The Chinese test

Last summer I signed a petition opposing protectionist policies against China convinced that the United States can only gain from the growth of other economies. Taking a look at the Chinese economic miracle, we can also gain confidence in supporting our private enterprise system against the corrosive influence of socialist ideas. A country where hundreds of millions of people were desperately poor not too long ago is expected to shortly become the second largest economy in the world. It is possible that they have done so already---there's the unavoidable lag between macro events and macro economists finding out the numbers.

Today's China is a fascinating laboratory for testing economic theories. What we have seen so far is irrefutable proof that material incentives are much more powerful in stimulating wealth creation than commissars' orders. The utilization of market forces, the withdrawal of government from telling its people what and how to produce, letting private enterprises serve their global customers and accumulate capital, setting individuals free to succeed or fail has given the common man a chance to rise above subsistence for the first time in the long history of this nation. One side effect of three decades of economic liberalization is that the Chinese are more in control of their destinies than people who live in countries with more political but fewer economic freedoms.

China is very far from utopia. It has its desperately poor people. Some industrial regions are teetering on the brink of ecological catastrophe. And there are indicators that the Chinese economy may be overheating. Have expansionary fiscal and monetary policies created a bubble that is long overdue to burst? Perhaps. If such event comes in 2010, re-regulation would not fix anything. The sooner the Communist Party relaxes its grip on the macro economy as they did on a micro level, the faster the recovery would be. The future success of China will depend mostly not on what Beijing decides to do, but on what it refrains from doing.