Alvin Rabushka, currently a senior fellow at the Hoover Institution of Stanford University, has taken the plunge in The New China by trying to show how one people, the Chinese, have achieved such different results under three systems. Not surprisingly, Rabushka concludes that the facts demonstrate the efficacy of freedom and private enterprise in Hong Kong and Taiwan over the Chinese form of communism found on the mainland. The strength of Rabushka's analysis lies in his clear and concise presentation of facts and theory based upon a deft mustering and sifting of voluminous economic, social, and political data.
The book is divided into three parts, on mainland China, the ROC on Taiwan, and Hong Kong, respectively. Underlying all three is Rabushka's basic question: Why have the Chinese in Taiwan and Hong Kong prospered while their compatriots on the mainland still suffer poverty and despair? His answer flows from an examination of the people, resources, socio-political systems, and other relevant factors behind economic development.
Close attention is given to the role of incentives in the market economies and how these interact with the Neo-Confucian traditions of hard work and respect for education. These have permitted Taiwan and Hong Kong to record phenomenal growth over the past four decades, while mainland China has labored under the centralized planning and accompanying ideology based upon a Soviet-style economic system. The more recent changes on the Chinese mainland toward a market economy are assessed in light of the earlier attempts to modernize, showing that more significant progress is made the further the Soviet model is left behind.
In his overall assessment of the development of these three Chinese societies, Rabushka asserts that the specific keys to Taiwan and Hong Kong's success have been the respect for political stability, strong economic institutions, secure property rights, the rule of law, and individual incentives. This approach to development ultimately separates the Chinese Communist society from those more dedicated to free enterprise.
Rabushka notes that the Chinese Communists have failed to exploit effectively resources that are actually quite rich, losing great advantages because of inept management and even worse economic ideology. He argues that the mainland could be essentially self-sufficient for much of its industrial growth, but has neither the proper economy nor political system to bring this about.
All of course is not ineptness. Other debilitating conditions abound in mainland China, such as population growth and loss of arable land, that work against modernization. But Rabushka avoids the one-dimensional argument that mainland China is poor because it is too populous; instead, he focuses on an analysis of the mainland's inefficient use of available natural and human resources.
Rabushka is aware of the quantitative pitfalls of writing sensibly about mainland Chinese economy. He concedes that reliable economic data on the mainland has been lacking over the years, and ventures to say that even much of the contemporary data may be quite a bit less than reliable. Nevertheless, assessments are necessary, and he does a thorough job of presenting his results in an attractive and convincing manner.
Some of the facts are startling. For example, he says that per capita income on the mainland rose only US$10 between 1955 and 1977—not per year, but total. (Taiwan went from US$550 to US$2,600 in the same period.) To explain this severely stunted growth, Rabushka points the finger at the Soviet practice of emphasizing heavy industrial development over agriculture and light consumer industries, an orientation followed by the Chinese Communists from 1949 to the late 1970s. He decries the Maoist practice of emphasizing ideology over sound economic policy in national development. The history of Mao's China, he says, is replete with constant shifts in emphasis and direction, usually with deleterious results.
Several structural defects in Communist economic planning contributed to stunted development. Among these are the inability of consumers to signal their demand (no supply and demand system), difficulties in collecting accurate information to form the basis of economic planning, the absence of labor markets, low incentives, lack of entrepreneurship, misallocation of resources, and political interference in economic tasks.
Rabushka's assessment of the era under Teng Hsiao-ping, from 1978 to the publication date, is somewhat upbeat. He credits the recent economic reforms for bringing about greatly improved, though still stunted, economic conditions. He says the lynch pins of Teng's program—including reduced taxes, more individual responsibility, decentralized planning, and more incentives to farmers—have achieved admirable results in a short period of time. As an example, Rabushka says agricultural output has doubled in the past ten years, and present per capita incomes have risen higher in the past five years than in the whole previous 23 years. But the current situation is far from settled into a clear course. There is a "bewildering array of experimentation," with thousands of goods now produced outside the state plan.
While Rabushka expresses some appreciation for these reformist efforts, he nevertheless cautions that mainland China is far from achieving free enterprise, a genuinely competitive economic system. Nevertheless the new direction is encouraging.
Development in Taiwan, ROC
Conspicuously absent from Rabushka's section on Taiwan is any talk about the popularized notion of an "economic miracle." Instead, he argues a case that stresses the mundane facts of hard work Neo-Confucian influences, and correct policy planning to show the progress was earned, not granted.
