A Look at the Chinese Approach to World Poverty, Inspired in Response to John Edwards's Approach

[nodular]

I believe I read somewhere that Edwards wants to help combat the spread of terrorism in the world, in part, by fighting world poverty. And I believe I read that a key part of this strategy is that he wants to create a kind of Peace Corps type group of Americans with the sole focus of helping to educate people in impoverished areas of the world.

If I got this wrong I apologize and invite corrections. I read it a little while ago, failed to bookmark it and cannot really find it now.

However, I was thinking about this and realizing that I did not think this would be a very effective way to try to combat poverty. By believe there are adequate examples from around the world showing that a good educational system alone does not have much effect on poverty.

To affect poverty, you need to create economic opportunity.

Once again, as I have in the past, I find myself considering China in this regard. China it is the most dramatic example in modern times of the country rapidly pulling itself out of poverty. When I was reading about this before I was struck by how surprised I was the "secrets" of the Chinese success.

These "secrets" are so far, in many ways from the formulas prescribed by the World Bank and other international organizations. Since recent decades have resulted in quite a bit of failure of these formulas, it makes the Chinese example even more striking. Of countries that accepted the World Bank-type prescription as well as possible and failed, many of the most notable are in South America. Of course, Russia has to be included in this list.

The basic ideas of this prescription are that she set up a free market, reduced tariffs, open up the economy, etc.

Unfortunately, I have been unable to yet track down the articles about China that I was reading in the past. However, one of the big themes was that of decentralization of government economic power. This is a rather marked contrast to the Western approach, which requires nearly pulling the government out of the economy altogether except for certain regulatory and legal types of functions.

Of course, the Chinese motivation for this type of approach was largely political rather than some type of economic genius. Another political motivation was the tremendous gradualness of reform in China, in many ways. There were many small difficult steps, trying to find the right approach.

The political conservatism of the government was, of course, the driver of this gradual reform. But it seems to me that one of the advantages of that was that it gave the Chinese a chance to look at the effect of each phase of reform and evaluate it before moving on to the next phase.

So, in a sense, the Chinese reforms ended up being more trial-and-error based and more pragmatic than the Western approach. In the West, we assume that we have poverty all figured out, and give a prescription to other countries. This hasn't worked very well. When it fails, the Westerners always point out the various imperfections in the implementation. However, all implementations are imperfect.

Because the Chinese did not assume that they understood the path to economic growth, they had to be more exploratory. They also had to give consideration to various "stakeholders" along the way. Exactly how this process managed to avoid falling into complete stagnation is still far from clear to me, but I find it quite interesting.

Below are some quotes from an article of interest on this subject but I found recently. Sorry for the lack of format in this article. for some reason, I am unable to get the HTML lookup table.



CHINA’S SOCIALIST MARKET ECONOMY:Lessons for Democratic Developing Countries! June 2006

http://216.239.51.104/search?q=cache:3mYMbSULnr8J:planningcommission.nic.in/reports/wrkpapers/wp_pc6china.doc+Secret+of+Chinese+success&hl=en&ct=clnk&cd=9&gl=us


"Within the overall structure of decentralization the degree of autonomy and nature of accountability for managers of organizations and enterprises can vary from province to province, from township (village) to township (village) within the same province. Thus appointment of the CEO by the party/govt can go along with a relatively high degree of operational autonomy for the CEO in a production firm.11 For instance, the town or village CCP boss who appoints the T&V enterprise CEO could leaves him free to maximize the growth of the firm subject to specified obligations to the village/town administration (e.g. local purchase or hiring) and/or the local party boss. Similarly the CEO of a joint Venture may be free to pursue a growth/sales maximization strategy subject to either promoting exports (with any losses covered by State loans i.e. disguised as NPAs) or below cost supply of intermediates to a foreign direct investment (FDI) investor to attract it to that area. On the other hand, the professional CEO of an investment company or bank, may have limited market autonomy, with most of his decisions vetted or reviewed by a committee of party members (formally junior to him in his and other organizations). 12


"Similarly, Town and Village Enterprises (TVEs), though (in theory) collectively owned by the workers, are subject to local govt. direction (Perkins(1988, 1994)).19 This would in practice mean that the CEO is appointed by the local party boss/ government and works under his supervision / direction within the operational autonomy given by the latter. It would be an extremely foolhardy T&V manager who could ignore the objectives and guidelines set down by the local party boss/govt! However, party appointed managers have a sphere of autonomy assigned by the CCP/govt within which they run the firm and compete in a market environment. Thus managers of county firms may maximize value added, so that they can increase the benefits (wages, perks, employment of children) to enterprise employees. This would result in competitive behavior in input/ output markets.20 As long term value added maximization is the same as growth maximization, the conflict between local and national goals is minimized. Fierce competition in product markets (both inputs and output side) is also consistent with party appointed management, given the growth objective...


"Limited reforms in ownership and operational flexibility led to remarkable improvements in output and productivity was SOEs. Xu (1997) estimates that that the labor productivity of these enterprises grew at the rate of 2.6% per annum during the period 1980-89. Among the reforms were:

1. Increasing marginal profit retention rates, on average from 11% in 1980 to 27% in 1989 (though these retained profits were subject to many constraints over use).
2. Granting firms greater autonomy over 6 main productions decisions – value and quantity of output, type of product, technology and scheduling of production, and exports.
3. Contract responsibility system, which granted managers the legal right and some discretion to operate the firm for the contracted period. 88% of the firms in the sample had a CRS contract in 1989, while almost none did in the beginning of the sample period.
4. Granting managers some discretion over exact wages paid to the employees.
5. Increasing management turnover, though any arbitrary increase in management turnover cannot per se be considered a reform, but in so far as it might have made managers more accountable, this may influence firm performance...

"Technology as a factor is largely part of the socialist system (collective ownership). There is no genuine market for technology in socialist China in the sense that individual buyers and sellers of technology can transact among themselves. In the socialist system, if any government firm acquires technology from abroad either through purchase or through a joint venture with a foreign firm, that technology could be disseminated to every government firm that needs it.31 Reverse engineering where feasible would also be viewed as part of the natural right. Even in the case of ostensibly private firms such acquired technology may be transferred to others."