Page 66 - Bloomberg_Businessweek

Bloomberg Businessweek January 29, 2018

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TOSTRENGTH. BYMICHAEL

Over my two decades o f writing about eco-
nomics, I’ve devised a li ist of simple maxims
that I’ve found generally hold true. One is that
history repeats itself.If one cou
untry tumbled into a
financial crisis, there is a very go
ood chance another,
facing similar conditions, will as well. A second rule:
k. A policy that failed
What doesn’t work, doesn’t work
isn’t likely to achieve any better results if tried again.
littl
d th
l
Id
Idevelopedthese littlerul les as a jour nalist watching what
works and what doesn’t—fr om Japan t o Russia to Spain—and o
understand why things just go so derstand
at un
attempting to utempting to u
wrong so ofte n, whether during the 1997 Asian
crisis or the t urmoil that nearly ripped apart
the euro zone earlier t his decade.
But recently, my fait h in this corpus of collected wis-
dom has been badlyshak
ken. By China.
The more I apply my
y rules of economics to China,
the more they seem to go awry. China should be mired in
pped by financial crisis, accord-
meager growth, even grip
ing to my maxims. But obv viously it’s not. In fact, much of
what’s going on rightno w in that country runs counter w
towhat we know—or thin know—about economics.
ymakers are right, then a lot of
Simply, if Beijing’s policy
basic economic thinking is wrong—especially our certainty
in the power offree mar kets, our ingrained bias against k
state intervention, and our ideas about fostering inno-ate intervention and
st
vation and entrepreneurship.
On the surface, that probably sounds ridiculous.
How could one country possibly defy the laws that
have governed economies everywhere else? After all,
whenever economists and bankers argue that “this
time it’s different”—such as the dot-com boom or the
subprime-propelled U.S. housing market—the good
times invariably end in tears. Recall, too, that back in
the mid-20th century, some experts were convinced the
Soviet Union had created a superior form of economic man-
agement, and in the 1980s, it was Japan that had successfully
OF ECONOMICS reinvented capitalism. Oops. ard, we can no longer dis-
Y Yet as China marches forwa
f
Chi
h
miss the possibility that it’s rewr
ring what most economists
policyli makers are just plain ignok j t l i ig riting the rulebook. Beijing’s
would recommend at this point in its development. And, so
far, they’re getting away with it.
The problems that China con
nfronts today are immense.
The easy catch-up growth tha t fueled the nation’s rapid
gains since the 1980s has been tapped out, and the costs oft TYPE ILLUSTRATION BY BRAULIO AMADO
doing business are rising, eati ng away at China’s low-costn
edge. For its economic miracl le to continue, China must
become more innovative and competitive, and allocate