Thoughts on Economic Development in China

Ma Ying, Hans-Michael Trautwein, Ma Ying, Hans-Michael Trautwein

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135075897
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

This book is about mutual influences of thinking about economic development in China and in the West, from the 18th century until the present. Its chapters are contributed by development economists and historians of thought from China and other parts of the world.

The book describes important stages in the evolution, cross-fertilization and contextual modification of ideas about economic order, development and institutional change. It illustrates how Western concepts and theories have been adopted and adapted to Chinese conditions in different waves of modernization from the late 19th century until the present and that this was and is no one-way traffic. The book examines to what extent pre-classical thinking in the West, in particular French Physiocracy in mid-18th century, was influenced by China as an ideal and a source of ideas, at a time when China was the largest and most advanced economy in the world. It discusses to what extent different approaches of modern Western-style economics, in particular in the fields of development economics and institutional economics, can be used to understand the rapid transitions and developments of the Chinese economy in recent decades, and to what extent they need to be modified in the light of new experiences and insights. Against this background, several contributions to the volume provide assessments of the current state of economic science and teaching in China, in particular with regard to Chinese views on Western economics.

The book should be of interest to those who are interested in the economic history of China.

1
Introduction

Ying Ma and Hans-Michael Trautwein¹

The economic development of China in recent decades has been one of the most extraordinary experiences in modern times. Since implementing market-oriented reforms and opening up to foreign trade and investment in 1979, the People’s Republic of China (PRC) has seen its real gross domestic product (GDP) expand by an annual average growth rate of nearly ten per cent (at least until 2011). A period of such length and strength of economic growth is unprecedented in the international records of national accounting, if not in global economic history. Within 30 years China has developed from a peripheral, inward-looking low-income country to a world economic power – second in its GDP only to the USA, and first in exports of merchandize. Its trade to GDP ratio of about 50 per cent is extraordinarily high for an economy of this size. Fast growth has greatly reduced the share of the population living under the poverty line, and it has raised living standards in the booming regions. In some of them (Beijing, Shanghai, and Tianjin), per capita income has now reached the levels of high-income countries.

Such rapid change in the economy has certainly not come without social and environmental problems. Per capita income in the poorest regions ranges between 20 and 25 per cent of the values for the richest regions, and the Gini coefficient, as a measure of overall income inequality in Chinese society, has risen from about 0.33 in 1980 to about 0.47 in 2007. Even if the reformer Deng Xiaoping had argued (in accordance with the famous ‘inverted U’ hypothesis of the Kuznets curve) that, in the course of economic development, one should let some areas and some people get rich first, a Gini coefficient of almost 0.5 is extreme even by international standards. The problem is not just social inequality, but also a lack of social security for a large part of the population. Furthermore it remains to be seen whether China is on an environmental Kuznets curve where the rise in per capita income may help to reduce pollution, rather than vice versa.

On the whole, however, economic development in China is seen as a success story. It is remarkable also because fast growth has come with relatively little change in the formal institutions and perhaps even less in the informal institutions. It was not based on any ‘Big Bang’ experiments, and certainly not on Western standard prescriptions for development policy, but on a gradual and winding transition from a closed and centrally planned economy to an open market economy.

Given these facts, it is not surprising that there are many debates about economic development in China, both in the country and in the rest of the world. Along with the transition to a market economy, market-oriented ‘Western economics’ has been introduced to Chinese academia, where teaching and research in this discipline now coexists with the incumbent ‘Political Economy’ (which, with its Marxist origins, is also based on Western ideas). However, it appears to be difficult to capture the essential features and dynamics of China’s economic development within the standard frameworks of ‘Western’ mainstream economics. While those frameworks are adopted in research to catch up with the international frontiers of higher education and research, many scholars in China and elsewhere see the need to adapt them to the essential explananda of economic development, including its ‘Chinese characteristics’ – and if that is not possible: to develop different, less orthodox frameworks of analysis (see, e.g., Jefferson 2008, Lin 2009, Xu 2011).

