Champions of democracy from around the world remember June 4, 1989 as a day of infamy for the outrages that were witnessed on and around Tiananmen Square. However, on the same day on another continent other notable, and less tragic, events unfolded. A comparison of these events provides an interesting perspective on the failures of the regime in Beijing. At the same time, there are guides for those who would seek further economic as well as political reform in China.
On that very same day, Poland held an election so that its citizens could register their distaste for an authoritarian regime. Instead of mourning their dead, the Polish people commemorate the beginning of their liberation. By having an opportunity to express their choice at the ballot box, Poles did not have to take to the streets or risk their lives to protest the oppression and corruption of their Communist regime.
There have been frequent claims in Asia and elsewhere that authoritarianism provides greater stability by limiting the voice of its citizens and avoiding open conflict. However, historical evidence suggests that democracy is the best means for peaceful conflict resolution. The Polish experience confirms that consensus can emerge from conflicts with authority without passing through chaos. While political reform may increase uncertainty and democracy has some glaring imperfections, they provide citizens with a safety valve to vent their frustrations.
A lesson of equal importance from the Polish experience involves the direction and pace of economic reform. Debates continue over the appropriate sequencing of economic transformation, ie, whether change should be rapid or gradual. However, one point should be kept in mind: Given the inefficiencies and distortions from decades of central planning, most of the industrial sector of a communist economy cannot survive in the face of market logic. Attempts to resist the inevitable collapse of the industrial dinosaurs will transform an economic inconvenience to a potential catastrophe.
After wresting political power from Communist functionaries, Poland quickly underwent a period to eliminate some of the worst effects of central planning. The new democratic leaders understood that political and economic freedom would offer mutual support to one another. Their inability to grasp this interdependency means that Chinese leaders' attempts to hold on to power will doom their citizens to slower economic growth and greater future hardships.
Instead, the Poles chose rapid transformation of their economy by introducing a solid institutional framework that supported private property and favored deregulation. This meant that if elections brought new leadership or different ruling parties, momentum for change would not be lost.
Poland quickly shed industrial over-capacity and resolved a potential banking crisis caused by unrecoverable loans made by state-run banks to state-owned enterprises. At the same time, the economy was opened to free trade. By unleashing the entrepreneurial skills of the Poles, many of the jobs lost to post-communist downsizing were replaced in the mushrooming private sector. After sharp declines in the GDP in the early 1990s, the average growth rate of the Polish economy from 1992 to 1998 was 5.2 percent. True, this was slower than the growth experienced by some of the Asian tigers. But then Poland is decidedly more stable and its economy much less affected by the recent events than were most other emerging economies.
China's leadership is facing the sharp horns of a nasty dilemma. On the one hand, closing the largely inefficient state-owned enterprises could lead to massive social upheaval. On the other hand, continuing to provide subsidies for the bankrupt enterprises will lead to a collapse of the banking system that could lead to massive social upheaval.
With export growth slowing and with declining foreign investments, the only other choice to avoid catastrophe is to allow China's citizens to embrace the free market. Unfortunately, the impact of such a change requires additional political reforms that would weaken the regime's hold on power. China also needs investments in infrastructure to promote the development of a national economy with efficient transportation and communications links between various commercial centers.
Apparently the dread of relinquishing power is more important to Beijing than is the reduction of the suffering of its people. Catastrophe can be avoided, but much time has been lost. Jiang Zemin can join the pantheon of Chinese heroes if he would undertake resolute actions and allow his people to realize their just destiny. Otherwise he and his supporters are at risk of being remembered only for their villainy and selfish conceit.
Christopher Lingle is Global Strategist for eConoLytics and author of The Rise and Decline of the Asian Century. His E-mail address is: CLINGLE@eConoLytics.com.
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