There are many explanations about how China became rich and powerful. One of the best books on China’s transformation is “How China Became Capitalist” by Ronald Coase, winner of the Nobel Memorial Prize in Economic Sciences in 1991, and Ning Wang (published in 2012). From its introduction:
How China Became Capitalist details the extraordinary, and often unanticipated, journey that China has taken over the past thirty five years in transforming itself from a closed agrarian socialist economy to an indomitable economic force in the international arena. The authors revitalise the debate around the rise of the Chinese economy through the use of primary sources, persuasively arguing that the reforms implemented by the Chinese leaders did not represent a concerted attempt to create a capitalist economy, and that it was ‘marginal revolutions’ that introduced the market and entrepreneurship back to China. Lessons from the West were guided by the traditional Chinese principle of ‘seeking truth from facts’. By turning to capitalism, China re-embraced her own cultural roots.
I want to focus on what I think is the single biggest determinant of why countries prosper or flounder: political leadership.
Consider China in the late 1970s. Battered by Mao’s Great Leap Forward and the Cultural Revolution. Communism, famines and government action has killed tens of millions. And then Mao dies. A new leader emerges. Deng Xiaoping. He begins the process of transforming China. Step by step. He sees a future very different from China’s past. He lays the foundation for a rich China. Which in turn creates a powerful China.
What does Deng Xiaoping do? Many things. Deng junks the old policies that kept the Chinese poor. He opens up the Chinese economy to foreign investment in manufacturing. The Chinese people respond. And so does the world. Manufacturing shifts to China. That creates jobs and lifts hundreds of millions out of poverty. It lays the foundation for China’s military prowess as China becomes prosperous.
Rarely is economic change bottom-up. People can overthrow governments but cannot create prosperity. For that, there needs to be a leader who overturns policies that had kept people poor. (In the case of the US, leaders like James Madison, Alexander Hamilton along with others crafted the rules via the American Constitution in 1789 that created the conditions for growth and prosperity.) Deng was that leader for China.
And what were India’s leaders doing while China was booming? They were keeping Indians poor.
Tomorrow: Why China Can Kill and India Cannot (Part 3)