At the same time, there is an increasing interest in China’s history prior to the foundation of the PRC. The recent ascent to a leading economy has prompted retrospectives of the long era before the mid-eighteenth century, when China was technologically and economically more advanced than any other region in the world. These retrospectives have brought to the foreground again that thoughts about economic development, too, were quite advanced and sophisticated in ancient China. A famous example is the book Guan zi (管子), which summarized the teachings of Guan Zhong (c. 720–645 BC), the prime minister of the state of Qi in the Spring and Autumn Period. It is arguably one of the world’s oldest texts about economic matters, mixed with political and philosophical essays. Its insights about welfare maximization by price level stabilization, market regulation, government monopolies, and combinations of agricultural and commercial policies make it “one of the best economic treatises in ancient China” (Chang 1987: 487; for a translation of Guan zi see Rickett 1985 and 1998).

Economic thinking did not develop into a distinct academic discipline in China before the twentieth century. In ancient China, as in other parts of the world, reflections on economic development were mostly embedded in more general philosophical and political treatises. Yet, it is well known that Voltaire and other European Enlightenment thinkers in the eighteenth century referred positively to Confucian ideas (see, e.g., Lottes 1991). When in the same era Western economic discourses developed into a distinct discipline of thinking about markets and the state policies, French Physiocrats praised China as a role model for economic development. Other economists, such as the key figure of classical Political Economy, Adam Smith, observed that China, which “has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous, countries in the world … seems to have been long stationary” (Smith [1776] 1904: I.8.24). At the time of Smith’s writing, China’s economy had indeed stagnated after centuries of self-chosen ‘splendid isolation’, and was soon to be overtaken by the expanding market economies of industrializing Western Europe. It has nevertheless been argued that, through Physiocracy, the influence of Chinese ideas “on the history of Western economic thought was much more important than the influence of doctrines of Rome or of ideas of Christianity” (Tang 1936: 366).

Such claims to Chinese roots in Western economics became popular when the latter made its first impact on Chinese academia in the first era of reforms and opening-up. This happened in the late nineteenth and early twentieth centuries, when the rule of the Qing Dynasty, and with it Imperial China, came to an end and the Republic of China was established. Meeting the challenges of modernization and Westernization of China’s society and economy, the early twentieth century was a time of intensive reflection on Chinese traditions and their relations to modernity. Western economic texts were translated into Chinese language and ancient Chinese texts on economic matters were rediscovered, reedited and commented. Numerous efforts were made, in a variety of approaches from different backgrounds, to understand and transfer the essential concepts across the cultural divides in space (between China and the West) and time (between ancient and modern China). It was discussed in how far Western economic thoughts about economic development need to be adopted, and in how far they need to be adapted to the situation in China.

Similar challenges in the current era of reform and opening-up have reawakened interest in the experiences made in the prior era. It is in this spirit that the book at hand presents 15 contributions to research on thoughts about economic development in China. They are a qualified selection of papers, written by historians of thought and development economists from China and other parts of the world. The papers were presented and discussed at a conference that was jointly organized by the European Society of the History of Economic Thought, the Society for the Chinese History of Economic Thought, the Chinese Society of Development Economics and the Centre of Economic Development Research at Wuhan University, hosted by the latter in October 2010. They describe important stages in the evolution, cross-fertilization and contextual modification of ideas about economic development and institutional change in China and the West. They help to understand how Western concepts and theories have been adopted and adapted to Chinese conditions in the two eras of opening-up. It is discussed to what extent different approaches of classical and modern Western-style economics can be used to understand the rapid transitions and developments of the Chinese economy in recent decades, and to what extent they may need to be modified in the light of new experiences and insights. Against this background, several contributions provide assessments of the current state of economic science and teaching in China, in particular with regard to Chinese views on Western economics. Discussing thoughts on economic development, this volume is thus also a book about the development of economics in China.

