Lessons Unlearned

College prof Hilton Root has an interesting post at CapX. It purports to be about the “great lesson of economic history” that China has yet to learn but I think it’s actually about the factors that are likely to hold China’s development back. Here’s the part I found most insightful:

In today’s China, more often than not, exchanges are now conducted outside of one’s small, trusted circle. Interactions among transacting parties are rarely repeated, and local knowledge of past behaviour is not effectively monitored. The traditional use of reputation as an effective form of social control is rendered hollow by scandal after scandal involving corporate, consumer, and political bribery and fraud.

The institutional evolution of any modern economy requires more than voluntary arrangements. The central government needs to establish a framework for an independent civil society, including the enforcement of property rights and a judiciary to protect the public from fraud and malfeasance — and, at the very least, to counterbalance the consolidation of state power. Without these, uncertainty will continue to limit healthy economic risk-taking or enthusiasm for complex exchanges.

One of the things he never really addresses directly but which has been a recurring theme here is China’s lack of a robust system of civil law, something I think will be nearly impossible to cultivate without major political reform.

IMO China’s present system can persist as long as the regime’s number keeps coming up. And then a little if they’re willing to impose enough force. But to be really persistent their system will need to change.