China's economic model defies label of authoritarian capitalism
Winston Mok says in trying to pin down the Chinese economic model, it's easy to overlook its essence of competition and evolution between various models across the nation
The great debate of this century is capitalism versus capitalism, as per the name of a book by late French economist Michel Albert. But it is not between Western neo-liberalism and Chinese authoritarian capitalism. Rather, it is between Anglo-Saxon liberal capitalism and the more coordinated economies in continental Europe and Japan.
In the 1980s, the Japanese model of state-coordinated development, with its long-term orientation, was hailed as a superior alternative to American short-term capitalism. The bursting of Japan's asset bubble brought such admiration to an end.
Germany chose a different path with a more worker-oriented social contract. More recently, Nordic welfare capitalism has been seen as an exemplary model balancing growth and equality. Closer to home, Singapore's eclectic approach, mixing market liberalism and state activism, has outperformed Hong Kong's laissez-faire economy.
The Anglo-Saxon model of liberal capitalism is not representative of the Western world. Market fundamentalism as advanced by Ronald Reagan and Margaret Thatcher was a recent turn from Franklin Roosevelt's more compassionate New Deal.
From the 1860s, under the legacy of Alexander Hamilton, the US pursued more than a century of protectionist policies and infrastructure investments. In supporting innovations, with heavy state-sponsored research in technology from IT to biotechnology, the US is perhaps the unsurpassed development state in modern history. The East Asian model, with China as a potent variant, is arguably an emulation of the "American school" of economics in the Hamiltonian tradition.
The nature of China's economy is an enigma. There are a range of opinions on whether it is more state or market oriented. It would be misleading to label China's capitalism as authoritarian just because of the visibility of its state giants. China's export-oriented economy is driven by private enterprises - which operate by the rules of international competition.
Professor Xu Chenggang, of the University of Hong Kong, summarised the key architecture of China's governance as regionally distributed authoritarianism. Its decentralised economy and vast scale make coordination difficult, particularly across regions - resulting in a fiercely competitive "liberal" economy. With financial reforms, China's economy may look increasingly liberal. No doubt, China is authoritarian politically. But peeling away the façade, the US may find China a much closer cousin economically than countries in continental Europe.
Given China's socialist ideology, European welfare capitalism should be a good role model. Yet, most mainland citizens have access to lower welfare levels than those in the US or Hong Kong.
China's meteoric rise would not have been possible without the influences of and integration with Hong Kong and Taiwan. The commercial heritage of the Yangtze River Delta, the world's leading economic region for much of the last millennium, cannot be extinguished by a few decades under socialism.
There are multiple market economies in China. Some regions remain under the shadow of the state while the coastal south is market-driven. The dynamism behind China's growth lies not only in firms and regions competing, but also in competing models of market economies. More than directed from the centre, China's market economy has evolved from below and at the periphery.
For the future, look no further than China's free trade zones. There, different varieties of market economies will be further tested. Nowhere is the direction of a nation's economy shaped as much by "scientific" experiments as by political negotiation. Is there a China model? Its essence is the dynamic evolution of multiple economic models. If there is a relevant lesson for others, it concerns empirical-based adaptations over any universal dogma.
Winston Mok is a private investor, a former private equity investor and McKinsey consultant. An MIT alumnus, he studied under three Nobel laureates in economics