The Xi Jinping era China in the World Economy, autumn 2021 Repetition from last time •1) How does a country finance its imports? •2) What is the role of banks in an economy? •3) What happened with rural land during the 1980s? •4) What was the system of „dual prices“? •5) Where did FDI come from in the 1980s? Which areas were opened to it? •6) What happened to most SOEs during the 1990s? •7) Did China‘s private sector originate is a program of privatization? •8) What was the purpose of the obligation of foreign investors to form joint ventures? •9) What is the meaning of the phrase „national champions“? Today •China‘s growing strength in the 2000s •The fallout from the 2008 Financial crisis •The rise of Xi Jinping and China‘s technological ambitions The 2000s – export-led growth •Slow, gradual liberalization continued into the new millennium The 2000s – export-led growth •Slow, gradual liberalization continued into the new millennium •China‘s most capitalist moment – after entering the WTO in 2001 The 2000s – export-led growth •Exports and imports – 5 % of GDP each in 1978 •World average is about 20 % for each The 2000s – export-led growth •Exports and imports – 5 % of GDP each in 1978 •World average is about 20 % for each •China reached this level by 2001, its exports continued to soar after entering the WTO The 2000s – export-led growth •Exports and imports – 5 % of GDP each in 1978 •World average is about 20 % for each •China reached this level by 2001, its exports continued to soar after entering the WTO •2006 – exports stood at 35 % of GDP, imports at 30 % > 65 % together The 2000s – export-led growth •Exports and imports – 5 % of GDP each in 1978 •World average is about 20 % for each •China reached this level by 2001, its exports continued to soar after entering the WTO •2006 – exports stood at 35 % of GDP, imports at 30 % > 65 % together •In the United States, the sum is around 20 %! •= China was far more opened than the world average or comparably large countries! The 2000s – export-led growth •2009 – largest exporter in the world •2011 – largest manufacturer •2012 – largest GDP by purchasing power parity The 2000s – export-led growth •Huge growth of export, current account surplus (5 % of GDP in 2006) The 2000s – export-led growth •Huge growth of export, current account surplus (5 % of GDP in 2006) = China finally overcame its problem of financing imports The 2000s – export-led growth •Huge growth of export, current account surplus (5 % of GDP in 2006) = China finally overcame its problem of financing imports •> accumulation of foreign exchange (mostly dollars) • The 2000s – export-led growth •What is China going to do with all this foreign exchange? The 2000s – export-led growth •What is China going to do with all this foreign exchange? •Keep it as a reserve – a precaution against a monetary crisis The 2000s – export-led growth •What is China going to do with all this foreign exchange? •Keep it as a reserve – a precaution against a monetary crisis •Anxiety after the Asian monetary crisis of 1997 • How a monetary crisis works •A country has a fixed exchange rate •- China does have a fixed exchange rate – the yuan was first tied to the US dollar, since 2005, it is pegged to a basket of currencies How a monetary crisis works •A country has a fixed exchange rate •Markets (banks etc.) think that the rate is overvalued and unsustainable > they start to sell the currency How a monetary crisis works •A country has a fixed exchange rate •Markets (banks etc.) think that the rate is overvalued and unsustainable > they start to sell the currency •> pressure for devaluation How a monetary crisis works •A country has a fixed exchange rate •Markets (banks etc.) think that the rate is overvalued and unsustainable > they start to sell the currency •> pressure for devaluation •The central bank needs to start buying the currency to keep the same rate – they need foreign currencies to do this! How a monetary crisis works •A country has a fixed exchange rate •Markets (banks etc.) think that the rate is overvalued and unsustainable > they start to sell the currency •> pressure for devaluation •The central bank needs to start buying the currency to keep the same rate – they need foreign currencies to do this! •If they fail > increased interest rates to stop the capital flight > drop of domestic credit > domestic recession How a monetary crisis works •= in the end, the Central bank usually freezes the creation of money, which stops capital flight, but creates recession How a monetary crisis works •= in the