Barring some major crisis, China seems poised to expand its presence in international affairs, and, as part of that presence, to offer an alternative development model to that long promoted by the West. Making explicit what has for some years been simplistically referred to as the Beijing Consensus, General Secretary and “core leader” Xi Jinping asserted during the Chinese Communist Party’s (CCP) 19th National Congress that China has “blaz[ed] a new trail for other developing countries to achieve modernization. It offers a new option for other countries and nationals who want to speed up their development while preserving their independence.” China has the resources and experience, he declared, to offer “Chinese wisdom and a Chinese approach to solving the problems facing mankind.”1
To the prospective supply of such wisdom there appears to be a rising demand. Before his death in 2012, Meles Zenawi, Ethiopia’s leader for 21 years, often expressed his desire for his country to emulate China’s economic strategy. He marked the limits of the free market, consistently praised the Chinese Communist Party’s economic stewardship, and sought China’s assistance in building up Ethiopia’s infrastructure and manufacturing base. His successor, Hailemariam Desalegn, has been even more enthusiastic about trying to create a developmental state modeled on East Asia. As one Ethiopian bureaucrat was quoted in a recent Guardian article, “We are 20 years behind China and we’re trying to do what they did to get where they are.”2
Ethiopia is not alone. States as disparate as Ethiopia, Rwanda, Kazakhstan, and Bolivia seek to replicate China’s economic transformation. High-ranking decision-makers visit China on study trips. National planning bodies issue ambitious documents modeled on China’s experience.
There is nothing inherently wrong with this. If for historical reasons some societies prefer to adopt governance forms and economic policies that directly challenge Western orthodoxy, that is no reason for Western leaders to wish that they remained mired in poverty. A problem arises just for those jealous of the ideological insistence that only the Western historical path to affluence works, and its central codicil that democracy and free markets are the only pathways to stability and prosperity. But it isn’t really a problem, ideologically speaking: If this is true, then the Chinese approach—or alternatives that other states may develop—will fail those who adopt it, China included; if it isn’t true, we should want to know that.
China’s development model is too often misinterpreted or oversimplified. For many Western analysts, the so-called Beijing Consensus has come to denote a non-democratic challenge to liberal capitalism, constituting, as Minxin Pei explains, a combination of “authoritarian rule with pro-market economic policies.”3 This misunderstanding is not confined to the West. For many leaders in the developing world, such as the late Hugo Chávez, the China model has come to represent strong leadership, a centralized government, and an interventionist state.
These caricatures miss many of the important lessons China’s rise has for the developing world. And having an alternative model to the Western one is important, given the latter’s failure in many countries. Despite decades of aid and advice, too few developing countries have been able to transform their economies on anything approaching the scale achieved by China—which often followed a very different playbook from that promoted by Western development experts.
Every country has specific circumstances that require a unique governance and development path, as this article demonstrates below with a brief case study from Ethiopia. The best approach synthesizes ideas and models from countries around the world and takes into account a given country’s historical experience. Understanding the key elements of China’s success will help developing countries formulate their own strategies. It might even help the United States to genuinely make itself great again.
Party leaders have never laid out the Chinese model in any one speech or document, so to discover it by those means requires some reverse engineering. When Deng Xiaoping started the country on its reform path in late 1978, he had only a vague notion of what might work. Despite its achievements under Mao Zedong in unifying the country and substantially enhancing the education and health of the population, the three-decade-old Communist regime had a weak economic record, especially compared to its neighbors. In the aftermath of the Cultural Revolution, China suffered from chronic food shortages, huge inefficiencies, gross misallocation of investment capital, and technological backwardness.
After observing the rapid growth of neighbors such as South Korea and Taiwan, the pragmatic Deng and other Party leaders groped for a strategy to set their economy on a similarly successful path. As ensuing reforms produced unprecedented economic growth, several key principles emerged—some by design, some by accident. Although there are various ways to explain China’s success, the ten lessons that follow are chosen with an eye to providing ideas for leaders and policymakers across the developing world.
1) Start with small farmers and rural areas. Partly because of worries about an impending food crisis, China started its reform drive by breaking up farming collectives and empowering small-scale farmers. By linking effort to reward, productivity and output sharply increased. It also laid the groundwork for change throughout the economy.
But China’s leaders did not simply unleash agricultural markets, as Western development agencies often recommend developing countries do. Instead, they concentrated state policies on ensuring that peasant farmers had the resources, knowledge, and incentives necessary to maximize output. The state remained firmly in control of prices (increasing them to encourage extra effort), the distribution system, and the supply of fertilizer.4 Over time, improvements to extension services, better infrastructure, investments in agricultural research, and large-scale education and training programs paid huge dividends.5 Only after the agricultural sector strengthened did Chinese officials introduce more widespread market liberalization reforms in the 1990s and 2000s.
The gains from reconfiguring incentives were immediate and dramatic: the rural poverty rate fell from 76 percent to 23 percent between 1980 and 1985, as hundreds of millions escaped poverty for the first time.6 Higher incomes and productivity, in turn, prompted demand for new manufacturing products, produced household savings that could be funneled into investment in business, and created surplus labor for the new factories that sprouted up.
One of the chief beneficiaries of these developments was rural industry, one of the most underappreciated elements of the Chinese economic miracle. Benefitting from the land, labor, loans, and technical assistance that local governmental sponsors provided, township and village enterprises (TVE) became the most dynamic part of the Chinese economy in the 1980s and 1990s. Their share of GDP climbed from less than 6 percent in 1978 to 26 percent by 1996.7 Competition between localities spurred investment, pushing the whole country forward.
Today, many of China’s most successful private manufacturing firms are based in or got their start in relatively underdeveloped, predominantly agricultural areas. The New Hope Group, one of China’s largest private businesses, started as a breeding farm raising quail and chickens in rural Sichuan. Kelon, one of China’s largest white goods manufacturers, was founded in rural Shunde county in southern Guandong. And China’s most promising automobile exporter, Chery, is based not in Shanghai but in the agricultural hinterland of Anhui province. These rural enterprises have contributed significantly to China’s export prowess and produced tens of millions of jobs for people who might not have benefitted if growth had been concentrated in cities alone.8 And whereas 95 percent of Chinese villages have roads, electricity, running water, natural gas, and phone lines (compared with fewer than 50 percent of villages in India),9 many developing countries have ignored their rural areas, systematically underinvesting in rural agriculture and infrastructure.10
2) Invest heavily in knowledge infrastructure. China has invested heavily in education and innovation, producing the well-educated workforce and highly skilled specialists that have motored its economy forward. Whereas four-fifths of Chinese were illiterate in 1949, less than a tenth are today.11 Although few students attended college before the reform era, and fewer than a tenth of Chinese college-age students were enrolled in higher education in the late 1990s, today more than one-fourth (30 million) are. But educational gains were not merely a product of modernization.
Some of the most important gains—especially at the primary and secondary school levels—predate the reform era. China emphasized health and education throughout the 1950s, 1960s, and 1970s, equipping its citizens (unintentionally, as it was the heyday of Maoist Communist ideology) to take advantage of Deng’s capitalist reforms when they were launched in the late 1970s. Although still very poor in 1978, the population had achieved relative healthiness and education—its human development index already approached that of more wealthy states.
China has prioritized its knowledge infrastructure in ways that extend beyond basic education. It has established advanced research centers for everything from agriculture to computers and sought to diffuse information about new technologies and production strategies. This has created what one British report called the “absorptive state,” increasingly able to harness global knowledge and innovation networks.12 Combining homegrown capabilities and infrastructure with foreign technologies and knowledge—frequently purloined, true enough—it has built the world’s fastest supercomputer, sent astronauts into space, and developed its own satellite navigation system.
China also has emphasized learning in policymaking, using experimentation and feedback mechanisms to refine and update ideas to maximize their effectiveness. The goal is to promote a dynamic learning process such that new concepts are systematically tested and, if proven successful, rapidly and widely implemented. While China often falls short of this ideal (and is held back at times by the authoritarian nature of the state), it has proven successful at spreading new ways of doing things across an immense and still relatively poor country.
