Experiment with Change, Chinese-style

[ 34 ] asia policy “The Chinese leadership’s ability to utilize economic crisis, to experiment, and to learn through policy innovation…can serve as a model for the new administration to transform the United States.” • Experiment with Change, Chinese-style Lawrence C. Reardon With the sharp decline in consumer spending and the continued unwillingness of commercial banks to provide liquidity, the United States is entering a period of recession. Though an unavoidable fact of market economies, this U.S. recession will be complicated by the global financial crisis, which was instigated by the international trade of mortgage-backed securities originally issued by U.S. banking and mortgage institutions. Should the U.S. recession deepen, unemployment will grow exponentially, undoubtedly increasing default rates on real estate and other consumer loans. This in turn will endanger the current coordinated efforts to stabilize the U.S. and global economies as well as threaten the global financial and trade regimes first established in Bretton Woods in 1944. The new U.S. president must continue to lead a coordinated effort to stabilize the global economy in order to avoid the ominous prospect of a global economic meltdown. While increasing state intervention in the economy, measures to date essentially have been adaptations of market-based economics; should these adaptations continue to fail, the president must consider more innovative change that goes beyond orthodox approaches. Economic crisis is actually an excellent opportunity to enact fundamental change. In 1978 the Chinese leadership used an equally daunting crisis to reject 30 years of inwardly oriented development strategies based on self-reliance. Leaders gradually embraced the international market economy, resulting in unprecedented long-term economic growth. The Chinese leadership’s ability to utilize economic crisis, to experiment, and to learn through policy innovation thus can serve as a model for the new administration to transform the United States. Timing is important u All newly elected democratic leaders are faced with the transition from campaign to governing mode. Given that public opinion is largely formed during the first “hundred days” in office, since the lawrence c. reardon is Associate Professor of Political Science at the University of New Hampshire. He can be reached at . [ 35 ] special roundtable • advising the new u.s. president election of Franklin D. Roosevelt in 1932 a smooth transition has largely determined the success of the new president’s policy agenda. During this initial period, the newly elected leader enjoys a high degree of legitimacy to promote change or continuity based on the election results. Most importantly, the president can issue executive orders, providing him with a high degree of autonomy in formulating and implementing new policies without undue interference from Congress, interest groups, or public opinion. When coupled with the current domestic and global financial crisis, the beginning of this new presidency represents a unique window in which to enact fundamental financial policy change that will establish the domestic and international agenda for the presidential term in office. Though enjoying a greater degree of autonomy and capacity than their democratic counterparts, Chinese elites also contend with various obstacles to policy innovation. In the pre–1978 period, Mao Zedong and Zhou Enlai promoted an inwardly oriented development strategy, the long-term goal of which was to promote strength, prosperity, and self-reliance. Whether implementing extensive import substitution or semi-autarchic strategies, elites considered the international market to be a hostile, exploitative environment harmful to China’s economic growth. Yet over a period of three decades, other key Chinese elites, such as Deng Xiaoping and Chen Yun, gradually learned the limitations of inwardly oriented strategies. Faced with huge financial deficits resulting from Premier Hua Guofeng’s accelerated ten-year development program, Deng and Chen utilized this crisis to radically alter the state’s long-term goal of self-reliance beginning in 1978. Along with like-minded colleagues, Deng and Chen began experimenting with outwardly oriented development that welcomed foreign investment and export-generated growth. Reject the past and embrace the risk of unorthodox experimentation u Just as the newly elected president would not know the long-term implications of fundamental financial reforms, he must be prepared to reject past practices and dare to experiment with unorthodox approaches. In 1979...