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Christopher Lingle is visiting professor of economics in ESEADE at Universidad Francisco Marroquín.

China, like other countries undergoing radical transition, must resolve the political and economic issues that determine its pattern of future development. The search for a workable model has often led to the conclusion that authoritarian rule may be a “necessary evil” as a means for speedy economic development. In this sense, the tradeoff between political freedom and economic prosperity is portrayed as a cruel choice.

Beijing continues to pursue a “dictatorship of the proletariat,” obsessed with power that threatens its own economic vitality. Several outcomes of this tradeoff involve collateral damage that is felt in Hong Kong and contributes to instability in Taiwan.

The implied tradeoff between rapid economic growth and political freedom suggests that democracies are at a disadvantage relative to authoritarian or even totalitarian regimes during the transition process. While economic freedom may be required for development of political freedom, the reverse may not be true.

In fact, not only may political freedom not be necessary for economic development; indeed, it may perhaps be an obstruction to economic progress. Reasons cited include the formation of powerful interest groups that demand redistributive policies which reduce long-term economic growth.

Thus it is widely believed that a continuation of its authoritarian regime can more readily ensure rapid economic progress for China. Presumably, that would be accomplished through the extraction and disposition of savings from a relatively pliant population.

However, there are compelling counter-examples that exist in the real world. Numerous authoritarian regimes exhibit little or no economic success, such as Cuba, Zimbabwe, Burma, Bangladesh, Pakistan, Afghanistan, Iraq, and Iran. Thus neither the imposition of authoritarian rule nor repression constitutes a necessary or sufficient condition for economic growth.

In sum, the visible hand of the interventionist state does not guarantee successful economic development. Policymakers are as fallible as the private decision-makers they seek to replace. This fallibility is to be expected regardless of whether the guiding principles are based on ideology, like communism, or paternalism influenced by Confucianism.

Competitive capitalism joined by a limited democracy can be seen to provide better incentives than authoritarianism through the wider disbursement of a direct personal stake in economic development. Access to personal rewards from involvement in the making of wealth is the source of a strong motivation for individual effort.

Increased productivity arising from the incentive structures of liberal capitalism would offset the presumed advantages of coerced accumulation under China’s perverse system of “market socialism.”

Of particular interest are the evolving characteristics and role of real entrepreneurs in China. Their growth-promoting innovations go beyond the seizing of opportunities to “buy low, sell high” and to rely on political contacts. True entrepreneurs are by their nature iconoclastic and contrarian; they tend to challenge the status quo, whether the competitive structure of a market or entrenched authority. They oppose government policies that obstruct attempts to expand their economic fortunes. Authoritarian regimes try to control economic activities, often by constructing “entrepreneurs” through the offer of special privileges to cronies. However, only real entrepreneurs generate growth. Their politically created cousins are most interested in restricting competition and in maintaining various aspects of the status quo.

Liberal capitalism also provides the poor with the freedom of social and economic mobility as a means for self-empowerment. Clearly, the middle class is not the only social segment to have a vested interest in promoting greater liberalization of the economy and polity.

Obedient Bureaucrats

Alternatively, China’s Leninist system continues to depend on obedient bureaucrats and party cadres that interact with select business interests and other sycophants of the regime. Such an approach to governing bears more striking similarities to fascism than it does to capitalism. Given the frustration in China over current economic problems, it should be clear that “market socialism” is not working.

China’s ongoing economic malaise (chronic deflation and uneven growth) is symptomatic of the long-run effects of the gradualist approach to its economic transition policy. As in most authoritarian regimes, the primary purpose of Beijing’s extensive controls over the economy is to maintain and to protect the existing structure of entrenched political and economic interests.

Somehow the abject failures of central planning were not lesson enough to convince Beijing’s technocrats that such controls are counterproductive.

In the end, short-run gains to countries whose leaders opt for the cruel choice of imposing the repressive hand of government intervention will be offset by unintended long-run costs. The economic costs of stunted growth potential will be accompanied by additional social and political costs. At some point China’s government must shed its materialist bias and acknowledge that a measure of the national standard of living includes such abstractions as individual freedoms and rights. Not the least of these, of course, are the rights of religious freedom and freedom of conscience.

Survival and success in the emerging open and highly competitive international economic order require flexible institutions and innovative, risk-taking entrepreneurs. China’s experiment with authoritarian capitalism is unlikely to meet these requirements.

One of the lessons of the Asian financial crisis is that in the attempt to trade political freedom for rapid economic growth, short-run gains mask long-run losses. In China, the cruel realities of the long run are coming into sharper focus sooner than most leaders in Beijing would have liked.

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