Employment Policies, 14th Jan., 2011.

Jacques Rueff, a student of Ludwig von Mises and Financial Minister of France, wrote an article on the dominance of Keynesian thought in the West.

[T]he new theory has not merely a philosophical significance. It leads to rules of action, notably in the struggle against the chief malady of modern society - chronic unemployment. Indeed, it is this aspect of it - the doctrine of "full employment" - that has been most influential. Explaining the evil and providing the means of curing it, it has brought great comfort to the world. As a remedy for unemployment, it quickly expanded beyond economic science to become an instrument of government. It has led to the publication of white papers in England and Canada and to a proposed law in the United States, the Murray Full-Employment Bill, which undertake to bind governments to its prescriptions. The new French constitution obliges the government to present each year "a national economic plan designed to provide full employment of labor and the rational utilization of material resources." The Economic Committee of the United Nations is called "Committee on Economic Questions and Employment." Finally, the International Conference which is to deal with the problem of international trade and whose first session was held in London in October-November, 1946, is the Conference on Commerce and Employment.

Central Planning in India 1950-1980, 13th Jan., 2011.

Nicholas Stern has an article, written for the Royal Economic Society, about post-war economic planning. F. A. Hayek is mentioned.

The balance of opinion in the I940S and I950S appears to have been in favour of substantial state intervention, particularly in the investment process. The leading example for the discussion was India (China was little discussed as information was very scarce and Western economists were not involved). Disenchantment with planning increased from the early I960s through the I970s and I980s. This formed a central part of what Little (I982) describes as the 'neoclassical resurgence'. This shift of the balance of views was based on the apparently heavy hand of planning in countries such as India and the rapid advance of countries which, it was argued, followed more laissez-faire policies. The outstanding growth performance of the so-called 'four dragons', South Korea, Taiwan, Hong Kong and Singapore was particularly influential. It was argued that the achievements of countries which both encouraged response to prices and which made an effort to 'get prices right' belied the arguments of the structuralists who had emphasised the sluggishness of economic reactions and the ineffectiveness of a decentralised price system. The stultifying effect of large-scale planning was, it was suggested, exemplified by India.

Post-War Businesses and Keynesianism, 12th Jan., 2011.

H. W. Arndt has an article about Keynesianism's effect on British businesses after World War II.

If there is general agreement that world prosperity is a condition of British prosperity, there is even more striking unanimity on the method of approach to that goal: all five reports accept the "under-consumption" theory--so recently rank heresy in the eyes of business men and economists--in one form or another (the London C. of C. in terms reminiscent of Major Douglas). The root of the trouble has been the gap between potential and effective consumers' demand, the deficit in our "monetary mechanism" for the distribution of purchasing power. If one may judge by these reports, British business has been more than adequately converted to "Keynesianism".

Radical Economics in America, 11th Jan., 2011.

Martin Bronfenbrenner has an article about the rise of radical economics in America in the 1960 and 70s, right when China was beginning to doubt its own socialist system.

Only five years later, in late 1969, the end of ideology had itself ended. A thou- sand-member Union for Radical Political Economics (U.R.P.E.) had not only been organized by graduate students and junior practitioners, but had staged a "counter- convention" at an annual meeting of the American Economic Association and disrupted a few sessions of its prestigious parent body [29, 1970]. Several academic institutions, including Harvard, had curricula in radical economics. At a few of them the radicals controlled the entire economics program.' Advertisements for the revision of America's most popular undergraduate economics textbook-a mouthpiece of establishment economics through seven editions-now assured us that "Complacent Establishment Economics is the Enemy!" The change is extraordinary. The sleeping dogs have not only awakened, they have awakened with extra teeth and extra sets of vocal cords. [...]

Radical economists see the existing economic order as hopelessly infected with a number of evils, "to such an extent that no part of it can be extracted which is not contaminated" [5, 1969, p. 53]. Further, they are pessimistic about the possibility of significantly remedying these evils by democratic, representative, or parliamentary measures because both the mass media and legislative campaign funds are controlled by an "establishment" of satisfied persons and groups with great interrelated wealth and power.

Keynes and Socialism, 10th Jan., 2011.

According to Austin Robinson of the Royal Economic Society:

He had made himself rich, it is true, in a Liberal world; but he had nothing to fear in Socialism; he would have been a perfectly loyal, happy and financially care-free Governor of the Bank and the Fund, or whatever might come his way, in a Socialist world or in any other. His objectives were included in their objectives. His political Liberalism was seldom obtruded in later life. I do not know (and I doubt if anyone knows) what his final views would have been upon the present moves towards nationalisation. Neither, I suspect, wholly unfavourable nor wholly favourable. Yet it was natural to him, in trying to make a framework within which the world economic system might develop, to think of it in the essentially Liberal terms of markets and prices and discounts and borrowing rates. And when the General Theory was interpreted as an argument for closing national economic systems, or his pupils expressed scepticism whether interest rates could ever provide a wholly perfect and effective working link between the volume of saving and the volume of investment in full employment, Keynes' fundamental belief in the Liberal economy was apt to find itself in conflict with his passionate care for his objectives.

Keynes in World War I, 9th Jan., 2011

Thomas F. Cooley and Lee E. Ohanian make the case that "One clear justification for this balanced-budget policy was that it advanced his social objectives, a view he made explicit in the preface and on the first page of How to Pay for the War:"

I have endeavored to snatch from the exigency of war positive social improvements. The complete scheme (tax policy)now proposed . . . embodies an advance toward economic equality greater than any which we have made in recent times. [P. iii]

[I] propose a plan conceived in a spirit of social justice, a plan which uses a time of general sacrifice, not as an excuse for postponing desirable reforms, but as an opportunity for moving further than we have moved hitherto towards reducing inequality. [P. 1]

Hard and Soft Authoritarianism, 8th Jan., 2011.

