CHINA -- An Economic Miracle. Success of Socialism or Capitalism?

  
Chairman Mao's command economy, and specifically his socialistic program called The Great Leap Forward, was an unmitigated failure.  In fact, in the 1970's China was facing mass starvation.  When Mao died, Deng Xiaoping took over.  Realizing the old model was not working, he adopted free market ideas.  Deng started experimenting modestly by allowing farmers to keep their own excess of production.  That is, once they met their modest state quotas they could keep and sell their surplus...for whatever price the market would bear.  The rest of the story is now etched in history with the biggest economic boom in recorded history.  They went from a complete basket case to a country which will be number one in GDP, surpassing the US by 2022.  As Deng said, "It doesn't matter what color a cat is as long as it catches the mice."  But isn't China still a Communist country?  Politically they are....dissidents are jailed, and the internet is censored.  But in many ways, economically they are freer than the US.

Should the US be concerned that they should lose the GDP race?  Not really.  We will still be far ahead of China in the per capita GDP stat.  In short, the standard of living for the average American will continue to far exceed that of the average Chinese citizen.

The Communist Party is still securely in power.  There are still a few state-run companies who inefficiently plod along.  But a free market based system is here to stay.  In the old Communist system foreign trade and investment were discouraged.  Now it is a virtual free for all with many foreign companies setting up manufacturing in China.  China's early growth wasn't the result of increases in education, levels of investment, or government intervention.  It was quite simply the result of the government getting out of the way and letting market forces take over.

Of course, this rapid growth which has averaged around 8% a year for the last 2 decades, has its dark side.  There has been a surge of heavy capital intensive industries which use a large amount of raw materials and energy.  Also, until recently there has not been any EPA type of organization to keep pollution in check, and the environment has suffered.  China needs a broad shift away from heavy industry and more toward domestic consumption and the providing of services.

As a result of the economic boom, vast numbers of workers are moving from rural agriculture to urban manufacturing.  In spite of this shift, because of the global demand for Chinese products, there has developed a shortage of labor.  That will bring an end to the era of cheap labor.

So what can we conclude from this economic miracle?  Was it the "War On Poverty" that propelled China? Perhaps a "New Frontier", or "Great Society", or "New Deal" social engineering type of program?  No, none of these.  It was just a change from the central command economy of socialism to a market based one that created this miracle.

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POSTSCRIPT:  China has been buying our debt for a number of years.  We've actually been playing a cruel joke on them.  We've persuaded them to send us their goods, and in exchange we give them pictures of George Washington.  If they want to redeem their bonds, we are quite willing to pay them in our currency at a depreciated rate of about 20 cents on the dollar.