- Rethinking the Beijing Consensus
China, Economic Models, Economic Development Policy
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This essay examines whether or not there is a policy shift underway in China from free markets toward state capitalism.
In the wake of the deepest recession in the West since 1929, many Western as well as Chinese analysts have been quick to pronounce the death of free markets and the triumph of the so-called Beijing Consensus. Not only has economic power gravitated toward the East, they argue, but the shift to state capitalism, Chinese-style, is burying market economics. Based on a careful analysis of data going beyond GDP performance, this essay shows that when measured by factors that directly track the living standards of the average Chinese person, China has performed the best when it pursued liberalizing, market-oriented economic reforms, as well as conducted modest political reform, and moved away from statist policies. In addition, using measures other than GDP, this essay shows that China's performance metrics are in fact highly heterogeneous, which contrasts with the view implied by the Beijing Consensus that China is a homogenous country.
• For China, the essay shows the danger of embracing and accentuating economic statism. China needs to rethink its economic development strategy, which has so far suppressed the country's vast potential of internal final consumption while rapidly ramping up production capacity. That combination is increasingly untenable. To rebalance, China must revert back to a more liberal package of economic and political reforms characteristic of the 1980s and move away from the statist model admired by many Western observers.
• For the United States, the essay underscores the importance of understanding the root cause of underconsumption in China—the falling growth rates of personal income since the early 1990s associated with a development strategy based on economic statism. [End Page 2]
In the wake of the deepest recession in the West since 1929, many Western as well as Chinese analysts have been quick to pronounce the death of free markets and the triumph of the so-called Beijing Consensus. Not only has economic power gravitated toward the East, these analysts argue, but state capitalism, Chinese-style, is burying market economics.
The term "Beijing Consensus" was coined by Joshua Cooper Ramos in 2004. Ramo, a young analyst at the Foreign Policy Centre in the United Kingdom, in his book The Beijing Consensus sets the ambitious objective to debunk the famous doctrine of the "Washington Consensus" and provide an alternative intellectual framework.1 The Washington Consensus, so named to underscore its American origin, espoused private property rights, economic opening, financial reforms, macroeconomic stability, and political liberalization to promote economic growth.
For much of the 1990s and at the turn of the 21st century the centrally planned economies of Russia and Eastern Europe collapsed, while India and much of Latin America and Africa moved away from the commanding heights of economic statism. The free market principles so succinctly enshrined in the Washington Consensus had reigned confident, triumphant, and even hegemonic. One political scientist famously proclaimed the end of history—"the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government."2 By 2004, the year in which China's GDP broke a new record by incrementally contributing more to world GDP growth than the United States and by accelerating into a double-digit range, the Washington Consensus started to be rivaled by a set of policies and values that Ramo labeled as the Beijing Consensus. Ramo argues that the success of China contradicts every single principle formulated in the Washington Consensus. According to him, the key ingredient of the China model is its ideological and operating dexterity. China has not bothered to follow any set economic and political prescriptions but has experimented boldly and innovatively. The eclectic approach purportedly used by China encompasses a variety of institutional forms. If state ownership promotes growth, why privatize? If a one-party system works wonders in generating GDP growth, why democratize? If state financial controls are effective in resource mobilization, why liberalize? [End Page 3]
Ramo stated in 2004, "What is...