Sadly, we are now in a world where you are either for or against China. But we may do well to remember what the London wit said. It may be more accurate to rephrase it: Capitalism saved the Chinese Communist Party after 1989; the party saved global capitalism after 2009. The world economy can’t live without America’s “free market” capitalism any more than it can without China’s “state” capitalism. That realisation may, in the end, save us all from mutually assured destruction.

China and the global system led by the United States have been entangled in a marriage of convenience. They can’t live without each other. A divorce is out of the question. At most, they may end up having separate beds or separate bedrooms.

But between scorn and adulation, there is a middle ground. We ought to realise that China’s rise is hardly unique, but actually follows a well-trodden path already made by many other nations that got rich or at least less poor, including Britain, Japan and the US. China’s recent success is well-deserved, but hardly exceptional, other than for its sheer size in population and geography. Its spectacular rise shouldn’t blind us to that.

If, as Sun Tzu wrote, a battle can only be won by the favourable confluence of Heaven (weather), Earth (territory) and Man (leadership), then the communists can at best claim the last element of leadership.

How contemporary China learned from everyone

It’s often observed that China studied and emulated the economic development policies of Asian economies, beginning with Japan.

Hence the concluding remarks of a long chapter on Japan in Martin Jacques’ When China Rules the World: “Japan was the first East Asian country to modernise, and much of the region has now followed in its wake. Without Japan, it is doubtful whether the Asian tigers would have begun to roar; and without the Asian tigers, China’s modernisation would certainly have been further delayed.

“Japan might have been, in a host of ways, an exception, but it has been the exception that eventually proved the rule: it is now surrounded by countries that are, in various different ways, following its example, at times to its acute discomfort.”

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Likewise, Stefan Halper, the American foreign policy scholar and spymaster, wrote that the so-called Beijing Consensus was “[built] on the Asian model pioneered by the Japanese in Manchukuo in the 1930s and refined in Korea, Japan and Singapore.

“[That was] the catalyst for a global shift in development economics, away from the market-democratic model and towards a new type of capitalism, which can flourish without the values and norms of Western liberalism.”

No doubt Chinese patriots today loathe to acknowledge that imperial Japan’s industrialisation of Manchukuo, or northeastern China, helped the communists enormously after 1949 with their own industrialisation. Or that export-substitution, industrial policy, the picking of national champions, exchange rates and capital controls, one-party politics and state-led capitalism, were all long practised by Japan.

Perhaps the West would be less offended if, instead of calling it the Beijing Consensus, we label it the Tokyo Consensus or the East Asia Consensus?

How England and the US got rich

But Japan wasn’t the real pioneer either. Korean economist Chang Ha-joon used to think the Japanese did all that first in the 1950s, until he discovered a very obscure work of Daniel Defoe, titled A Plan of the English Commerce, which contained a lengthy history of the protectionist policies of the Tudors such as Henry VII, Henry VIII and Elizabeth I.

These involved, Chang wrote, trade “protectionism, subsidies, distribution of monopoly rights, government-sponsored industrial espionage and other means of government intervention to develop England’s woollen manufacturing industry – Europe’s hi-tech industry at the time”.

Doesn’t that sound familiar? The Tudors’ economic sabotage and trade competition eventually ruined the manufacturing industries of the Low Countries (what is today’s Belgium and the Netherlands).

They also laid the economic foundations for the Whig government of Robert Walpole, Britain’s first prime minister, who was immortalised by Jonathan Swift in Gulliver’s Travels as Flimnap.

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Defoe was one of Walpole’s many industrial and political spies; they saw eye to eye on British protectionism. Walpole was made PM to clean up the mess left behind by the bursting of the South Sea Bubble, one of history’s greatest financial scandals. But Walpole was much more ambitious. He would formalise protectionism as law to shield British manufacturing industries from foreign competition while subsidising and helping them to dominate foreign markets. He imposed high tariffs on importers, banned British colonies from exporting products that competed with the British while forcing them to focus on making low value-added products and producing raw materials and primary commodities.

The hi-tech ban prohibited the use of the new rolling and slitting steel technologies in the American colonies. But eventually, the Americans would have their revenge by doing what the Brits did to the Dutch.

Commenting on the domestic industrial policy of Walpole, Chang wrote in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism: “These policies are strikingly similar to those used with such success by the ‘miracle economies’ of East Asia, such as Japan, Korea and Taiwan after the second world war.

“Policies that many believe, as I myself used to, to have been invented by Japanese policymakers in the 1950s … were actually early British inventions.”

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It was only by the mid-19th century that the British Empire began to preach free trade and free market for everyone, when Britain was well-established as the world’s pre-eminent manufacturing powerhouse, with a world-beating navy that could project power and protect its commercial and political interests around the world.

Meanwhile, in upstart US, then-treasury secretary Alexander Hamilton was encouraging intellectual property theft against Britain and others with big financial rewards. This was despite heavy fines and threat of capital punishment by British authorities.

