Economic growth, poverty reduction in China
China has not only achieved impressive economic growth in recent decades, but has also managed to lift hundreds of millions of its citizens out of poverty.
This achievement does not always receive the recognition it deserves. But, how was this amazing feat possible? What role did Chinese institutions, leaders and bureaucrats play in achieving this impressive result?
And how and why China has managed to grow so fast for so long despite pervasive corruption? These are some of the questions that I recently discussed on my podcast with Professor Yuen Yuen Ang from the University of Michigan, who has written two very impressive and award-winning books on these topics.
In her first book, How China Escaped the Poverty Trap (2016), Ang argues that China’s rise was not the result of top-down control, but rather of so-called “directed improvisation”, i.e., how the ability and effectiveness of central reformers who were able to foster adaptation when they directed rather than dictated development.
Policymakers were able to design national reform packages and create an adaptive policy environment around the bureaucracy. Similarly, there were clearly defined criteria for rewarding success within the bureaucracy.
Regional and local governments also played a key role in achieving poverty reduction as they were able to tap their natural comparative advantages while the central government intervened to “connect the economies of first movers and laggards”.
In her most recent book, China’s Gilded Age: The Paradox of Economic Boom & Vast Corruption (2020), Ang challenges the conventional wisdom that rich countries became rich by first eradicating corruption. She also argues that standard measures of corruption can be misleading, especially when they do not distinguish among qualitatively different types of corruption and when certain distinguished types of corruption are ignored.
In “unbundling” corruption, she finds that although “corruption is never good, not all forms of corruption are equally bad for the economy, nor do they cause the same kind of harm.” Rather, some types of corruption have the ability to stimulate economic growth in the short term even though they may result in serious risks and distortions.
In relation to China, her study concludes that the dominant type of corruption is not petty bribery or outright looting but “access money”—that is the “high-stakes rewards extended by business actors to powerful officials, not just for speed, but to access exclusive, valuable privileges”.
In contrast to bribery and theft which are invariably illegal acts, access money can entail both legal and illegal actions. Thus, the paradox is that while access money can stimulate economic growth, it can also distort the allocation of resources and worsen income inequality.
Listen to my discussion with Yuen Yuen Ang at: https://in-pursuit-of-development.simplecast.com/