end, the Central bank usually freezes the creation of money, which stops capital flight, but creates recession •Did anything like this ever happen here? •Yes, in 1997! (like the Asian crisis!) How a monetary crisis works •= in the end, the Central bank usually freezes the creation of money, which stops capital flight, but creates recession • • • How a monetary crisis works •China fears this scenario, so it keeps large reserves of foreign currency • •> if you sit upon a huge pile of dollars, you can defeat a speculative attack •Actually, you can deter it The 2000s – export-led growth •What else can you do with foreign exchange? •= you don‘t use it to buy imports, you don‘t want to keep it as reserves The 2000s – export-led growth •What else can you do with foreign exchange? •= you don‘t use it to buy imports, you don‘t want to keep it as reserves •Foreign investment – purchases of Western companies; Belt and Road Initiative The 2000s – export-led growth •Major exporter of advanced technology products already by 2005! •= laptops, mobile phones, scanners, cameras, medical equipment The 2000s – export-led growth •Major exporter of advanced technology products already by 2005! •= laptops, mobile phones, scanners, cameras, medical equipment •Growth continued at breakneck speed – over 10 % a year – even though the base was already quite large The 2000s – export-led growth •Major exporter of advanced technology products already by 2005! •= laptops, mobile phones, scanners, cameras, medical equipment •Growth continued at breakneck speed – over 10 % a year – even though the base was already quite large •= biggest story of the decade; the West overlooked it The 2000s – export-led growth •2002 – change in Party leadership – Hu Jintao and Wen Jiabao •Only transfer of power without a purge in PRC‘s history! The 2000s – export-led growth •2002 – change in Party leadership – Hu Jintao and Wen Jiabao •Only transfer of power without a purge in PRC‘s history! •Theoretically – generations of party leadership – change every 10 years (1992-2002-2012-2022) The 2000s – export-led growth •2002 – change in Party leadership – Hu Jintao and Wen Jiabao •Only transfer of power without a purge in PRC‘s history! •Theoretically – generations of party leadership – change every 10 years (1992-2002-2012-2022) •Hu leadership – continuation of previous policies •More resources devoted to social spending – healthcare, education, alleviation of rural poverty The 2000s – export-led growth •Fears that China will fall into a „middle income trap“ Averting a middle-income trap •Fears that China will fall into a „middle income trap“ •China continues to specialize on low-value added activities within global value chains Averting a middle-income trap •Fears that China will fall into a „middle income trap“ •China continues to specialize on low-value added activities within global value chains •= it takes part in the production of sophisticated products organized by multinational companies, who keep the most lucrative work elsewhere Averting a middle-income trap •Fears that China will fall into a „middle income trap“ •China continues to specialize on low-value added activities within global value chains •= it takes part in the production of sophisticated products organized by multinational companies, who keep the most lucrative work elsewhere •For example, China makes electronics, but cannot produce top notch semiconductors Averting a middle-income trap •Warning story – Japanese stagnation after 1990 – after wages grew, export moved to cheaper locations like China • Averting a middle-income trap •Theory – the most value added processes are at the start of production (research and development, design) and at the end (marketing, retailing) •The physical work in between can be done by anyone (= China) •Smiley curve Averting a middle-income trap Averting a middle-income trap Averting a middle-income trap •China needs to move up the value chains Averting a middle-income trap •China needs to move up the value chains •Ideally to create its own brands which keep the best jobs in China Averting a middle-income trap •China needs to move up the value chains •Ideally to create its own brands which keep the best jobs in China •Outsource cheap labor to poorer countries – Southeast Asia Averting a middle-income trap •Kennedy and Lim – the innovation imperative •If a country wants to escape the middle-income trap, it must start to innovate (RaD) Averting a middle-income trap •Kennedy and Lim – the innovation imperative •If a country wants to escape the