Lessons from the dragon

Lessons from the dragon

B. Nicodemus
Brussels

"Get the knowledge, even from China". The question is, "What
can we learn from China?". As China is becoming a major player in
the world economy, the question can be slightly rephrased: "What
does China teach in economy?"

One of my colleagues argues that Indonesia should learn a lot
from China, from their economic textbooks if necessary. He might
be right. Unlike other developing countries, such as Chile with
its Chicago Boys or Indonesia with its Berkeley Mafia, we've
never heard about some technocrat graduating from China and
learning about its remarkable economic performance.

China is indeed a phenomenon. The dragon enjoyed economic
growth at an average of 9 percent per year from 1980 to 2003.
Income per capita increased three-fold during that time. In 2003,
China was the world's fourth-largest exporter of merchandise and
the ninth-largest of commercial services. (Martin Wolf, Financial
Times, Feb. 23, 2005).

Based on these facts, China is too important to be ignored.
The fact that Indonesia has made new and more vigorous
cooperation agreements with China is unsurprising. A move that is
very strategic according to the Post in its editorial column.
(Indonesia-China partnership, The Jakarta Post, April 27).

However, a closer look into China's experience will give some
insight that could also benefit Indonesian development.

Firstly, the role of government is very important in the
Chinese economy. It was Deng Xiaoping who started economic reform
in 1978. The most significant step was to open the Chinese
economy. Foreign investment was invited to push the
industrialization process. Infrastructure was built at breakneck
pace. As the economy was more open to the world, China started
adopting modern management methods.

China's experience has challenged conventional wisdom on the
role of government in the economy. From Adam Smith with his
invisible hand to the famous Washington Consensus, all are
preaching a minimalist role for government.

In economic textbooks, the role of government is very limited.
They will be needed normally to fix the so-called market failures
as we have in public goods case or externalities problem.

However, the Asian Tigers as well as China now, have confirmed
that the real world is not always a mirror of the textbooks. As
the World Bank says in The East Asian Miracle, the government
plays a significant role behind the remarkable economic
performance across East Asian countries. It is very surprising
since the World Bank is a Washington Consensus loyalist.

Secondly, China is growing under an authoritarian regime. In
China, there is only one big, powerful party, The Communist Party
and there is no general election. It seems that, whether we like
it or not, democracy is not the one and only way to foster
economic development.

Theoretically, as proposed by Ersson and Lane (1996), there
are two models made about democracy and its impact on economic
development namely the Compability Model and the Conflict Model.
The first one says that economic development will take place
under a system respecting civil liberties. The system then is
more familiar under the name democracy.

On the other side, the Conflict Model says the opposite.
Democratic countries, newly established ones in particular, will
have difficulties in building a stable government. As a result,
the country will be engulfed in political instability and
inconsistent policies, which will eventually hamper the process
of economic development.

The Conflict Model has been justified again by East Asian
countries and indeed by China recently. It is widely known that
countries across the region, such as Indonesia and Singapore,
enjoyed high economic growth under undemocratic governments.

Despite being undemocratic, China is very successful in
providing political stability. The succession in Chinese
leadership, from Chairman Mao to Deng Xiaoping, then to Jiang
Zhemin and now Hu Jintao, has been very smooth without political
turmoil.

Does China have any problems at all? The answer is very clear,
no. China is still facing pressure due to human rights violations
in Tiananmen Square, a tragedy that led to an arms embargo by the
European Union.

In 2004, Transparency International ranked China 71st in the
world for corruption. It means the country is still having big
problems with their institutions.

Despite these facts, China is increasingly attractive to
investors. Foreign companies continue to pour money into Shanghai
and Beijing. A booming economy and a competitive business climate
are more important all those other problems to most investors.

Indonesia could learn a lesson here. Bad perceptions due to
policy in the past as well as corruption should not prevent the
country from moving forward.

Moreover, concerning the market or investors, we can also see
that their primary concern is profit. As long as a country can
provide a high rate of return, no matter if it is democratic or
not, they will go there.

In this case, the government and also the people should be
above the market. What we have in Indonesia is the opposite. We
have all heard this over-repeated mantra, particularly prior to
elections: "The next president must be a market-friendly person"
or "The Cabinet should be accepted by the market". Why not the
opposite? It is the market that follows the government, as is the
case in China. The market is very opportunistic. Why should the
government live under its command?

Compared to China, Indonesia is one step ahead. We are already
a democratic country, but we still can not provide political
stability, rule of law or consistent policies. As the first
directly elected president, President Susilo Bambang Yudhoyono
has more than enough legitimacy to provide all of them. Like
China, those three things are also very crucial for Indonesia.
Without them, there is no chance to reap the benefits of
democracy.

The writer is a postgraduate student in social science at
Katholieke Universiteit Brussels. He can be reached at
BarlevNicodemus.Marh@student.kubrussel.ac.be