ECONOMIC discourse in this country, especially with folks in governance circles, can throw up some very interesting — as well as disturbing — insights.
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discourse → throw → insights
A recent conversation brought up the interesting case of a preference for the ‘China model’.
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conversation → bring → model
Briefly, the belief is in an all-powerful centre that forces its economic commands through long-term plans across the entire country, whips up economic growth through major government interventions, and leaves a limited role for the lower tiers (local) of governance.
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that → force → governance
It is worth contemplating whether these views align with ground realities.
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views → contemplate → realities
A good place to start is the recent paper by Fengming Lu and Xiao Ma, ‘The rise of China’s electric vehicle industry’, which helps demolish several myths.
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which → start → myths
Champion EV firms like BYD and NIO are all private firms that did not get a single penny in state grants, which, instead, went to SOEs for EV research.
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which → get → research
Even more astonishing, these firms rose in cities the state apparatus did not identify for EV cluster development.
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apparatus → rise → development
How, then, did these firms accomplish this feat?
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firms → accomplish → feat
The short answer: mayors of the cities that were left out teamed up with entrepreneurs, helping them usher in the latest achievement of China’s stellar development story.
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them → leave → story
Notice that city mayors have the authority to act as they please within their locality.
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they → notice → locality
In this case, their initiative and actions undermined the SOEs.
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initiative → undermine → SOEs
Yet, the central government never intervened to prevent it, thus demolishing the myth of an all-powerful centre that micromanages everything and does not tolerate local authority.
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that → intervene → authority
The Chinese state mainly acts as a facilitator for development in any way it can.
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it → act → way
In Pakistan, it’s the opposite.
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it → ’ → Pakistan
China has a highly competitive and well-established local tier system.
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China → have → system
(Interested readers can look up President Xi Jinping’s road to the presidency.)
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readers → look → presidency
Second, it demonstrates that the state is willing to tolerate ‘creative destruction’, a term coined by economist Joseph Schumpeter, to describe how competition and creativity can render some businesses useless.
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businesses → demonstrate → Schumpeter
In the race for EVs, private competitors left state-run SOEs far behind, but the centre never intervened to prevent their slide.
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centre → leave → slide
In fact, competition is so intense that it has led to price wars, with some firms expected to fail (one county reportedly lost 6.6 billion yuan on a carmaker it supported).
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it → lead → carmaker
Similar misconceptions exist around its long-term plans.
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misconceptions → exist → plans
These actually contain insights of tremendous depth, coming from top-tier experts.
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These → contain → experts
Plans are contemplated and debated at length rather than rushed through.
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Plans → contemplate → length
The economic debates preceding the 14th party congress offer an apt illustration.
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debates → precede → illustration
In the wake of the Soviet Union’s collapse, between October and December 1991 (known as ‘eleven half-days’), the debate centred on why the USSR’s economy collapsed and what could be done to prevent the same from happening to China.
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what → know → China
The end result was the adoption of the famous ‘modern enterprise system’, approved by the party in November 1993, which enunciated “clear property rights, clearly defined rights and responsibilities, separation of government and enterprise, and scientific management”, that would prove to be a critical moment in China’s march to prosperity.
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that → approve → prosperity
The gist is that prevailing conceptions of China as a centrally administered economy with a benevolent dictator at the helm directing its stellar rise are misplaced.
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conceptions → prevail → rise
In fact, it is arguably the most decentralised governance system in the world, with more than 80 per cent of public expenditure at the local level, and mayors who enjoy independence in their fiscal and administrative decision-making.
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who → enjoy → making
The centre is still very powerful, but not in a manner that we understand.
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we → understand → that
It has some red lines that it enforces.
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it → have → that
The rich, for example, are not allowed to attain influence to an extent that they are in a position to manipulate the state apparatus by tailoring it in their favour to the detriment of the country and its people.
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they → allow → country
This explains, for example, why Communist Party members are banned from holding golf club memberships.
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members → explain → memberships
The underlying philosophy is simple: facilitate capital creation and growth, but prevent it from working against the public good and the country.
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philosophy → underlie → good
The state mainly acts as a facilitator for development in any way it can.
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it → act → way
In Pakistan, it’s the complete opposite.
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it → ’ → Pakistan
Big capital dictates and manipulates policies, whether through tax exemptions or trillions doled out in public-sector contracts.
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capital → dictate → contracts
The sugar mafia is a pertinent example, whose powerful members, sitting in the legislature, sway policies and regulations in their favour.
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members → sit → favour
(Note: the above should not be taken as advocacy for anti-capital formation policies.
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above → note → policies
Instead, it should be viewed in terms of regulating capital’s negative spillovers.
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it → view → spillovers
And lest we forget, the corrupt in China are handed the death penalty.
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corrupt → forget → penalty
Try naming a few cases in Pakistan where a similar predicament befell the corrupt.
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predicament → name → corrupt
…and 8 more, not listed.
The Aporia
