Despite recent market volatility in China, government leaders in Beijing remain determined to extend the country’s economic influence far and wide. The recent launch of three new financial initiatives — the Asian Infrastructure Development Bank, the New Development Bank (also known as the BRICS bank) and the Silk Road Fund — aims to accelerate infrastructure development in Asia and across emerging markets with a combined $240 billion in capital, much of it put up by China. The three institutions represent a direct challenge to the U.S., which has set the global financial agenda since the end of World War II through the World Bank and the International Monetary Fund.
Rather than looking at China and other emerging markets as a challenge to their authority, leaders in Washington should take a lesson from them, argues Beijing-based American political economist Laurence Brahm. In Fusion Economics: How Pragmatism Is Changing the World, published by Palgrave Macmillan, Brahm contends that China’s pragmatic blend of market-oriented and state-directed economic policies offers a better template for development today than does the laissez-faire approach that the U.S. has advocated.
“This book does not espouse an economic theory,” Brahm writes in his introduction. “Economics is not about theory. Economics is about the redistribution of resources to cope with realities of scarcity in the most efficient way. That calls for pragmatism.”
Rather than offering a rigid menu of economic policy prescriptions, Brahm’s fusion economics is a smorgasbord. Countries should choose policies that work in the context of their own cultural, religious and social traditions and not embrace the old Washington consensus of privatization, free trade and free capital flows.
Brahm traces the birth of fusion economics to the pioneering efforts of Deng Xiaoping in the late 1970s, who justified his market-oriented reforms with the maxim “It matters not whether it is a black or a white cat, as long as it catches mice.” Over the ensuing decades, Beijing has opened the door ever wider for free enterprise while keeping a firm grip on the economy and maintaining the supremacy of the Communist Party. Key to China’s rise has been its careful approach to reform: launching experimental projects, such as the creation of the first Special Economic Zone in Shenzhen in the early 1980s, and then rolling out the successful ones on a nationwide basis. Deng called it “crossing the river by touching the stones.” Brahm knows much of this history intimately, having studied and worked in China for the better part of the past 30-odd years and having advised in the late 1990s former premier Zhu Rongji on reform of state-owned enterprises and the country’s eventual accession to the World Trade Organization in 2001.
“The results are self-proving,” he says of Beijing’s do-what-works approach, pointing out that between 1981 and 2005 an estimated 600 million Chinese people left the ranks of the poor, slashing the nation’s poverty rate from 85 to 15 percent.
“The main lesson here is that China proved to other developing nations that there is a viable alternative to the Washington Consensus and discredited market fundamentalism,” he writes. “It unabashedly combined tools of market and planning to get where it wanted to go. China adopted pragmatism and a back-to-basics economic view rooted in local reality. It did not care about theory. This approach inspired virtually every country in the developing world to think out of the box and seek alternatives.”
Few of the imitators have been as successful as China, of course. Brahm cites Brazil as a leading proponent of fusion economics in Latin America for its blend of capitalist and socialist policies. But the boom years under former president Luiz Inácio Lula da Silva in the 2000s have given way to recession and corruption scandals today, forcing President Dilma Rousseff to back the austerity policies of her University of Chicago–trained Finance minister, Joaquim Levy.
What about China’s neighboring BRICS partner and rival, India? Brahm offers a foodie analogy of the contrasting economic approaches of the two Asian giants.
“Where China’s economics is like a wok of stir-fry crackling in popping oil under a hot flame, India’s is like a simmering curry,” he writes. “India cherishes the spice of its pluralist, open, and free society, rather than the melting wok of conformity that China insists upon. Instead of hypergrowth, India’s economy boils at a mathematically calculated temperature. Some even predict, most remarkably, that India’s economy will overtake China’s in 15 or 20 years because the simmer in a clay pot remains steady and burns longer, while the wok overheats. Who knows? They may be right.”
With China’s economy slowing and its equity market falling sharply in recent weeks, the idea that Beijing-style pragmatism holds all the answers has taken a hit. In his book, Brahm doesn’t offer a forecast for China’s GDP growth, but he does argue that the country needs to shift away from its reliance on state-driven investment and infrastructure. China must accelerate market liberalization measures to allow for greater private enterprise expansion, and adopt green policies to protect the environment and promote cleaner growth, he insists.
Pragmatic advice? Certainly. Is China ready to leap to the next stone in the river? Only time will tell.
Get more on emerging markets. Follow Allen Cheng on Twitter at @acheng87.