According to Edwin A. Winckler's article:

Three relationships regulate the transition from hard to soft authoritarianism: between institutionalization and participation, between external and internal factors, and between formal and informal arrangements. The most important domestic political relationship, occupying most of this article, is that between institutionalization and participation. In Huntington's already classic formulation, maintaining political order in changing societies requires maintaining a balance between the capacity of elite state institutions and the volume of mass political mobilization. [3] As to how this formulation applies to specifically authoritarian regimes, the first position to enter the comparative politics literature assumed that social modernization accompanying the early light-industrial stages of economic development would produce a crisis of demand for increased mass participation, leading to democratization. [4] A second position then argued that the elite institutions of contemporary modernizing authoritarian regimes are pre-adapted to contain such mass demand for participation, particularly if they have robust ruling party organizations. In some accounts this stability is reinforced by consensus among elites on the need for a strong state to mobilize capital and steer development during the late, expensive, heavy-industrial phases of economic development. [5] However, a third position soon proposed that tensions between institutional elites themselves, partly occasioned by the need to adjust to rapid socio-economic change, might still produce the breakdown of authoritarianism and the possibility of a transition to democracy. [6]

Building Socialism, 7th Jan., 2011.

According to Michael Lindsay's article:

The explanation of the actual Communist choice is almost certainly that "Socialism," defined in Communist terms, is a more important objective than productivity or raising the standard of living. It is possible that this priority for "Socialism" comes partly from a deeper motivation of securing power for the Communist Party, but the evidence can be best explained by assuming that there is also a deep-seated belief in the value of "Socialism" as an end in itself--that motivation comes from a desire to realise the vision of an ideal human society for the construction of which Communist theory is believed to offer infallible guidance. There is evidence suggesting that even the most unrealistic parts of this vision of "Socialist" society have an influence which sometimes worries the Communist leadership. For instance, people who argue that a Socialist society should have a moneyless economy and say that, "Economic accounting is the legal right of the bourgeoisie," were criticised in a fairly recent article which suggests that they were numerous enough to have appreciable influence in the Party. [3] And similar influences at the very top levels of the Party-Mao's hope to see a Communist society before he died-may have been important in producing the communes programme.

Early 1970s Economic Growth, 6th Jan., 2011.

According to Hung-mao Tien's article:

Aside from the changes occurring at the level of the national elite, the overall socio-economic spectrum is also being transformed. By many yardsticks, Taiwan's economy is rapidly modernizing and its growth is impressive. From 1961 to 1973, the annual increase in actual national income averaged about 9-5 per cent 10 and that for per capita income, close to 7 per cent. [11] With a per capita income of over U.S.$500 in 1974, the island is rapidly developing into an industrial consumer society. Latest government figures show that, in 1974, for every 100 families there were 10.48 colour television sets, 71.29 black-and-white sets, 54.9 refrigerators, and 25.35 clothes washing-machines. [12] If private ownership of automobiles has significance, there were 86,535 registered cars in 1974 as compared with 4,635 in 1964, an almost 20-fold increase in a 10-year period. [13] Rapid economic development in Taiwan also means an increasing level of industrialization and of commercial activities. In 1973 the value of industrial production increased to 37.9 per cent as a proportion of all sectors of the economy, as compared with 17.9 per cent in 1952, while the share of agricultural output decreased from 35.7 per cent in 1952 to 15.5 per cent 20 years later. [14] A Kuomintang Central Committee report in April this year revealed that the number of corporate firms with annual sales over U.S.$2-5 million (N.T.$100 million) had increased from 265 in 1971 to 480 in 1973, almost doubling in two years. [15]

Early Taipei City Council Elections, 5th Jan., 2011.

According to J. Bruce Jacobs' article:

The official rules for the Taipei City Council election stated that "candidates, when giving political opinions at meetings, may not transgress the Constitution, injure national interests, oppose the policy of Counter-Attacking the Chinese Communists and Resisting Russia, slander the Government or make charges against any group, defame or insult any other candidate; those who do, besides losing their qualifications as candidates, will be severely punished according to law.

The Limitation of Offspring, 4th Jan., 2011.

Ludwig von Mises wrote on economic development and its relation to population in his article "Ludwig von Mises on the Limitation of Offspring."

The reformers of the oriental peoples want to secure for their fellow citizens the material well-being that the Western nations enjoy. Deluded by Marxian, nationalist, and militarist ideas they think that all that is needed for the attainment of this end is the introduction of European and American technology. Neither the Slavonic Bolsheviks and nationalists nor their sympathizers in the Indies, in China, and in Japan realize that what their peoples need most is not Western technology, but the social order which in addition to other achievements has generated this technological knowledge. They lack first of all economic freedom and private initiative, entrepreneurs and capitalism. But they look only for engineers and machines. What separates East and West is the social and economic system. The East is foreign to the Western spirit that has created capitalism. It is of no use to import the paraphernalia of capitalism without admitting capitalism as such. No achievement of capitalist civilization would have been accomplished in a noncapitalistic environment or can be preserved in a world without a market economy.

The Politics of Market Socialism, 3rd Jan., 2011.

Andrei Schleifer and Robert W. Vishny have an article in the Journal of Economic Perspectives, titled "The Politics of Market Socialism."

Under all forms of market socialism, from Lange (1936) to the present, the state ultimately controls the firms, and hence politicians' objectives must determine resource allocation. Market socialists have traditionally assumed that politicians will pursue an efficient resource allocation, and only paid lip service to the idea that the state becomes "bureaucratized." They dismiss the tragic socialist experience as irrelevant because totalitarian systems are not what they have in mind. Rather, market socialists count on a democratic socialist government that pursues efficiency. The question of what such a government will maximize is therefore absolutely central to the discussion of market socialism.

Reform and Opening of China's Agriculture, 2nd Jan., 2011.

Lee Travers has an article in The China Quarterly, titled "Post-1978 Rural Economic Policy and Peasant Income in China."

A second group of policy changes, first implemented in 1979, raised agricultural purchase prices and lowered purchase quotas. The base procurement price increase in 1979 averaged 20 per cent for grain and 17 per cent over all crops. The above-quota price bonus of 50 per cent for grain and edible oil standardized that rate at two-thirds again the previous level, and a uniform bonus of 30 per cent of the base price was established for cotton. Further price adjustments in 1980 and 1981 increased the overall level of base prices by 3.5 per cent and 2.4 per cent, respectively. [5] At the Third Plenum requisition quotas were fixed for a five-year period at the 1971-75 level, though some reductions were made in 1980 and 1981. [6] With good harvests, by 1981 only about 40 per cent of grain was purchased at the base price; 60 per cent was at above-quota and negotiated prices, compared to less than 1 per cent in 1977. [7] [ . . . ]

Specialization in collective production was facilitated by an increase in rural commodity grain from the 1978 level of 1-8 mmt to over 5 mmt in 1981. [8] In 1979 communes were granted some autonomy in planting decisions, but delivery quotas and direct regulation have blocked profit maximizing cropping patterns.

