MAO, CORPORATISM, OUR MISSING FRIGATES.

Martin ravallion of Georgetown university, who used to be director of research at the World bank, has an interesting new working paper out that tries to estimate how much Mao zedong and Maoism cost China in terms of economic growth and poverty reduction.

How China would have done without Maoism depends on what would have replaced it. ravallion suggests that could have been “political capitalism” à la Taiwan and South Korea, two societies not dissimilar to China’s, with their “Confucian philosophical roots,” strong work ethics, reverence for learning, central importance of family, and so on. In 1950, after decades of regional and world conflict, all three countries were very poor, China poorest. but then the other two took off and China didn’t.

Mao unfortunately favoured the Stalinist path of forced industrialization and the collectivization of agriculture, with predictably disastrous results: a famine during the late-1950s Great Leap Forward that led to 30-40 million deaths. Then came the anti-bourgeois Cultural revolution of 1966-76. South Korea and Taiwan, by contrast, left private farming intact and followed market signals in their industrial development.

ravallion’s best estimates of 1950 rates of extreme poverty, i.e., a dollar or two of income per day, are: for China, 87.5 per cent of the population, and for the combination of South Korea and Taiwan, 73.3 per cent. (In 1950, only seven per cent of mainland Chinese had completed primary school, vs. 55 per cent of South Koreans and 27 per cent of Taiwanese.) rates of extreme poverty 30 years later? China: 41.6 per cent; South Korea/taiwan: 0.3 per cent — basically zero.

There was some progress in Mao’s China. rates of extreme poverty did fall between 1950 and 1980, though mostly in

DO WE REALLY WANT FIRMS LIKE BOMBARDIER AND BELL CLOSER TO GOVERNMENT THAN THEY ARE NOW?

Mao’s later years, as controls on agriculture began to be relaxed. but progress was very slow compared to South Korea and Taiwan. That failure puts the success of deng Xiaoping’s reforms into perspective. In the first years of his more western approach, China was still playing catch-up and harvesting very low-hanging fruit. If you give up on forced collectivization, well of course your farming sector will enjoy big productivity gains.

As damaging as they were, Mao’s economic costs weren’t the worst ills he visited on China: the tyranny of one-party rule and the terror of the Cultural revolution were. but the economic costs were nevertheless staggering. reversing them has been a major achievement. In fact, ravallion reports that last Christmas China’s official news agency claimed the country’s recent progress has been “’the greatest achievement in world history.’” Probably not. but stopping the screw-up of the economy of 1.4 billion people is clearly a major advance.

On Mao’s first official visit to Moscow after the 1949 revolution Stalin snubbed him. ravallion wonders whether, had Stalin been even just a little more dismissive, Mao might have gone back to China less wedded to the Soviet model — which could have saved hundreds of millions of his subjects three decades of anguish.

The policy point here is not that we shouldn’t adopt Maoism. Nobody wants that — even if our capitalism-hating universities still harbour sympathy for capitalism-hating Mao. The policy point is the great danger of a top-down approach to what an economy should be doing. even the wisest and smartest of leaders (wise and smart being separate attributes) are human, which means that however confident they may seem in their own judgments they don’t actually know what the future holds any more than any of the rest do.

but if they’re moving around lots of money and resources based on their best hunch or on what some business guru has told them, that’s a potentially “fatal conceit,” to use Hayek’s term for it. “Fatal” is a strong word. In a very poor society like mid-20th century China, error really can be fatal — to millions of people. In a rich country like Canada, with top-down decision-makers controlling much less of the economy than Mao did of China’s, wrong choices won’t destroy the whole economy, just parts of it (like maybe the oil and gas sector) and the lives of the people who live in them.

“So let’s not do it like Mao!”, would-be industrial planners will say, “Let’s do it like South Korea and Taiwan.” OK, but do we really want our economy and society to be dominated by large industrial groups, some based on families, that work closely with big banks, following the guidance of political ministers? do we really want firms like bombardier, bell, SNC Lavalin and rogers to be more influential and closer to government than they are now?

We have one important example of close, top-down cooperation between government and industry. In 2011, Ottawa signed contracts for new ships for our navy. We learned the other day they now won’t be delivered until the 2030s and will be way over budget (unless you go by the budget that built in big cost over-runs). The Americans got to the moon in just eight years. It’s going to take our corporatist military procurement sector more than 20 years to build 15 friggin’ frigates. And yet some people believe the whole economy needs hands-on government guidance!