China's economic model isn't the answer for the U.S.

By Chrystia Freeland
Monday, August 30, 2010; A13

Forget the "Ground Zero mosque," Michelle Obama's Spanish holiday and even the oil spill in the Gulf of Mexico. When future historians look back to the summer of 2010, the event they are most likely to focus on is China's emergence as the world's second-largest economy.

Mostly, this is a very good thing. The rise of China, and the related, albeit slightly slower, emergence of India, is the story of hundreds of millions of very poor people joining the global economy and getting a little richer. Gross domestic product per capita in those two countries was basically stagnant from 1820 to 1950. Then, it increased 68 percent from 1950 to 1973, and a whopping 245 percent from 1973 to 2002.

But we need to be careful not to draw the wrong lessons from China's resurrection. The most dangerous one is that authoritarianism works.

That notion has become particularly tempting at a time when so many Americans, on the right and the left, are skeptical of the efficacy of their government. By contrast, many, particularly in the U.S. business and political elite, openly admire the effectiveness of China's state-controlled version of capitalism. Indeed, a popular intellectual trend, as Stefan Halper, Ian Bremmer and others have noted, is to suggest that, especially in the wake of the global financial crisis, China's economic model -- a.k.a. "the Beijing consensus" -- could replace the U.S. model.

That's plain wrong. Centrally planned economies tend to be good at wrenching societies out of agricultural poverty into the industrial age -- especially when the technologies needed to accomplish that shift have been invented elsewhere. Remember that in the 1930s, '40s and even '50s the Soviet model seemed viable, for precisely that reason.

So far, China's rise has mostly been about industrializing an incredibly poor, rural economy. Even today, China's $3,600 per capita GDP is roughly on par with those of El Salvador and Albania. We haven't seen whether centrally run China will be able to take the next step and compete at the cutting edge of technological and financial innovation. When South Korea went through the same transition in the 1980s, it also shifted to a much more democratic form of government and freer version of capitalism.

One reason state capitalism may falter as China gets richer is that it may be hard to allow people to become consumers without letting them become real citizens, too. One of China's big economic challenges over the next decade will be to allow its domestic market to grow. That will mean giving the Chinese people more spending power. As the Chinese become more bourgeois, they may demand more political rights, too.

A second constraint on state capitalism will be innovation. The American political economy has many flaws -- collapsing infrastructure, a hollowed-out middle class. But America has one great virtue that no other country has yet to replicate: When it comes to innovation and its translation into things people want, America is unbeatable. This is the country of Apple, Google and Facebook. These are the inventions driving the technology revolution, and only an open society can create them.

In fact, China is an object lesson in the threat that centralized, authoritarian states pose to revolutionary technological development. One of the big questions historians wrestle with is why China, which was on the brink of industrial revolution in the 14th century, then seemed to give up on radical technological change, ceding the initiative to Europe.

A favorite explanation for those centuries of stagnation is the same one we offer for China's current dynamism -- its centralized, authoritarian state. As economic historian Joel Mokyr has written, "the absence of political competition did not mean that technological progress could not take place, but it did mean that one decision maker could deal it a mortal blow." Meanwhile, in chaotic, divided, inefficient Europe, when one ruler decided to repress his innovators, "they did no more than switch the center of economic gravity from one area to another." Dictatorships aren't so great at self-correction.

The United States shouldn't be complacent about China's rise. At the very least, it means that American companies, American politicians and the American people need to adapt from the comfortable role of the globe's sole hyper-power to the tougher task of working in a multi-polar world. China's fans are right when they point to some of that country's dazzling infrastructure projects and ask why Americans, whose average income is more than 12 times greater than that of the Chinese, can't come together to achieve something so grand.

But America can respect China without imitating it. Dictators are easy to admire, especially at a distance. Free markets and free societies always look messy and inefficient, especially up close. But when it comes to inventing the modern world, and living at its edge, so far the best model the world has come up with is democratic capitalism.

Chrystia Freeland is global editor at large for Thomson Reuters. She is writing a book about the global super-elite.

© 2010 The Washington Post Company