Pragmatism is guiding China’s economic redux

It has taken only 30 years for China to rise from the bottom to the top of the world’s economic rankings. How has it been possible? Ask 20 people and the answers you will get include “no idea,” “cheap labor,” “globalization,” “China Inc.” (the theory that China acts like a corporate conglomerate, using its sovereign wealth to dominate areas of the world trade economy) or the “Beijing Consensus” (the idea that China’s economic practices are part of a long-march political strategy to counter the “Washington Consensus” by offering a competing ideological agenda).

The irony is that those who express their ignorance are often a lot closer to the truth than those who are eager to give you their theories. One thing you can count on is that none of them will mention the Kunshan Way or the pivotal role that cities like Kunshan have played in China’s economic redux.

To understand economic development in China, you need to rethink some of the norms and assumptions which govern the relationship between government and business.
The U.S. way

In the United States, our assumption is that the “free market mechanism” is the cornerstone of a successful economic system. The “mechanism” is seen as the only efficient sustainable intermediary between the needs and desires of the individual and a stable economic society.
Capital, labor and materials respond to the changing cycles and demands of countries and individuals, providing jobs, goods and services. The “free market mechanism” unlocks the energy and creativity of the individual and provides the tax revenues governments need to preserve and promote an efficient, orderly and prosperous society. The government’s role is to regulate businesses and the market only as necessary to preserve safety and order.
The question of what the United States has done during the recent economic crisis and whether it has violated its ideological allegiance to the “free market mechanism” and principles of economic Darwinism will be left for others to discuss.
In terms of economic development, in the United States it takes two forms: direct spending by the government on defense, administration, infrastructure, education and social programs; and second, enthusiastic cheerleading by mostly happy armatures who offer subsidies, tax breaks and “chamber of commerce speeches” in a mostly zero sum game of poaching businesses from other American cities.
Elected leaders, while eager to appeal to populist sentiments, often lack any understanding about the businesses or market forces they are trying to influence.
The China way

In China, this assumption is reversed. Government planning and action, not “market mechanisms,” are the economic driving forces. The creation of a “harmonious and sustainable society” (this is a summation of Hu Jintao’s 2005 speech about the direction of China) is the responsibility of the government. The “free market mechanism” is seen as a necessary and important tool, but not the main driver of the socioeconomic system.
Private businesses and state-owned enterprises (SOEs) provide jobs, goods and services as part of a centrally planned and regulated economic structure. Taxes collected from the economic activity are used to pay for infrastructure and as a means of equalizing the benefits of economic progress.
In this scheme, local Chinese governments have become the front line, directly responsible for the development of their local economies in line with the national guidelines and priorities. As a city leader, your career depends on your ability to create economic development. In the past, due to lack of education, many lacked knowledge about the workings of the capitalist “free market mechanism,” including laws, regulations, business support systems and the basic tools of modern business. They began at ground zero, studied other economic development models, followed the central planning guidelines and tried to devise and implement successful strategies.
Over the years, the original pioneers have been replaced by new generations of educated and trained professionals who are now using increasingly sophisticated strategies to move their areas beyond the primary and secondary economies their predecessors started. While they still trail the developed world in many areas, the fact that they have achieved in 30 years what it took the United States over 100 years to achieve should be a wakeup call.
Put simply, it is about how the process is being driven. In the United States, we believe that a prosperous and stable society can only be achieved through the “free market mechanism.” In China, they believe that a harmonious and sustainable society can only be achieved through centrally orchestrated planning and implementation. The issue is not whether you agree or disagree; just that you understand that there is a different set of assumptions.

Misconceptions about China abound. There is a basic lack of knowledge about the country, its history, culture and people. There is the constant flow of “China business books” with their anecdotal tunnel vision focus on how to make money in China. There are never-ending stream of articles, books and talking heads who see China’s economic development as a “long-march” political strategy.
And then you have the unfortunate fact that the voices and experiences of those who have been shaping China’s economic development, since the “opening up,” while vigorously debating and discussing the issues internally, have been largely silent when it comes to broadcasting their views to the rest of the world.

A few years ago, I was trying to set up a meeting about a Traditional Chinese Medicine project between the governor of Wisconsin and Deng Pufang, with the head of the International Department for the Wisconsin Department of Commerce. I kept emphasizing that in addition to being the chairman of the China Disabled Persons Federation, he was the son of Deng Xiaoping. After a number of exasperating minutes, she asked me, “Why do you keep mentioning this Deng Xiaoping person?” I asked her if she had heard of Mao Zedong? The answer was “Yes.” Well Deng got his job. There was a bit of silence, and then the conversation moved on. China was Wisconsin’s fourth-largest trading partner at the time.
Self interests

Jack Perkowski promoted his book, “Managing the Dragon,” to a club I am part of. He was what you would expect of a offensive lineman/investment banker turned China business mogul. He gave a slightly varied version of the “white man’s economic burden,” where he generously took partial responsibility for bringing China into the global economy, as he was making a fortune. He was less responsive when I asked him, in essence, how the natives would fare in the future without their great white chief. Let me be clear, he was an effective speaker and pleasant enough person, but the focus of his book seemed, like many other books about business in China, to reduce China to an economic cog in some global dash for cash.
A number of mostly Western politicians and intellectuals have developed and promoted various ideas, including “China Inc.” and “The Beijing Consensus.” The cruxes of these views are that China’s economic rise is part of a calculated economic/political agenda.
Unfortunately, they ignore the more persuasive evidence, which suggests that China’s development has been more of a construct, a mixture of capitalism, communism, democracy and socialism, governed by pragmatism, rather than some covert world domination plan.
Unfortunately, simplified conspiracy theories resonate more with audiences than the more mundane realities of economic development.
Although debated, discussed and written about extensively within China, few Chinese intellectuals or pundits have had their works translated successfully into other languages. Whether this is due to China’s traditional inward facing emphasis, cultural reticence or a lack of confidence is a matter for a different debate. What is clear is that China’s silence has created a vacuum, leaving its quickly evolving reality to be defined by a toxic mix of ignorance, self-interested buccaneers and conspiracy pundits.
So the next time you read or hear something about China, you may want to think about the assumption being made and the perspective of the source. That should also apply to this article.

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