In 1978 Sichuan and Anhui provinces began experimenting with a system in which small work groups or, in a few cases, households or individuals, took responsibility for a piece of land and were paid on the basis of net output. A theoretical debate over the socialist nature of the household and individual responsibility systems was resolved in 1980, when they were publicly approved. [10] By the end of 1982, 78 per cent of all teams were using some version of the household responsibility system. In most cases the household retains all output after delivering their pro-rated share of the team delivery quota and making a specified payment to the team. Teams continue to own the land, assign its use, and assign quotas. Small farm tools are owned by households, large tools may be collectively or privately owned.

The 1946 Chinese Constitution, 1st Jan., 2011.

Thomas E. Greiff has an article in the China Quarterly, titled "The Principle of Human Rights in Nationalist China: John C. H. Wu and the Ideological Origins of the 1946 Constitution."

Reading the 1946 Constitution one sees much syncretism of China and the west, but little balance between the individual and the collective. True to the spirit of Nationalist China of the 1930s, this Constitution tips that balance almost exclusively in favour of the state. [ . . . ]

The 1946 Constitution provides for protection of property, freedom of speech, [32] religion, [33] association and assembly, [34] freedom to choose residence, [35] and secrecy of correspondence. [36] It also grants familiar political rights, such as the right to vote and the institutions of initiative, referendum and recall, [37] and the right to petition the government. [38] It also enacts the institution of habeas corpus and a number of other due-process type limitations on arbitrariness in the criminal process. [39] Finally, the specifically Chinese right to sit for civil service examinations is guaranteed. [40] [ . . . ]

This positivist, legislative notion of the source of rights also leads to limits on who may exercise rights. This is the so-called "principle of revolutionary right." [43] Article 7 of the Constitution provides for equality before the law for all citizens. [44] Article 1, however, provides that "The Republic of China is a san-min chu-i [sanmin zhuyi] Republic." [45] The practice built up before 1946 was that anyone who opposed the National Revolution or the Three Principles of the People was legitimately denied his rights. [46] This continued under the Constitution. [47] This gave great power to the Kuomintang and again suggested the priority of national claims over individual claims; it also represented a serious derogation of the principle of the rule of law: it allowed the government, on political grounds, arbitrarily to define a category of citizens to whom it could constitutionally deny rights on a systematic basis.

[ . . . ] In its final version, Article 23 provided:

The freedoms and rights enumerated in the preceding articles shall not be restricted by law, except in cases where such a restriction is necessary for preventing an obstruction of the freedoms of other persons, averting an imminent crisis, maintaining social order, or promoting the public interest. [49]

Privatization of Industrial Enterprises, 31st Dec., 2010.

Ronald I. McKinnon has an article in the American Economic Review, titled "Spontaneous Order on the Road Back from Socialism: An Asian Perspective."

Virtually spontaneous liberalization in Chinese agriculture, with the household-responsibility system emerging as the dominant form, was possible because the nature of Chinese farming was suited to small holder agriculture. For labor-intensive farming, communes were naturally divisible into small household plots. However, traditional state-owned enterprises (SOE's), particularly the very large-scale factories commonly found in Eastern Europe, are different. They are not naturally divisible into smallholder operations by any "spontaneous" leasing process. Because organized private capital markets or large pools of privately controlled capital are absent in newly liberalizing socialist economies, neither can SOE's be sold or "placed" with private buyers who then assume managerial control, as were state-owned companies privatized in Margaret Thatcher's Britain. [ . . . ]

A liberal market order is best grown from the bottom up. Once small-scale capitalism in farming, trade,manufacturing, and services is unfettered and encouraged to flourish under the protection of evolving common law for the enforcement of Hayekian "rules of just conduct," the resulting spontaneous order can indeed spread rapidly, as the example of Chinese agriculture has shown.

The Far East and Latin America, 30th Dec., 2010.

Ray Bromley has an article in Economic Geography, titled "A New Path to Development? The Significance and Impact of Hernando De Soto's Ideas on Underdevelopment, Production, and Reproduction."

Since the mid-1970s, most Latin American countries have been locked into crises of escalating foreign debt, massive capital outflows, rising food imports, and rapid environmental deterioration, and many have also been plagued by political unrest, vicious repression, narcotics-related corruption and violence, and seemingly incurable hyperinflation. With the emergence of "the four tigers" (South Korea, Taiwan, Hong Kong, and Singapore), the accelerated industrialization of many of the poorest Asian countries, and the impressive performance of many Asian Third World nations in the area of food self-sufficiency, Latin America has lost its attraction in International Development Studies-it is an example no longer of "how to do things," but rather of "what to avoid." [ . . . ] With only around eight percent of the world's population, however, Latin America accounts for over 40 percent of the total Third World foreign debt[.]

The Rise of the Provinces, 29th Dec., 2010.

Shirk, Susan L. "The Political Logic of Economic Reform in China." University of California Press. 1993.  Page 189.

Decentralizing reforms changed the career incentives of provincial officials. In the past the focus of their ambitions had been the central party-state bureaucracy in Beijing. But after 1980 so much of the economic action occurred at the provincial level and provincial leaders exercised such national influence that some politicians from the most dynamic regions chose to remain in the provinces instead of climbing the ladder to Beijing. One well-known example was [Xuanping Ye (叶选平)], governor of Guangdong province, who turned down attractive job offers in Beijing (one to be a vice premier of the State Council) to stay in Guangdong; he was fired in 1991. Another example is [Qinglin Jia (贾庆林)], deputy party secretary of Fujian, who turned down a ministry post in Beijing in the hopes that he would become provincial governor instead (Kuan 1990). To the degree that the allure of national position has faded, the center has lost some leverage over the behavior of provincial officials.

Chinese Style Federalism, 28th Dec., 2010.

Barry R. Weingast has an article in the Journal of Law, Economics, and Organization, titled "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development."

