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The Foundations of the China Model Deprive Civil Liberties

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Professor Wang Jianguo (王建国) delivered the following speech to the 1st Annual Nobel Economists Summit of China in March of 2013. We have translated and archived the address due to the resounding relevance of its message on the need for political reform and the decentralization of power in China.

Hearing the talks given by the professors before me, I'm very inspired. My main focus will be on the China model and reform.

My first point is this: why is the economic model important? If you look at China's economic development and growth—30 years ago and 30 years later—you will see, Deng Xiaoping did one thing: he changed the model. What model changed? We call it reform, but really the political system didn't change. Economically speaking, the planned economy was changed to a market economy. Second, he expanded two kinds of rights, the first being human rights. Previously, there was no freedom of movement, no freedom of employment, no freedom to innovate. This was all relaxed. This was, in fact, a relaxation of human rights. Controls on property rights were also relaxed, especially those on private property.

With the relaxation of these two kinds of rights, the system also changed. The structure of all these systems changed. But one restriction remains unchanged—namely, power is still centralized. Also unchanged, the legal basis for these rights comes from the top, and there still aren't any checks on power. He just changed this one thing. As a result, the so-called China model we have today, to describe it in one phrase, is a centrally-controlled market economy. We also call this a fully-controlled economy.

Whenever we talk about economic models, I remember Fei [Xiaotong] always asks, just what is an “economic model” to begin with? I've actually been thinking about this for the past few nights. Today, I will define the term “economic model.” So, what is an economic model? You can look at it as the combination of four strategic systems. Which four systems am I talking about? The first is value proposition. A state or government must make a value proposition to its people. This idea is borrowed from business models. Second, a state or government must set a systemic orientation for its system of governance, it must set a position for the system. Third, how does the model's wealth creation strategy satisfy the value proposition? This is really what we talk about when we talk about GDP creation strategy. Fourth is the wealth distribution strategy. This is actually the issue of GDP distribution. The combination of these four strategies comprises the economic model. An economic model is not a strategy, but rather a combination of these four strategies; it is made up of a series of active systems. This is my definition.

Now, let's look at the China model in terms of these four facets. Firstly, we have China's value proposition. If you look at the promise that our state or government gives its people, it's really no different than the West. Just the same, we talk about human rights, about the protection of property rights, about serving the people, about governing for the people, by the people. I think we talk about our values even better than the West. In other words, we have the best promise in the world. This is the first facet.

Second, let's look at the institutional positions of the China model. The position of the system is mainly human rights and property rights. Are everyone's human rights equal? You must set a position. You have to set a position on property rights, too. You must give it a clear answer—are they protected or not?

Third, we have the issue of limits on power. Where does the legality of one's power come from? Does it come from above or below? This, too, needs a set position.

Fourth, should there be checks and balances between power structures? These four positions decide what kind of institutional constraints we have. If you want to have a model, you must have institutional constraints. Going forward, China's wealth creation and wealth distribution strategies will be implemented from within this institutional framework. I can say that, in many countries, China's development strategy, the China model and wealth distribution strategy, are not very plausible. Because your institutions won't allow you do things this way. You couldn't copy it even if you wanted to.

If you look at how our institutions are positioned, first, we have special privilege. Human rights are not completely equal [throughout society], nor are these rights clearly defined. Second, we aren't clear on property rights, and we lack protections. Third, the legality of power stems from the top, not the bottom. Fourth, there are no checks and balances between power structures. These positions create a condition for the third big strategy, namely the wealth creation strategy. There are a few special characteristics, the main one being that government investment drives demand. Demand is driven mainly by investment. The government concentrates wealth under state control through high taxes and high fees, and then uses investment and fiscal policy to drive the economy. Without the aforementioned institutional foundation, driving the economy in this way is not likely. Who do you think you are taxing me so high? The people won't let you tax them like that. Well, if you don't safeguard human rights and property rights, then you can take as much as you want. Only with this prerequisite can you have this kind of government investment development strategy. So this is the first point.

Second is driving the economy with exports. For over ten years now, exports have played a huge role in driving China's economic development. But we also have a precondition driving exports, namely, the lowest wages. Without a guarantee of a minimum wage, Americans and Japanese would take to the streets. We don't allow that. In other words, without these advantages, we wouldn't be able to compete with others. So we drive our economy, first, with investment, and second, by exports.

