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April 12, 2023

China's Missing Link for Economic Development

       (From "Newsweek Japan" of April 18, 2023)

How far China will grow will largely determine the future shape of the world and Japan's policies. Until now, people have made various estimates for Chinese economy based on macro-economic figures, demographics, etc., as if their economy were identical to that of the West.

However, China's economic system and society are much different from those of the West. It is important to determine to which extent their system and mentality can offer a basis for their further development. To this end, let us look back at their history.

There have been many times in history when China's growth has stagnated or faltered. Many of these were due to warfare or the domination of foreign nomad tribes. In this context, the path from prosperity to stagnation from the Song Dynasty to the Ming and Qing Dynasties in the Middle Ages (although there is no such division of time in China) would be a good indication of where China will go in future.

There is a small museum in the back of the old imperial palace (Gugong) in Beijing. Although Chiang Kai-shek took the best of China's antiquities to Taiwan, the Gugong Museum in Beijing has a painting (scroll) of a medieval city called "Qingming Shanghetu" - the Western equivalent of Bruegel's painting - a long scroll depicting scenes of Kaifeng, the capital of the Northern Song Dynasty, from the suburbs to the city center.

These scenes date from around 1000 AD. At that time Europe north of the Alps was still in its primitive period, barely entering the Middle Ages. The scroll testifies to the fact that the Song Dynasty had built up an economy of a scale and standard that rivaled, or even far surpassed, the later medieval commercial cities of Western Europe.
Kaifeng was a square city about seven kilometers on each side. Regulation on commerce was highly flexible in terms of location and time, and shops were allowed to operate all night.

In the "Dongjing menghualu", a record from about the same period, there is a more than two-page list of foods and confectioneries sold in the city. In " Qingming Shanghetu " restaurants, teahouses and brothels are lined up side by side. In addition to such consumption and services, the Song Dynasty was also ahead of medieval Western Europe in science and technology. According to the British historian Joseph Needham, the Song dynasty developed not only compasses, paper, and gunpowder, but also mechanical clocks and iron manufacturing technology using coke.

In the later Ming dynasty, there was a forest of small and medium-sized workshops, based on silk textiles and ceramics, similar to the "manufactory system" in the West. Merchants in Huizhou and Shanxi became large-scale by handling the distribution of salt, a state monopoly, throughout the country, and by the Qing dynasty, they also became large in the financial sector. So, during the medieval ages China's economic development was generally several hundred years ahead of the West.

By the 16th century, however, China was clearly behind in natural science and technology. Matteo Ricci, a missionary who had lived in China since the end of the 16th century, asked his home country to send him "practical instruments that could impress the Chinese with the (advanced) level of European civilization.

There is a book called "Tian gong kai wu" which is a compilation of Ming-era technology, but the iron manufacturing technology in it is small-scale and backward, and other technologies are also mere extension of the medieval equivalents.

In medieval China, there was a concentration of resources and technology that could have led to the Industrial Revolution. The market was also large. Still, it did not generate a spiral growth. Mass production using machines did not begin.

Perhaps it is because human labor was so cheap that use of machinery was not profitable. And even if machinery had been used, products would not have found sufficient demand, because people's income was very low.

Then, how was it possible for the British to achieve the Industrial Revolution?
It was not a simple path. It involved a lot of exploitation and sheer greed. England exploited its neighbor, Ireland, for more than 200 years starting in the 17th century. In the 17th century, millions of black slaves were taken from Africa to grow cotton and tobacco in the southern part of British American colony and sugarcane in the Caribbean islands, which were processed in Great Britain and reexported to third countries, generating great wealth. And in the 19th century, they collected an average of more than 3 million pounds a year in dues from India and forced India to import British cotton products, the fruit of the mass production after the Industrial Revolution.

From the end of the 17th century, the money from the Netherlands, the economic powerhouse of the time, went into high-interest British government bonds, eventually holding 40% of the total amount issued.

In the course of British economic development, there was one thing that China had lacked until the modern era: entrepreneurship or rather, an environment that enables the exercise of entrepreneurial spirit.

The British elite, gentry, stayed in province and were passionate about local development unlike the French nobility, who resided in Paris and did nothing but exploit their fiefdoms. The elites in Great Britain did not become a stubborn conservative class, but became an enterprising force for overseas expansion and domestic industrialization. The English scholar T.S. Ashton once observed, "In this age, people were madly pursuing new innovations."

This remarkably contrasts with the parasitic type of upstart life in early modern China, where the children of the elite class only though about passing the state examination, obtained government positions, and used the gains to buy land and spend their old age.
The rule of law and the guarantee of property rights are also lacking in China. Even today in Russia and China, the rights of private companies are easily violated by the government.

As the term "development dictatorship" suggests, coercive power is effective in the early stages of development. After that, however, coercion becomes an obstacle to further development. This is because an autocratic power tends to suppress the rights and vitality of ordinary people and companies, with self-preservation as its supreme priority. In the Soviet Union of the past, the Communist Party, which presumably had the supreme goal of improving the lives of ordinary citizens, in reality paralyzed society and the economy by establishing a politics of fear and imposing a planned economy, once it came to power.

Communism is the product of modern Western civilization. To suppress human life and rights is to deny modern Western civilization and return to the Middle Ages; that is a great self-contradiction. The conclusion about China's future is...better not to be vocal.