An excellent explanation of this process appeared in a 2011 joint report from the International Poverty Reduction Center in China (IPRCC) and the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD):
What makes rapid transformation processes possible? Development as a learning process. . . . A dynamic learning process takes hold in a country via interactions with new ideas, products and organisational models that are increasingly abundant in the multipolar, connected, global economy of the 21st century. Business models that are found to work locally, become widely replicated and then progressively improved, in an endogenous process of continual upgrading, across the economy—agriculture, industry, infrastructure and services. . . . The experiment-evaluate-scale up success principle is widely applied and rapidly implemented. This has demanded the expansion of higher education and the development of research institutions linked to policy decision making and implementation. World expertise has been sought and attracted through incentive schemes, international partnerships and often via aid programmes.13
3) Prioritize cohesion over participation. Although China is often criticized for being authoritarian, many of its leaders feel more accountable to its people than those in many developing countries that hold regular elections. The primary explanation for this apparent paradox is the country’s high degree of social cohesion and strong sense of nationhood, which result from its ethnic homogeneity (China is 90 percent Han) and its long history as a unified state. In this regard, China differs from most developing countries that lack a strong national identity, many of which were carved into being by colonial powers and combining many ethnic, religious, caste, or clan groups. In disciplinary terms, to put it bluntly, China’s situation shows that sociology is more important than economics.
Despite the lack of elections, the affinitive power of a common cultural identity and group allegiance channels itself into economic development, yielding a state focused on building up national strength. For the most part, China’s leaders have been concerned with performance, staking their legitimacy on results, especially as Communist ideology has waned. The CCP has promoted officials who have delivered growth, and it has measured its own performance by how fast incomes rise, poverty declines, and public services improve.
This informal accountability has proven less effective, however, as China’s economy has become more sophisticated. The ruling CCP has consistently come up short in enacting reforms (especially since the early 2000s) that threatened to substantially weaken its control over important levers of power, leaving the country less prepared for the myriad challenges it faces today as a middle-income country. The legal system, for instance, continues to operate under the stamp of the Party, and is only allowed to hold CCP leaders accountable when higher ups have pushed for it. As a result, the judiciary remains beholden to CCP powerbrokers. Alas, history and culture remain dominant here as well, albeit in a negative sense: China has never developed true rule of law, only rule by law.
While many developing countries begin from a different starting point, the Chinese experience makes clear that social cohesion and an organic sense of elite accountability are critical ingredients for development—although the latter may not be sufficient at higher levels of development.
4) Build a competent government committed to inclusive development. The state has played a crucial role in the development of China, often by following a script that makes little sense to Western development specialists. It has energetically promoted business and owned tens of thousands of companies, even competing with itself at times. It has provided a welcoming environment for investors, even though the country has a weak legal regime and high levels of corruption. And it has often micromanaged markets with an eye to maintaining social stability and ensuring outcomes that align with its objectives.
Despite its authoritarian nature, there are three features of how the state operates in China that any development specialist would praise, and that help explain why China has outperformed almost all other developing countries.
First, China has a strong state—and by this I refer not to its authoritarian character but to its administrative function competence. Its government can formulate complex policies and ensure that they are (more or less) carried out. Building on millennia of experience with bureaucratic governance, China has far greater state organizational capacity across a much wider geographical and departmental range than any other developing country.
Partly as a result, Chinese leaders have been able to use decentralization to accommodate local needs and promote local ownership of policies and a high degree of legitimacy. Regional and local governments supported business early on, helping the more promising small enterprises gain access to funding when money was scarce and ensuring easy access to larger markets by providing contacts, infrastructure improvements, and resources such as land and training. This limited risk, lowered costs, and provided the internal competition that spurred foreign and local investment.
