File spoon-archives/marxism-international.archive/marxism-international_1996/96-10-18.130, message 71


Date: Thu, 17 Oct 1996 15:26:09 -0400 (EDT)
From: louisgodena-AT-ids.net (Louis R Godena)
Subject: Re: Hyperinflation & Investment Controls in China



Professor Rosser,  obviously,   is continuing to insist on that old
totalitarian model to explain the evolutionary changes occuring in Chinese
political society.    Perhaps a lifetime spent among cows has inured him to
the possibilities of change in unfamiliar cultures.

It is clear that China now has a de facto federalist system in which the
central government specializes in political responsibilities and the local
governments specialize in economic responsibilities.

This has a number of important normative implications.    Under the
condition of political authroritarianism,  this combination of economic and
fiscal decentralization with political centralization may be an optimal
governance structure.     Economically,  a degree of political
centralization is useful to alleviate coordination problems when economic
agents lack financial self-discipline and when indirect macroeconomic
policies are ineffective.    Premature political decentralization in the
presence of soft-budget constraints may have contributed to runaway
inflation in other reforming centrally planned economies.    Politically,
the Chinese style of federalism can also be optimal because fiscal
decentralization helps check the enormous political discretion in the hands
of the central government,  on which the Chinese political system itself
places no formal constraints.

We have already seen that the origins of inflation arise from the incentives
for over-investment that arise at the local level and the difficulties faced
by the center in monitoring and sanctioning profligate local behavior.
Indeed, I would argue that the present configuration of Communist Party
relations at virtually every level is more or less predicated upon the
salient economic fact of the reforming economy;  namely,  the all important
need to control a robust economy (meaning, primarily,  the need to keep
inflation under control) while maintaining both robust economic growth and
the political supremacy of the Party.    This of course has to be done
within the context of the culture and traditions of Chines Communist
society.    That the Chinese have thus far done so (and rather successfully)
is a continuing source of bafflement,  envy and perplexity to the rest of
Asia and the US.

Louis Godena




   

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