The Societal Cost of China's Rapid Economic Growth

John Knight

Asian Economic Papers, 2016, vol. 15, issue 2, 138-159

Abstract: In China, political control is centralized and economic management is decentralized. This gives rise to a serious principal–agent problem, in which the agents are often better informed than the principal. China also has a semi-marketized economy involving much state intervention. This intervention serves both a political and an economic function. It enables the Communist Party to remain in political command and generates formidable patronage resources. It also provides the policy instruments, including incentive structures for officialdom, to maintain a “developmental state.” The combination of economic decentralization and a semi-marketized economy creates a problem of weak accountability and a breeding ground for rent-seeking and corruption. For a quarter of a century China's leadership gave overwhelming priority to the objective of achieving rapid economic growth. This policy was viewed as providing political legitimacy and securing the best protection against social instability. It is argued that the leadership was able to solve the principal–agent problem in its pursuit of economic growth. By contrast, the solution to the principal–agent problem failed in other respects, giving rise to societal costs. Little attention was paid to the dramatic socioeconomic changes—including rising inequality and economic insecurity, environmental degradation, mass migration, rent seeking, and corruption—which accompanied economic growth and posed new challenges. It is argued that these changes help to explain the failure of life satisfaction scores to rise over the two decades from 1990–2010. They can also help to explain the rise in indicators of social instability over that period. It is to be hoped that the new leadership's current anti-corruption campaign, together with its declared policy intention to reduce state economic intervention and increase reliance on competitive markets, will strengthen deterrence and weaken opportunities for rent seeking and corruption. The paper carries the implication that China's economy cannot be well understood except through the lens of political economy.

Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/ASEP_a_00435 link to full text pdf (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:asiaec:v:15:y:2016:i:2:p:138-159

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=1535-3516

Access Statistics for this article

Asian Economic Papers is currently edited by Wing Thye Woo, Sungbae An, Fukunari Kimura and Ming Lu

More articles in Asian Economic Papers from MIT Press
Bibliographic data for series maintained by The MIT Press ().