The Political-economic Design of Chinese Administration: Chinese Development Beyond the State vs. Market Doctrine

Sebastian Fleury

Student thesis: Master thesis

Abstract

In this paper, I move beyond the conventional ‘state vs. market’ doctrine in explaining China’s economic development success since 1978. I start off by outlining mainstream views of the two most prominent schools of thought, namely the institutionalist and the developmentalist one, emphasizing the role of the market (in providing incentives and stimulating competition through privatization and ‘opening up’ processes as well as, to some extent, the fixing of market failures) and the role of the state (in replacing, relatively speaking, lower with higher value-added activities, from farming to, roughly speaking, assembling and manufacturing, through selective industrial policies) respectively. In conclude that section by noting that various developing countries following both the neoliberal and the developmentalist prescriptions have failed in achieving Chinese-style growth, and that there might be more to the story, if this is not just ‘random statistical error’. Inspired by existing theories and within Chinese area studies and the development literature in general, I then propose that while the ‘free market’ and the ‘picking winners’ both might hold some explanatory power (the individual-oriented ‘Household Responsibility System’, that replaced collective farming, for instance, certainly increased farming productivity and released labor resources for the manufacturing industry, and the selective industrial policies was, if not actually successful, at least not overly harmful to growth, perhaps because they mainly were aimed at industries within China’s comparative advantage anyways), the whole foundation for China’s economic development success was actually laid by its political administration, which has achieved simultaneous (a) highly competent leadership, (b) competitive business environments and (c) very effective government through a combination of (1) China’s merit-based official promotion system, (2) China’s fiscal decentralization system and (3) China’s unchecked, autonomous government. The merit-based official promotion system, ideally, filters Chinese officials from their results, such as economic performance of their administrative units, and thereby attracts as well selects the ‘right’ leaders through a competitive ‘tournament’ system. Corruption has been a problem, but seems not reserved to authoritarian regimes, rather to lowly developed countries, and in any case it would, returning to 1978, arguably be a better alternative than placing the faith of the nation in the hands of a poorly educated farmer population. The fiscal decentralization system gave local governments a chance to increase their revenue bases (by the central government scaling down fixed, planned transfers to local governments, instead letting them retain a larger share of the local taxes collected), providing incentives for local officials to develop the local economies, especially by improving investment environments to attract more private business. China’s unchecked, autonomous government has allowed the central government to pursue its desired policy direction without any significant interference from political opposition, other branches of power or interest groups. These three factors are not only mutually complementary but also strengthening (and thereby possibly dependent/contignent), since a local offical, for instance, has little incentive to improve his/her local business environment (factor ‘2’: fiscal decentralization), if officials are not incentivized vertically, by competitive promotion tournaments (factor ‘1’), in the first place. On the other hand, since local officials are also in competition across same-level units to, for instance, national-level offices, the horizontal (across units) and vertical (between officials) competition actually strengthens each other. There are more examples of such inter-dimensional effects. Lastly, I discuss implications for other developing countries, including democracies, such as how to curb negative effects of, for instance, interest groups and voter biases, and I discuss the potential cultural contingencies of China’s political administration – and its meritocratic, autonomous nature – such as the authoritarian orientation of Chinese culture, likely stemming from Confucianism.

EducationsMSc in International Business and Politics, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages61