China and the pursuit of happiness

Under Mao Zedong China had a communist system so rigid it made the Soviet Union seem positively capitalist by comparison.  Since then, the Chinese government allowed farmers to control their own plots of land, allowed private rural enterprises, then welcomed $100s of billions in private foreign investment, then allowed private urban entrepreneurs, then privatized urban dwellings, then privatized many state-owned enterprises, and then set up two stock markets.  That’s a lot of capitalism.  Yet it’s also true that the Chinese state still dominates many parts of the economy, owns all the land, and has lots of controls that make it far less market-oriented than a place like Hong Kong.

Let’s suppose neoliberalism works.  What should have happened as a result of all those Chinese reforms.  Here are three choices:

1.  China stays as poor (in relative terms) as in 1976.  Comparable to central Africa, or Bangladesh.

2.  China grows rapidly, but even in 2010 remains much poorer than Mexico.

3.  China grows at explosive rates, and became a fully-developed country by 2010.

Which would be the outcome that would vindicate neoliberalism?  And which would refute it?  I could imagine reasonable people saying #2 would vindicate the neoliberal reforms.  That’s what I’d say, and that’s what happened.  I could imagine someone hostile to capitalism insisting that only #3 would count as success.  But I must admit that until I read this book review from John Gray, I could never have imagined someone arguing that only outcome #1 would vindicate neoliberalism.  At least that’s what I think he is saying.  See what you think:

Disdainful or ignorant of the past, Ridley is uninterested in the forces that shape events. He writes hundreds of pages about the wealth-increasing virtues of free markets, but allots post-Mao China only a few lines. This brevity is symptomatic, as China falsifies Ridley’s central thesis; the largest burst of continuous economic growth in history has occurred without the benefit of free markets. Wealth has been created as never before, not as a result of evolutionary change, but as a product of revolution and dictatorship.

Am I misreading Gray, or is he actually saying that all that growth that followed Mao’s death is evidence that market reforms don’t work?  If I met him I’d love to ask him what sort of outcome for China would count as success for their neoliberal reforms.  I’ve noticed that when people have a strong aversion to a particular ideology, the answer is often a null set.  Is it just me, or do you guys think that if China was still as poor as sub-Saharan Africa, Gray would be using that fact as evidence neoliberal reforms don’t work?

At the opposite extreme, this is from an excellent book review written by Ronald McKinnon:

John Williamson (1990) did all a great favor by writing down the rules for what he called “The Washington Consensus” for developing countries to follow to absorb aid efficiently:

1. Fiscal policy discipline.
2. Redirection of public spending from subsidies (“especially in discriminate subsidies”)
toward broad-based provision of key pro-growth, pro-poor services like primary
education, primary health care, and infrastructure;
3. Tax Reform””broadening the tax base and adopting moderate marginal tax rates:
4. Interest rates that are market determined and positive (but moderate) in real terms;
5. Competitive exchange rates;
6. Trade liberalization””with particular emphasis on the elimination of quantitative
restrictions; any trade protection to be provided by low and relatively uniform tariffs;

7. Liberalization of inward foreign direct investment;
8. Privatization of state enterprises;
9. Deregulation””abolish regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions.
10. Legal security for property rights.

To provide perspective on these ten rules, the year 1990, when Williamson wrote, is important. It was just after the fall of the Berlin Wall and the complete collapse of confidence in Soviet-style socialism. The rules reflect the hegemonic confidence that most people then had in liberal market-oriented capitalism””think Ronald Reagan and Margaret Thatcher. But, 20 years later, should the meteoric rise of socialist China””both in its own remarkable growth in living standards, and in the effectiveness of its foreign “aid” to developing countries, undermine our confidence in Williamson’s Washington Consensus?

Surprisingly, no. The Chinese economy itself has evolved step-by-step (feeling the stones) into one that can be reasonably described by Williamson’s 10 rules!

At first glance McKinnon can seem just as out of touch as Gray, albeit in the opposite direction.  After all, we all know that China is following its own “Beijing consensus” which is much more state-led that the US system.  That’s partly true, but McKinnon makes a good case that China is gradually moving in the direction of the Washington consensus, even as we move in the opposite direction.  The book review (which is quite long) also has some very interesting information about China’s involvement in Africa.

