"We have no plan” and “we are unable to act” have become common refrains among influential Americans who grumble about the decline of U.S. power in the 21st century. On both fronts, they lament, China is doing better. From President Barack Obama to New York Times columnist Thomas Friedman to trade union leader Andy Stern, prominent figures who favor a bigger government in America not only envy China’s state-directed grand plans and its one-party system’s ability to make quick decisions, they also accuse small-government adherents of blindly worshipping the free market, contributing to political polarization, and rejecting the reforms necessary to meet the grave challenges that America faces.
But many U.S. observers in the grip of Chinese authoritarian chic forget that China’s vast economic expansion resulted from the introduction of more economic freedom, not less. They also fail to understand that even after decades of reform, endemic state intervention continues to impose massive inefficiencies on the Chinese economy and prevent the realization of the market’s full potential. In short, China’s experience, both past and present, does not provide support for those who clamor for a more expansive government in the United States.
More than 30 years ago, when China began to dismantle its command economy, liberalization introduced market prices, allowed a return to household farming from collectivization, created Special Economic Zones in coastal areas that attracted foreign investment and promoted exports, exposed state-owned factory production to profit incentives, and opened up the market to private firms and entities.
Throughout the 1980s, Chinese citizens began to engage in the most basic economic activities, long prohibited. For the first time, many could buy food on the open market rather than using government-rationed food stamps; set up enterprises rather than stay permanently confined to the dreariness of government-assigned employment; and bask in the new goods, knowledge, and influences flowing in from the outside world rather than stare glumly at empty shelves in department stores.
These changes took place not because the Chinese leadership decreed them, but because reformers within the government fought for them, and because even when Beijing repeatedly sought to reimpose state control, a freer marketplace asserted its logic and delivered better results.
As economist Barry Naughton wrote in Growing Out of the Plan: Chinese Economic Reform, 1978-1993, the overall pattern of Chinese economic reform in the early years “emerged from the interaction between government policy and the often unforeseen consequences of economic change.”
Through periods of reform and retrenchment, China fitfully opened up its economy domestically and to the world. In the 1990s, the country abolished or further liberalized price controls for a wide range of products, embarked on the privatization of state-owned enterprises (SOEs), and implemented banking reform. In December 2001, after 15 years of painful negotiations and solemn commitments to further liberalization, China acceded to the World Trade Organization. For that effort, the Economist recounted 10 years later, China “had to relax over 7,000 tariffs, quotas, and other trade barriers.”
The results of China’s epic march toward a freer market have been sweeping. Over the past 30-plus years, China’s economy has grown at an annual average of nearly 10 percent. More than 500 million Chinese citizens have been lifted out of poverty. In 2010, the country surpassed Japan as the second-largest economy in the world, and it is expected by the International Monetary Fund to overtake the U.S. economy as the world’s largest in 2016.
China’s groupies in the West like to attribute this astounding economic success to the Chinese leadership and frequently describe Beijing’s economic guidance as “astute.” Often, they marvel—and gripe in the same breath—that Beijing is planning for long-term national greatness while Washington bickers over temporary fixes. In truth, though Chinese rulers deserve credit for overseeing their country’s economic miracle, the heavy hand of the state that they wield remains a serious hindrance to continued reform.
After three decades of economic reform, the state sector in China has shrunk but continues to maintain a major presence in the marketplace. The U.S.-China Economic and Security Review Commission (USCC), a congressional commission, noted in its 2011 annual report that SOEs and entities directly or indirectly controlled by the state still accounted for approximately 50 percent of China’s GDP.