A range of factors has contributed to China's economic success relative to the former Soviet Union. These factors include, for example, the proximity of South China to foreign capital, notably family wealth of those who had previously fled the communists to Hong Kong or Taiwan; the relatively limited initial scope of economic reform, perhaps including its focus on agriculture while ignoring the large-scale public enterprises; in contrast to the former Soviet Union, China's relatively shorterexperience with communism, its leaders' more pragmatic and less ideological pursuit of socialist economic principles, and a far less interdependent economy. Moreover, in contrast to the republics and satellites of the former Soviet Union, which inherited a range of economic and fiscal problems from their former regimes, China initiated the reforms from a position of relatively strong fiscal health.

All of these factors contributed to China's success. And yet these and related factors provide an inadequate understanding of that success. A central though underemphasized factor of China's economic reform is that it was initiated with political reform. As applied to China, the term political reform usually refers to democratization. Democratization is clearly a central task of political reform, one of sufficient value that it receives special attention. Yet it reflects only one aspect of politics and political reform.'In what follows, I use the term in its broader sense.

As part of the effort to pursue economic reform, the Chinese central authorities instituted a form of political decentralization that limited their own power. This decentralization produced a form of market-preserving federalism. This federalism, Chinese-style, differs considerably from Western-style federalism-for example, in having no connection to individual rights and political freedoms. [ . . . ]

Underpinning this success was the central government's seeming toleration of the loss of political control over local economic policy-making. This has had two effects. First, it has lowered the influence and importance of the relevant ministries of the central government and hence of central planning. Second, the incentives of local political officials changed dramatically. With
the growing success of economic reform, local revenues came to depend on the economic health of the local economy, not on political allegiance to the central government or conformity to a central plan. Paralleling the incentives facing the English justices of the peace during the industrial revolution, decentralization in China provided many local political officials with the incentives to create an economic and political environment that fosters economic growth. In both 18th century England and modem China, prospering economic enterprises provide an expanding local resource base, aligning the interests of local officials with local economic success. [ . . . ]

[T]he economic retrenchment was resisted by local officials from the areas experiencing the highest economic growth, officials who had no interest in seeing the retrenchment succeed. Li Peng, the conservative premier, failed in his attempt to recentralize investment and financial powers from the provinces. The governor of Guangdong refused, and many other governors followed suit.

Development Assistance, 27th Dec., 2010.

William Easterly has an article in the American Economic Review, titled "Was Development Assistance a Mistake?"

In the 1950s through the 1970s, development (i.e., economic growth) was a simple matter of raising the rate of investment to Gross Domestic Product (GDP), including public investments for roads, dams, irrigation canals, schools, and electricity, as well as private investment. Private investment, however, was usually not trusted to do enough or to do the right things, and so there was a strong role for the state to facilitate and direct investment, guided by the development experts.

Unfortunately, the debts accumulated to finance these investments turned out not to be repayable. So, there were two debt crises during the 1980s. Middle-income countries had borrowed from commercial banks at market rates, while low-income countries had loans from official agencies at concessional rates. Both entered into a long process of rescheduling and writing off debt that led to a lost decade for both groups of debtors. Understandably, inferring that unrepayable loans were a sign of unproductive investments, especially in Latin America and Africa, development wisdom shifted away from mobilizing and guiding capital accumulation. Attention, instead, shifted toward the success of the East Asian tigers (South Korea, Taiwan, Hong Kong, and Singapore), which combined export orientation and macroeconomic stability. This became the inspiration for structural adjustment packages of the IMF, the World Bank, and the "Washington Consensus," which called for removing price distortions, opening up to trade, and correcting macroeconomic imbalances (mainly budget deficits). [ . . . ]

The twentieth century's first development economist may have been Vladimir Lenin, who wrote a famous pamphlet in 1902 called "What Is to Be Done?" He said that the revolutionary intelligentsia had the answer. A long line of such diverse thinkers going back to the French Revolution such as Edmund Burke, Karl Popper, Friedrich Hayek, Isaiah Berlin, and James C. Scott have criticized the idea that experts can redesign society, and the catastrophic outcomes of the more extreme attempts to do so supported these criticisms. Yet the unquenchable demand for experts who can all tell "us" the right answers shows no sign of ending soon.

Hayek in Economics Textbooks, 26th Dec., 2010.

Mark Skousen discusses F. A. Hayek's influence in American textbooks in his article "The Perseverance of Paul Samuelson's Economics."

The reduction in space allocated to Marxist economics has been accompanied by less discussion about the Austrian economists Ludwig von Mises and Friedrich Hayek, who warned earlier that socialist central planning could not work and could not calculate prices and costs accurately. Samuelson and Nordhaus mention the role of Mises and Hayek in the socialist calculation debate from editions nine through 12 (9:640; 12:693), but have dropped them from the most recent editions.

Import Substitution, 25th Dec., 2010.

Henry J. Bruton has an article in the Journal of Economic Literature, titled "A Reconsideration of Import Substitution."

Through most of the 1950s, Taiwan used trade and exchange rate policies to limit external competition. There were tariffs, a fairly high set of ERPs, and multiple exchange rates, most of which represented an overvaluation. All foreign exchange had to be turned over to the Central Bank, and demand for foreign exchange greatly exceeded supply at the prevailing exchange rates. Public sector imports were given a preference relative to private sector requests. The import substitution syndrome appeared in full regalia. [43] Then in the late 1950s Taiwan began to dismantle this array of controls, to establish a single exchange rate at a realistic level, and to encourage exporting in a number of other ways.

The Many Layers of the Chinese Market, 24th Dec., 2010.

Gregory C. Chow has an article in the American Economic Review, titled "Challenges of China's Economic System for Economic Theory."

China is an interesting experimental station for both public and private enterprises, as state-owned enterprises coexist with collectively owned enterprises (many by township and villages) and private enterprises (owned individually, by foreign corporations, or jointly with foreign corporations). Some state-owned enterprises, especially those having joint ventures with foreign corporations, appear to be efficient, as they are financially independent and are making large profits. Many collectively owned township and village enterprises are successful in increasing output and making profits. The successful experience of the township and village enterprises in China is sufficient to challenge the dogma that only private enterprises in a capitalist economy can be efficient. [ . . . ]

Two kinds of ""assets" need to be distinguished. Land as an asset is publicly owned. The enterprise managed by a farm household using the land is privately owned. This private enterprise leases a piece of publicly owned land to produce and make profits, as in a capitalist society, but the government or village authority owns the piece of land under a Chinese socialist system. Publicly owned assets consist mainly of land, state enterprises, and township and village enterprises. The government can lease a state enterprise to a manager who operates it for profit.

