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October 10, 2016

China's 'Socialist Model' Outperformed Washington Consensus

By: John Ross


China used both the ‘visible’ and the ‘invisible hand’ – not simply the private sector
but also the state.

The first ever visit of a China’s Foreign Minister to Ecuador takes place this week and
follows a visit by China’s Premier Li Keqiang to Cuba last month. These visits
underline closer ties between two of the world emerging continents.

  OPINION: Lessons for Latin America from China’s Economic Success        

Latin America was long subjected to the U.S. initiated neo-liberal ‘Washington
Consensus, a model that caused great harm to the continent and which a number of
leftist government rejected from the turn of the century. New research finds that those
government were correct to do so.

Analysis of World Bank data shows that the 1st, 2nd, 3rd, and 4th fastest growing
economies during the period of the Washington Consensus were governments that
not only rejected this dogma but instead follow, or were highly influenced by, China’s
development model. These are China itself, as well as Vietnam, Cambodia, and the
Laos People’s Democratic Republic.

Alternative development models, including the Washington Consensus, have been a
failure in comparison.

The term ‘Washington Consensus’ was first coined in 1989 by U.S. based economist
John Williamson - although the actual practical policies were commenced in the late
1970s/early 1980s. The Washington Consensus is a classic form of ‘neo-liberalism’. It
advocates in terms of economic policy privatisation and minimisation of the state’s
economic role. Its social policy may be described as ‘trickle down’ – a belief that if
there is economic growth all layers of society will automatically benefit as the benefits
‘trickle down’ from richest to poorest. Legally, the Washington Consensus states the
overriding goal is the strongest guarantees of private property. Politically, although
claiming to be neutral, this combination of policies evidently favours capitalist and
conservative political parties        

China’s ‘socialist development strategy,’ which commenced with its 1978 economic
reforms, is radically different in its entire framework and directly counterposed on key
policy issues. China used, in Xi Jinping’s phraseology on economic policy, both the
‘visible’ and the ‘invisible hand’ – not simply the private sector but also the state.
Indeed, in China itself, as the 3rd Plenum of the Central Committee of the 18th
Congress of the CPC insisted: "We must unswervingly consolidate and develop the
public economy, persist in the dominant position of public ownership, give full play to
the leading role of the state-owned sector."        

China does not rely on ‘trickle down’ but has undertaken massive and conscious
programmes deliberately aimed at eradicating poverty; it did not rely exclusively on
‘the market’ but deliberately uses state infrastructure spending to raise the economic
level; and while guaranteeing private property it assigns a key economic role to the
state sector.

From 1989, the date of the putting forward of the Washington Consensus, to 2015
China, Vietnam and Laos ranked respectively 1st, 2nd and 3rd in the world for
countries in per capita GDP growth. All three followed or were influenced by the
‘China development model’ outgrew. From 1993-2015, when all four countries can be
analyzed as having a similar model, China, Cambodia, Vietnam and Laos ranked
respectively 1st, 2nd 3rd, and 4th in world per capita GDP growth. Countries with
populations of less than 5 million or dominated by oil production are not included.

The degree to which economies influenced by the ‘China development model’ outgrew
the world average was huge. From 1978 onwards China’s rate of growth was almost
six times the world average. Since 1989 China again grew almost six times as fast as
the world average while Vietnam and Laos grew over three times as fast as the world

This ranking of growth necessarily shows that China's economic model not only
produced more rapid growth than developed economies but also capitalist economies
at the same stage of economic development (level of per capita GDP).        

  RELATED: Latin America's Strongest Economy Seeks Russian, Chinese Funds        

China's economic model also far outperformed alternatives in poverty reduction. From
1981m China lifted 728 million people out of World Bank defined poverty – accounting
for 83 percent of the total reduction of those living in poverty. Another socialist
country, Vietnam, lifted over 30 million from poverty by the same criteria. The whole of
the rest of the world, in which the dominant model advocated by the IMF was the
Washington Consensus, lifted only slightly 120 million people out of poverty. Latin
America’s left government's - which also rejected the Washington Consensus - also
playing an important role.

Such data destroys the claim that is ‘capitalism’ which has produced rapid economic
growth and poverty reduction. If capitalism were the motor of rapid economic growth
and poverty reduction then this growth would be most rapid, and poverty reduction
greatest, in capitalist countries. China’s ‘socialist development model’ therefore was a
huge success while the Washington Consensus was a failure.

Economic development remains the most fundamental issues for the overwhelming
majority of the world’s population - on the latest World Bank data, 84 percent of the
world’s population lives in developing countries. Any objective analysis based on
aiming to maximise a country’s development potential would therefore start with China’
s ‘socialist development model’ and reject the “Washington Consensus.”