Second, China maintains a much more inclusive regime than most developing countries. The state has worked to ensure that all its citizens are able to participate and gain from economic growth; this is rarer in the developing world than is usually recognized. Despite China’s massive size and population, almost every child gets a basic education and almost every village has roads and electricity.
This emphasis owes much, again, to the country’s ethnic homogeneity and long history as a unified state. Socially heterogeneous countries with weak state apparatuses typically have leaders who seek to maintain power with ethnic, religious, or tribal support and consider those from other groups as threats to their control. However, China’s overwhelmingly ethnic Han composition has encouraged it to be assimilationist, disregarding unique cultures in its midst. China has provided Tibetans, Mongols, and Uighurs with economic opportunity while deliberately weakening their cultures and identities.
Third, China’s government has been consistently committed to promoting development, adopting aggressive policies to attract investment, promote growth, boost exports, and develop technology and human resources. Both domestic and foreign investors have shown confidence in these efforts, pouring trillions of dollars into China’s economy over the past three decades despite the fact that it performs badly on most indicators of governance. These indicators, however, are partly a figment of the Western imagination that exalts narrow political and economic factors and ignores social and cultural dynamics. According to the World Bank, China scores in the bottom half of all countries for the overall quality of its governance.14 According to Transparency International, it is highly corrupt, ranking just below places such as Brazil, Belarus, and Turkey.15 Yet it thrives, which ought to tell us more about the World Bank and Transparency International than it does about China.
The gist is that although Chinese state operations are riddled with inefficiencies and corruption, the state has played a much more positive role in China than in most developing countries, where the state is often the greatest barrier to progress. Complaints over intellectual property protection, the favoritism shown to state companies in some sectors, environmental issues, and growing inequalities pale in comparison to the insecurity, inconsistency, red tape, and incompetency that make the state the biggest barrier to development in many developing countries.
5) Invest heavily in infrastructure. China has invested vast sums in developing every aspect of its infrastructure, something that sounds basic but which few developing countries have achieved. This has had a profound effect on its attractiveness to investors and its economic growth.
Much as the United States saw investment in its national highway system as strategic for its security and economy during the 1950s, China believes that developing world-class transportation systems and export infrastructures are crucial to its future. By lowering the costs and risks of doing business within the country, China has taken advantage of its well-educated, inexpensive workforce to create the world’s most important manufacturing center. Export totals have climbed dramatically, from the 32nd-largest in the world in 1978 ($20 billion) to the largest in 2010 (more than $1.5 trillion).16
The transportation system has played an important role in integrating the vast country and reducing (to some extent) the great inequalities that sprouted up in the aftermath of reform. By enabling the population to travel easily and cheaply, the road and rail network has helped weave together the continent-sized country, integrating the population in a way that was unimaginable until recently. Hundreds of millions have seen their lives transformed by enhanced work opportunities, cheaper consumer goods, and options for travel. And large inequalities between regions are being reduced to some extent because companies can invest in inland regions once severely disadvantaged by higher transportation costs.
Investments in residential infrastructure—particularly in electricity, running water, and telephones—have also reduced inequality. As a result, the vast majority of families have benefitted from the country’s recirculation of economic gains into infrastructure spending.
Investment in infrastructure, combined with China’s emphasis on nurturing its homegrown capabilities, has spawned a set of globally competitive enterprises. Chinese companies build government complexes, airports, malls, homes, hotels, and highways from Algeria to Liberia to Pakistan, strengthening ties and gaining diplomatic influence in the process. Through initiatives such as One Belt, One Road (OBOR), they help knit China’s Southeast and Central Asian neighbors into its economy, increasing their dependence on it in the process. And they play a strategic role in helping China gain access to important natural resources. For example, in places such as Afghanistan and the Democratic Republic of the Congo, Chinese companies build infrastructure that either reaches remote sites or that helps develop the economy in a way that a royalty payment cannot.