middle-income trap, it must start to innovate (RaD) •Three types of possible actions: •1) Domestic innovation and research •2) Purchase of foreign technologies •3) Theft of foreign technologies Averting a middle-income trap •Kennedy and Lim – the innovation imperative •If a country wants to escape the middle-income trap, it must start to innovate (RaD) •Three types of possible actions: •1) Domestic innovation and research •2) Purchase of foreign technologies •3) Theft of foreign technologies •> China practices all three at a large scale Averting a middle-income trap •Technology will compensate for growing wages – China will remain a competitive exporter • Averting a middle-income trap •Technology will compensate for growing wages – China will remain a competitive exporter • •How to do this? > industrial policy • •„Industrial policy is defined as the strategic effort by the state to encourage economic transformation, i.e. the shift from lower to higher productivity activities, between or within sectors.“ • •x trade policy – attempts to influence import and export •Industrial policy - takes place within a country (subsidies, tax break, grants, privileged access to loans…) •Trade policy – takes place at the border – tariffs and non-tariff barriers to trade • •> China is far more active in industrial policy Return of industrial policy •Around 2000, China‘s central government did not directly attempt to develop specific sectors of the economy Return of industrial policy •Around 2000, China‘s central government did not directly attempt to develop specific sectors of the economy •There were provincial programs + support for some SOEs and large corporations, but no central coordinated plan MLP •2006 – Medium-Long Range Plan For Science and Technology (MLP) – 16 megaprojects MLP •2006 – Medium-Long Range Plan For Science and Technology (MLP) – 16 megaprojects •- aircraft, semiconductors, intelligent computers, GMOs, novel drugs MLP •Ambition to invest 2,5% of GDP into research and development by 2020 •Almost achieved, RaD expenditures continue to grow quickly MLP •MLP – investments into science and research, not support for specifically chosen companies MLP •Goal – to catch up with industry leaders MLP •Goal – to catch up with industry leaders •= typical goal of industrial policy – use governmental incentives to learn and adopt foreign technologies •= similar to policies of other countries 2008 Financial crisis •> huge injections of state capital into the economy •Use of state banks and SOEs! 2008 Financial crisis •> huge injections of state capital into the economy •Use of state banks and SOEs! •Successful – return to growth as early as 2010 •= positive experience with a large state intervention • 2008 Financial crisis •> perception that the Western model of capitalism has failed 2008 Financial crisis •> perception that the Western model of capitalism has failed •> China should use the advantages of its state capitalist model more often and more forcefully • Strategic emerging industry (SEI) •Prime minister Wen – it is during periods of crisis when great technological revolutions take place • Strategic emerging industry (SEI) •Prime minister Wen – it is during periods of crisis when great technological revolutions take place •> this time, China is not going to miss it! Strategic emerging industry (SEI) •Prime minister Wen – it is during periods of crisis when great technological revolutions take place •> this time, China is not going to miss it! •“Seize the commanding heights of the new technological revolution” • Strategic emerging industry (SEI) •2010 – new and more ambitious policy •Ambition to not just catch up with but to overtake leading countries and firms (=5G etc.) Strategic emerging industry (SEI) •2010 – new and more ambitious policy •Ambition to not just catch up with but to overtake leading countries and firms (=5G etc.) •More direct – cooperation with specific firms • The Xi Jinping era •2012 – new leadership of the Party •Conservative, authoritarian turn • The Xi Jinping era •2012 – new leadership of the Party •Conservative, authoritarian turn •Limiting the autonomy of regional governments and collective bodies, cult of personality – president for life • The Xi Jinping era •2012 – new leadership of the Party •Conservative, authoritarian turn •Limiting the autonomy of regional governments and collective bodies, cult of personality – president for life •Ethnic nationalism, clampdown on minorities, upholding of traditional gender norms (ban on sissy boys etc.) • The Xi Jinping era •Economically – strengthening the role of the state/Party • • The Xi Jinping era •Economically – strengthening the role of the state/Party •In the preceding era – the private sector grew faster than the public sector (in spite of policy!) and gradually overshadowed it • The Xi Jinping era •Private corporations: •1) May pose a threat to the Party The Xi Jinping era •Private corporations: •1) May pose a threat to the Party •2) Behave according to their selfish motives = invest money according to what is most immediately profitable, not what is most beneficial for China in the long rung The Xi Jinping era •Private corporations: •1) May pose a threat to the Party •2) Behave according to their selfish motives = invest money according to what is most immediately profitable, not what is most beneficial for China in the long rung •= they don‘t see the „big picture“= divert resources from more important causes The Xi Jinping era •Private corporations: •1) May pose a threat to the Party •2) Behave according to their selfish motives = invest money according to what is most immediately profitable, not what is most beneficial for China in the long rung •= they don‘t see the „big picture“= divert resources from more important causes •> the Party must lead to overcome this coordination problem The Xi Jinping era •Creeping nationalization > private companies are being forced to accept a role for the Party in decision making The Xi Jinping era •Creeping nationalization > private companies are being forced to accept a role for the Party in decision making •Veto right, founding of new party cells inside of businesses The Xi Jinping era •Creeping nationalization > private companies are being forced to accept a role for the Party in decision making •Veto right, founding of new party cells inside of businesses •Similar rules were often created in the 1990 for privatized SOEs, here this régime is extended to formally purely private companies The Xi Jinping era •Creeping nationalization > private companies are being forced to accept a role for the Party in decision making •Veto right, founding of new party cells inside of businesses •Similar rules were often created in the 1990 for privatized SOEs, here this régime is extended to formally purely private companies • •> even greater obfuscation of the already blurry line between the public and private sector! Artificial intelligence •2016 – AlphaGo (Google) defeated professional Go players Artificial intelligence •2016 – AlphaGo (Google) defeated professional Go players •- a traditional Asian game which is far more complex than chess •> „Sputnik moment“ Artificial intelligence •2016 – AlphaGo (Google) defeated professional Go players •- a traditional Asian game which is far more complex than chess •> „Sputnik moment“ •„AI gap“ – like the missile gap during the Cold War •Prime minister Wen – it is during periods of crisis when great technological revolutions take place •> this time, China is not going to miss it! •“Seize the commanding heights of the new technological revolution” • Artificial intelligence •2016 – AlphaGo (Google) defeated professional Go players •- a traditional Asian game which is far more complex than chess •> „Sputnik moment“ •„AI gap“ – like the missile gap during the Cold War • •> „AI is the new groundbreaking technology we are looking for!“ •A new economic era is beginning, China must take the lead The AI triad •1) Collection of data – sensors, cameras with facial recognition etc. •2) Quick transfer of data – next generation Internet •3) Processing od data – algorithms, advanced hardware The AI triad •1) Collection of data – sensors, cameras with facial recognition etc. •2) Quick transfer of data – next generation Internet •3) Processing od data – algorithms, advanced hardware • •> a car driven by computer stops at a red light, which reacts to sensors observing transport, which automatically reacts to traffic jam The AI triad •1) Collection of data – sensors, cameras with facial recognition etc. •2) Quick transfer of data – next generation Internet •3) Processing od data – algorithms, advanced hardware • •> a car driven by computer stops at a red light, which reacts to sensors observing transport, which automatically reacts to traffic jam •> automatically operated factories or systems of transport The AI triad •1) Collection of data – sensors, cameras with facial recognition etc. •2) Quick transfer of data – next generation Internet •3) Processing od data – algorithms, advanced hardware • •> a car driven by computer stops at a red light, which reacts