In addition to liberalizing capital markets, China needs to reform the rigid hukou (internal passport) system that harms migrants and impedes the efficient allocation of labor. Allowing migrants to establish individual retirement accounts would facilitate such changes. Land reform, meanwhile, would also enable many migrants to achieve a higher standard of living if they had full ownership rights to what is now collective ownership of rural land. Lease rights have been extended, but that reform isn’t sufficient to create a robust market in land rights, which depends on the right to sell. Capitalizing China’s ‘dead capital’ would immediately create new wealth for millions of rural households.
Economic reform, however, depends on political reform. The most basic change would be to continue to improve the protection of private property rights, not just by constitutional changes but also by a system of justice that’s based on individual rights. Limited government, not majoritarian democracy, is the primary requirement for a free society.
Article 13 of the Chinese Constitution, as amended in 2004, states: ‘The lawful property of citizens is inviolable.’ That reform expanded freedom, but the state still decides what is ‘lawful property’. And there’s no independent judiciary to protect property rights. Collective property rights, state ownership of banks and enterprises, and the lack of fully transferable land rights make China a socialist, not a market economy.
Depending on the power of government to ‘balance’ a complex modern economy is a risky venture, as was seen in the failure of central planning. China’s transition to a market system is still a work in progress. Reforms since 1978 have allowed millions of people to lift themselves out of poverty, but it is clear it is increased economic freedom that has produced the ‘Chinese miracle,’ not state intervention. Yet the danger now is that China is reverting to greater control over the ‘commanding heights’ of the economy, believing that fine-tuning is possible without destroying the spontaneous market process.
Wu Jinglian, a leading reformer, has warned, ‘Only by matching the rule of law with the market economy can we achieve total success.’ Harmonious development requires
that people be free to make their own choices. Chinese consumers have benefited from trade liberalization, but are harmed by the politicization of economic life, especially the lack of free markets in labor, land, and capital.
Premier Wen Jiabao has stated, ‘The society that we desire…is one in which people can achieve all round development in a free and equal environment. That is why I like Adam Smith’s Theory of Moral Sentiments very much.’ But long before Smith, the great Chinese sage Lao Tzu, emphasized the benefits of non-intervention (wu wei): When the ruler leaves people alone, they are ‘spontaneously transformed’ and ‘increase their wealth.’
Likewise, the ‘Great Historian’ Sima Qian stated: ‘When all work willingly at their trade…things will appear unsought and people will produce them without being asked.’
The idea of spontaneous order doesn’t sit well with those in power. The challenge for China is to limit the scope of government—to the protection of life, liberty, and property—and let people be free to choose. Market Taoism, not market socialism, is what China needs for a harmonious society.
James A. Dorn is vice president for academic affairs and a China analyst at the Cato Institute in Washington, DC.
Reddit
Digg
StumbleUpon
Delicious
Technorati
Yahoo
Google
Plurk
David Gibson
C. Wong – Yours is a typical domestic argument against revaluation of the Yuan, however, the “high-tech products”that you speak of are not sold to China for a variety of reasons. Many of these products are multi-use technology, which means they can be used for either civilian or military purposes. Clearly the United States do not want to just give away these types of technologies, that could be easily converted and used by the Chinese military. Secondly, because intellectual property rights protection is virtually non-existent in China, many companies are not willing to sell their products to China for fear of their products being replicated, or trade secrets being stolen and unfairly used, and thus losing that market.
Furthermore, this type of “high technology” argument does not outweigh the above described economic benefits of revaluation of the yuan achieved through an open capital account and a free floating exchange rate.
C. Wong
China is NOT a capital-poor country with a very large foreign reserve, most of which is in U.S. dollars and which cannot be spent domestically. The things that China needs cannot be bought in U.S. dollars outside China, i.e., either in Europe or in the U.S., in particular, because China needs high-tech products which countries in the West and in the U.S. do not want to sell to her.