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China's elites and development
Sunday, 25 December 2011 05:33

Over three decades ago, China's Communist Party elite saw it in their interest to adopt pro-development policies.  This is in sharp contrast to most countries in the Middle East and North Africa whose elites squandered development opportunities and plundered their countries.  The frustrations that this caused, ultimately gave rise to the regional uprising known as the "Arab Spring".

China's strong economic performance has strengthened the Communist Party's legitimacy in the eyes of large numbers of Chinese citizens, especially those who benefited most from economic growth.  Perhaps ironically, however, China's elite now finds itself threatened by the consequences of its own success, as its more complex and diverse society demands greater freedom.  Today, political and social repression are now on the rise in China, as the Chinese Communist Party becomes ever more nervous in the leadup to the upcoming change in its leadership.

Let's first delve into the question of how elites affect economic development.

The United Nations University has defined elites as "a distinct group within a society which enjoys privileged status and exercises decisive control over the organization of society".  In fact, countries typically have political, business and educated elites which are substantially distinct, but intertwine closely.

Their impact exceeds their actual representation within society. This stems from their control over the productive assets and institutions, which enables them to influence both the allocation of resources and the allocation of authority.  A country's elite is ultimately responsible for the state of the country.

Elites can choose to redistribute resources in ways that increase employment, economic efficiency, and reduce income inequality. Or alternatively, they can act as rent-seekers and direct resources towards their social groups.  As owners of the factors of production, elites have influence over what is produced and how it is produced.  They can act as entrepreneurs and innovators and increase factor productivity and diversification. Or they can overexploit existing resources without regard for sustainability into the future.

Elites also control decision-making processes that allocate political resources within a society.  Thus, they have the resources to design and implement institutions that favour their interests. Such institutions may promote participation and information flow.  Or they may simply cement the position of a particular group within the governance structure.

Another feature of elite control over institutions is that they are able to influence how both elites and non-elites within a society perceive different issues. Elites control how issues are framed through their ability to distribute or withhold information, and their influence over and within the media.  Even where there is a free media, it depends on elites for information, and can choose to present issues that reflect a particular bias.

All of these issues highlight the fact that if elites can be induced to adopt developmental behaviour, rather than predatory behaviour, it can have a disproportionately positive impact on growth and development.  Lee Kwan Yew in Singapore, Nelson Mandela in South Africa, and Bill Gates in the United States are examples of people who changed the direction of development in ways that were contingent on their position as elites, and in ways that favoured the advancement of their societies.

Globalization is having diverse impacts on elites.  International trade and investment usually benefit business and government elites more than poor people.  But globalization also constrains the domestic activities of elites. Rules set by the international institutions such as for human rights can give non-elites enforcement power. The Millennium Development Goals pressure elites to at least acknowledge that poverty in its many forms must be dealt with. And mobile phones enable coordination of protesters in authoritarian states to act against ruling elites.

So how did China's elite become motivated by a pro-development agenda?

Deng Xiaoping took over the leadership of China in 1978, following several decades of centrally planned economics with Mao Zedong.  While some progress had been made under Mao, especially for health and education, China's overall economic situation was very poor, most notably compared with its Asian neighbours like Japan, Korea, Taiwan, Singapore and Hong Kong.  And most of these cases mixed market-based economics with non-democratic politics.

In a way, Deng's motivation was the same as Mao's, that is, a strong economy, regime stability and opportunities for corruption.  In fact, this is how China has functioned for over 2000 years.  But Deng could see that market economics (rather than central planning) was the best way to achieve this, following the path of China's successful neighbours.

China's development path launched by Deng has been abundantly successful.  Rapid economic growth has reduced poverty dramatically, a big positive in terms of its legitimacy with the Chinese public.  The gap between rich and poor has widened dramatically, meaning that the elite has won more from development than the masses.  And rampant corruption has also helped the elite benefit.

The ever pragmatic Deng once said, as he defended market economics against central planning, that it does not matter whether a cat is black or white, as long as it catches mice.

But once the market economics "cat is out of the bag" it creates a whole new world of challenges.  People are not just happy with rising incomes.  They have other aspirations like freedom.  They do not want to be manipulated by political lies.  They are offended by the Communist Party's grotesque corruption.

The Party has promoted nationalism as a force for social and political stability.  This has proved to be a volatile and difficult-to-control tonic.  And the Chinese public's passion for American movies, music, basketball and fastfood undermine the Party's efforts to strengthen the soft power of Chinese culture.

Societal diversity and complexity is also matched by the diverse and complex interests of the factions of the Communist Party.  This also threatens the Communist Party's hold on power.  There is even speculation that the Party might tear itself apart!

Keeping lid on society means more repression.  Trying to keep a lid on Communist Party infighting can lead to political paralysis and gridlock.  Such paralysis can block reform and weaken the prospects for continued development.

China has entered the zone where developing countries usually become democratic, as Korea and Taiwan did.  Could the Chinese Communist Party opt for democratic politics as the best way of remaining in power?

There are models in Asia.  For example, democratic Japan was a virtual one-party state for over 50 years under until the Liberal Democratic Party lost power in 2009.  The system was held together by the elite "iron triangle" of bureaucrats, politicians and business, and the flow of patronage between these groups.  And Malaysia and Singapore are "flawed democracies" where elections are complemented by a dose of repression to ensure that the ruling elite remains in power.

"May you live in interesting times" is an oft-quoted Chinese saying.  In reality, it is a curse!

References:

United Nations University.  World Institute for Development Economics Research.

Aligning Elites with Development, Alice Amsden, Alisa DiCaprio, and James Robinson.

http://www.wider.unu.edu/publications/newsletter/articles/en_GB/05-08-2009/

Xiaowei Zang.  Why are the Elite in China Motivated to Promote Growth.

United Nations University.  World Institute for Development Economics Research.

http://www.wider.unu.edu/publications/newsletter/articles/en_GB/05-08-2009/


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