How China made its great leap forward

What is most surprising about this article, which is from the Wall Street Journal, is that it is based on the book "How China Became Capitalist", by Ronald Coase and Ning Wang, which is due out this month. The notable thing is that Coase is of course the 101 year old Nobel laureate in economics. If I'm still working and writing books at 101 I will be bloody impressed!

Coase and Wang open their WSJ article by noting

China's post-Mao market transformation is one of the most dramatic and momentous events of our time. It has lifted hundreds of millions out of extreme poverty, freed one fifth of humanity from ideological radicalism, revived one of the oldest civilizations, and inspired all of us to explore the benevolence of the market.

But they then say,

Yet capitalism as currently practiced in China suffers a severe failing: the lack of a marketplace for ideas. China's market transformation flourished at the ground level without much help from Beijing—contrary to its leadership's claims. But the free flow of ideas has faltered. Until that changes, China will never reach its full potential.

and add

In the years to come, China will continue to forge its own path, but it needs to address its lack of a marketplace for ideas if it hopes to continue to prosper. An unrestricted flow of ideas is a precondition for the growth of knowledge, the most critical factor in any innovative and sustainable economy. "Made in China" is now found everywhere in the world. But few Western consumers remember any Chinese brand names. The British Industrial Revolution two centuries ago introduced many new products and created new industries. China's industrial revolution is far less innovative.

The active exchange of thoughts and information also offers an indispensable foundation for social harmony. It is not a panacea; nothing can free us once and for all from ignorance and falsehood. But the free flow of ideas engenders repeated criticism and continuous improvement. It also cultivates respect and tolerance, which are effective antidotes to the bigotry and false doctrines that can threaten the foundation of any society.

One thing that economists note is that cities exhibit "agglomeration effects"; having lots of people close to one another helps create new ideas and helps to find new way to use current ideas. In short, big cities lead to lots of big ideas. China has big cities, huge cities, but if Coase and Wang are to be believed not much in the way of new ideas. So something must be missing, and for China that something may be freedom from state control. Markets in ideas, if not for goods and services, are still largely missing from China due to state regulation. Coase and Wang point out that

When China started reforming itself more than three decades ago, Deng rightly stressed the "emancipation of the mind" as a prerequisite. But that has yet to happen. It's time for China to embrace not just the market, but the marketplace of ideas.