In his latest column for Bloomberg, Noah Smith argues that neoliberalism deserves credit for China and India’s growth miracle:
The failure of neoliberalism has been greatly exaggerated. We should give it credit for China and India: https://t.co/P6oFIKd6q2
— Noah Smith ? (@Noahpinion) November 15, 2017
At the 30,000 foot level of analysis, this is obviously correct. Take Milton Friedman’s famous 1979 interview with Phil Donahue, in which he put forward the following economic proposition:
“In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that.”
The timing of the statement could not have been better from the point of view of hypothesis testing. Deng Xiaoping and the reformers within the Communist Party of China had just begun implementing the market-based reforms that propelled China’s phenomenal economic growth in the decades hence. Likewise, in the 1980s, South Korea was forced by an economic crisis to undertake major structural reforms that liberalized capital markets, moved the country away from its earlier neo-mercantilist era, and helped sustain rapid development into the 1990s.
So far so good for “capitalism and largely free trade” as the cure for grinding poverty. And yet there are important caveats to this narrative that Noah and my fellow neoliberals tend to gloss over. As Pseudoerasmus notes, relative to the debates over the relative role of markets and planning from the time, the East Asian growth miracles largely represented a rebuke of the neoliberal “Washington Consensus” — what Deirdre McCloskey called the “add institutions and stir” approach — in favor of a model with a much greater role for state-directed investment and financial repression.
Whether 'neoliberalism' should be given credit for China & India seems like a reprise of the "East Asia model" debate of the 1980/90s. Was it largely markets or planning? Compared with central planning: largely markets. Compared with Washington Consensus circa 1992, more planning https://t.co/3bkmvdsqFx
— Pseudoerasmus (@pseudoerasmus) November 15, 2017
Indeed, it’s worth recalling that the economies which most thoroughly embraced the advice of the Washington Consensus tended to perform much worse than China or Korea in the years since (India is it’s own story and less of a direct contrast). Noah mentions Latin America, but the South East Asian economies of Indonesia, Malaysia, Thailand, and the Philippines are also crucial case-studies of neoliberalism’s failures. Those are also clearly the counterfactual’s most relevant for assessing the sources of China’s success.
The next generation of neoliberals must internalize the lessons of these relative failures, rather than simply group all of globalization’s success stories under an anachronistic neoliberal banner. That requires being humble about the ability of abstract economic prescriptions to overlay on path-dependent economic histories and cultural contexts.