Under the Patent Act of 1793, the US was more than happy to grant dubious patents to Americans who had pirated technology from other countries while barring foreign inventors from applying patents. “America thus became, by national policy and legislative act, the world’s premier legal sanctuary for industrial pirates,” wrote Pat Choate in Hot Property: The Stealing of Ideas in an Age of Globalization.

“Any American could bring a foreign innovation to the United States and commercialise the idea, all with total legal immunity.”

Among the great industrial thievery was that of Samuel Slater of Derbyshire, who took British cutting-edge cotton-spinning technology, around the time of the French Revolution, to the US where he was subsequently hailed as “the Father of the American Industrial Revolution”.

A few years later, the Massachusetts industrialist Francis Cabot Lowell hit an even bigger jackpot by pirating the machinery designs and assembly used in British textile factories during a tour of England and Scotland.

Meanwhile, following Hamilton, Abraham Lincoln was a big fan of high tariffs, infant industry protection and heavy government spending on infrastructure such as building canals. That was how he won support from the northern manufacturers and industrialists against the slaveholding, cotton-farming southern states, which were actually in favour of free trade!

Throughout the 19th century and up to the Great Depression, US tariffs would rise and fall but usually remained the world’s highest. “Despite being the most protectionist country in the world [during that period], the US was also the fastest growing economy,” Chang wrote.

Once the US achieved industrial and military pre-eminence after the second world war, it followed Britain’s example in the mid-19th century. “The US, with its industrial supremacy now unchallenged, liberalised its trade and started championing the cause of free trade.”

Other nations preferred to follow the example of the previously protectionist US.

“Many countries also grew rapidly behind protective barriers,” Chang wrote. “Germany Sweden, France, Finland, Austria, Japan, Taiwan, and Korea come to mind.

“Countries like Finland, Norway, Italy and Austria – which were all relatively backward at the end of the second world war and saw the need for rapid industrial development – also used strategies similar to those used by France and Japan to promote their industries.

“All of them had relatively high tariffs until the 1960s. They all actively used SOEs (state-owned enterprises) to upgrade their industries. This is particularly successful in Finland and Norway [where] the government was very much involved in directing the flow of bank credit to strategic industries. Finland heavily controlled foreign investment. In many parts of Italy, local government provided support for marketing and R&D to small and medium-sized firms.”

Of course, while decrying other countries’ industrial policy and government subsidies, the US continued to practise its own policy with favoured national champions, actually on an even more massive scale, during the Cold War. It’s called the military-industrial complex, and its most famous product, besides weapons of mass destruction, has been the internet!

“[The internet] is indeed a unique blending of military strategy, big science cooperation and countercultural innovation,” wrote sociologist Manuel Castells in The Rise of the Network Society.

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“At the origins of the internet is the work of one of the most innovative research institutions in the world: the US Defence Department’s Advanced Research Projects Agency (DARPA). When in the late 1950s the launching of the first Sputnik alarmed the American hi-tech military establishment, DARPA undertook a number of bold initiatives, some of which changed the history of technology and ushered in the information age on a grand scale.

“One of these strategies … was to design a communication system invulnerable to nuclear attack. Based on packet-switching communication technology, the system made the network independent of command and control centres, so that message units would find their own routes along the network, being reassembled in coherent meaning at any point in the network.

“When later on, digital technology allowed the packaging of all kind of messages, including sound, images and data, a network was formed that was able to communicate all kinds of symbols without using control centres … the network became pervasive and channels all kinds of information around the world.”

The internet, as well as the US military-designed Global Positioning System (GPS), were not products of free market entrepreneurship as US politicians like to pretend that they were, but of industrial (military) policy, government subsidies and publicly funded research.

So, China is like everyone else

It was quite different in the late 1970s and the 1980s, when Chinese farmers started selling surplus crops while others opened small businesses, which communists preferred to call township and village enterprises.

The private selling of crops was institutionalised through the so-called Household Responsibility system and was remarkably similar to the “micro” farms that Nikita Khrushchev introduced in the 1950s as part of his failed economic reform.

Reform-minded central European economists such as the Czech Ota Sik and the Hungarian Janos Kornai had been studying how greater efficiency and market price-sensitive signalling could be introduced into the command economy that suffered from chronic shortages. Kornai particularly influenced a whole generation of young liberal economists in China during the 1980s as they introduced price liberalisation and encouraged private businesses.

Huang Yasheng, a Chinese-born economist at the MIT Sloan School of Management, has observed that private businesses set up during the 1980s reform might have created more than 100 million new jobs. But the boom also caused runaway inflation, panic buying and corruption, social conditions which contributed to the Tiananmen protests.

After Tiananmen, the liberals were discredited, many of them purged. The transfer of revenue reversed direction, from local governments back to Beijing. While smaller state firms were allowed to go private, larger ones became state champions as credit was directed to them, thus starving private businesses of access to credit. Private businesspeople, of course, have been complaining about the same thing in China today since the onset of the global financial crisis.

