China: A new economic model for the developing world – or should developing nations discover there own model from learning by doing?
Branko Milanović is an economist specialised in development and inequality. His newest book is “Capitalism, Alone: The Future of the System That Rules the World”
Cross-posted from Branko’s blog Global Inequality
In 1967, at the half-centennial of the Russian Revolution, the Royal Institute of international Affairs (RIIA) in London published a book “The Impact of the Russian Revolution” with a star cast of authors. The book’s objective was to assess how internationally influential was the Russian Revolution. A very long and brilliant introduction was written by Arnold Toynbee. Neil McInnes wrote about the Soviet influence on trade unions and political parties in Western Europe, Hugh Seton-Watson on nationalism and imperialism, Peter Wiles on economic influence of the Soviet model, and Richard Lowenthal on the political (authoritarian party) influence of the Bolsheviks.
It does not seem that being published by RIIA was unrelated to some of the themes running through the book. Several authors (including Toynbee) tend to regard the communist ideology, the modified Marxism as defined by Lenin, as a particularly mischievous trick whereby Russians were able to appeal to the colonized nations of the world and bring the British Empire to an end. The Russian Revolution is seen as an episode of the Great Game. As Toynbee writes: “Marxism affected the mood of the non-western peoples when these were ripe for revolting against the western dominance. It is a creed of western origin that indicts the western establishment. It is thus able to express their will to revolt against the West in terms that, being western, have prestige”.
Although the authors seem melancholic about the outcome (the British Empire being, In their view, a preferred option to independence), they do have a case. Lenin’s reconfiguration of Marxism to combine left-wing policies with anti-imperialism, including the alliance with national bourgeoisies, so long as they were anti-colonialist, was probably one of the most important events in the 20th century (a century not lacking in important events). The discussion of the relationship between the original Marxism, its modification by Lenin, Lenin’s “Imperialism: the Highest Stage of Capitalism” and the role of China—as the most important country where communism, beginning in the 1920s, played its anti-imperialist card both with the Kuomintang and the Communist Party of China—is present in all five contributions.
The level of that discussion, as well as of the others, is very high. Hugh Seton-Watson, a renowned student of nationalism, has an excellent chapter on Marxist approach to the “nationality question” and how it was “solved” (as we know now, through dissolution of the countries) in the Soviet Union and Yugoslavia. Peter Wiles, who likewise had studied communist economies for years, has a first-rate, if whimsical, chapter (which I will discuss below). Richard Lowenthal discusses the model of the Leninist totalitarian state. Neil McInnes’ chapter on the Soviet influence on Western European politics is well informed but marred by his excessive anti-communist zeal. A Soviet is being seen under every bed, a nefarious hand of secret agents present in every strike.
I would like to cover in greater detail Peter Wiles’ economics chapter. Let me start with his most interesting point. Overall, Wiles argues, Soviet influence was very limited and the main reason is not that the product was badly “packaged” (the main lines of the economic “product”—nationalize, centralize, plan—were very clear) but that “the salesmanship” was dishonest: those who wanted to apply the Soviet model were not told by the Soviets what were the real pitfalls and problems, things to beware and fix, but were presented a sanitized version of events that was not helpful at all. Contrasting American and Soviet influence in the Third World, in a language that may be considered somewhat ribald in a more puritan world of today, Wiles (I think rightly) summarizes it thus:
[The Soviet technician] keeps himself apart after hours, haunts his own embassy, and generally fails to enter into the spirit of things. His descriptions of the life back home are constrained and peculiar. Compared with the drunken, bottom-pinching, tax-dodging, and perhaps racist American technician, his behaviour is faultless, and this is just what is wrong.
Where, according to Wiles, Soviet experience did have an influence was in placing economic growth at the forefront, not only through the first-ever macro models of growth that were developed in the Soviet Union, but because success in growth informed the competition between the two systems.
Wiles then reviews several concrete policy experiences as to study the extent to which Soviet example mattered. The most important influence was on Mexico, on Lazaro Cardenas’s agricultural cooperatives (ejidos) that mimicked Soviet kolkhozes even if their importance was always small: at the time of writing, only 4% of agricultural labour force worked in collectivized ejidos. The complicated relationship between Cardenas and the Soviet Union is nicely analysed—including such interesting, and rather unlikely, details that Cardenas managed to be Trotsky’s protector, to condemn Soviet attack on Finland in 1940, and then to become the laureate of the Stalin Prize in 1956 (under Khrushchev).
The second example of the Soviet influence is on UK nationalizations after the War. Physical target planning by Labour in 1946-47 is seen as directly following the Soviet model. As Wiles writes: “The choice of things to nationalize—coal, iron and steel, railways, the central bank, gas and electricity, much of road transport—resembles strongly Lenin’s choice in 1917 (not [emphasis in the original] the wholesale nationalizations of 1918)”. However that influence quickly waned because the use of physical targets proved inefficient.
The next case is India. The point in case is the famous First Five-Year plan and the use of Marx’s schemes of extended reproduction and his two-sector model (production of the means of production, and of consumption goods). That influence came through a common, both to the early Soviet planners and people around Mahalanobis, interest in economic growth as a way to catch-up, and most effectively to do so through investment in production of the means of production. Other international influences however were more important: Charles Bettelheim, Ragnar Frisch, R. M. Goodwin, and Oskar Lange.
The next two cases (Ghana under Nkrumah and Guinea under Sekou Touré) are not taken very seriously, the Soviet conditions being substantially different from those in Africa. “The economy [in Ghana] just ran on as it had under British rule, with much more government expenditure and corruption, and rather more nationalization”.
Wiles’ discussion of the Soviet influence (fifty years after the Revolution) is instructive not only for historical reasons—especially now when the Soviet Union no longer exists and Russia is capitalist, but because it helps us think about the potential Chinese influence. The main problem faced by Chinese “export” of its model to the rest of the world is, as I argued in “Capitalism, Alone”, the difficulty of “packaging” it into several simple and mutually-reinforcing policies. The reason for that is that the model was developed heuristically, by trial-and-error and reflects specific Chinese conditions that are difficult to replicate elsewhere. To see that compare (whatever you think of it) the simplicity and internal logic of the Washington Consensus to any possible policy combination suggested by the Chinese experience. To say that the state should have a greater role in the control of credit or that it should stimulate ICTs does not really tell to (say) Tanzanian government anything new nor does it explain how it should do it.
China might have benefited from its experimental approach where reforms were tested in different areas (e.g., dual-track pricing policy) or different territorial units, but that was made possible by the size of the country and at the same time ability of the Party to keep centralized control. This is what Chenggang Xu called “Regionally Decentralized Authoritarianism”. But how can Laos, Egypt, Paraguay or Serbia apply such an approach? It is not at all clear. So far only Ethiopia seemed to have benefited from Chinese experience. If China plans to “export” its model, the way that the USA and the Soviet Union did, she needs to define it in a way that, at least in principle, may be applicable under very different conditions.
It is here that we encounter the main difference between the Soviet Union then and China today. The peak of Soviet influence was from the late 1940s to the early 1960s. The model was consistent, but the sellers were dishonest (as argued by Wiles). After around 1965, it became obvious that the product itself was deficient, so the demand declined. For China, however, we all observe that the product works. But we do not fully know why, nor how to apply it elsewhere. And the seller is not really telling us much as he insists on “Chinese specificities”. So long as one puts “Chinese” first, and not “general”, the model may be admired, but it will not be imitated.