Development Paths of the UK and China at Different Historical Times: Similarities and Differences

By Guanghua Yu

In Violence and Social Orders, North and his colleagues divide countries or regions into natural states and open access orders. Natural states solve the problem of violence by limiting to elite coalition groups any access to political organizations and activities, and any economic organizations and events. In this way, natural states maintain stability and make broad social interaction possible. As natural states have to implement higher rents or privileges to please the dominant coalition, these countries or areas are less likely to have a vibrant and dynamic economy, compared with countries or regions with open access orders. Although using different terms of inclusive and extractive political and economic institutions, Acemoglu and Robinson share a similar logic with North et al. in Why Nations Fail. In the view of Acemoglu and Robinson, extractive political and/or economic institutions make(s) it possible for the few controlling elites to exploit the rest of society. As a result, long term growth is impossible.

The open access order advocated by North and his colleagues requires that a country have open access to political organizations and activities, and open access to economic organizations and events. Open access in the political sphere makes it difficult for the government or any political faction, to manipulate the open access order in the economy. Similarly, open access to economic organizations and activities requires political organizations to consider the broad interest of society to gain political power to run a government.

The logic underlying the open access order is not the only way of achieving economic and human development in the contemporary non-Western world.

This note argues that the logic underlying the open access order is not the only way of achieving economic and human development in the contemporary non-Western world. Evidence from Japan shows that it is open access in the economic sphere, as well as institutional building related to the protection of property rights, contract enforcement, financial market, rule of law, and human resource accumulation that determine economic and human development. The case of Singapore similarly supports the claim that open access in the political sphere is not a necessary condition for economic and human development. The successful development story of Singapore is consistent with my position that successful economic and human development requires open access in the economic sphere and for interconnected institutions to support that endeavour. China’s successful development story in the past several decades further supports my argument here.

If it is indeed open access in the economic sphere and institutional building related to the protection of property rights and contract enforcement, financial market, the rule of law, and human resource accumulation that determine economic and human development in Japan, Singapore, and China, we still need to know the reason the West, particularly Britain, led the world in the past several centuries. Put another way, why did elite democracy promote significant economic development in Britain when other countries still possessed an agricultural or primitive economy? This note tries to answer the question.

While a one-party rule resulted in a series of failures and disasters in China after 1949, when properly used, one-party rule can also govern the country very effectively. Evidence bears that out.

My answer is that it is open access in the economic sphere, as well as institutional building related to the protection of property rights, contract enforcement, financial market, the rule of law, and human resource accumulation that determine economic and human development. This explanation is correct both for Britain in the seventeenth century and beyond, and China in the latter twentieth century and beyond. Britain and China, however, differ in the way of moving towards that direction. In Britain, elite democracy through parliament played essential roles in gradually enlarging open access in the political sphere. This was essential when Britain was still a feudal society under the rule of a monarch.

After the Glorious Revolution, Parliament started to represent the interest of the growing or diversifying economic, commercial, and industrial sectors. In that gradual process, it is difficult for a single party to emerge and represent the interest of the whole society due to high transaction costs of transportation and obtaining local information. Using Parliament is a better institutionalized way of enlarging open access in the political sphere. Open access in the political sphere then led to the gradual open access in the economic sphere and the building of institutions related to contract enforcement, better definition and enforcement of property rights, financial market, the rule of law, and accumulation of human resources. During that process, Britain developed ahead of other countries.

In contrast, China experienced a different path of nation building. The Communist Party of China emerged and developed through its struggle against foreign interests in China, particularly the Japanese. Domestically, the Party and its troops experienced a nationwide Civil War against the Guomindang Government. Establishing a one-party rule regime in China was very costly. While a one-party rule resulted in a series of failures and disasters in China after 1949, when properly used, one-party rule can also govern the country very effectively. Evidence bears that out. Since 1978, China, under the rule of the Communist Party of China, has gradually moved towards greater open access in the economic sphere. In connection with the open access in the economic sphere or the expansion of inclusive economic institutions (using the language of Acemoglu and Robinson), China also started to establish interconnected institutions related to contract enforcement, better definition and enforcement of property rights, financial market, the rule of law, and accumulation of human resources. As a result, China enjoyed a very high rate of economic development. Also improved significantly are human development records in terms of infant mortality rate, school enrolment rate, and the rate of life expectancy.

