BIZCHINA / Weekly Roundup
How Chinese bumblebee ignores economic laws
By Khalid Malik (China Daily)
Updated: 2007-07-04 15:45
There's been a fascinating way of building constituencies for reform and
compensating individuals. There's never been a big dramatic shift from
one point to another.
On the vision side, rather than the big bang, a dual track was followed.
There was not a dramatic shift from the State-owned enterprises to the
market sector in one go. It was gradual.
The role of the State in non-agricultural employment is lessening. The
private sector is increasing. This is actually being done as a very
conscious strategy. China has two tracks - the market track along with a
planned track.
China was permitted to outgrow the planned track by harnessing the market
forces of its own dynamism. Of course there was a transition period to
shift people away from State-owned enterprises to the market sector. It
was not meant to be immediate and dramatic.
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Capacity building has been a continuous priority. A lot of emphasis has
been placed on education and capabilities. In terms of sequencing,
economic reforms were connected to institutional transformations.
Research-based management was introduced.
China has used very strong results incentives. Provincial officials'
futures are affected by whether or not targets are met. As part of
China's investment in human development, literacy rates have risen
dramatically. And this was not just in the past two decades. This started
in the 60s, and the big jumps were in the late 70s onwards.
China had a very pragmatic approach to economic policy making and
transformation. Deng Xiaoping and all the associated planners saw that it
was vitally important to reorganize the bureaucracy as a precondition to
reform.
When the reforms were introduced in the late 70s, in two years the ages
of the ministers, governors, mayors and department heads were lowered.
This meant thousands of younger leaders, because the top leadership felt
that without that the reforms would not succeed.
There's a lot of debate in economics on the meaning of "social capital".
It basically means social cohesion. If a country's social cohesion is
good, a country has good social capital.
China's investment in health and education in the 1960s and 70s was
critical in maintaining this cohesion. The link between investment in
human development and economic growth is well established.
Deng Xiaoping's reforms would not have succeeded without the foundation
laid by Mao Zedong. What happened in the first stage of reform was that
the equality structure was totally transformed, allowing policies to bear
fruit. Mindsets were changed. Since many reforms had not succeeded,
including the Great Leap Forward, people wanted something that worked.
So what you had was an attempt to align - align institutions, align
policies. No one would say the policies were first best policies, as
economists like to say, or even second best; but they were appropriate.
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