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OpinionLetters

Letters to the Editor, January 13, 2013

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A scene from the play The Orphan of Zhao. Photo: RSC
Letters

In her stimulating article ("Reinvent HK's economic role", January 6), Regina Ip Lau Suk-yee attributed the Qing dynasty's failure to develop science and technology to an abundant labour supply.

We believe that another reason is more important in explaining why China lagged behind Europe in industrialisation. Our explanation is based upon a key difference between China and Europe in the organisation of governments.

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By contrast with Europe, which comprised many small, independent states, China was a unitary centralised state governed by a huge bureaucratic system. Given the huge rents that could be extracted by the top bureaucrats of the centralised state, there was a misallocation of talent in China. The best minds spent years preparing for the civil examinations instead of starting new ventures and growing existing businesses.

Another drawback of the centralised state was that regional government officials behaved like division managers in a huge business organisation. They sought to please the emperor (or rather the officials around her or him), instead of building the local economy. The misallocation of talent and the lack of incentives of local government officials seriously impeded China's development and resulted in its decline relative to Europe.

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Indeed, we can understand mainland China's successful economic reform over the last three decades as the result of addressing the two shortcomings of the centralised state. It encouraged the best minds to leave the public sector for the private sector.

Further, through fiscal decentralisation, it provided strong incentives for regional government officials to develop their local economy.

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