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Bonus Quotation of the Day…

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… is from page 305 of Columbia University economics professor Arvind Panagariya’s excellent 2019 volume, Free Trade and Prosperity [2]:

As regards interventions that continue [in China], free-trade critics have provided no compelling evidence that their maintenance was necessary to the double-digit growth. The fact that continued liberalization was accompanied by some acceleration in per capita income growth suggests that the interventions were a hindrance rather than aid to growth. The explanation for the gradual liberalization is to be found not in a grand growth strategy through industrial policy but in political economy, which often permits only small changes at a time in policy.

DBx: The final sentence of the above quotation should be read with emphasis on the word “gradual,” for there Panagariya offers an explanation for why China has not liberalized all at once but, instead, only gradually. As he notes on page 302 of his book, “Once we recognize that policy change must be gradual [because of usually inescapable political realities], it is not surprising that even a steadily reforming economy would look highly distorted at various points. The more distorted it is initially, the more distorted it would look at any point in time for a given pace of liberalization.” China – having suffered an historic amount of distortion under Mao – was unusually heavily distorted when economic liberalization began there in the late 1970s.

Panagariya is here explicitly refuting the argument, made by both Ha-Joon Chang and Dani Rodrik (among others), that China’s economic success of the past few decades resulted more from state intervention and less from liberalization. The logic of the argument of Chang and Rodrik would also lead to them – and those who accept their argument – to conclude that the improved health and vigor of someone who is gradually weening himself off of cigarettes and booze is due, not to that person’s reduced smoking and drinking, but to the cigarettes that he continues to smoke and the bourbon that he continues to swallow.

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