The Price of Rights, 23rd Dec., 2010.

Micheal C. Davis wrote an article in the Human Rights Quarterly, titled "The Price of Rights: Constitutionalism and East Asian Economic Development."

Following the Japanese pattern, the Council for Economic Planning and Development targeted certain industries for development and even provided substantial state funding. [64] Taiwan's development pattern generally favored the emergence of many small entrepreneurs from among the workers; therefore, the country did not experience the worker polarization and militancy that South Korea saw. [65] Even in the absence of such polarization, however, with economic success in the 1980s came calls for democratization. In such a highly educated society, the paternalistic authoritarian governance no longer was deemed sustainable for such a diverse, sophisticated, and economically developed polity. [66]

The Rule of Law, Freedom, and Prosperity, 22nd Dec., 2010.

Todd J. Zywicki wrote an article for the Supreme Court Economic Review, titled "The Rule of Law, Freedom, and Prosperity."  In it, he explains the relationship between the Rule of Law and economic growth.

Over time the Keynesian model matured and evolved, giving rise to endogenous growth models and other related models. Regardless of the label, however, each of these growth models shared a similar core--a concentration on aggregate economic behavior, rather than the incentives and institutions that conditioned individual economic activity on the ground.

It was thus believed that with the "scientific" models of macroeconomic planning, it was only a matter of time before the economies of undeveloped countries would "converge" on those of the West. Instead, over the past several decades the gap between rich and poor has generally widened rather than narrowed. But this pattern of failure has not proved uniform. Ireland, Botswana, Chile, and the Asian Tigers of Hong Kong, Singapore, Taiwan, have all prospered even as neighboring countries have collapsed into misery. [ . . . ]

The most forceful advocate of the constitutionalism values of the rule of law was EA. Hayek. Hayek identified several characteristics of the rule of law. First, the rule of law requires that government action be "bound by rules fixed and announced beforehand."' Second, rules must be known and certain, so that individuals can conform their behavior to those laws.'2 Third, the rule of law requires equality in the sense that the law applies equally to all persons and does not prejudice some categories of people at the expense of others.13 The law may discriminate among different categories of people as necessary, but may not do so in such a way as to prejudice some or elevate some groups or individuals to the detriment of others.

Fiat Currency in Ancient China, 21st Dec., 2010.

According to Francis T. Lui's article, "Cagan's Hypothesis and the First Nationwide Inflation of Paper Money in World History,":

Paper money was invented in China in the Northern Sung dynasty (A.D. 960-1126) and widely used in the Southern Sung dynasty (A.D. 1127-1278). The first inflation on a national scale occurred from around 1190 to the end of the dynasty when the monetary system collapsed. In this inflation period, available historical records do not suggest significant expansion of the economy or important changes in real income.

Taiwanese Tariffs, 20th Dec., 2010.

Robert Wade wrote an article for the Comparative Politics Journal, titled "Managing Trade: Taiwan and South Korea as Challenges to Economics and Political Science."

The average rate actually paid on all imports was only 11 percent in the mid 1970s. About half of leviable tariffs were rebated, deferred, or exempted at that time because they were on imports to produce exports or imports of machinery and equipment to make certain specified products. The average ad valorem rate on the remainder was about 20 percent from 1969 to 1977. [ . . . ]

The big increase in the share of permissible to controlled import items is generally taken to mean a big liberalization of trade: from 41 percent in 1960 and 1970, controlled items fell to 2 percent in 1974 and continued at about this level thereafter. [ . . . ]

In the mid 1980s about a quarter of Taiwan's imports by value were covered by origin or agency restrictions.'6 A given item might be "freely imported," but not from specified  places or only by specified agents. The origin restrictions have been used to exclude the most competitive sources of competing products, and in particular to reduce the large bilateral trade deficit with Japan. The agency restrictions apply, for example, to crude oil, which alone accounted for 14 percent of imports in 1976 and 17 percent in 1985. Crude oil is a "permissible" import but can be imported only by the Chinese Petroleum Corporation, a giant state-owned enterprise. 

Reform and Openness, 19th Dec., 2010.

Mary E. Gallagher wrote an article for the World Politics Journal titled "'Reform and Openness': Why China's Economic Reforms Have Delayed Democracy."

[T]he Communist Party has managed to extricate itself from the socialist social contract with the urban working class without losing its grip on political power. Moreover, China has maintained a rapid pace of economic growth for over twenty years without succumbing to political liberalization--indeed with only the slightest movement toward democratic government.

Nan De Hu Tu, 18th Dec., 2010.

Francis T. Lui (雷鼎鸣) wrote an article about the famous Chinese painter Banqiao Zheng (郑板桥, 1693-1765), and how his life relates to F. A. Hayek's work. He created the saying "Nan de hu tu (难得糊涂)," or "Where ignorance is bliss, it's folly to be wise."  I do not understand most of the references, which means Professor Lui has put F. A. Hayek's thinking into Chinese cultural contexts.

Politicians Lead You Down the Road to Serfdom, 17th Dec., 2010.

I've been reading the Lion Rock Institute's book on F. A. Hayek.  The first article is by Mr. Yongqing Shi (Cantonese: Wangching Shih, 汉字：施永青). (Translation mine.)

Although the judgments of Milovan Đilas had keen insights, he did not wake up to reality until he had experienced the horrors of socialism, first hand.  Hence, parts of his analysis stop at the level of perceptions.  They do not match the kind of intellectualism found in F. A. Hayek's analysis, rich with depth and principles.  After I read The Road to Serfdom, I completely abandoned my fantasies towards Communism.  I understood the failure of Communism is not because of the corruption or faults of isolated political parties, but because it does not respect humans' free will.  It hopelessly expects everyone to live according to the ideals of a few intellectuals.

Weiying Zhang Demoted, 16th Dec., 2010.

The Economic Observer, one of China's better newspapers, is reporting that Weiying Zhang has been removed from his post as the Dean of the Guanghua School of Management.

The economist Zhang Weiying was removed from his position as dean of the Guanghua School of Management at Peking University and replaced by Cai Hongbin, reported China Business News.

