Western Economists: China Experiment Now Frankenstein’s Monster

By Chriss Street
Chriss Street
Chriss Street
July 15, 2019 Updated: July 16, 2019

Harvard economist Janos Kornai, who authored communist China’s model to embrace markets, warns that the successful experiment has morphed into Frankenstein’s monster.

Kornai, Nobel Prize winner James Tobin, and about 100 top Western academics were flown by the World Bank to China in the summer of 1985 for ‘The Yangtze River Cruise Conference. Having broken away from the Soviet Union bloc, China was considering adopting some elements of capitalism to raise its annual per-capita GDP above $300.

As a Hungarian citizen and expert in communist Central Europe’s failures, Kornai won fame in 1980 as the author of the “Economics of Shortage.” The book explained how socialist nations’ chronic food and material shortages were inevitable because central planning politics and cronyism misallocate investment funding and production quotas.

Kornai’s presentation on the cruise outlined on a blackboard a proposed mixed economic model that would require state-owned companies to respond to market price pressures regarding quantities and quality, but “the state could still manage macroeconomic policy and regulate the economic and legal parameters of the market.”

Former Chinese leader Deng Xiaoping was so enthusiastic for economic improvement that he avoided defining Kornai’s model as capitalist or communist by stating: “It does not matter if the cat is black or white so long as it catches mice.” China’s communist leadership then codified the radical reform model into law as “The Yangtze Consensus.”

Powered by its economic transformation and robust support from Western intellectuals, China achieved a 13 percent growth rate over the next three decades that drove per-capita GDP to $11,100 by 2015. The ‘Factory of the World’ had passed Japan as the second-largest economy and was settling 27 percent of trade in its currency by 2015.

But just like the initial success of Dr. Frankenstein’s life reviving experiment that was followed by a “monstrous turn,” Kornai warns that China’s global triumph is morphing into a monster with a dark appetite to “become the hegemonic leader of the globe.”

China’s age of openness is slipping away as leading Chinese officials and publications often disparage “hostile foreign forces” and promoting “Internet sovereignty” and media control. With more state-owned bank debt directed to uncompetitive state-owned enterprises, 40 percent of China’s new debt goes to pay for interest on existing loans.

Kornai blames Chinese leader Xi Jinping, who since taking power in 2012 has steered China back to a classic communist system that is “reminiscent of Stalinist times.” Xi has changed Chinese law to allow himself to serve as president for life. He has launched an “anti-corruption” campaign to root out corrupt officials and the faction loyal to former Party leader Jiang Zemin. But Kornai is most concerned about the rise of communist party committees being “formed inside all sizable institutions and companies” that “have the power to overrule management.”

China’s central bureaucracy has not been able to completely suppress freedom of speech and press completely, because the Internet postings continue to leak out. But Kornai cautions: “Political discussions can take place in small groups, but the network of prohibitions is thickening, and the risks associated with criticism are growing.”

When total control is cemented at home, Kornai forecasts that “China won’t be satisfied with turning their country into one of the leading powers of the multipolar world.” He perceives China’s ‘One Belt, One Road’ infrastructure development system as building blocks for world domination, very similar to the “British Empire of old.” Most nations will get hooked on the scale of Chinese trade and financing, but Kornai warns that China will wield the hard power of military incursions and occupation to achieve its goals.

Kornai indicts the Western intellectuals who vocally gave their approval for and actively contributed to the transformation of China into a form of market economy, but now “bear moral responsibility for not protesting against the resurrection of the Chinese monster.”

Given that it is too late, and China is already advancing on too many fronts for raising tariffs to successfully resist the growth of the monster, Kornai advocates that the best way to oppose Chinese communism’s new long march is for Western intellectuals to take a leadership position in calling for the same type of foreign policy “containment” regime against China that successfully stopped the Soviet Union’s global expansion.