McKinnon may be a bit over-optimistic, but he’s much closer to the truth than Gray.  And Gray isn’t just wrong about the China’s economy, he also misses important changes in China’s political system, which is much less based on the whims of a single dictator than Gray suggests.  This book review from The Guardian does a nice job of showing what happens when you really do give absolute power to a single man:

The book’s title is somewhat misleading. Horrific as it was, with its cannibalism and people eating mud in search of sustenance, the famine generated by the Great Leap’s failure and the diversion of labour from farming was only part of a saga of oppression, cruelty and lies on a gargantuan scale. Initially launched to enable China to overtake Britain in steel production, Mao’s programme took on a deadly life of its own. At the apex of the system, the chairman refused to recognise reality, spoke of people eating five meals a day, insisted on maintaining food exports when his country was starving and indulged in macabre throwaway remarks such as: “When there is not enough to eat, people starve to death. It is better to let half of the people die so that the other half can eat their fill.”

.   .   .

Finally, somebody had to confront the leader. As China descended into catastrophe, the second-ranking member of the regime, Liu Shaoqi, who had been shocked at the conditions he found when he visited his home village, forced the chairman to retreat. An effort at national reconstruction began. But Mao was not finished. Four years later, he launched the Cultural Revolution whose most prominent victim was Liu, hounded by Red Guards until he died in 1969, deprived of medicines and cremated under a false name.

The Cultural Revolution is widely remembered, the Great Leap much less so. Having gone through those two experiences, not to mention the mass purges that preceded them and the Beijing massacre of 4 June 1989, it is little wonder if the Chinese of today are set on a very different course that rejects ideology in the interests of material self-advancement.

In my view the most important engine of human progress is not science, but rather the growing acknowledgement that governments should be at least somewhat utilitarian.  Not chasing grand dreams of one sort or another, but rather focused mostly on the well-being of the average person.  China’s hardly a model in that regard, but despite all its problems it is definitely moving in that direction.  It’s a pity that Gray doesn’t understand that the dramatic progress he describes has occurred precisely because China is far less dictatorial and far more market-oriented than in the 1970s.

Another person who doesn’t seem to get it is Adam Phillips, who seems positively disdainful of the “pursuit of happiness.”  Oddly, he seems to think the monsters of the 20th century were not out fanatically pursuing glorious crusades, but rather merely engaged in the mundane task of making the German, Russian, Chinese and Cambodian people more comfy:

What exactly might it mean to have an “unalienable right” to “the pursuit of happiness”, given that it is fairly obvious that the pursuit of happiness is so morally equivocal – could be, among other things, a threat to the society that promoted it? At first sight it seems to be a pretty good idea; if we are convinced of anything now we are convinced that we are pleasure-seeking creatures, who want to minimise the pain and frustration of our lives. Or at least a “we” could be consolidated around these beliefs. We are the creatures who, possibly unlike any other animal, pursue happiness. But the pursuit of happiness, like the pursuit of liberty – the utopian political projects of the 20th century – has legitimated some of the worst crimes of contemporary history across the political spectrum.

Think about it.  Do you really think Hitler, Stalin and Pol Pot were trying to make people happier?   Does the description of Mao’s reaction to the famine sound like he’s a utilitarian?

One guy who does get it is V.S. Naipaul:

Familiar words, easy to take for granted; easy to misconstrue . . . This idea of the pursuit of happiness is at the heart of the civilization to so many outside it or on the periphery.  I find it marvelous to contemplate to what an extent, after two centuries, and after the terrible history of the earlier part of this century, the idea has come to a kind of fruition.  It is an elastic idea; it fits all men.  It implies a certain kind of society, a certain kind of awakened spirit.  So much is contained in it: the idea of the individual, responsibility, choice, the life of the intellect, the idea of vocation and perfectibility and achievement.  It is an immense human idea.  It cannot be reduced to a fixed system.  It cannot generate fanaticism.  But it is known to exist; and because of that, other more rigid systems in the end blow away.  (Talk given in 1991)

That’s right, the key word isn’t happiness, it’s ‘pursuit.’  Life should be a sort of adventure.  The philosopher kings that are disdainful of markets and democracy want society to embody their ideas.  The utilitarian says “let 6.7 billion adventures bloom.”

HT:  John Taylor, Tyler Cowen, Robin Hanson