Rural tax revenues went towards developing urban areas, as people moved to the cities in search of jobs. This is the world of state-led growth, industrial policy, foreign direct investment and giant SOEs with which we have become familiar and that propelled the economy to become the world’s second largest, if not the largest.

In the first phase of reform, China was looking towards the Soviets and the Eastern bloc’s reform experience. But in the second phase, it was pretty much following the rest of the world, while trying precariously to avoid the fate of the Soviet Union. Let’s recall the USSR officially ended at the end of 1991; Deng started his trip to southern China less than three weeks later to kick-start economic reform while shelving political reform indefinitely.

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As pointed out by Halper in The Beijing Consensus and David Shambaugh in China’s Communist Party: Atrophy and Adaptation, Chinese communist intellectuals and policymakers spent years studying the causes of the Soviet collapse. They rightly realised that the collapse, rather than the Tiananmen tragedy, was the real existential threat to the party.

Eventually, an internal party consensus emerged: dogmatic Soviet ideology insisted on maintaining a command economy that was “stagnant and isolated” from the world economy. “Capitalist” reforms were dismissed when they were actually crucial. An entrenched ruling elite delegitimised itself and the party by neglecting public welfare, e.g., poverty and chronic shortages of essential goods and services. Too many ineffective party Organisations were left idle as they failed to rally the masses.

Most interestingly, Deng and his followers realised the Soviets were too aggressive in their foreign policy – whether its aim was global domination or revolution – in its confrontation with the US during the Cold War. It was in this context that people should understand Deng when he said Taoguang yanghui, or “Put a shade over the bright light/nurture (ourselves) in dimmed space.” It has been popularly translated as: “Hide your strength, bide your time.”

This is the real Beijing Consensus, rather than the one popularised for public consumption.

Some conclusions

As the Chinese Communist Party prepares for its 100th anniversary of its founding, mainland universities and research institutes are reportedly accelerating efforts to promote the study of the role of government in economic development, given that the nation’s own government-led rise in the past 40 years has been hailed by some as an economic miracle, but criticised by others as state capitalism.

Despite trade, economic and ideological warfare with the US and other Western countries, Beijing’s self-confidence in its economic and political management of the country is unmistakably growing. But Beijing may want to dial down its exceptionalism and the West its antagonism.

China’s rulers today will be deluding themselves if they think they have been doing something terribly original or different that many other countries have not already done. However, the US and others would do well to remember that when they were developing economically, they acted pretty much like China has been doing – they weren’t so different from everyone else when all countries started at a baseline of relative poverty. Some succeeded in getting rich or less poor, often by following the same unacknowledged development script, usually incurring enormous social and human costs in the process.

If we study actual economic history of the rough and dirty variety, not the one sanitised or idealised by neoliberal economists and neoconservative political writers, few poor countries ever got rich by jumping, naked and unprepared, into the ruthless games of free trade, free competition, free enterprise, “a level playing field” and competitive political democracy. They may eventually have grown into them once they became rich and established, but they didn’t start out with them, including Britain and the US. Britain didn’t achieve universal suffrage until 1918 and the US well into the 1960s, long after they achieved hegemonic status.

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Elizabethan England and the US after the civil war came to global dominance by following more or less the same economic script, without “the values and norms of Western liberalism” that Halper mentioned, and of which the West has made much against China and those it lends capital to with so-called debt traps. But economic-historical amnesia set in the US and much of the English-speaking world with the rise of neoliberalism, monetarism and the “Washington Consensus”. For better or worse, the rise of China should wake up some long dormant memories of the West’s economic past.

As the writer and social critic Gore Vidal once said while unsuccessfully running for the California Senate in 1983: “In public service, we lag behind all the industrialised nations of the West, preferring that the public money go not to the people but to big business. The result is a unique society in which we have free enterprise for the poor and socialism for the rich.”

Likewise, when it comes to dealing with developing or poor countries, Chang wrote, the US attitude has been “Keynesianism for the rich, monetarism for the poor”.

Both men could have said the same thing in 2008-09 when Washington bailed out financial institutions during the US property market collapse – which triggered the global financial crisis – by flooding the markets with liquidity while letting millions lose their jobs and homes.

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All governments are, to an extent, hypocritical. That may be the lesser of two evils, for otherwise, they would be fanatical regimes with a rigid ideology and prone to state terrorism.

Starting with the Han dynasty, China’s rulers taught people to follow ethical and humane Confucianism while themselves practising harsh and ruthless Legalism. Chinese communists today are anything but communist – they are capitalists. But there isn’t just one type of capitalism. Nor does a country follow the same capitalism in its socio-economic development.

Remember how the “Washington Consensus” crowds in the West were finger-wagging during the Asian financial crisis that countries in Asia must pay for their own economic sins with austerity and its cruelly induced suffering for the masses with government cutbacks? The same people sang a very different tune when the shoe was on the other foot in 2008-09.

We are all hypocrites. And once we get rich and powerful, we all think we are special. As soon as we come to admit these universal flaws of human nature, we may be less inclined to go at each other’s throats.