6) Experiment with new policies first, then implement reforms gradually. Whereas governments elsewhere often introduce policies without testing them (either due to overconfidence or international pressure), China has consistently embraced a trial-and-error, evidence-based approach to test policy before rolling it out nationally. This approach partly reflected the leadership’s uncertainty—and to a certain extent lack of unity—about how to induce reform. Few had experience with capitalist ideas and modern economic systems. Resources were limited and poverty widespread. No country the size of China had ever modernized successfully by design. No one had anything approaching a blueprint (in 1979) for how to restructure a Communist state-run economy. There was no consensus on what the goal of reform ought to be, or what the process of change ought to look like.
But these uncertainties may have been an advantage. China has reformed in a piecemeal manner, working much more cautiously than Western aid agencies have when advising developing country governments around the world. This approach echoed Deng Xiaoping’s dictum, “Crossing the River While Feeling the Rocks.” The piecemeal approach both reduced risk and disarmed opponents. Initial successes converted many to back reform, sometimes because of the rich payoffs reform promised. One change led to the next in an evolutionary manner. The damage to the social fabric and government capacity that has often followed restructuring programs elsewhere was mostly avoided. Slow but steady change led to remarkable transformation.
State enterprises were restructured cautiously, but were eventually forced to dramatically change the way they operated. First, their monopoly was removed and prices were freed at the margins. New companies appeared, creating competition and forcing the managers of state enterprises to adapt to market needs. As profit margins declined, firms were forced to pay more attention to profits, leading them to hire better managers and offer better rewards to those who succeeded. This in turn produced better performance.17 Eventually, these state enterprises laid off millions of workers, but in a way that brought less disruption to the economy and to the lives involved because private-sector companies were able to hire most of them. Their share of industrial production declined from more than three-fourths in 1978 to less than one-sixth by 2005.18
Instead of introducing market prices across the board, China repeatedly introduced a dual-pricing system that kept most major commodities partially under a centrally controlled system. This unleashed incentives (for any production beyond a quota) but allowed the government to limit the disruptiveness of reform. As production expanded, more of the economy marketized.19
The decentralized and competitive nature of the Chinese government has played an important role here. Provincial and local governments have provided laboratories for new policies (much as states can do, if allowed, in the United States) and encouraged new ideas, even those clashing with Beijing’s orthodoxy. For example, local farmers in Anhui Province challenged the commune system, setting the stage for the introduction of more market-based methods first in agriculture, and then later in industry across the whole country. Local officials in Guangdong first proposed attracting foreign investment; special economic zones in Shenzhen and elsewhere followed soon thereafter. And in competing to outdo each other, provincial and local governments attracted investment, developed new industries, and expanded infrastructure at a furious pace—a sharp contrast to local governments in many developing countries, which often have no developmental role or behave in ways that hurt growth.
7) Focus on reworking incentives and removing obstacles to growth. As already noted, China eschewed the “big bang” approach to reform under which all prices and markets are freed simultaneously, as happened for example in Poland in 1990. Instead it focused on “big issues” such as “incentives, mobility, price flexibility, competition, and openness.”20 Enormous economic advances occurred although—and maybe because—institutional reforms were delayed. The gradualist approach seeks to rework incentives and remove obstacles by changing policies just enough to unleash pent-up energy that catalyzes progress.21 The idea is that the force with which newly unleashed energy meets remaining obstacles powers further reform.22
With China getting these “big issues” mostly right, institutional weaknesses, government malfeasance, a lack of democracy, and even gross distortions to some markets have mattered much less than Western models expected because initiative is rewarded at every level. Companies that manufacture inexpensive products can export them. Laborers willing to work long hours in difficult environments can send home previously unimaginably sums of money to their families. Resourceful families can open retail stores and enlarge their incomes. Farmers who boost yields can profitably sell their produce. In time, markets came to play a dominant role across the economy, producing intense competition and leading to huge expansions in the production, quality, variety, affordability, and price of goods. Few developing countries have created an environment as encouraging to initiative as China; indeed, most have overlapping political and economic elites who excel at rentier behaviors that raise barriers to entry and frustrate initiative.
