Liberal reform poses challenges, not least to unaccountable rulers.
Liberal reform poses challenges, not least to unaccountable rulers.
I s China reversing its economic liberalization? Chinese rulers have struggled for over 150 years with how much economic freedom to allow, and the debate under Xi Jinping is similar.
When Western nations forced China open in 1842 after the First Opium War, the country had long maintained private enterprise, along with steady, pre-industrial technological progress. But private firms were extensively controlled under the imperial governments.
The opening-up of 1842, forced by victorious Western powers, brought one idea that, along with Christianity, women’s rights, and self-government, Chinese had never been exposed to: the classical-liberal argument for market liberalization.
The idea that, economically, the government that governed best governed least was little known in China before 1842, and it electrified the Chinese who now studied it. An untold part of the country’s subsequent history is the struggle over this idea and its companion: individual freedom more broadly.
One cannot understand post-Mao economic reform, and resistance to it, without understanding this drama. Liberal reform poses challenges, not least to unaccountable rulers.
After 1842, Chinese began to journey to the West to see what made it tick, and they learned about Adam Smith. Smith’s economic freedom was the dominant theory of national prosperity at the time. It was failed Chinese bureaucrat Yan Fu who brought Smith’s concepts back to his homeland, after mastering English and making his way to Britain. Among the books he brought back and translated was The Wealth of Nations. To understand it, he first had to understand political economy, a concept that hardly existed in China. While a few Chinese thinkers had developed ideas that a Milton Friedman or Friedrich Hayek would recognize, economics as a body of thought was undeveloped.
Yan and others tried to convince Chinese elites that the unimpeded market was the basis of the West’s wealth. And wealth spelled strength.
Foreign powers coming into China first imposed substantial liberalization in the cities they controlled, and within several decades, this liberalization spread nationwide. The belief that imperial authorities interfered too much economically and politically almost took hold in the palace in 1898, but the reforms were rejected by the Dowager Empress Cixi.
Despite this rejection, until 1927, individual Chinese saw more progress than they had ever seen, and than they have since 1979. Millions of people poured into cities such as Shanghai, a once modestly sized city. People proud of being native Shanghainese today are often their descendants. Chinese began to see better education and health, and public infrastructure substantially improved, with newly prosperous Chinese businessmen often acting as key movers in this transformation. China bloomed in other ways, too, as familiarity with foreign cultures exploded. This comprehensive transformation was inevitable; there is no way around the fact that freedom spells dynamism.
Meanwhile, imperial control continued to decay. In 1911, the last emperor was overthrown. The dictator Yuan Shikai took power, but died soon after, causing China to fall into civil war among various warlords, with the Nationalist Party ultimately controlling much of the country.
The founder of the Nationalist Party, Sun Yat-Sen, was a convinced socialist, a believer that free markets meant foreign monopoly exploitation. As nominal president of China during its warlord period in the early 1920s, he praised and was praised by Lenin, worked with the Comintern, and with Soviet assistance welcomed the CCP, founded in 1921, into his alliance. After Sun’s death in office in 1925, Chiang Kai-Shek led the Nationalists to triumph over most warlords, the Communist ones, now in rebellion, excepted.
During their rule over most of China from 1927 to 1937 (the year Japan invaded), however, the Nationalists were able to impose substantial government control over China’s banks and other large companies. This intervention gave officials opportunities to demand and receive bribes, and corruption exploded.
After Japan’s defeat in 1945, the Nationalists returned and picked up where they’d left off, further increasing economic control and corruption. Meanwhile, the CCP resumed the civil war it had launched under Chiang before temporarily suspending it after the Japanese invasion. Nationalist corruption enhanced the appeal of the CCP, the poisonous fruit of one Western idea too many.
The CCP triumphed in 1949. Only after losing the civil war and fleeing to Taiwan did the Nationalists turn to pro-market policies, generating an economic miracle there.
On the mainland, the CCP began its rule by eliminating its real and imagined enemies in vast numbers, in part by destroying the old agricultural system. It also took over urban businesses, sometimes cooperating with their Chinese owners and sometimes pressuring them into ceding their businesses to the state, and intimidating foreign owners into doing the same.
The disaster of the first 30 years of CCP rule is well known: millions murdered, tens of millions starved, and China’s cultural treasures ransacked during the Cultural Revolution. By 1979, the country, which had the promise in 1927 to be what other East Asian nations later became, was one of the poorest countries in the world.
Humbled, the CCP began to liberalize markets, a campaign that accelerated after 1989, when it attempted to buy the allegiance of the Chinese people by giving them the opportunity to build a materially decent life, as long as they did not challenge the CCP’s political monopoly.
While extensive rural poverty still remains, hundreds of millions of Chinese have escaped it, a result that justifies the term “miracle.”
But China has now reached a stage where cheap production is not enough. To further progress, China must accept socially disruptive technological change, of the sort that is taken for granted in Western societies.
The intimidation in 2020 of Alibaba founder Ma Yun for the crime of criticizing obsolete financial regulation just before the IPO of his genuinely innovative Ant Group reflected more than petty intolerance of criticism. It reflected the CCP’s belief that economic change must serve the CCP and the vast incomes its officials derive. Ma’s new venture, a competitor to state-owned banks, was unacceptable.
The CCP dictatorship is more sweeping than the dictatorships of South Korea, Taiwan, or Chile ever were. Whether it will tolerate a freer, dynamic society is an open question. If it does not, the Chinese people will again be separated from other peoples. Their ability to innovate and prosper, along with those worldwide who would otherwise trade with them, will suffer.