Seeing China Through Its Economic History

Tyler Cowen who also writes for Bloomberg View now has a piece there.

He says we are too pessimistic on China. He draws lessons from history:

Is it possible to better understand China today by looking back to the country’s economic history? I don’t mean the years of communism under Chairman Mao, but rather earlier times, those which seem to many Western observers like a blurred sequence of one dynasty after another.

Enter Richard von Glahn’s “The Economic History of China: From Antiquity to the Nineteenth Century,” a book likely to go down as one of the year’s best. Over the last 15 years, the economics profession has gone from a poor understanding of China’s economic history to knowing quite a bit. Von Glahn’s exhaustive but readable book is the best guide to this rapidly growing body of knowledge.

I took away several overall lessons, noting these are my extrapolations and not necessarily the opinions of von Glahn, a professor at the University of California at Los Angeles.

First, in thousands of years of Chinese history there isn’t much of a trend toward democracy or representative government. In an age when Turkey and Russia have been rejecting open and transparent representation, it hardly seems obvious that China will move toward greater political freedom. When Chinese leaders tell their citizens that Brexit and the Trump candidacy represent failures of democracy in action, a lot of Chinese citizens believe them. 


It is striking how many contemporary Chinese economic policy ideas have parallels in earlier times. Going through this history, von Glahn explains the importance of state-owned enterprises, the use of fiscal policy to keep people working, commodity monopolies (then tea, now cigarettes) and population registration across many centuries. I take those continuities as signs that China today is embodying what the country was for a long time, rather than inhabiting a transitional state before morphing into something different.

The book also explains how China adopted an earlier series of modernizing, market-oriented reforms during what is called the Tang-Song transition of 755-1127. The most striking feature of this relatively successful time is that it lasted for almost 400 years, in spite of periodic territorial losses to outside conquerors. The extreme instability of the 19th and much of the 20th century in China is the historical outlier, not the norm, and so China today may have fallen back into one of its relatively stable episodes.

If there is a single common theme running through the many centuries covered by this book, it is the never-fully-successful quest of the Chinese state for revenue and fiscal stability. One reason China fell behind Western Europe in the 18th century is simply that the Chinese state spent less on creating valuable public goods and infrastructure.

In 1993, 15 years after it began making market-oriented reforms, the Chinese central government’s direct revenue was only 3 percent of gross domestic product, with the usual caveat that no Chinese numbers should be taken as exact measures. Only in the last 10 years has that revenue share exceeded 10 percent of GDP; by comparison, in the U.S. in normal times that number sits in the range of 17 to 18 percent. For all the images Americans might have of China’s government as a communist behemoth, the country’s political order is better understood as still somewhat immature.


A reading of world history will tell you that China’s evolution has been much different from rest of the world. They just do things their way and don’t care much for the criticism from rest of the world. China is a world of its own..


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