Meanwhile, growing international ties produced an enormous transfer of knowledge and know-how into China, further shaping incentives for companies and individuals and boosting growth in the process. Chinese reforms also coincided with a new era in globalization, enabling companies to move goods less expensively, people to communicate more cheaply across great distances, and everyone to have access to greater amounts of information. Chinese worked for foreign companies, traveled overseas, accessed abundant translations, learned English, sought information on foreign products, and studied abroad. Many of these activities would have been far more difficult and less effective had reforms been carried out decades earlier. We know it’s true: Timing may not be everything, but it counts for a lot.
8) Use financial markets to promote development and stability. Instead of assuming that unattended financial markets, accompanied by a stable macroeconomic and legal framework, would produce optimal results (as Western policy often assumes), China has intervened repeatedly to ensure that financial markets promote development and stability. Like many of its East Asian neighbors, Chinese leaders have sought to use public policy to alter the supply and price of certain goods (including money) in ways that would “lead the market” and so encourage outcomes the government saw as critical.23
As in Japan, South Korea, Malaysia, and Taiwan, China has emphasized the role of banks and a postal savings system, prudential regulation, and limits on financial market competition. It has always viewed Western-style unconstrained financial markets with suspicion. By reducing risk and increasing convenience for small and rural depositors, its policies boosted savings rates and accumulation of capital. Chinese households save about 40 percent of their incomes, the highest rate in the world (and about ten times the rate of Americans).
The large capital pool has enabled the country to generate and sustain one of the highest investment rates in the world: over 40 percent in recent years.24 Interest rates have been kept low to increase companies’ demand for capital. Investment in infrastructure has given the country world-class facilities that belie its middle-income status. The country has also tightly managed its capital controls and currency value, preventing wild flows of currency into or out of the country from undermining the economy, as they did in many Asian countries in 1997-98. These policies have also boosted export competitiveness by maintaining stability and ensuring the currency was reasonably priced.
Yet tight financial control has come with a cost. By never fully reforming its Soviet-style financial system, China misprices and misallocates enormous amounts of cash. As a result, China’s financial system poses problems absent in other rapidly developing Asian countries—which generally give the state a much smaller role in finance. Its debt problem, for example, poses unnecessary threats that could have been avoided if the government had pushed forward with institutional reform in the banking and finance sector.
Another cost is that it is possible to save and invest too much, leading to overproduction and excess capacity that have no normal outlets. This amounts to government-abetted sectoral bubbles and massive misallocation of capital. As China tries to stimulate more domestic consumption to deal with the problem, it is finding its institutions more of an impediment than a benefit, and anemic reform in other areas (like a social safety net) a complementary barrier to change.25
9) Use government policy to boost economic competitiveness. While most Western economic thinking lauds liberalized markets, China has employed various “illiberal” policy instruments to promote industrial development.
Just as Japan, Korea, Taiwan, Germany, and to some extent even the United States once did, China’s government prioritized certain sectors and companies deemed likely to become globally competitive. It then ensured their access to cheap capital and land, technology, human resources, and regulatory assistance—advantages over their peers elsewhere. It has also used regulation to keep foreigners at bay (such as in restricted industries) or to diminish their influence. Yet it has also used Special Economic Zones (SEZs) to promote foreign investment at certain times, in certain places, and in certain sectors, giving them a larger share in its economy than many of its neighbors do. Protectionism has thus been selectively strategic.
Large state-owned enterprises continue to dominate crucial industries, and even many smaller ostensibly private firms exist with some form of state ownership. Meanwhile, local governments have actively promoted local champions such as Geely Automobile and China Yurun Food—even when the central government did not view them as national assets.
Like many before it, the Chinese state has recognized that “the dynamic process of moving from one stage [of economic development] to the next requires industrial diversification, upgrading, and corresponding improvements in hard and soft infrastructure,” as Justin Yifu Lin, the first Chinese Chief Economist of the World Bank, put it.26 Private firms sometimes lack the scale or incentives to overcome many externalities; in these cases, greater intervention is needed than Western policies typically prescribe. Although the large role of the state in business may yield greater problems in the future, on the whole the role of the state has been much more positive than negative in China’s case.
