until recently staggered from crisis to crisis?
One answer may be that the Chinese dismantling of the central-planning regime concentrated on gradual though steady economic change. Not every major factory was privatized suddenly. Independent markets, which never had been totally eliminated, were allowed to flourish in the countryside while the Communist Party maintained its monopoly on political power. As an example, township and village enterprises (TVEs) were encouraged by a policy of fiscal decentralization to become productive and profitable: “One of the hallmarks of China’s transition to a market economy, TVEs have produced since 1995 more than half of China’s industrial value added and profits, and are the source of over 30 percent of current GDP and 46 percent of exports. The real output of TVEs grew by an average of more than 20 percent per year between 1979 and 1997. In 1998, there were some 20 million TVEs employing 125 million workers and staff” (italics in the original). Socialism with Chinese characteristics became capitalism within a one-party-state framework.
There is no doubt that the loosening of the political reins in the 1980s created serious problems for the Chinese state. It is ironic that the Soviet Union’s last leader, Mikhail Gorbachev, was there when the student demonstrations for democracy in Tiananmen Square were taking place in 1989. But China’s leaders have never let go of the reins and apparently are prepared to tighten them should the demands for rights—human rights, civil rights, environmental rights—get out of hand.
In the old Soviet Union, Gorbachev concentrated upon rapid political reform rather than economic change. Naively, as it turned out, the late Soviet leadership felt that once people had political democracy (to be achieved through glasnost), stable welfare capitalism would follow. Paradoxically, what has happened is the recentralization of the economy in the hands of oligarchs and the resumption of state control of the electronic media and such major industries as oil and gas. As Blanchard and Shleifer observe, “In China, the new private sector has thrived. In Russia, it has stagnated.”
Paradoxically, some U.S. scholars have argued that China’s success and Russia’s failure have been a function of the relative centralization of the Chinese economy during its reform; local authorities in post-Soviet Russia, they observe, have been free to ignore the center and have gouged incoming investors to the detriment of regional economies. They call for more political centralization in Russia. In fact, Russia under Vladimir Putin has experienced more centralization and more centralization of power in the president’s hands. Whether this has benefited the Russian economy remains to be seen. There does appear to have been a move towards authoritarianism in Russia, albeit with broad approval from the populace.
In China, I would submit, there has been fascinating recent evidence in academic and government circles of a commitment to move toward democracy in the economic realm: protection of property rights, “rule by law” and limited government, and something called “cooperatism” (basically, a desire for society to be harmonious)as regards China’s role in the world.
Indeed, the very fact that there are increasing instances of open protests in various regions of China, largely in opposition to perceived depredations and malfeasance by local authorities, may be taken as signs of a democratic spirit amongst both the poor and middles classes in China.
I tend to be optimistic about both the Chinese economy and polity. I believe that the problems or “contradictions” that have come about as a result of the incredible growth in the Chinese economy will be solved with the increasing democratization of the society.
Blanchard, Olivier, & Shleifer, Andrei. (2000). Federalism with and without Political Centralization: China versus Russia (NBER Working Paper No. W7616). Cambridge, MA: National Bureau of Economic Research. Retrieved from http://econ-www.mit.edu/faculty/download_pdf.php?id=818.
Shleifer, Andrei, & Treisman, Daniel. (2000). Without a map: Political tactics and economic reform in Russia. Cambridge, MA: MIT Press.
Young, Alwyn. (2001). The razor’s edge: Distortions and incremental reform in the People’s Republic of China. Quarterly Journal of Economics, 115(4), 1091–1135. Available as a pdf file at http://www.nber.org/papers/w7828.pdf.
Source: Sperling, Gerald. (2006). Why the Chinese are making it. Guanxi: The China Letter, 1, 12.