The Marginal Quest for Liberty
Freedom, to the extent it is embraced, improves people's lives. Inspired by Coase and Wang's "How China Became Capitalist."
I am halfway through How China Became Capitalist by Nobel laureate Ronald Coase and Assistant Professor at the School of Politics and Global Studies, Arizona State University, Ning Wang. The textbook somehow manages to be as engaging and readable as it is densely packed with historical context, economic data, and theoretical understanding. Unless the second half somehow pulls a 180, I have to recommend this treasure trove of insight on 20th to 21st century Chinese political economy to all students of economics.
Well-earned praise aside, the textbook’s discussion of the marginal revolutions in the Chinese economic system is the focus of this post. Following Mao Zedong’s death, the Four Modernizations pursued by Hua Guofeng’s Leap Outward and Deng Xiaoping’s National Comprehensive Economic System Reform were responses to the practical demonstration of the superiority of even limited economic freedom.
Nine Dragon Hill’s successful 1976 experimentation with decollectivization of farming out of sheer need—the peasant farmers were literally starving to death—and lack of central government oversight led to the development of the Household Responsibility System in 1982.
The Township and Village Enterprises grew out of Mao’s Commune and Brigade Enterprises1 and witnessed great productive efficiency in comparison to State-Owned Enterprises by introducing residual claimancy, hard budget constraints, and labor mobility to localities. From 1978 to 1996, TVEs went from employing 28 to 135 million people and from 6% to 26% of gross domestic product.
In 1979, around 20 million young people returned from rural re-education camps implemented during Mao’s Cultural Revolution. The problem posed by these unemployed youths led renowned economist Xue Mugiao to publicy endorse self-employment and, shortly thereafter, to Head of State Ye Jianying endorsing the “individual (read: private) economy.” After witnessing the success of the individual economy in employing youths in Wenzhou, the Central Committee and the State Council officially promoted “the ‘individual economy’… as a ‘necessary complement’ to the socialist collective economy.”2
Responding to excessive emigration to Hong Kong, Singapore, and Taiwan, Special Economic Zones emulating the economies of these countries commence in 1979 following the success of China Merchants’ experiment turning a small portion of the Nantou peninsula into an entrepot: Shekou Industrial Park.
To legitimize these undeniably market-oriented economic policies, the Chinese Communist Party invoked Mao’s own rhetoric: “practice is the only criterion of truth.” In practice, it turns out that, to the extent it is embraced, private ownership of the means of production and economic freedom are condusive to growth, modernization, and abundance. Mao’s Great Leap Forward and the Cultural Revolution, on the other hand, were steeped in ideology, unresponsive to reality, and failed miserably.
Go figure!
Indisputably, the Chinese economic model does not represent a totally free market economy. Nor does any other nation on the face of the earth. However, China has embraced many aspects of capitalism and, consequently, its population has grown while the quality of life enjoyed by its citizens has increased enormously. As libertarians—myself included—advocate for economic and political policies that promote human flourishing, we ought to remember to be good capitalist economists: marginal in our cost-benefit analyses. While targeting the moral and economic ideal of perfectly free markets uncorrupted by rent-seeking, regulation capture, and other forms of central planning, we must steadfastly refrain from binary, all-or-nothing utopian demands.
The quest for freedom is not quixotic; it’s pragmatic.
Largely responsible for rampant starvation during the Great Leap Forward due to shifting labor from agricultural to industrial steel production.
Coase, R., and N. Wang. How China Became Capitalist. 1st ed. 2012. London: Palgrave Macmillan UK, 2012: 58.