10) Promote self-reliance. In keeping with its strong sense of nationhood, China has strategically sought to use its reform to maintain self-reliance, viewing openness as critical to defending its interests and strengthening its economy. In contrast, most developing countries have adopted policies—often under Western influence—that undermine their ability to engage the world on their own terms.
Instead of deploying the laissez faire policies advocated by the international community, Chinese leaders have dictated the terms on which foreign companies can access its market in key sectors, invested heavily in new technologies (and sought them out clandestinely overseas), and built up national champions that can compete internationally. It invested heavily in its ability to govern (instead of laying off tens of thousands of government workers, as some states did in the name of “restructuring”) and prioritized wealth creation over poverty reduction (often the emphasis of foreign aid).
The IPRCC-OECD report summarizes,
Making economic transformation the central guiding objective of government . . . provides a basis for wide consensus and participation across society in a national project. . . . Self-reliance has been a fundamental principle of Chinese strategy. This principle is imbedded deeply in China’s strong ownership of its own development path while absorbing knowledge from a wide range of external actors. . . . External support, such as foreign investment and aid, is incorporated within those strategies and policies, which makes this external support more effective.27
With the right know-how, homegrown corporations, and a capable state apparatus, China sees globalization as a game it can win. Trade builds up its companies, benefits the great majority of its citizens, and enhances its international position.
A Case Study of Application: Chinese Lessons in Ethiopia
Though it is half a world away in the Horn of Africa, Ethiopia bears some remarkable similarities to China. Both are ancient civilizations struggling to enter the modern world. Both were impressive regional powers for millennia and among the few countries never fully or enduringly colonized. Both were ruled by absolute monarchs for most of their histories but after a period of brutal conflict have been led by left-wing political parties that deployed the kind of power that comes from the barrel of a gun. Both have long depended on bureaucratic government to maintain control over their territory and people. Finally, both were desperately poor until recent spurts of economic growth.
As mentioned above, Ethiopia’s leaders have actively sought to emulate China at times, such that the country serves as a case study of the Chinese lessons outlined above. Ethiopia has aligned itself with China’s development model more closely than have other African countries. This is partly because Ethiopia’s leaders shared an ideological orientation with China’s leaders from early on, and their means of gaining power gave them an institutional basis many developing countries lack.
Ethiopia’s policies since 1995, when Zenawi became Prime Minister, have most resembled China’s in their emphasis on social cohesion (#3), competent government (#4), rural development (#1), basic education (a subset of #2), gradualism (#6), a central role for the state in promoting development (#9), and self-reliance (#10).
More recently, the government has placed a strong emphasis on manufacturing, which is leading to large investments in infrastructure (#5) and the removal of obstacles to growth (#7). The state is working directly with China on projects aimed at improving electricity generation, transportation, and customs management. Chinese firms are investing in railroads, hydroelectric plants, and industrial parks. Investors from China, Turkey, and Europe have started to invest in labor-intensive industries such as shoes, T-shirts, handbags, but the scale is still relatively small.
The results of Ethiopia’s policies have been, for the most part, exceptional, especially when compared to the country’s pre-1995 experience, other large countries in Africa (such as Nigeria and the Democratic Republic of the Congo), and most of the country’s neighbors (including Eritrea, Somalia, and Sudan). Ethiopia’s economic growth rate of 8.4 percent between 2001 and 2010 was the fastest in Africa and third fastest in the world among countries without oil (and fifth overall). By making a sustained and systematic effort to expand access to public education, enrollment skyrocketed from about three million in 1994–95 to more than 15 million by 2008–09. The country recorded the third-best improvement worldwide in the Human Development Index (a measure of the health, education, and standard of living of a population) between 2000 and 2010.28 Whereas Ethiopia was once a byword for famine, today it is close to self-sufficient in food, and rural areas are noticeably better off.