to sensors observing transport, which automatically reacts to traffic jam •> automatically operated factories or systems of transport •„Digital central planning“? • „New Era“ •1949-1976 – Maoism – correct principles, but insufficient capacity to implement them • „New Era“ •1949-1976 – Maoism – correct principles, but insufficient capacity to implement them •1978-2012 – Reform and Opening – attempt to build up wealth and strength at the cost of diverting from preferred values • „New Era“ •1949-1976 – Maoism – correct principles, but insufficient capacity to implement them •1978-2012 – Reform and Opening – attempt to build up wealth and strength at the cost of diverting from preferred values •2012 -? – New Era – dialectical synthesis – now China has the means to go back to a much more statist economy and to do so efficiently = correct principles with capacity to implement them • • Industrial revolutions • Industrial revolutions •1st – steam engine > textile industry, ships, trains Industrial revolutions •1st – steam engine > textile industry, ships, trains •2nd – electricity and combustion engines > cars, planes; lighbulbs and domestic appliances Industrial revolutions •1st – steam engine > textile industry, ships, trains •2nd – electricity and combustion engines > cars, planes; lighbulbs and domestic appliances •3rd – information technologies and electronics – computers, phones, GPS – human oversight! Industrial revolutions •1st – steam engine > textile industry, ships, trains •2nd – electricity and combustion engines > cars, planes; lightbulbs and domestic appliances •3rd – information technologies and electronics – computers, phones, GPS – human oversight! •4th – AI – autonomous robots and machines, smart manufacturing etc. •China should seize the opportunity and become the leader in the 4th industrial revolution •> take a shortcut, bypass some stages of development and go to the top •> leapfrog advanced countries • •At the same time – Brexit, Trump, terrorist attacks in France > even greater perception of Western decline •At the same time – Brexit, Trump, terrorist attacks in France > even greater perception of Western decline •> the West is weak and decadent, and cannot possibly withstand China‘s ability to mobilize resources and make sacrifices for its common future •China rediscovered its confidence after 40 years of basically uninterrupted growth and success • •traditional anti-liberal worldview: • „Americans let their best minds focus on creating addictive social media; advertisement; financial services…“ •traditional anti-liberal worldview: • „Americans let their best minds focus on creating addictive social media; advertisement; financial services…“ •> „We will focus on things that are actually valuable and useful“ = high tech •„techno-nationalism“ • •Noah Smith – Why Is China Smashing Its Tech Industry? • •Noah Smith – Why Is China Smashing Its Tech Industry? • •What is called „tech“ in the West are mostly consumer-oriented services such as social media and financial apps •Noah Smith – Why Is China Smashing Its Tech Industry? • •What is called „tech“ in the West are mostly consumer-oriented services such as social media and financial apps •China thinks this type of stuff is soft – true tech is advanced manufacturing, material science, AI… •Noah Smith – Why Is China Smashing Its Tech Industry? • •What is called „tech“ in the West are mostly consumer-oriented services such as social media and financial apps •China thinks this type of stuff is soft – true tech is advanced manufacturing, material science, AI… •= things that have a high and measurable performance •Noah Smith – Why Is China Smashing Its Tech Industry? • •What is called „tech“ in the West are mostly consumer-oriented services such as social media and financial apps •China thinks this type of stuff is soft – true tech is advanced manufacturing, material science, AI… •= things that have a high and measurable performance •Smith - would be useful in a war??? •Liberal critique - Naughton, Huang – value does not necessarily come from technological prowess •Many things we value are quite rudimentary •Liberal critique - Naughton, Huang – value does not necessarily come from technological prowess •Many things we value are quite rudimentary • •Krpec – a kilogram of integrated circuits vs. a kilogram of Parma ham • Made in China 2025 •Announced in 2015 •A truly large program of industrial policy – bigger, more concrete and more ambitious than SEI • Made in China 2025 •Announced in 2015 •A truly large program of industrial policy – bigger, more concrete and more ambitious than SEI •Supported sectors – advanced technology fields – AI, machine learning, internet of things, new materials, aerospace, biotechnology… • • Innovation Driven Development Strategy •2016, meant as a more general framework for existing programs (MiC25, SEI, Internet Plus) Innovation Driven Development Strategy •2016, meant as a more general framework for existing programs (MiC25, SEI, Internet Plus) •Main idea – AI is a general-purpose technology Innovation Driven Development Strategy •2016, meant as a more general framework for existing programs (MiC25, SEI, Internet Plus) •Main idea – AI is a general-purpose technology •The goal is to 1) develop it and then 2) implement it in all sectors of the Chinese economy Innovation Driven Development Strategy •2016, meant as a more general framework for existing programs (MiC25, SEI, Internet Plus) •Main idea – AI is a general-purpose technology •The goal is to 1) develop it and then 2) implement it in all sectors of the Chinese economy •> digitalization, smart cities, intelligent manufacturing Innovation Driven Development Strategy •China now has a whole system of programs to develop new technologies and support their adoption Industrial Guidance Funds •Key tool of industrial policy •The previous (MiC25 etc.) were programs laying out goals; this is about the means Industrial Guidance Funds •Inspired by US venture capital firms •But funded by SOEs and banks – indirect state capital Industrial Guidance Funds •Inspired by US venture capital firms •But funded by SOEs and banks – indirect state capital •„You have savings and profits? Give them to a designated fund!“ Industrial Guidance Funds •Inspired by US venture capital firms •But funded by SOEs and banks – indirect state capital •„You have savings and profits? Give them to a designated fund!“ •2019 – total commitment 1,6 trillion USD – 11 % of Chinese GDP Industrial Guidance Funds •Investment – both new startups and established firms •Biggest target of support – semiconductors •= chips •= brain of electronics, „DNA of technology“ •Biggest target of support – semiconductors •= chips •= brain of electronics, „DNA of technology“ •Necessary for China‘s technological goals •Biggest target of support – semiconductors •= chips •= brain of electronics, „DNA of technology“ •Necessary for China‘s technological goals •China continues to be surprisingly weak and aims to improve its position •Biggest target of support – semiconductors •= chips •= brain of electronics, „DNA of technology“ •Necessary for China‘s technological goals •China continues to be surprisingly weak and aims to improve its position •Next time! Return of industrial policy •Bigger (even relatively) than policies of Japan, Taiwan, South Korea etc. in the post-war period •A qualitatively different goal – leadership Return of industrial policy •Bigger (even relatively) than policies of Japan, Taiwan, South Korea etc. in the post-war period •A qualitatively different goal – leadership • •Highly provocative – Naughton – breaking of unwritten international rules Return of industrial policy •Bigger (even relatively) than policies of Japan, Taiwan, South Korea etc. in the post-war period •A qualitatively different goal – leadership • •Highly provocative – Naughton – breaking of unwritten international rules •> backlash - end of Western complacency about China – US-China trade war Return of industrial policy •Bigger (even relatively) than policies of Japan, Taiwan, South Korea etc. in the post-war period •A qualitatively different goal – leadership • •Highly provocative – Naughton – breaking of unwritten international rules •> backlash - end of Western complacency about China – US-China trade war •Also next time Asian developmental state •„How Asia works“ – Joe Studwell • Obsah obrázku text Popis byl vytvořen automaticky Asian developmental state •„How Asia works“ – Joe Studwell •1) Land reform •2) Industrial policy > promotion of exports •3) State owned banks – also promotion of industry Asian developmental state •New firms are not going to succeed on their own, they need protection and help from the state (x free trade) Asian developmental state •New firms are not going to succeed on their own, they need protection and help from the state (x free trade) •But they must be tested so that they don‘t become complacent > „export discipline“ – they must be able to sell products abroad Asian developmental state •New firms are not going to succeed on their own, they need protection and help from the state (x free