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China, the Hayekian dialectic

Beijing leaders' attachment to central planning serves their underlying philosophy. But what happens if their core vision is ever realised?

Kerry Brown
17 November 2015

The plenum of the Chinese Communist Party (CPC) is in effect its annual policy gathering. This year's event, held on 26-29 October, focused on the party's thirteenth "five-year plan". This underlines one of the great modern anomalies – that  the world’s second largest economy still nominally operates according to a central plan (and has done so in twelve consecutive cycles since the party came to power in October 1949). State direction and central edict in economic issues may have been discarded elsewhere, but in China they remain a viable way of doing things.

Why bother having such plans? In another plenum two years ago, the CPC celebrated what it grandly called "the perfecting of the market". But if this were being achieved, why does the central government need to continue issuing a quinquennial plan? After all, it is doubtful if any government today can exercise such comprehensive, long-term control - even less so when the territory and economy concerned is as vast and varied as China's. There are also questions about continuity. China is a different place even compared to 2011,when the twelfth five-year plan was launched. It has a new leadership, and its growth is now set at a figure much lower than the one then envisaged.

The implication of the plan, that the central government has total command, is obviously not the case. This is hardly surprising. Shanghai has a wholly different economic model – more services, finance, consumption – than somewhere like Xinjiang. How can a single plan meaningfully cover such diverse areas? In addition, long-term plans carry an innate vulnerability. Even announcing them offers many hostages to fortune: it raises promises that can at best be only partially kept, and perhaps completely missed.

But there is another side. What the continuing announcement of five-year plans by the Chinese party-state does do is indicate an attitude towards governance and to the role of political leaders in their society. This is, as it were, the underpinning philosophical outlook, one that still differentiates Chinese government from most other countries. At heart is a continuing belief in the need for order and the wisdom of central authority (even if this proves to be more mirage than reality). The belief also shows that alongside the rhetoric about encouraging competition and creating entrepreneurialism there runs a contradictory faith in high-level central planning and macroeconomic control. Currently, the authorities are more than happy to live with this tension.

Too early to say

To understand this better, it is useful to look at a work written over seven decades ago, before the People’s Republic of China even came into existence: Friedrich Hayek’s The Road to Serfdom, published in 1944. In this celebrated attack on central planning, Hayek states that "the common feature of all collectivist systems may be described as… the deliberate organisation of labours of society for a definite social goal." What is this social goal? Hayek continues: "it is usually vaguely described as the 'common good', or the 'general interest'."  But he critiques this, saying that "the welfare and happiness of millions cannot be measured on a single scale more or less." On his reckoning, to drive society towards such a simple, unilateral goal was profoundly inhumane and worrying. It stifled creativity, innovation, and individual freedom.

This analysis suggests that Hayek, sophisticated and brilliant thinker as he was, might have been puzzled by modern China: a country whose leaders subscribe to precisely such a grand goal while presiding over a society of immense dynamism and energy, and where many are able to pursue (in economic terms at least) their individual dreams. Does China prove Hayek and his ilk wrong?

The best answer at present is a cautious one: that the court of judgment is out, and is likely to remain so for some time. China has embarked on a vast experiment, and so far produced amazing results. But the thirteenth five-year plan covers a period when many tough challenges will arise that cannot be avoided – involving the rule of law, the ability of state and non-state companies to coexist without conflict, and the role of the party-state itself (to satisfy people materially, ask them to contribute more fiscally, but still hold back from allowing them full participation in political decision-making through the act of voting).

For the time being, China's ability to maintain its hybrid system may owe a lot to the leadership's definition of the great goal that underpins its five-year plan. Where exactly is the Chinese party-state trying to take the country, what is the "vision" it is striving to realise? On this, leaders have said a surprising amount. But it can be summarised very simply. They want to see a unified, strong, proud China, its status restored, its sense of grievance rectified, its place dominant both in the region and globally.

There is nothing abstract about this goal. It means something, emotionally and culturally, to most Chinese people. When the Communist Party justifies its plans and edicts by reference to this ultimate goal, there would probably be few dissenters within China. The big question is what happens – both to China and the Communist Party – if and when the goals has truly been achieved? Maybe then, Hayek’s words will once more be seen as prescient and prophetic.  

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