The state legacy of China's success

SHANGHAI — When Western economists and historians analyse China’s spectacular economic transformation over the past four decades, they tend to emphasise the productivity boom unleashed by the start of market-oriented reforms in 1978. But the role of the country’s political elite as a key driver of its emergence as an economic power has remained under-examined.

This is partly because it is hard to measure the contribution of political elites to a country’s economic development. Fortunately, a new study by Tomas Casas i Klett and Guido Cozzi from the University of St. Gallen provides a useful conceptual framework for understanding the Chinese economic model. Casas and Cozzi developed the annual Elite Quality Index (EQx), which measures and ranks the value that national elites create for a country.

Much like other East Asian countries, China has relied on strong state capacity and an effective bureaucracy to foster and coordinate economic development. In the most recent Elite Quality Index, the country ranks 27th (out of 151), the highest score among upper-middle-income economies. In the study’s political power index, which measures national elites’ influence over business regulation, rule-making, and labor law, China ranked 60th.

While Chinese elites maintain a tight grip on state institutions, the index clearly recognises their enormous contribution to China’s economic development. In terms of elites’ role in income redistribution and in public security and welfare, China ranked sixth and ninth, respectively. While the report finds that elites create value for Chinese society in the political domain, China ranked 32nd in elites’ contribution to markets and economic growth.

Mainstream economic theory prevalent in the West cannot explain China’s unique growth model. China’s combination of markets and industrial policy has confounded Western observers, who overemphasise the state’s extractive tendencies and downplay its nourishing role. But the report highlights the Chinese state’s function as a driver of economic dynamism and success. In terms of “coalition dominance”, which refers to the power of insiders in the country’s political economy, China ranked 138th. At the same time, it ranked sixth in “creative destruction”, suggesting that its elite-oriented system is far better at adapting to changing external conditions than some Western economists believe.

The Schumpeterian nature of China’s political elite may baffle foreign observers. But it will not come as a surprise to people who are well-versed in the country’s long history and familiar with how the Chinese state was first formed several millennia ago. As the late Chinese-American historian Ray Huang observed, China is a politically precocious country that completed the process of becoming a modern state 1,500 years before Europe did.

Huang, along with political scientist Francis Fukuyama, was struck by the exceptionally short reigns of feudal Chinese rulers. The tiny warring kingdoms that preceded Imperial China were incapable of resisting frequent invasions from northern nomads or managing natural disasters, creating a political need for a unified government. This came in the form of China’s first emperor, Qin Shi Huang, who ruled China between 221 and 210 BC, and whose political project was to establish a powerful centralised regime.

Qin’s China was, in many respects, the antecedent to the modern state, as defined by sociologist Max Weber, with a vast, centralised bureaucracy and a well-structured tax system. Europe, by contrast, did not take its first steps toward political modernization until the fifteenth century.

But early development also had disadvantages. Whereas European merchants were able to accumulate political influence before the formation of centralised states, the Chinese regime’s consolidated power enabled it to nip such developments in the bud. That is why capitalism could not emerge in ancient China, despite its relatively modern state institutions. The result was the so-called “Great Divergence”, as Western states industrialised first and overtook China.

Following unification, China’s huge population and efficient bureaucracy allowed successive Chinese empires to experience long periods of prosperity and achieve remarkable advances in science, technology and culture. But China also sealed itself off from the world for centuries, leading to its gradual decline.

China’s experience over the past 40 years shows that economic growth goes hand in hand with integration into the global economy. That process is still ongoing, and the road ahead is long, as China ranks 80th in trade freedom and 104th in economic globalization in the EQx index. But China’s rich institutional legacy is conducive to strong economic growth, as is China’s cultural emphasis, traceable to Confucius, on education and savings.

Many countries today struggle to stimulate growth, owing to bureaucratic incompetence, regulatory capture, and rampant corruption. But China’s trajectory highlights the power of a capable, dynamic political elite to drive prosperity, as well as the danger of downplaying the crucial economic role of a strong, efficient state.

Zhang Jun, dean of the School of Economics at Fudan University, is director of the China Centre for Economic Studies, a Shanghai-based think tank. © Project Syndicate 1995 — 2022