China’s Economy and Development
This essay will look at the role of the state in development by applying the neo-utilitarian and Gerschenkron models of states to China’s current economic circumstances and its government’s decision for nationalization in order to show how China’s decision may be harmful for its development.
The Economist stated that China “remains a place where companies face heavy direct and indirect state control… China has prospered as broader economic freedoms contributed to growth… But over the past year this reticence has begun to wane… one domestic industry after another has, as in the West, gone back to the government for support.” This is because China is succumbing to criticisms of capitalism as Western economies breakdown in the current economic crisis. However, the Chinese government is supporting this return, and suggests further nationalization of its economy. However, if China proceeds with this nationalization, China will resemble the Gerschenkron state model, which in turn would lead it to become a neo-utilitarian state model. These two state models carry risks and are not ideal for development.
China may develop into a Gerschenkron state if it decides to nationalize. The Gerschenkron state model suggests that a lack of state development is because private actors lack the resources necessary to invest in development. Therefore, the state itself must invest in development. In order to implement this, the state takes a major role by investing in the economy and building up a bureaucracy. However, this can eventually lead to the neo-utilitarian problem of greedy officials.
If the Gerschenkron state model becomes corrupt with greedy officials, it evolves into the neo-utilitarian state. The neo-utilitarian state model explains that a lack of state development is caused by profit-seeking state officials who cut deals with private actors. This bribery can become a constant cycle between the official and different private actors because it can form a profitable relationship. However, this situation is terrible for citizens because the private actors, usually large institutions with numerous members, have the control, and not the individual citizen. In addition, the larger the state is, the more predatory the state appears because more institutions ask for more money from more officials. Thus, the neo-utilitarian solution was to shrink the state, to limit the number of corrupt officials and private actors. China’s problem has been that it has maintained its massive size and its cycle of nationalization and then neo-utilitarian corruption without succumbing to solution.
China’s major concern should be avoiding the neo-utilitarian state model; however, this appears impossible because of China’s history of corruption. The Economist notes: “In a state-controlled system, it is good to have the state’s explicit endorsement and protection. But it comes at a cost. The reason China initially backed away from state control was because companies were inefficient and corrupt, and ultimately people suffered.” China’s prime minister Wen Jiabao is focused on economic growth. The Economist reports: “With the help of massive government spending, China was still aiming for economic growth of 8% this year [despite the recent economic crisis].” The Economist says that China’s budget will be spent padding the military and public-security budgets. However, China should not focus on economic growth. It should instead focus on bettering the average Chinese citizen’s quality of life. There would be far less protest against how the government used its money if more funds were given to health care reform and welfare matters, issues that could lead China on path to better development. If China continues down its current path, it will never learn from its own mistakes.
The Economist. "Renationalisation in China: So much for capitalism." Economist.com. 5 Mar. 2009. 9 Mar. 2009
The Economist. "The state of the Chinese nation: Yes, prime minister." Economist.com. 5 Mar. 2009. 10 Mar. 2009
Written for a Poli. Sci. class in March '09.