While China has developed very well in terms of economic growth and human development indicators, it does not follow the model in the United Kingdom by allowing open access in the political sphere. Opposition parties are not allowed, organizations such as trade unions and NGOs are tightly regulated, corporations are required to establish a branch of the Communist Party of China, newspapers are heavily censored, and academic freedom is subject to the one-party rule regime. Neither contestation by different parties for government control nor popular elections of high-level legislative and executive officials are adopted. In other words, China is not a democracy.

While China has developed very well in terms of economic growth and human development indicators, it does not follow the model in the United Kingdom by allowing open access in the political sphere.

The above discussion led to the conclusion that elite democracy in Britain led to open access in the political sphere. Open access in the political sphere, in turn, resulted in the open access to economic organizations and activities in Britain and other Western countries. Open access in the economic sphere and the establishment of institutions related to contract enforcement, property rights definition and protection, financial market, the rule of law, and accumulation of human resources supporting the open access in the economic sphere naturally caused significant economic and human development. While open access in the political sphere played important roles in Britain, open access in the political sphere is not adopted in China. In sum, both Britain and China developed significantly at different historical times due to open access in the economic sphere and the construction of interconnected institutions supporting the open access in the economic sphere. That is the similarity. The difference is that open access in the political sphere in Britain played important roles in shaping the open access in the economic sphere and the establishment of interconnected institutions supporting open access in the economic sphere. Still, open access in the political sphere does not appear to be relevant in China.

The discussion raises a further question about whether China’s economic development is sustainable. Acemoglu and Robinson have explained that China’s economic growth is not sustainable. This is so because China’s political institutions are extractive. The reason that China’s political institutions are extractive is that China is under the rule of one party, the Communist Party of China. My view is that Acemoglu and Robinson are wrong. By following their logic that extractive political institutions allow the few elites to exploit the rest of society, the Communist Party of China does not have to exploit the rest of society if the party takes into consideration the broader interests of the people in the country. This can be achieved when the party absorbs elites in various sectors of the economy or country to make the party inclusive.

A survey done at the beginning of this century indicates that about 40 percent of lawyers are members of the Communist Party of China and around 30 percent of private entrepreneurs or capitalists are members of the party. In essence, the Communist Party of China itself is very inclusive, although China does not follow the political model of the West. Due to the nature of the inclusiveness of the ruling party, China can maintain open access in the economic sphere and to improve the interconnected institutions supporting the open access in the economic sphere. Viewed in this way, China’s economic development can be sustainable. While the absolute rate of economic development will decline, the quality of economic and human development will improve in the future. Acemoglu and Robison further argue that China’s economic growth is not sustainable because the nature of development in China is based on catching up and massive investment only. Xiaodong Zhu’s research indicates, however, that China’s rapid economic growth in the last three decades is mainly due to productivity growth rather than capital investment. Recent evidence on patent registration and high-tech sector growth in artificial intelligence and telecommunications suggests that a great deal of innovation has occurred because of better reshaping of property rights rather than simply catching up.

There is no reason to believe that coordination of elites between political parties in the West or elsewhere is necessarily more efficient or effective compared with coordination of elites within one party, other things being equal. While democracy in terms of contestation and inclusiveness has played important roles in the West in shaping the open access in the economic sphere and the establishment of interconnected institutions related to contract enforcement, property rights definition and protection, financial market, the rule of law, and accumulation of human resources, democracy has also encountered the following problems. In the first place, when a country or region has already achieved open access in the economic sphere and developed the interconnected institutions supporting the open access in the economic sphere, further popular participation increases transaction costs of policy making without corresponding benefits. Secondly, the higher degree of popular participation is not consistent with specialization and division of labour. Thirdly, the Jury Theorem shows that when each person is more likely to be wrong than correct and when people in the group are making independent decisions, corrective decisions are more likely to be wrong when the process involves more people in the group or society. Fourthly, when a country or region is experiencing troubles of separation or identity struggle, a higher degree of contestation and popular participation may lead to chaos and civil unrest. The recent example of Hong Kong reflects the trouble of all the above problems.

