This post is an extended version of a Facebook post I wrote a few days ago. The original post also appears on Techzim.
For much of history China was one of the most powerful countries on earth; surpassing Europe and the rest of the world in almost everything, from industry and economics to technology and warfare. In the early 19th century China’s economy accounted for a third of global GDP.
The achievements of the Chinese before the 19th century are often understated yet, for example, the Chinese invented the three things that Francis Bacon said led to the scientific revolution – gunpowder, the magnetic compass and paper and printing.
China’s technological superiority allowed it to be a global leader but this began to change in the middle of the 19th century when the Western countries began rapidly industrializing, building on the back of scientific developments. Modern economies greatly depend on technological advancements for growth, even when other factors such as labour and natural resources are limited.
Why the slump in the China’s economy happened, and how China, since 1979 has started to regain its position as a leading economy is the subject of a book by Justin Yifu Lin, a Professor of Economics at Peking University and former Chief Economist and Vice President of the World Bank, called Demystifying the Chinese Economy.
After the Communists under Mao Zedong came to power in 1949 China made some serious strides, building a powerful army and even developing nuclear bombs. However institutional problems and other flaws of the regime meant China was still one of the poorest countries in the world in 1979, with a per capita income of $210. In comparison, Zimbabwe’s GDP per capita was $736 in 1979 and $916 in 1980.
This changed in 1978 when Deng Xiaoping came to power after the death of Mao. In the Communist Party’s 3rd Plenary Session of the Central Committee held that year, the Chinese changed their fate by ushering in reforms.
Deng in 1980 made a target, that by 2000 China should have quadrupled its 1980 GDP, which required a growth rate of 7.2% every year, a figure generally thought by economists to be impossible to achieve in the long term except after a war or natural disaster.
It turns out Deng Xiaoping was modest in his demands, because China achieved an average annual growth rate of 9.9% from 1979 to 2009 (it has slowed down a bit since). By 2009 the Chinese GDP per capita stood at $3744 (Zimbabwe’s meanwhile had fallen to $594).
The Chinese, in 30 years, went from being broke and unable to feed themselves to making modern gadgets, (I use a Chinese made phone, Xiaomi), having reserves in excess of $3 trillion and lifting an incredible 600 million people from poverty.
I think this book contains important lessons for other developing countries like Zimbabwe. The first being that a leadership with vision is a prerequisite for development. We need our economic Deng.
A visionary leadership will allow for institutional reform because strong institutions are a necessary condition for economic development. This includes a tough approach to corruption, a respect for the rule of law and the crafting of laws that are friendly to economic development. That is why, for instance, the STEM initiative though a good idea, might not achieve its full potential, because of the lack of institutions and industries that utilize the graduates.
Additionally, it shows how problematic the idea of “building a Silicon Valley” is, because a tech hub is not really physical, it starts from having the right attitude, from having laws that allow young innovators to import without ZIMRA bankrupting them and allows them to set up companies easily without the challenges of complicated and time consuming paperwork and a tax collector that is brutal.
Secondly developing countries can exploit what economists term “the latecomer advantage”, which allows developing countries to develop much faster than developed ones using importation, integration and imitation. This allows us to quickly develop technologically without spending as much on research and development (R&D) while also avoiding the mistakes done by the early implementers. For example you’d think we would go straight to optical fiber networks and skip ADSL in telecommunications.
This is crucial for the growth of technology, which Yifu Lin identifies as the most important factor of a modern nation’s development. When people make fun of cheap Chinese imitation phones they miss two profound points- that the people of China are firstly able in the first place to manufacture such phones cheaply, and secondly and more importantly, that such cheap phones enable a lot of Chinese people to go online and therefore participate in the new and ever growing online economy. This has a trickledown effect in other areas, such as online payment systems, mobile app development, software development, online service deliveries and so forth. All because the Chinese can copy and mass produce cheap devices.
But because each country is different solutions should not be imported wholesale, they must be tailored to suit that country’s unique social, political and historical circumstances.
Indeed, Yifu Lin warns in the preface that, “… the opportunities and challenges facing developed countries differ from those of developing countries,” hence “when attempting to adopt theories from developed countries to guide their policies, developing countries may be at loss about which one to pick. Even if they select one, the theory may not suit their conditions.”
The responsibility, then, is on the scholars and intellectuals of the developing countries who by their positions are uniquely situated to understand the history, culture and realities of their countries and should use that knowledge to formulate a system capable of transforming their countries.
Importantly, Yifu Lin says, the intellectuals of the developing world “should thus deepen the understanding of their countries in all aspects including in political, economic and other social dimensions.” Only then can they create a practical economic framework that addresses the unique opportunities and challenges of modernizing their countries.
Developing countries therefore need to start giving more space to intellectuals and technocrats in public policy making. Much of our policies lack any intellectual grounding or academic background, which is why we recklessly throw around numbers such as $15 billion, 2 million jobs and others, even though there are no reputable studies to substantiate them.
After that the key is advancing technologically. But this requires us to have in place laws that promote our creativity and innovators, and obviously financial institutions willing to invest money in our ideas, not councils that try to demolish the few places we set up for creatives- such as Moto Republik.