Leaders in both China and Ethiopia see the Western emphasis on markets as too limited (and naive), and they have strategically supplemented how they work by giving the government a much stronger role in the economy. Mushtaq Khan summarized this “heterodox” approach:
Liberal economists have developed a framework of good governance as market-enhancing governance, focusing on governance capabilities that reduce transaction costs and enable markets to work more efficiently. In contrast, heterodox economists have stressed the role of growth-enhancing governance, which focuses on governance capacities to overcome entrenched market failures in allocating assets, acquiring productivity-enhancing technologies and maintaining political stability in contexts of rapid social transformation. The two are not necessarily mutually exclusive, but current policy exclusively focuses on the former, and ignores the strong empirical and historical evidence supporting the latter to the detriment of the growth prospects of poor countries.29
Ethiopia’s heterodox governance is not, however, a replica of China’s. It started its reform era from a much lower base: Ethiopia in 1995 more closely resembled China in 1949 than China in 1979.
Given this background, Ethiopia has diverged significantly from China’s direction in several areas. One of the most notable is the degree to which the government is involved in markets. Whereas in China the state plays a significant role managing and participating in the economy, in Ethiopia the state often plays such a strong role that it limits the development of the private sector. The result is much less competition and slower gains in some crucial areas. In communications, for instance, China has many different carriers, all state-owned (by different arms of the government), who compete fiercely, driving down prices, ensuring the adoption of the latest technology, and limiting the problems typically associated with state ownership (for example, inefficiency). This has produced one of most dynamic cell phone and internet markets in the world. In contrast, Ethiopia’s market is dominated by a monopoly state-owned telecoms company, and it has one of Africa’s least developed markets as a result. Mobile-phone penetration, which is close to three-fourths elsewhere in Africa, is only about one-fourth in Ethiopia. A paltry one-fortieth of Ethiopians have access to the internet.30
Despite a strong emphasis on decentralization in service delivery, with positive results, Ethiopia has done far less to empower regional governments in the economic sphere than China. This has limited competition between different parts of the country, reduced experimentation in policymaking, and decreased incentives for officials to promote business development and investment. It may have also played a role in the ethnic protests that have plagued the country since 2016. As Ethiopia develops, each of these discrepancies will matter more, limiting its ability to replicate China’s success.
Interestingly, despite its heterodox approach, Ethiopia has also received substantial assistance from Western donors. It is, for instance, one of the biggest recipients of both British and American aid. This suggests that Ethiopia is not only not being penalized for diverging from standard Western policy orthodoxy, but that it is being rewarded for good performance. Other countries should take note: Western donors are looking for results, and unorthodox policies that succeed may garner attention despite the ideological challenges they pose.
Pragmatism and Flexibility
China’s success and Ethiopia’s progress show that every country has unique assets and challenges, and that building incrementally on what already works is far more likely to succeed than trying to import any particular model from overseas. There is no single formula for success, as a long string of failed models emanating from Washington and elsewhere attests. Countries may need free elections (but China did not), may need good governance as defined in the West (but China did not), may be cursed by natural resources (but Botswana was not), or may need lots of foreign investment (but South Korea did not). What developing countries do need is good leadership that can leverage a certain degree of cohesion, develop a reasonably competent government, and flexibly respond to local and national circumstances.
Deng Xiaoping famously said, “It doesn’t matter whether it is a white cat or a black cat, a cat that catches mice is a good cat.” More than anything else, China has been pragmatic throughout its reform era, adopting a results-based strategy rather than following a formulaic one, as it did prior to reform, and adopting ideas and know-how from multiple sources. Other countries would also likely profit from a heterodox approach, synthesizing ideas and models from both their own cultural experience and those abroad that suit them best. China’s rising influence combined with the weakening of Western hegemony and the Trump Administration’s profound lack of interest in the developing world makes it more likely that countries in Africa, Latin America, and elsewhere will turn to it for ideas. Will it work? Well, the whole world is watching.
1Yu Tao, “Get Ready for an Even More Assertive China,” Diplomat, November 1, 2017.
2Elsje Fourie, “Africa Looks to Learn from East Asia’s Development Experiences,” Guardian (Poverty Matters blog), September 28, 2011.
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