China Business News interviewed a teacher from the Guanghua School of Management who stated Zhang's removal from his post was attributed to his radical views, which distracted him from the responsibilities of being a dean. He adds that Zhang had a lot of creative ideas and insights, but his views sparked many controversies.

The type of actions the teacher was referring to can be seen in a recent speech Zhang gave in which he said, "China's economic development depends on those like Liu Chuanzhi, CEO of Lenovo Group, rather than Zhou Xiaochuan, president of the Central Bank of China."

Zebras and Horses, 15th Dec., 2010.

Here's the story I referenced to in the last post:  Leonard, Mark. "What Does China Think?" PublicAffairs.  2008.  Page 23.

[Weiying Zhang] has a favourite allegory to explain China's reforms. He tells a story about a village whose residents rely on horses to carry out all their chores. The village elders, who had tirelessly argued that their horses were better than the zebras used in a neighbouring village, would harangue anyone who questioned their claim. Over time, however, the elders realized that the neighbouring zebras were, in fact, superior to the idle and greedy horses which they had so actively promoted. So, after years of hailing the virtues of the horse, they decided to embrace the zebra. The only obstacle was converting the villagers who had been brainwashed over decades into worshipping the horse. The elders developed an ingenious plan. Every night, while the villagers slept, they painted black stripes on a few horses. When the villagers awoke, shocked at the presence of evil beasts in their midst - the leaders reassured them that the animals were not really zebras, just the same old horses adorned with a few harmless stripes.  The villagers gradually became accustomed to the presence of the strangely decorated animals in their midst. After a long interval the village leaders began to replace the painted horses with real zebras.  These prodigious animals transformed the villagers' fortunes, increasing productivity and creating wealth all around. Only many years later - long after all the horses had been replaced with zebras and the village had benefited from many years of prosperity - did the elders summon the citizenry to proclaim that their community was a village of zebras, and that zebras were good and horses bad.

Leninist Nationalism, 14th Dec., 2010.

Friedman, Edward. "National Identity and Democratic Prospects in Socialist China." M.E. Sharpe, Inc. 1995.  Page 26-27.

Leninist nationalism imagines a capitalist world as the enemy of an entire people and legitimates rule by a dictatorial Leninist system with a command economy because only such a ruling group purportedly has the insight and capacity to reject, negate, and check a murderous, predatory capitalism alleged to be the cause of a bloodthirsty imperialism that permanently threatens the nation's most precious values, and indeed threatens the very independence of the people. This core legitimation of Leninist anti-imperialism, as Professor Jerry Hough has shown, is a kind of xenophobic Khomeini-like fundamentalism that is in conflict with the reform imperative of economic openness to the world market that is necessary for growth in the era of post-steel technologies, flexible production, and instantaneous international finance. China's post-Mao rulers, who understand that economic growth at the end of the twentieth century requires tying in to a wealth-expanding world market, do not have an easy task in winning supporters from those who still give their primary loyalty to polices premised on treating that market world as an ultimate enemy. A reforming Leninist state ignites an explosive contradiction because new policies destroy the old legitimation. To confront the delegitimation of Leninist anti-imperialism and accept the imperative of economic reform, including the loss of a hate-filled nationalism that was the emotional glue of the polity, causes a deep crisis. In addition, in a Leninist reform era the artificial "socialist" culture loses its binding force, and the command economy's place-specific, stratified mode of distribution and politically created economic disparities inevitably foster political, tax, and budget backlashes that give more power to regions, thereby reinforcing loyalties to historically regional, but newly "nationalized," primary mobilizing identities. New populist nationalisms are waiting to explode and bury the old, discredited unity previously premised on anti-imperialist nationalism. Unexpectedly for the Leninist reformers, saving the nation actually threatens the nation, at least in its Leninist guise.

This reminds me of a story Economist Weiying Zhang wrote about zebras and horses, which I will publish later.

The Great Chinese Inflation, 13th Dec., 2010.

Richard Ebeling wrote an article for FEE on inflation in China.

When war with Japan broke out in 1937, the total quantity of money in circulation (currency and demand deposits) was 3.6 billion yuan. By December 1941, when the United States entered the war, the Chinese money supply had increased to 22.8 billion yuan. For the remainder of the war years the figures were: 1942, 50.8 billion; 1943, 100.2 billion; 1944, 275 billion; and 1945, 1,506.6 billion.

The civil war brought a worse inflation. By the end of 1946, the money supply had increased to 9,181.6 billion yuan, with a more than six-fold increase to 60,965.5 billion by December 1947. Seven months later, in July 1948, the money supply had expanded to 399,091.6 billion yuan.

S. C. Tsiang on Loanable Funds, 12th Dec., 2010.

S. C. Tsiang defended his views on liquidity and loanable funds in an article for the American Economic Review.

I believe that hoarding or dishoarding is unlikely to be an overwhelming factor in the determination of the interest rate unless the short-term rate has already reached such a low level that it barely compensates for the cost and bother of investing idle funds in short-term assets."1 It is for this reason also that I prefer the more old-fashioned term "idle cash balances" to the term "speculative cash balances," as I believe the main reasons for holding idle balances in excess of transaction requirements are precaution and inertia rather than expectation of future changes in interest rate or in values of long-term assets. 

Competition and Institutional Change in China, 11th Dec., 2010.

I'm reading an article titled "The Road to Capitalism: Competition and Institutional Change in China."

We focus on how product market competition induces institutional change through the interaction between bureaucrats and managers in regional government-controlled economies. When cross-regional competition is sufficiently intense, each region has to cut production costs. Given that the efforts of managers are not verifiable, local governments may have to grant total or partial residual shares to the managers. In general, intense product competition stimulates the rise of a private property

system. We submit our theory to a vigorous empirical test using China’s industrial census data of more than 400,000 firms. The test supports strongly our postulation that cross-regional competition is the driving force behind China’s transition toward capitalism.

S. C. Tsiang on the Money Supply, 10th Dec., 2010.

In 1973, S. C. Tsiang published an article titled "The Monetary Theoretic Foundation of the Modern Monetary Approach to the Balance of Payments."  In it, he defended the assumption that the total size of the money supply is important.