Third is urbanization. Cities are rapidly expanding. In reality, this rapid expansion means taking agricultural land, old homes, and shantytowns and remodeling them, putting them into a framework, changing them into this. So without these preconditions, the China model wouldn't work.

In addition, we made promises regarding wealth distribution strategies. We promised we'd increase your wealth several-fold, and reach the "moderately prosperous" stage. Then, through high taxes and fees, the income of the people is converted into state capital. This is used to drive the economy through investment. Without this premise, this simply couldn't happen. So, our wealth distribution strategy is like this. State investment takes up 24% of GDP. Then there's state and societal capital that isn't included in this number. So about 60% of GDP is spent by the government. The remaining 40% is given to private enterprises and citizens. This has resulted in weak domestic demand. Another unreasonable situation, aside from the government driving most of it, is that in China's distribution system, another portion of capital is converted to state capital in other ways. I'll explain why this conversion is made a little bit later. So according to this logic, the country's wealth comes from state investment. You could call it state capitalism. If you were to take this state capital and give it to the elites, change from state capitalism to crony capitalism, then that's relying on crony capitalism to develop the economy. With crony capitalism, you'll get the elites, corrupt officials and profiteers amassing large amounts of wealth, with everyday people making very little. An extremely small number of people hold the vast majority of the wealth—this is obvious without having to add up any numbers.

These four strategies comprise the main elements of the China model. Now I'll talk about the China model's inherent laws and contradictions. A moment ago, we talked about how the Chinese economy is a power-controlled economy. All production factors are consequences of this centralized control. Before any product or resource enters the market, they must first gain permission from the centralized hub of power. Without permission, you're unable to enter the market. This is what I mean by control. Whether you're trying to win projects or otherwise, everything needs approval. Everything is controlled. So this has brought about official corruption. Trading money for power is the first law of the China model. The price of power is what decides the allocation of resources—this is the second law. The first law is that bribery moves resources. Whoever has the highest value to bribe, resources will flow in his direction. This money-for-power model has resulted in powerful elites amassing great wealth, along with profiteers and corrupt officials, who can also gain great wealth. These changes have turned the system to crony capitalism, a system in which the elites profit at the cost of the people. So, China has changed from a state capitalist system to a crony capitalist system. This is contradiction number one. Corruption, within the China model, is at the same time an inherent contradiction, its raison d'être, and its driving force. This is problematic. Most people are low-income, their housing has been robbed away from them, they have low social benefits, the environment in which they live is poor. We've stripped everyday people of their financial wealth, stripped them of their environmental wealth. Right now the air is poisonous. The water is poisonous. These are Ma Yun's words, not mine. You'll get liver cancer from drinking the water, lung cancer from breathing the air. So, we're stripping people's resources, damaging the wealth of future generations, exchanging our quality of life for large sums of capital. And then this capital becomes the elite's capital through money-for-power transactions. Well, then, is this model worth it? This is the wealth I've earned by expending giant amounts of capital. Is it worth it? And would everyday people allow you to do this? If the answer to both of these questions is "no," then we should say this model will cease shortly. It can't go on.

Finally, how should it be changed? Just one word. I just mentioned power-controlled economy. So, first, we need innovation, we need to be resource inclusive. Of course, we need to admit that reform has made some great achievements. It liberated our productive forces. But the reason for this production is terrifying—it's driven by corruption. This is a very important driving force, officialdom is regulated by officials. If there's no incentive for the officials, they won't support it. This is the fundamental reason why our model won't be able to sustain long-term development. How should it be changed? Decentralize power. Give control of the resources back to the people. This is called returning civil rights to the people. This power used to belong to the people. You centralized it, and now it must be given back to the people. Without civil rights, the people will not be informed. Uninformed, the people will not be thinking. If the system stubbornly refused to go, there is another option—cultural revolution. No one wants a cultural revolution. So we only have one road to take. That will conclude my remarks. Thank you.

Watch the video of Wang's speech, or read the Chinese transcript, at CDT Chinese.