The chapters of the book follow a chronological order, beginning with the question of how far early Western economists were borrowing ideas from China. In chapter 2 Stefan Gaarsmand Jacobsen traces the diffusion of knowledge about China’s political and economic order in seventeenth and eighteenth-century Europe and identifies the sources (reports, translations of Chinese classics, etc.) that inspired thinkers in the schools of Physiocracy and classical Political Economy. Jacobsen sets the focus on François Quesnay’s Despotisme de la Chine (1767) as a remarkable attempt to link economic science with the political constitution of the Chinese empire. It is described how Quesnay, in controversy with Montesquieu, idealized China as the model for his concept of the natural order. With regard to modern inferences about a direct link between physiocratic and classical concepts of laissez-faire and the ancient Daoist concept of wu wei (action without action), Jacobsen points out that there is no textual evidence for this. He also shows how the sinophilism of the French physiocrats was turned against them in economic debates, eventually diminishing their political influence.

This stands in contrast with the positive reception that Adam Smith’s classical advocacy of laissez-faire in his Wealth of Nations (1776) received shortly after Quesnay’s writings about China. It has already been mentioned that Smith held a more negative view of China’s economic development, which in the past had reached high levels, but in his day seemed to have stagnated. Eventually Smith’s landmark book on economic thought also made its way into China. In chapter 3 Qunyi Liu describes the reception of Adam Smith in East Asia in a comparative perspective. The comparisons are made on different levels. At one level the chapter explores East Asian approaches of ‘the Adam Smith problem’, which was originally discussed in Europe and deals with the question whether Smith’s Theory of Moral Sentiments (1759) and the Wealth of Nations (1776) form a unified view or should be treated as different and inconsistent views on human behavior. At the second level, the focus is set on the double-faced reception of Smith’s Wealth of Nations in the East, namely as a foundation for Marx’s political economy on the one hand, and as a sourcebook of market liberalism on the other. At the third level the history of the Smith reception in China is compared with its counterpart in Japan. The article reviews these developments in four parts along the timeline, starting with the earliest translations around 1870 and continuing with Smith’s instalment as a classic in the inter-war period, as a forerunner of Marx in post-war editions, and finally as a prophet of economic miracles after 1990.

In his reflections on the stationary state of eighteenth-century China, Smith (1776: I.8) had observed that the high fertility of the land went together with low wages and extreme poverty of large parts of the population. In chapter 4 Mauro Boianovsky embeds his account of classical discussions about Chinese poverty in the works of Smith, John Rae, and John Stuart Mill in a comprehensive study of the complex relationships between the production of primary commodities and economic growth throughout the history of economic thought, and in particular in the development of development economics. Natural resources and the capacity to produce primary commodities are frequently identified as comparative advantages of poor countries that should help them to make gains from international trade and foster their economic development. However, it has been observed by many economists of the past that, in many cases, natural resources provide no advantages for the economic development for the countries in question. Abundance of natural resources is, on the contrary, frequently associated with institutional failures and problematic trends in the terms of trade that have been discussed under the labels of ‘resource curse’, ‘Prebisch-Singer hypothesis’ and ‘Dutch disease’. Since the 1980s, these phenomena have frequently been invoked to explain the relatively poor growth performance of African and Latin American countries in comparison with East Asian countries. In chapter 4, Boianovsky provides a thorough overview of the earlier literature, showing that an inverse relation between resource abundance and economic growth has in fact been discussed quite intensively throughout the nineteenth and early twentieth centuries, by well-known writers, such as Alexander von Humboldt, Robert Malthus, Friedrich List, John Cairnes, and Knut Wicksell. He also recounts the debates about that inverse relation in the high years of development economics in the mid-twentieth century and in the recent era of globalization, contrasting it with more positive views in terms of vent-for-surplus and staple theories.

Chapter 5 is about ‘Yan Fu, individualism, and social order: Translating Western Ideas at the dawn of the twentieth century’, written by Yang Cui and Evelyn Forget. Cui and Forget examine the transmission of Western economic and political ideas in China towards the end of the Qing dynasty through the activities of translator Yan Fu (1854–1921), who had been educated in England and came to be Head of the Bureau for the Revision of Terminology for the Imperial Board of Education. In view of the large linguistic and cultural differences between Chinese and Western languages, translators play a key role in cross-cultural communication. This is particularly true in the case of Yan Fu who worked before the age of scientific translation and used translation as an opportunity to disseminate political and economic ideas. By examining Yan’s choice of texts to translate (among them works by Smith, Mill, and Stanley Jevons) and by the ways in which his translations deviate from the original text, Cui and Forget illustrate both Yan’s endeavours to communicate faithfully the meaning of foreign ideas and the ways in which he attempted to influence political ideas in China through his work as a translator. The examples are illuminating.