In the heyday of the Keynesian Revolution, however, [Hume's price-specie-flow mechanism] had come to be regarded as inoperative, as the quantity of money itself was regarded by the prevailing monetary theory as a matter of no consequence. [ . . . ] The subsequent Keynesian extension of it merely superimposes a multiplier analysis upon the primary change in trade balance under the usual Keynesian assumptions of an infinitely elastic demand for or supply of money in addition to the assumption of constant wages and prices of domestic goods. Any possible effects of the money supply are effectively eliminated by these implicit assumptions.

During the post-war years of continuous inflationary pressure and high levels of employment in most countries, it became increasingly hard for any intelligent economist to continue to believe in the infinite interest elasticity of the demand or supply of money.

He also explains his research on monetary policy in Denmark, Peru, and France to explain how it has affected said counties' trade volume and currency pegs.

S. C. Tsiang on Interest Rates, 9th Dec., 2010.

In his 1973 article "Interest Rate and Consumption: A Comment," S. C. Tsiang argues against Birdsall and Goldstein assertion that "the net effect of interest rate changes on consumption and savings appear extremely indeterminate and uncertain."

One of the footnotes states "Even such an avowecd Keynesian as Warren L. Smith hias now admitted that the interest-induced wealth effect constitutes an important effect of monetary policy."

Post-War Refugees to Hong Kong, 8th Dec., 2010.

I was reading a report on Chinese Refugees in Hong Kong.  It provides actual numbers for an obvious trend, i.e. the human capital that left Mainland China after the Communist Party came to power.

Several characteristics distinguished the post-war immigrant group from the other two. It was more heterogeneous in that 20.6 per cent fled to Hong Kong from China's northern provinces. These refugees were dialectically distinct from the Kwangtungese (more popularly known as Cantonese). They had few relatives to rely upon and were not as readily absorbed by Hong Kong-born or pre-war families. Finally, the average size family of this group was smaller (almost two persons less) and there were more single males as well as men who had been separated from their families by civil war.

[ . . . ]

It was found that 53.2 per cent of the heads who entered Hong Kong after the war came for political reasons, so that 435,000 persons within 142,000 households were involved. If the 8.6 per cent who came for "mixed political and economic reasons" were added, the percentage of political refugees is higher. Moreover, 5 per cent of the persons interrogated reported actual persecution of one or more members of their families, or of relatives and friends. Only .6 per cent of the post-war and pre-war immigrant groups expressed a willingness to return to mainland China. Then too, had conditions been normal after World War II, some of the pre-war immigrants might have returned there. After the civil war, they became political refugees and they were equally unwilling to avail themselves of the protection of the government of the country of their nationality, or where they had former habitual residence.

If the post-war group were taken separately, 64.1 per cent would not return for political reasons, even though their economic status is sorely affected thereby. They are among the more chronically deprived and the plight of some is all the more tragic since they are better educated and held important positions in pre-communist China. Many are Western educated and trained - especially in the United States - and others had been Nationalist Government officials and supporters.

Britain's Trillion Pound Honor Story, 7th Dec., 2010.

In November, Channel 4 broadcast a documentary called Britain's Trillion Pound Horror Story.  At about the 9:40 mark in the video above, they focus on Hong Kong.  This is the first time I've heard of Jimmy Lai.

Bufangbian de Tongshi, 6th Dec., 2010.

In the previous post I talked about one of two books the Lion Rock Institute sent me.  The other one is 不方便的通识.

The author is Yi Xie (谢毅), who writes for am760, an opinion journal in Hong Kong distributed to readers at no cost.  One of the reviewers describes him as a "F. A. Hayek expert, something very rare amongst young people."

Walk to the Left, Walk to the Right, 5th Dec., 2010

The Lion Rock Institute was kind enough to send me a copy of "往左走，往右走".  I haven't had a chance to sit down and read through it yet (traditional characters!), but it looks like it will be helpful.

It has over fifty articles, and four out of five chapter names mention F. A. Hayek.  The book is available in the publications section of their website.  It has made quite an impact within Hong Kong:

It is the first Chinese translation of the abridged version of The Road to Serfdom, and reviews Friedrich Hayek’s postulations and examines their relevance in today’s Hong Kong. The book has been circulated throughout Hong Kong’s major bookstores and 463 secondary schools. Publishing work creates dialogue and awareness, which is why Lion Rock also held its first Essay Competition  on the same subject following the publication of the book.

Yantai, 4th Dec., 2010.

I found an article on administrative reform by Kenneth Foster.

"Chinese leaders have recognized the critical importance of reforming the state administrative system, whose imperfections are correctly seen as partly responsible for corruption, chaotic market competition, and poor public services. To address these problems, both national and local Party leaders have conceived and attempted to implement a variety of reforms aimed at creating a more effective, reliable, and obedient bureaucracy. In this effort, they, like political leaders around the globe, are seeking to enhance their ability to govern and to minimize citizen complaints about government. And in attempting to improve bureaucratic performance, they face the same kinds of problems as other would-be administrative reformers, regardless of the type of political regime, including opposition from entrenched interests, the difficulty of dealing with contradictory goals, and the complexity of administrative systems and their interrelated elements (for a comparative perspective on administrative reform in developing countries, see Schneider and He?edia, 2003). Indeed, the very nature of China's political regime and the state that supports it are and will be crucially affected both by the reform models chosen by leaders and by the out comes of to such reforms."

Institutional Forces in China, 3rd Dec., 2010.

The Journal of International Business Studies has an article on institutional forces as they relate to change, in China.

"Institutional effects on firms are highly complex in a transitional economy like China as its regulated environments are continuously being reformed. Shenkar and von Glinow (1994) noted that China's large state-owned firms are active players as their operating environments undergo overlapping phases or marketization and privatization.  Many of them form large multi-level inter-dependent networks to cushion the unfavorable effects of the reform and to fend off global competition as China joins the WTO (Child and Tse, 2001)."

They also hypothesize "The change schemas of people in more developed regions are more likely characterized by higher salience about change, higher valence, and less skeptical about change consequences than those of people in less developed regions."

Organizational Change in the Public Sector, 2nd Dec., 2010.

Sergio Fernandez and Hal Rainey, in their article "Managing Successful Organizational Change in the Public Sector," outlined the eight factors vital to brining about change.

1. Ensure the Need.

2. Provide a Plan.

3. Build Internal Support for Change and Overcome Resistance.

4. Ensure Top-Management Support and Commitment.

5. Build External Support.

6. Provide Resources.

7. Institutionalize Change.

8. Pursue Comprehensive Change.

Reform in the Republic of Georgia, 1st Dec., 2010.

