Book review: Maonomics, by Loretta Napoleoni

China's growth rate is the envy of all, so should we adopt its approach to capitalism? Linda Yueh urges caution.

by Linda Yueh
Last Updated: 03 Feb 2012
In a wide-ranging book, Italian economist Napoleoni seeks a new economic model that is less out of sync with the world, following the tremendous events of the Arab Spring and the global financial crisis; and which can shed light on the 'murky complexity of a globalised economy'. Since the west is struggling and the middle east is in turmoil, she looks to China, describing the shift in economic might from west to east as a victory for 'communism with a profit motive'.

Napoleoni points out that 'the Chinese have managed to create a form of communism that works economically, one that guarantees progress and wellbeing more than other systems, as confirmed by startling economic data: from 2009 to 2010, the Chinese per capita income increased in real terms, and the GDP rose by 9% during a period of zero growth in the west'.

Of course, the past few years are atypical in that the west confronted the worst banking crisis since the Great Depression and is now living through its aftermath. Meanwhile, Chinese standards of living have risen dramatically since market-oriented reforms began in 1979, easily doubling in the past decade.

The book sets out to examine globalisation in relation to communism, capitalism and democracy and then project some images of the future. The first part focuses on China's economic history, intertwining strands of ideological development with the progress of the nation. Her admiration for China's gradual liberalisation, including the development of Special Economic Zones such as Shenzhen, which boosted exports and attracted foreign investment, is evident. Although balanced in her assessment, there are areas where further critique of the policies is warranted, such as those relating to the banking system.

In the second part, which examines capitalism, the language is more provocative. For example, chapter seven's title is 'Financial neoliberalism as predator'. The argument is no less. For instance, Napoleoni asserts 'the monetary policy pursued in the wake of the Berlin Wall's collapse is thus interventionist to the point of influencing the functioning of major market segments, those controlled by European and US high finance. It is an extremely dangerous recipe.'

China is often cited as having avoided that rapid and disruptive liberalisation agenda. A number of scholars, including those within China, have since pointed out that the country has adopted many of the same tenets of privatisation and trade liberalisation, but done so much more slowly and on its own terms. Perhaps the timing of reforms is a key difference.

The last parts of the book pose intriguing questions about democracy and how the Chinese may view the travails of the developed world beyond the recent global financial crisis. The images of the future form a mural of shifting perceptions over what constitutes a stable economic and political model.

Ultimately, the author's provocative question boils down to (as she puts it herself): 'Could it be that Marx won the Cold War?' Her book answers it by looking to China for answers to help reverse the decline of the west. But one outstanding issue remains: the Chinese story is itself unfinished.

China is concerned about the 'middle income country trap', whereby countries slow down after hitting around $14,000 GDP per capita and few reach the ranks of rich economies. Its aim is to give a happy ending to the tale by rebalancing its economy towards domestic demand and growing for several more decades.

But it has numerous challenges related to the legacies of central planning, including a state-dominated banking system, insecure property rights and distortions in its factor (labour, capital) markets, as well as in its external sector.

Resolving these issues is key to creating a successful model of economic growth. Even then, I would urge caution in believing that it can be replicated, as China is unique. It is a transition economy (shifting from a command economy) that shares the traits of a large, developing country (poverty, agrarian). It combines the challenges of both Russia and India and yet is now the world's second-largest economy. It is this that is most intriguing.

Indeed, China may well offer lessons not only for the west but for the rest of the world, but only if taken cautiously and with a wary watch over its still evolving economy.

Maonomics: Why Chinese communists make better capitalists than we do

Loretta Napoleoni

Random House

£17.99

- Linda Yueh is a fellow in economics at Oxford University and the author of Enterprising China (OUP 2011).

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