Monday, January 08, 2007

China Is Not the Only Anomaly

Arnold Kling up at Econlog wrote:

"Like many commenters on my earlier post, I raise the issue of whether China is an anomaly, because of its relatively high level of economic competitiveness and low level of political competitiveness. I can see three possible outcomes:

1. China continued to open up and develop economically, while remaining a one-party state politically. This would tend to discredit NWW's paper.

2. China undergoes a transition to an open-access order, so that over the next 20 years genuine political competition emerges.

3. To retain power, China's leaders maintain control over the access to capital in the economy. Eventually, a system of centralization and government favoritism leads to economic stagnation before China achieves full economic development."

Read more here.

But China is not the only anomaly in that a rapid growing economy coexists with a close political system. Singapore is another example.

While scenarios 1 and 2 seem plausible, scenario 3 is unlikely because of the continuation of China's financial market liberalization. Pressure for China to continue to do so partially comes from China's obligation to open its financial sector under its WTO commitment.

A more interesting question to me than venturing a guess on how things in China would unfold 30 or 40 years from now is how it got here in the first place.

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