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