The long march to capitalism

The conventional opinion on the performance of the Chinese economy since the death of Mao in 1976 is very positive. GDP has grown at about 10 per cent per year. Unemployment and inflation have both been held in check and material living standards have risen. Even so, most China specialists are sceptical about the sustainability of its growth. Many see pervasive corruption and an authoritarian political system as threats to private ownership and investment incentives. In the long run, it is therefore argued, the economy will stagnate. The only way forward is for China to adopt the essential structures of the Anglo-Saxon capitalist democracies.

Barry Naughton shares many of these misgivings about China's prospects. There is, he argues, a need to privatise enterprises, introduce democracy and build more effective institutions. Nevertheless, Naughton differs in arguing that the gradual evolution of the Chinese political and economic system towards the Anglo-Saxon model has served it far better than the revolutionary path embarked upon by eastern Europe. By holding the share of the state sector constant in absolute terms, and by introducing market determination of prices, foreign competition and a decentralisation of decision-making to local government, China has been able to establish a dynamic non-state sector without creating widespread urban unemployment. At the same time, total factor productivity in the state sector has improved markedly. That these reforms have been so successful will make it easier to complete the transition to liberal capitalism.

In offering an essentially narrative account of the macroeconomic and industrial reforms introduced in China since 1978, Naughton makes his case well. He understands the limitations of the Chinese data. Nevertheless, this book is (intentionally) rather limited in its scope. Naughton says nothing about the (largely adverse) effects of the reforms on income distribution, mortality, the environment or agriculture. And Naughton rather neglects the historical dimension; China adopted the gradualist route in no small part because it had worked for Deng Xiaoping and Chen Yun - the architects of the reform strategy - in the early 1950s and early 1960s.

For all that, Naughton's analysis serves as an invaluable corrective to the orthodoxy on how to reform state socialist economies. It is not obvious that the economic strategies adopted in eastern Europe and Russia have much to recommend them, and he is right to say so.

Chris Bramall is director of studies in economics, Sidney Sussex College, Cambridge.