Friday, September 30, 2022

Is Chinese Capitalism an oxymoron

I begin my management course by telling students how Xiaogang villagers defied their Communist rulers in 1978 by secretly instituting a system of private property.  By the time the authorities found out, it was too late as the system had already spread to neighboring villages due to its tremendous success.

China adapted and allowed the institution of private property to spread.  At the time, many people predicted China would continue to reform and they were let into the WTO. However, "...as even the most ardent defenders of China’s WTO accession now acknowledge, that did not happen." Today we are left with an integrated world with two very different systems. To explain the effect, we can use the metaphor of A/B testing:
...imagine that the Department of Justice randomly assigns half of U.S. corporations to be A-corps and half to be B-corps. For A-corps, nothing changes. But B-corps now enjoy special privileges and rules. They are exempt from laws governing intellectual-property theft. They receive more-favorable tax incentives. They are recipients of sizable subsidies, including some to buy their A-corp rivals. They are able to enlist the DOJ to win capricious legal claims against A-corp rivals.
The result of such an experiment would be dire: The best, most innovative A-corp firms would lose market share; A-corps would be loath to invest in research and development, given that B-corp rivals would be able to purloin it; and there would be massive waste as inefficient B-corp firms expanded more than market forces required. Now extrapolate that to the global economy and you get a sense of the harms the Chinese system has imposed on capitalist economies.
I did a search on all my posts in China and I came across this one from 2007: "Market Socialism" and China's new antitrust laws  in which I argued that unless China developed "... the kinds of Democratic institutions that provide checks and balances on state power," their economy could stagnate under the what i called "regulatory miasma."  It turns out that, I needed the caveat I closed with:
But China's oxymoronic "socialist market economy" has surprised us before. In the words of Deng Xiaoping, "I don't care if the cat is black or white as long as it can catch mice."

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