Monday, February 20, 2012

The Paradox of Prosperity

Base article: this

Twenty years ago, China was in a precarious economic condition. The Tiananmen Square massacre, which had followed protest marches by civilians, in 1989 had led to China being shunned by most of the world. The political ideology of the Communist Party seemed to be gasping for survival. However, in 1992, Deng Xiaoping started the economic reforms of the country, which led to the most dramatic economic improvement ever recorded in world history, and this remarkable economic success also proved to be a lifeline for the Communist Party.

China's growth model of tight political control combined with market reform served it well. The average growth rate over the last 20 years has been over 10% and about 440 million people have lifted themselves out of poverty. This is the largest reduction of poverty ever seen by any part of the world.

However, this growth story is not likely to continue ad infinitum. In fact, the Chinese economy and society is already facing challenges:

1. China's growth has been mainly fueled by investment and exports. However, the current worldwide economic downturn means that China will have to focus increasingly on domestic consumption to maintain its production levels. And, domestic consumption can be given a fillip only when the workers have more autonomy in spending their hard-earned cash. Currently, a large proportion of workers' savings are shoveled into state-run institutions. The Chinese government would have to let go of this authoritarian management of its peoples' money.

2. Also, resentment and unrest is growing among civilians over growing corruption and incidences of land grab by authorities. Relentless industrialization is damaging the ecosystem. Many people feel excluded from the growth-pie. The leaders of the Communist Party instinctively take this growing unrest as a proof of the dangers of liberalization. However, they should remember that brutally suppressing the concerns of citizens is not a wise policy for a government in times where internet provides a means for large-scale and quick communication among them.

So, the lesson that the Communist Party would do good to learn is that it should learn to let go of some of the rigid controls it has exercised on the Chinese economy and society till now. It should remember that those who cling to absolute power are usually end up with none.