Previous research has shown that economies, or organizations, must face a crisis before they reform.  Craig MacPhee, in his article on the Republic of Georgia, as found beliefs to be much more influential than actual conditions.

After a decade of reform, there is still widespread belief in the outmoded Soviet ideas of isolationism, government control, capitalistic exploitation and instability. These ideas impede the process of reform by providing a rationale for government policies that are inefficient, fiscally and monetarily irresponsible, anticompetitive, and inflationary.  These ideas also foster corruption among poorly paid government officials and cynicism among the citizens. 

Automated Interlibrary Loan Notification, 30th Nov., 2010.

The library wrote to me:

Dear Matthew Dale,

A request you have placed:

Title: Hayeke he ta de si xiang
Author: Yin Haiguang

TN: 2842

has been cancelled by the interlibrary loan staff for the following reason:

Could not verify

We couldn't find the correct item with the information you provided.

I guess I can't request titles written in pinyin.

Public Attitudes in Hong Kong Towards Laissez-Faire, 29th Nov., 2010.

Over at EconLog, Bryan Caplan published an article titled "Hong Kong: Statist at Heart?"  He wrote:

"Public Attitude toward Laissez Faire in Hong Kong," a fascinating but overlooked 1990 paper by Lau Siu-kai and Kuan Hsin-chi (Asian Survey 30(8): 766-81, available on Jstor with subscription) shows this is just wishful thinking. Admittedly, the public in Hong Kong strongly supports the label of laissez-faire (literally translated as "noninterventionist economic policy"). When asked how they felt about the laissez-faire policy of the Hong Kong government, 1.8% strongly disagreed, 22% disagreed, 54% agreed, and 3.5% strongly agreed. I doubt you'd see numbers like that in the U.S.

But it turns out that Hong Kong's support for laissez-faire is only skin-deep. As soon as you ask people their opinions about specific interventionist policies - all of which, note the authors, "have either not been performed by the government or performed only very light or rarely," they show their true statist colors.

Hayek and Early Hong Kong Policy, 28th Nov., 2010.

After World War II, the average Hong Kong income was one-quarter what it was in Great Britain.  In 1961, John Cowpathwaite was appointed Financial Secretary of Hong Kong.  F. A. Hayek might as well have written his first budget speech.  He said, “In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralised decisions of a government, and certainly the harm is likely to be counteracted faster." (Singleton 2006)

F. A. Hayek was discussing and writing about free markets at this time, but “it was Cowperthwaite who provided the textbook example showing economically liberal policies leading to swift economic development. His practical example provided confidence to the Thatcher and Reagan governments, and was a key influence in China’s post-Mao economic liberalization.”  Since the index on economic freedom in the world began in 1970, Hong Kong has ranked number one every year, and “No one deserves more credit for this lofty rating than Sir John Cowperthwaite.”

Milton Friedman called Sir John Cowpathwaite serving as Finance Secretary an “accident of officialdom.”  He mentioned the paradox that when “Britain was embarking on an extreme socialist policy in the homeland, one of its last remaining colonies, Hong Kong, was embarking on an extreme free-market policy.” (Gwartney 2006, pp. v)

Hayek in Hong Kong's Universities, 27th Nov., 2010.

I've been comparing the Mainland and Taiwan between 1920-1978, and then post 1978.  I would also like to include Hong Kong.

Trescott's book was good for information on academics in Taiwan, and I have found a few scholars in the Mainland.  But I have not been able to find information on F. A. Hayek's followers in Hong Kong universities.

It's probably because they only had one university before 1962.

[O:R]

Government Structures in China, 26th Nov., 2010.

Professor Shoulong Mao, of Renmin University, wrote, “China is a country with a long-standing tradition of the centralization of state power.  In this kind of country, any systemic innovation must gain high level approval.” (Mao 2010)

When making changes, there is the uncertainty between choosing slow, gradual reforms, or so-called “shock therapy.”  Observers looked at the immediate chaos of Eastern Europe after the fall of the Soviet Union, and have drawn their conclusions from that short period, still today.  However, “many Eastern European countries' standards of living are already very close to those in Western Europe,” and “the people of those countries, no matter in public policy or the commoners, all believe reform is a thing of the past, a sentence ending with a period.”  By contrast, the Chinese government is still debating “how the next Chinese economic reform should advance,” making the process “. . . a sentence ending in a question mark, still continuing.” (Chen 2009)

Theories on Economic Policy Reforms, 25th Nov., 2010.

Not all economic policies are guided by ideology, either for or against free markets or state planning. Studies on organizational change show that “. . . change generally is motivated by events in an organization’s environment—some problem or surprise . . . reveal[s] weaknesses in established strategies and processes, and thus provoke adaptation and change.” (Staudenmayer 2002, pp. 584)  This can be said of both organizations and governments.

A system based on centralized authority “has usually been found to be negatively associated with innovativeness.”  This stems from the generalization that leaders at the top “are poorly positioned to indentify operational-level problems, or to suggest relevant innovations to meet these needs.” However, once a decision has been formulated, centralization “may encourage the implementation of innovations, once the innovation-decision is made.” (Rogers 1995, pp. 379-380)

Hayek's Literary Work, 24th Nov., 2010.

F. A. Hayek wrote his first book, Monetary Theory and the Trade Cycle, in 1929.  He wrote four more books before 1941, covering prices, profits, and capital.  After his next book, The Road to Serfdom, his theories focused much more on the political implications of central planning.  His professor, Ludwig von Mises, continued the early focus on the economic effects of central planning.

In 1920, Ludwig von Mises had published “Economic Planning in the Socialist Commonwealth.”  In it, he argued “Without economic calculation there can be no economy. Hence, in a socialist state wherein the pursuit of economic calculation is impossible, there can be—in our sense of the term—no economy whatsoever.” (Mises 1990, pp. 14)  In 1935, F. A. Hayek, then a professor at the London School of Economics, felt compelled to edit the book Collectivist Economic Planning “by the fact that he found that certain new insights which were known on the Continent had not reached the English-speaking world.” (Ebenstein 2001, pp. 91)  This would lead him to become one of the main opponents of central planning in the English-speaking world during the 20^th Century.

[L:R]