Chinese and Vietnamese Capitalism

Yale Open Course <Power and Politics in Today's World>

Lecture 4: Fusing Capitalist Economics with Communist Politics: China & Vietnam

China and Vietnam, each under a post-communist capitalist authoritarian system, have seen impressive economic growth that offers alternatives to the Western capitalist model. China, especially, from opening up of its market and capitalist experimentations in the 80s to the unprecedented rate of growth and finally to the slowing down of the economic acceleration in recent years poses many questions to the theories of economic and political reforms in developing countries. Specifically, its history of the government crackdown on civic attempts at liberalization and the continued centralization of power in the midst of economic growth severs the previously assumed link between economic growth and democratization. It remains to be seen how the Chinese economy will fare in its transition from manufacturing to a service-oriented economy and how the political terrain will shift in response to the slowing down of the economy.

Notes

• China & Vietnam

  • Economically successful post-communist, capitalist authoritarian systems

    • (Cf. North Korea, Cuba - non-capitalist post-communist authoritarian systems)

  • Dramatic decline of poverty but increase in inequality

    • Globally, within country inequality ↑, global inequality/poverty ↓

• The Run-up to Tiananmen

  • 1976 Mao dies → 1978 Deng Xiaoping “liberate thinking”

    • Experimentation with new forms of capitalism

      • Big special economic zones created

      • Opened up to direct foreign investment

  • The Beijing Spring 1979-81 + Democracy Wall Movement in Xidan

    • Greater freedom of speech

      • Criticisms mostly backward-looking (on Mao, Cultural Revolution)

      • Democracy Wall Movement shifted the focus of criticism towards demands for more democracy

    • 1980s - time of political testing

      • Student movements

      • Criticisms and pushback (”party rule & socialist path”)

      • Inflation, austerity, escalating protests, continuing economic reforms

  • June 1989 Tiananmen Square Massacre

    • Coincides with the Eastern European liberation

    • Killing + imprisonment of protesters

  • Economic reform continues, increasing growth

• Reasons for the Chinese & Vietnamese success?

  • Late developer advantage?

    • Late developers can skip some stages of economic developments

    • But not all late developers succeeded

  • Predominantly rural at start?

    • Didn’t have inefficient urban economy to dismantle

    • But not true for other agrarian countries

  • Confucian values?

    • Not true for all Confucian countries (North Korea)

  • Education?

    • Not true for all educated countries

  • Less entrenched command communist system?

    • Russia → deeply entrenched Communist economy that fell apart when USSR fell

    • China & Vietnam not as entrenched

  • Gradualism

    • Gradual experimental approach in opening their economies

  • Experimentation and decentralization

    • Devolved power and less micromanaging

  • Competition within the state sector and with the private sector?

    • Relative competition for state sector-dominated economy

  • Export-oriented growth?

    • Not true for all export-oriented countries

  • Relatively good accountability and rule of law?

    • Officials can be punished for inefficiency and corruption

    • Increased demand for rule of law in commercial sectors dominated by foreign investment

      • But foreign firms don’t have the informal access to officials that domestic firms have

  • Leadership?

    • mechanisms for renewing leadership?

      • After Mao, China figured out a way to avoid long-term rule by a charismatic leader? → Xi Jinping changed this

  • Sustainability?

    • Growth of state sector since 2008, but still inefficient than the private sectors

    • The Smile Curve of Profitability

• Chinese firms starting to move away from manufacturing and towards customer service and R & D

  • The original curve flattens after Chinese firms reverse engineer technologies

• Govt difficult to pick winners (success businesses) for more complex growth

• Changing leadership and corruption

  • 10-year term limit removed by Xi Jinping

    • The mechanism for renewing leadership broken down?

  • Vietnamese separation of power breaking down?

• Less foreign direct investment → economic and political effect

  • increase in corruption and inefficiencies?

• Demand for higher wages

  • The flying geese theory

    • Capital goes where urban labor is cheapest

    • As the cost of wage increases, capital leaving China

• With slowing growth, regime legitimacy ↓?

• A resurgence of political dissent?

• Sequencing of economic and political reform (in a shock therapy approach)

  • Critique against technological determinists:

    • Both paths have been successful (Poland & Czech Republic)

    • Both the losers and winners of the reforms will politically mobilize

    • Economic advantage of gradualism and experimentation

      • Ex. China & Vietnam’s dual track pricing

        • Private market alongside public market

        • Companies can produce to meet the quota for the public market then sell the rest in the private market

    • Political advantages of gradualism and experimentation

      • reform in ways that lock them in & build coalitions for future reform

Modernization Theory

• Economic development will inevitably produce demands for democracy

• The logic:

  • no bourgeoisie, no democracy

    • The middle class will demand more rights

      • But will it if all of its demands are met?

  • Working class pressure

  • Fighting & paying for war

    • Governments will need to make concessions to get people to pay for the wars and fight in them

      • But what if govts no longer need large armies and are paying the war with debt?

Upshot for future:

• Democracy not inevitable; depends on contingent historical struggles

• If China/Vietnam’s economies/wages/legitimacy ↓, the state might become more repressive