Minxin Pei and Ali Wyne: A Freer China Would Stimulate Spending
An opinion piece in the Financial Times looks at the possible link between a country’s level of freedom and rates of consumption as a way to explain China’s failure to stimulate consumer spending:
Why has the government been un-able to stimulate household consumption? Conventional wisdom blames “precautionary savings” – Chinese households save an ever-increasing proportion of their income to pay for healthcare, retirement and higher education because China’s social safety net is inadequate, and its social services are under-provisioned. Although this observation correctly identifies the problem, its explanation is insufficient. One ought to examine what role China’s closed political system plays.
In other words, is there a connection between freedom and consumption? Reviewing data on political freedom, civil liberties and household consumption for the years 1985 to 2005, we find two intriguing clues.
First, China is among a small group of countries that has become less free (as measured by Freedom House’s Freedom Index) and experienced a significant drop in their rates of household consumption (defined here as a decline of 20 per cent or more). The others are Venezuela, Kuwait, Lebanon, Bhutan, Swaziland, Iran, Uzbekistan and Saudi Arabia – not exactly the countries that China should strive to emulate.
Second, although the overall relationship between freedom and consumption is complex, countries that have become freer in the past two decades are more likely to have registered an increase in their consumption rates.
POSTED COMMENTS: 3 Responses
People use discretionary spending to invest in the future. Without private ownership of land and housing, it is smarter to hoard one’s cash. There are just so many fancy meals and clothes one can buy. Personal freedom is based on a free market first and foremost.
Another panacea to solve all the ill in the world Wow except this one has no correlation with reality whatsoever.Never mind that legion of democracies mirred in poverty the biggest of all is India
http://www.nytimes.com/2009/03/13/world/asia/13malnutrition.html?_r=1 .
Another hatch job by Minxin Pei who was proven to be wrong countless time But that is another matter. At least he keep his job at brooking institute to do the bidding of his master
The issue in China is that the government directs too much of economic activity. Although it’s the same in America. Now that Americans want to save, the government is going trillions into debt. So what’s the difference?