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Unlocking potential

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In a recent interview with the Financial Times, Premier Wen Jiabao expressed his admiration for Adam Smith's Theory of Moral Sentiments, written in 1759, before his better-known treatise The Wealth of Nations (1776). What the premier took away from the book is the idea that a society in which wealth is concentrated in a few hands will be unstable and immoral. Such a society, however, is more likely to be illiberal than liberal.

There are two organising principles of society: first, consent, the so-called voluntary principle, which relies on individual freedom and responsibility and, second, coercion, the use of force to command people and politicise economic life.

Of course, Smith favoured consent over coercion but recognised, as did classical liberals, that some use of force is necessary to prevent injustice - that is, the violation of one's legitimate ('natural') rights to life, liberty and property.

For Smith, justice did not mean 'doing good with other people's money'; it meant, 'doing no harm'. As such, justice is consistent with the Taoist principle of wu wei, or noninterference. According to Smith, if private property rights were protected by the 'laws of justice', free trade would lead to mutually beneficial gains. Individuals seeking their own gain would also increase the wealth of the nation.

Long before Smith explained his 'invisible hand doctrine', Lao-tzu taught that 'people spontaneously increase their wealth' when they are left alone. Likewise, the great Han historian Sima Qian understood what Nobel laureate economist F. A. Hayek later called the 'principle of spontaneous order'. According to Sima, 'when all work willingly at their trade ... things will appear unsought and people will produce them without being asked [commanded]'.

China lost the notion of spontaneous order during the chaos of the Great Leap Forward and the Cultural Revolution. Central planning destroyed, rather than created, wealth because it abolished private property and economic freedom. Today, as the result of more than 30 years of economic liberalisation, the Chinese people are richer and freer.

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