trade) •But they must be tested so that they don‘t become complacent > „export discipline“ – they must be able to sell products abroad •Why abroad? Success in the closed domestic market doesn‘t prove anything Asian developmental state •Undervalued currency – helps with export Asian developmental state •China – somewhat similar, but even more statist •Most large enterprises continued to be state-owned (to this day) Asian developmental state •China – somewhat similar, but even more statist •Most large enterprises continued to be state-owned (to this day) •No liberalization after successful growth Asian developmental state •China – somewhat similar, but even more statist •Most large enterprises continued to be state-owned (to this day) •No liberalization after successful growth •J, K, T attempted to catch up, not to become the undisputed leader (x China‘s ambitions for next generation Internet, AI….) • Asian developmental state •J, K, T – developmental state as a necessary evil, a precursor to capitalism which isn‘t possible yet •= more or less in line with Western theorists of protectionism – Alexander Hamilton, Friedrich List Asian developmental state •J, K, T – developmental state as a necessary evil, a precursor to capitalism which isn‘t possible yet •= more or less in line with Western theorists of protectionism – Alexander Hamilton, Friedrich List •CH – developmental state as a necessary evil, a precursor to socialism which isn‘t possible yet Asian developmental state •J, K, T – developmental state as a necessary evil, a precursor to capitalism which isn‘t possible yet •= more or less in line with Western theorists of protectionism – Alexander Hamilton, Friedrich List •CH – developmental state as a necessary evil, a precursor to socialism which isn‘t possible yet •= China does not yet posses the capacity for planning and redistribution necessary to achieve socialism, so it has to accept markets Asian developmental state •CCP – China‘s advantage continues to be the ability to mobilize resources • ISI •Import-substituting industrialization (ISI) •Not so important for us, but often discussed in IPE •Latin America, circa 1945-1980 ISI •Protectionism, state-owned banks and large enterprises – similar to Asia ISI •But – no promotion of export! – closed economies ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt •Overvalued currencies – to pay back the debt – but exacerbated the trade deficits ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt •Overvalued currencies – to pay back the debt – but exacerbated the trade deficits •Also – no sweeping land-reform = surviving inequality, „old elite“ ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt •Overvalued currencies – to pay back the debt – but exacerbated the trade deficits •Also – no sweeping land-reform = surviving inequality, „old elite“ •1980s – bankruptcies, transition to free trade (IMF, WB) ISI •Economists – identification of ISI with protectionism and Asia with free markets •= misinterpretation Shock therapy/Neoliberalism •Eastern Europe after 1989 •= full transition towards free market capitalism •= privatization of enterprises, market prices, free trade • Shock therapy/Neoliberalism •Main idea – the Communist regimes have collapsed > there is no power capable of overseeing central planning Shock therapy/Neoliberalism •Main idea – the Communist regimes have collapsed > there is no power capable of overseeing central planning •> we must move quickly towards markets, otherwise the managers of the SOE‘s will plunder the assets •= the need to dissolve public ownership relatively quickly, before it‘s completely hollowed out • Shock therapy/Neoliberalism •Derided and discredited today – collapse of Russia, Ukraine etc, poverty, rise of oligarchs Shock therapy/Neoliberalism •Derided and discredited today – collapse of Russia, Ukraine etc, poverty, rise of oligarchs •But – Baltic countries, Poland, Czechia, Slovakia, Slovenia, Hungary… •> often reasonably successful! Shock therapy/Neoliberalism •China – We don‘t want shock therapy, because: •1) we still basically believe that socialism will win in the end •2) doing so would drastically curtail the Party‘s power Shock therapy/Neoliberalism •China – We don‘t want shock therapy, because: •1) we still basically believe that socialism will win in the end •2) doing so would drastically curtail the Party‘s power •Eastern Europe – We don‘t want Chinese-style mixed economy because: •1) we no longer believe in socialism •2) doing so would mean keeping the security apparatus to oversee the SOEs •