About the Author

Guanghua Yu is a Professor of Law, at the Faculty of Law of the University of Hong Kong. He graduated from the University of Toronto School of Law and York University School of Law. His specialized areas of teaching and research include law, development, and governance.

1 COMMENT

  1. ‘While a one-party rule resulted in a series of failures and disasters in China after 1949’.

    Seriously?

    During the 25 postwar years, under crushing international embargoes on finance, food, agricultural and scientific equipment, and international participation, Mao outgrew America’s booming economy by 100%, ended famines; doubled China’s population from 542 million to 956 million; doubled life expectancy; doubled caloric intake; quintupled GDP; quadrupled literacy; increased grain production three hundred percent; increased gross industrial output forty-fold; increased heavy industry ninety-fold; increased rail lineage 266 percent; increased passenger train traffic from 102,970,000 passengers to 814,910,000.; increased rail freight tonnage two thousand percent; increased the road network one thousand percent; increased steel production from zero to thirty-five MMT/year; increased industry’s contribution to China’s net material product from twenty-three percent to fifty-four percent; put satellites into orbit; developed the atomic bomb and the hydrogen bomb faster than anyone in history; left China debt-free and independent.

    According to data provided by the World Bank, expressed at constant prices (base 1980) and in ten-year averages, China’s economic growth rate was 6.8 percent between 1970 and 1979, i.e., more than double that of the United States during the same period (3.2 percent, also at 1980 constant prices).4 Furthermore, according to the official GDP series published by China’s National Bureau of Statistics (NBS) since its creation in 1952 up until today, the growth rate of China’s GDP averaged 8.3 percent annually from 1952 to 2015, with a strong 6.3 percent between 1952 and 1978 and an even stronger 9.9 percent between 1979 and 2015. These percentages are expressed at constant prices in base 1952 and standardized to take into account the statistical breaks that marked the accounting transition from the Material Product System (MPS) to the more “modern” System of National Accounts (SNA).

    Nevertheless, if we exclude the very first years of the People’s Republic from 1952 to 1962—i.e., between the completion of the unification of the continental territory and the period of the break with the Soviet Union—there is a recorded average of 8.2 percent per annum GDP growth rate in the period of 1963–78, reflecting very rapid growth even during the Cultural Revolution.the average growth rates of the capital stock that we called “productive” (including equipment, machinery, tools, industrial buildings, and facilities, but not residential buildings and their land value) showed very little difference over the two subperiods of 1952–78 and 1979–2015: 9.7 percent for the first subperiod and 10.9 percent for the second.

    If we retain a larger productive capital stock, including the inventories, which are important for calculating the rotation rate of circulating capital, we see that the average rhythm of accumulation of such a stock was slightly higher between 1952 and 1978 (10.41 percent) than between 1979 and 2015 (10.39 percent).

    Moreover, if we select an even larger capital stock to also include the constructed residential buildings and their land, not directly productive components, the growth rate of this very large capital stock continued to be high, averaging 9.1 percent from 1952 to 1978 compared to 10.9 percent from 1979 to 2015. It is, therefore, quite clear that the capital accumulation effort is not a recent phenomenon, but that it has been continuously decided and planned by the Chinese authorities over the past six decades.

    It is this sustained effort of accumulation, enabled in particular by surplus transfers from rural areas, that explains the success of industrialization and, to a large extent, the robust rate of GDP growth.The Enigma of China’s Growth. Zhiming Long and Rémy Herrera. Monthly Review, Dec 1, 2018 [Development Indicators (Washington, DC: World Bank, various years)databank.worldbank.org.
    China Statistical Yearbook (Beijing: National Bureau of Statistics of China, various years), http://stats.gov.cn/english.%5D

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