Economic Relief for Political Absolutism

Tuesday, January 31, 2012
Here's the reality of the China model that Cuba "experts" extol -- it's simply a means for the Castro regime to survive its current political crisis through economic "reforms" ("relief")

From Financial Times:

As China marks the 20th anniversary of Deng’s history-changing tour, the most ironic fact – and perhaps China’s worst-kept secret – is that pro-market economic reform in China has been dead for some time. [...]

Because of its powerful investment-driven growth momentum, China has managed to keep economic growth high in spite of the lack of reform for a decade. Of course, the country has paid a huge price, such as huge structural imbalances, chronic inefficiency and poor sustainability.

One may be tempted to blame leadership failure for the premature demise of China’s reform. While this is certainly a cause, a far more critical factor is more responsible: the CCP’s political objective of reform is fundamentally incompatible with a market economy.

No one understood why China needed to reform its economy better than Deng himself. In 1992, as in 1978, He knew that only market-oriented reforms could save the CCP. Although Deng was sure about the political objective of his reforms, he never explicitly endorsed a capitalist market economy as the end goal. Here lies the fundamental flaw of China’s reform project: as long as pro-market reforms are used as a means to preserve the political monopoly of the CCP, such reforms are doomed to fail.

First, since reform is crisis-driven, its achievements are bound to, paradoxically, reduce the pressure for continuing the reform. The moment the CCP’s rule is more secure due to improved economic performance, its ruling elites would lose incentives for further reform. That is why during the previous decade we observed the phenomenon of growth without reform.

Second, the CCP is no ordinary ruling party. It is a sprawling political patronage system filled with self-interested individuals eager to cash in their political investments. The conversion of political power into economic privileges and profits is far easier in an economy heavily controlled by the state than in a more market-oriented one. As a result, the interests of the ruling elites are in conflict with the imperatives of market reforms. Seen from the opposite angle, this logic illuminates the systemic cause of China’s “crony compitalism” – the marriage of power and wealth is made possible only when a post-communist autocracy is in charge of a half-reformed economy.