Chapter 6 shifts the perspective from the Chinese translator to Western ‘missionaries’ of divergent ways of thinking about modernization. The chapter, written by Gilles Campagnolo is about ‘Three influential Western thinkers during the “break-up” period in China: Eucken, Bergson, and Dewey’. The term ‘breakup’ refers to the modernization era between the Hundred Days of Reform in 1898 and the Sino-Japanese War 1931–45. Campagnolo describes how young intellectuals, who mostly studied, taught, or worked at Peking University (where, by the way, Mao Zedong was an assistant librarian), introduced Western thinking about the challenges of industrialization and modernity to China. The focus is set on the dissemination of the ideas of Rudolf Eucken (1846–1926), Henri Bergson (1859–1941), and John Dewey (1859–1952). Even though these three thinkers were philosophers rather than economists, the transmission of their widely differing ideas to East Asia influenced the formation of economic thinking in China. Campagnolo outlines Eucken’s idealist activism, Bergson’s philosophy of theélan vital and Dewey’s pragmatism, examines the translations of their central concepts into Japanese and Chinese notions and compares their impact on Chinese discourses in the break-up period.

In chapter 7, ‘Chinese tradition meets Western economics’ through ‘Tang Qingzeng and his legacy’. This chapter, written by Olga Borokh, elucidates how the introduction of Western economics to higher education in China in the 1920s induced scholarly debates on the contemporary significance of Chinese tradition. Qingzeng Tang (1902–72), who had studied at Harvard, was a key contributor to these debates. His magnum opus, The History of Chinese Economic Thought (1936), was the first systematic study in this discipline. It contains a noteworthy survey and reinterpretation of the economic ideas of pre-Qin Confucians on the base of modern knowledge. As mentioned above, it also holds strong claims about Chinese influences on Western economic thought. Tang argued that studying Chinese economic thought will help to understand the sources of subsequent economic doctrines and to clarify the meaning of special terminology through economic history, to assimilate new research methods and to construct economic science in accordance with the specific characteristics of Chinese society. His comparison of tendencies in the development of foreign economic thought with ancient Chinese ideas emphasized the importance of China’s heritage and paved the way to the adaptation of Western theories.

Chapter 8 covers a more empirically oriented part of the formation of economics as an academic discipline. The chapter is about ‘He Lian, a founder and practitioner of the chinization of Western economics’, and it is contributed by Jianbo Zhou, Liu Yang, and Jingyu Feng. In the early 1920s, Lian He (1895–1975) had taken his doctoral degree at Yale University, working with Irving Fisher as an assistant in the compilation of price indices. After his return to China he became Professor of Finance and Statistics at Nankai University. He was a key figure in professionalizing the teaching of economics and the setting up of applied economic research in China. From the mid-1920s onwards he led the compilation of price indices and numerous empirical investigations of rural and urban economies. From 1937 until 1946 He served as Director of Administration and Minister of Economic Affairs in the National Government under Chiang Kai-shek. Soon after the Japanese surrender, he presided over the drafting of the first five-year Economic Development Plan launched by a central government in Chinese history. In 1948 He left China and took a position at Columbia University in New York. He never returned to China. In the chapter, Zhou, Yang and Feng review He’s initiatives to ‘rationalize’ the teaching of economics and to ‘localize’ it for empirical studies of China’s reality. These initiatives comprised the standardization of economic terms, the collection and translation of literature and the combinations of theory and field studies in graduate teaching. The chapter also reports on He’s research activities, especially on the construction of economic indicators for North China and on his rural economy research. The chapter concludes with an appraisal of the impact that the Nankai Economic Research Institute, founded by He, has made on economic research in China, an influence that has partly survived the many ‘structural breaks’ in economic teaching and research that occurred in Mainland China in the second half of the twentieth century.

In recent decades, many Chinese scholars have studied and taken their doctoral degrees at Western universities....