Book Review: China’s Trapped Transition
By This is the sixth of an eight (but probably just seven) part review series of the Patterson Summer Reading List.
1. Colossus, Niall Ferguson
2. Illicit, Moises Naim
3. The End of Poverty, Jeffrey Sachs
4. The World is Flat, Thomas Friedman
5. The Persian Puzzle, Kenneth Pollack
6. George Packer, The Assassin’s Gate
7. Minxin Pei, China’s Trapped Transition
Predicting the end of China’s economic boom is a project somewhat akin to predicting the collapse of the Braves dynasty; it has to end at some point, but there’s a lot of time for people to be wrong.China’s Trapped Transition by Minxin Pei argues that, indeed, the People’s Republic of China is running up against hard constraints on its growth, and that the PRC will shortly begin to face a severe economic crisis. The prediction is bold but at the same time of one with many other arguments on a Chinese economic collapse. So many have predicted such an outcome that one will be in good company whether or not the prognostication is correct.
Pei argues that the gradualist mode of economic transition inevitably runs into difficulties when combined with an authoritarian mode of government. The dynamics of such transitions create opportunities for the central government and government officials to pursue rents that are inimical to economic development. In short, it is impossible for an authoritarian government to create long term economic growth through a gradualist strategy. At the same time, Pei points out that quicker developmental strategies undermine the grip of an authoritarian government on society. We are left to conclude that it is difficult to impossible for a government to pursue market economic reforms without accompanying political reforms.
The argument is well constructed as far as it goes, and Pei makes a compelling case that some elements of the authoritarian state run directly contrary to prolonged economic development. Pei’s research is outstanding, and his theoretical position firm. However, two major questions stand out. First, how has China thus far managed to maintain economic growth without political reform, and why should we believe that now is the time that the two factors will clash? Second, how useful is this argument if an authoritarian state cannot, as Pei argues, remain in power by pursuing a rapid marketizing strategy?
China’s growth rate will eventually wane. Pei’s problem is to demonstrate that it will wane in the near term for the reasons he believes. Pei argues that the CCP is moving from a developmental to a predatory state, one that will dissipate any economic gains and leave China without a substantially greater economic pie. Examining the grain, telecom, and banking sectors, Pei tries to demonstrate that the interference of state officials has severely constrained growth. He does a decent job of arguing that interference in the banking sector forbodes severe growth problems in the future. His argument about grain and the telecom industry is much less compelling, as he can show that interference may have slowed growth, but not that it has reversed it or caused significant economic damage. From Pei’s account, it seems to me that the CCP has muddled through thirty-five years of economic reforms, but he doesn’t show conclusively that it will fail to continue to muddle through. He can’t tell us why the perversities created by the coexistence of an authoritarian state and a market economy will stop economic growth now, rather than ten years ago or ten years in the future.
Gradualism thus far has been a brilliant success for the CCP, because it has been able to achieve consistent economic growth without giving up substantial power. If Pei is to be believed, and China’s future growth will be severely constrained, then the CCP will be in trouble. However, if Pei is correct that swift reforms invariably undermine authoritarian regimes, then we have a quandry. It’s hardly surprising, given the latter, that the CCP has chosen a gradualist strategy. The policy value of Pei’s argument comes not for the CCP (it is entirely useless to tell the CCP that it needs to reform politically to spur economic development when the CCP clearly cares more about political power than development) but rather for Western countries and NGOs that might deal with market and political transitions in the future. Still, the argument runs up against the problem of what has been China’s remarkably successful employment of the gradualist strategy thus far; what Pei describes as failure looks very, very good.
I’m uncompelled by the argument that the CCP cannot continue to muddle through. Economic reforms thus far have been iterative; when a particular strategy fails, new strategies are tried. The reform process has not been static. Corruption in China is obviously bad, but the corruption problem also offers the center a useful narrative and legal tool for keeping the rest of the party in line. Nevertheless, Pei’s analysis is solid and serious, and he may in the end be vindicated by events.