0.2 Historic perspectives: economic and population growth  (Page 4/10)

In the early 1980s, Deng Xiaoping, then almost 80, wanted China to get on with building the economy and avoid ideological battles. He wanted the economy to save the communist party. It has, at least through 2014.

Why was China’s economic performance in the nearly five centuries after 1400 so dreadful? And why has economic performance been so spectacular since the early 80s? And can China’s spectacular growth continue after 2014?

To approach an answer to these questions, consider key features of the economy in the period: 1400-1980

1. Suppression of technology
2. Severe lack of savings and physical capital accumulation
3. Absence of competition, domestically or from abroad (isolation)
4. Lack of investment in Human Capital (education, public health)
5. Perverse institutions (feudalism 1400 to 1947, then doctrinaire Communism followed from 1950-1982 An exhaustive account of the role of perverse institutions impeding China’s growth after 1800 may be found in Loren Brandt, Debin Ma&Thomas G. Rawski (2014), "From Divergence to Convergence: The History Behind China’s Economic Boom", Journal of Economic Literature , 52(1): 45-123.

What accounts for the sharp turnaround in China’s economic fortunes after 1982?

One could argue that much of the explosion in Chinese economic growth since then can be explained by a near reversal of these factors.

1. New technologies were eagerly embraced, especially imported technologies
2. Very high saving rates: 40% of GDP in the early 21 ^st century leading to rapid capital accumulation
3. Some opening to competition from abroad, through foreign investment
4. Expanded investment in human capital, especially since 1970 - especially notable is the very high literacy rate. Indeed, the youth literacy rate is 99% as compared to only 81% in India.

It is important to keep China’s very recent rapid growth in perspective. Real rates of economic growth (9-10% per year) have indeed been very high, but from a very low base (one twenty-sixth of the U.S. base in 1968). Also consider the “catch-up” factor: centuries of stagnation before 1968 meant that there was a lot of growth required just to begin to catch up to the industrial West.

In any case, economists and historians will be arguing for decades to come over the relative importance of these and other factors in explaining Chinese economic growth since 1980.

However, some signs are beginning to appear of slowing prospects for Chinese growth, including environmental pollution and other reasons such as the burden of a very large and inefficient state-owned enterprise sector.

Postscript on chinese economic history

Karl Marx, in Das Kapital , viewed capitalism as an essential phase in social progress. But capitalism was to him only a phase in a gradual societal transformation to socialism and thence to full communism.

History so far has not worked out this way, certainly not in Russia or China. But the Chinese experience over 500 years does suggest perhaps socialism (or communism) may in some cases be an essential phase in the transition of societies from feudalism to state capitalism (heavy reliance on state-owned enterprises, government credit).