With one-fiftieth of the mainland's population and a land area 240 time smaller, the ROC on Taiwan does not come near to having the same natural or human resources. Yet the contrast between the two economic systems is overwhelming. Taiwan's foreign assets alone are now ten times those of mainland China. Between 1950 and 1980, Taiwan achieved economic growth at an average yearly rate of 9.2 percent. After dipping during the 1982-84 recession, growth rates quickly returned to the ten percent range again, helping to transform Taiwan from a poor to a middle-income society in just one generation.
This section provides a careful outline of the phases of Taiwan's development since 1950. Recovery and development began with state direction, but gradually transformed into a predominantly private enterprise system, characterized by a highly competitive market economy. State planning was like a steering wheel for free enterprise, which served as the engine and wheels for economic growth. An important key to the overall success was the government's ability to set goals for each stage of development, then to realize when it was time to move to the next stage.
The first phase of Taiwan's development brought land reform and an emphasis on agriculture. That led to the development of light, import-substitution industries. By 1958, the island was ready to shift toward an export-driven economy, which it successfully did in the early 1960s. Rabushka notes that Taiwan's development had the added success of seeing that a relatively equitable income distribution was achieved during rapid growth, an unusual phenomenon in the developing world.
Through no fault of his own, the author's discussion of Taiwan's political system is already outdated. In 1986-87, a series of political liberalizations changed the face of Taiwan drastically. Gone is the Emergency Decree that activated martial law, and most of the restrictions on freedom of speech and assembly that came with it. Rabushka's saving grace here is that he predicts that such liberalization "will" occur on the heels of Taiwan's rise to a middle class society. True.
On a critical note, it is worth noting that one arguable weakness in his analysis of Taiwan's development is his failure to give much credit for the role "martial law" played in the island's development. Developmental scholars on Taiwan and elsewhere oftentimes cite Taiwan's record of unmatched political and social stability as perhaps the key factor in making the Taiwan economic success story possible. Although mentioned, the subject of "progress with stability" probably should have received more attention.
Development in Hong Kong
Rabushka says Hong Kong posits the closest thing to a real free market, capitalist economic system found anywhere. Il has experienced tremendous growth under a regime of liberal economic policy and a conservative fiscal policy. Hong Kong's people have enjoyed the benefits of a free trade port, low taxes, and minimal government intervention. As a result, Hong Kong has become a showcase for the value of following a system driven by free enterprise and open markets. As with Taiwan, though more pronounced, Hong Kong has enjoyed outstanding economic success despite several severe disadvantages, including almost a total lack of natural resources, little agriculture, and the densest population on earth, with six million people crowded into 410 square miles.
On the other hand, Hong Kong's fortunate location allowed it to serve as a magnet for much of the capital flow, industrial techniques, and management skills that came from such places as Shanghai during the Communist takeover of the mainland. Later, in the 1960s and 1970s, it also benefited from a large influx of labor, in the form of refugees from the mainland.
Hong Kong was fortunate as well in that it was left alone by Communist China. The reasons for this political anomaly, Rabushka explains, are that Hong Kong serves as a redistribution center for goods made in the mainland and serves other interests, especially in the areas of commerce and finance.
But Hong Kong's economy does have its frailties, especially when viewed against the backdrop of the colony's political future. In 1997, Hong Kong will fall under Communist control, and the very realization of this inevitable transition has already sent reverberations throughout its economy. Capital flight and a serious brain and management drain are creating a crisis of confidence the colony's capitalist driven economy can hardly afford.
Rabushka concedes that it is "very hazardous" to predict Hong Kong's future given the unknown variables of how Communist China will treat the capitalist Chinese enclave. In any case, Hong Kong's future will be dictated by internal developments on the Chinese mainland, and much can happen before 1997.
The book ends on that note. The reader is given substantial reasons to conclude that the free enterprise, market economies of Taiwan and Hong Kong are far superior to that found in mainland China, but there is a warning as well. Capitalism in Hong Kong and Taiwan cannot continue successfully unless insulated from security threats, in this case posed by the Communists. There is an additional note of hope in Rabushka's conclusion. He seems optimistic that the Chinese Communists have seen the efficacy and power of economics done the Taiwan and Hong Kong ways, approaches followed with astounding success by other Chinese in the same region and accomplished with much less at their disposal. There are signs that some lessons may have been learned, and that adjustments are underway—economic and, perhaps in the long run, political—that will bring some of the same benefits to Chinese on the mainland that are already commonplace in Taiwan and Hong Kong.