Chinese Consumers and Fresh Apples

Chinese Economic Growth

Mar 17, 2012 • Developing Economies, Economic History, Economic Thinkers, International Trade and Finance, Macroeconomic Measurement, Uncategorized • 291 Views    No Comments

Our story ends with the recent 2030 Word Bank Report on Chinese economic growth. But we have to start with sunflower seeds.

There once was a poor Chinese farmer who believed he could excel at nothing but sunflower seeds. Traditionally sold in stores, in bulk with other types of nuts, sunflower seeds had been nothing unusual. But then calling them Idiot’s Seeds, the farmer, Mr. Nian stir-fried, salted, and packaged them. And soon, during the 1980s, millions of people in China were munching Idiot’s Seeds as they watched TV or played cards.

In Capitalism With Chinese Characteristics, an M.I.T. scholar uses Mr. Nian as an example of the prototypical 1980s Chinese entrepreneur. Saying that entrepreneurs like Mr. Nian initially fueled Chinese economic growth, he then takes the reader to the 1990s when SOEs (state owned enterprises) become dominant. Yes, he says, the GDP still grew but a closer look reveals that the impact on the population was harmful with education and income suffering.

Now, with China 2030, we see how important it will be for the Chinese economy again to “rebalance” the role of government in order to sustain economic growth. There are 3 versions of the report: an executive summary with 3 pages, a longer summary with 73, and then the entire 438 page report. All take us to the 6 strategic policy areas that need to change.

Here, econlife looks at China’s SOEs.

The Economic Lesson

In Good Capitalism Bad Capitalism, economists Baumol, Litan and Schramm name 4 categories (pp. 60-61) of capitalism:

  • “state-guided” where government dominates
  • “oligarchic” where small groups have power and affluence
  • “big-firm capitalism” dominated by giant enterprise
  • “entrepreneurial capitalism” with innovation from small firms the dominant force

When China 2030 talks about rebalancing the Chinese economy, they are referring to a state-guided capitalism that needs more so to emphasize entrepreneurial capitalism.

An Economic Question: Thinking of Adam Smith, is state-guided capitalism really a market economy?

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