The World Bank still believes privatisation and 'market reforms' are the route to economic success. This is depite the crisis in the western market economy in the last four years, which has hardly dented its belief in neoliberalism. A new World Bank report is urging China to sell off most of its state owned enterprises in order to join the top league of high income nations by 2030.
The report repeats the line that China will soon or later face the same kind of crisis that has hit western economies and Japan. So-called 'reform' is the answer, apparently. This seems strange, because privatisation and liberalisation were tried in Japan, Europe and Latin America in the 1980s and 1990s. The results included rising inequality, asset booms followed by busts and debt crises. It further doesn't make sense because the period of dramatic income growth that brought the high income societies of today in the West and Japan was the 1950s to 1970s. Wages in the US have stagnated since the mid 70s as capital has taken a growing slice of the cake. This has happened in the UK and to a lesser extent in Europe since the 1990s.
One of the key recommendations of the China 2030 report is the need for greater innovation.
Bernhard Hartmann, managing director of management consultants A.T. Kearney in Greater China, says this is true particularly in heavy industries such as chemicals in which he specializes.
Clearly the ideology of neoliberalism is alive and well at the World Bank. China is not the Soviet Union in the 1980s - it already has a thriving market economy, but it is a mixed economy with the state holding the commanding heights (as Leninists used to call them). This has served China very well for decades. Why would they abandon that now? Britain sold off its major industries in the 1980s and 1990s - and closed a lot of it down, putting millions on the dole. This was supposed to lead to a new era of enterprise and wealth. Instead we lost our industries and suffered an unsustainable banking and housing boom and a massive rise in social inequality. China would be wise not to follow this path - if it follows World Bank advice it will hand its economy over to asset strippers.
China needs to change if it is to join the top league of wealthy nations by 2030, according to a road map for reform set out in a near-500 page document produced by the World Bank. It calls for major market reforms throughout the economy and, in particular, a fundamental restructuring of China's State-owned enterprises (SOEs), which dominate the key strategic industrial sectors, reports China Daily.
The report sets out six strategic directions for China: making the transition to a market-led economy, including structural reform of SOEs; accelerating the pace of innovation; seizing the opportunity to "go green" so as to ease current environmental stresses; developing a better social security and healthcare system; strengthening the fiscal system and ensuring better funded local authorities.
Much of this, like lmproving health and social security and developing its green industries are undoubtedly good ideas. But the one that has grabbed the headlines is reform of the SOEs, which control half of the industrial assets of the country. They dominate most of the major industrial sectors and range from the big banks such as Bank of China, through oil companies like Sinopec to airlines such as Air China. Many of the larger ones have shares listed on major stock exchanges around the world but are regulated by the State-owned Assets Supervision and Administration Commission (SASAC).
The report repeats the line that China will soon or later face the same kind of crisis that has hit western economies and Japan. So-called 'reform' is the answer, apparently. This seems strange, because privatisation and liberalisation were tried in Japan, Europe and Latin America in the 1980s and 1990s. The results included rising inequality, asset booms followed by busts and debt crises. It further doesn't make sense because the period of dramatic income growth that brought the high income societies of today in the West and Japan was the 1950s to 1970s. Wages in the US have stagnated since the mid 70s as capital has taken a growing slice of the cake. This has happened in the UK and to a lesser extent in Europe since the 1990s.
One of the key recommendations of the China 2030 report is the need for greater innovation.
Bernhard Hartmann, managing director of management consultants A.T. Kearney in Greater China, says this is true particularly in heavy industries such as chemicals in which he specializes.
He says there has been innovation in China's major heavy industries in recent years but it would be a mistake to believe, as the report suggests, that exposing SOEs to market forces would necessarily make them more innovative.It is a fallacy that privatisation / liberalisation are the cornerstone of development to an advanced economy from middle incomes ($5000-$10,000). Japan and South Korea used a model of state-led development and capital controls to transition from middle to high income from the 1960s to 1980s. Neither country allowed foreign multinationals to buy up their major industries. When Japan liberalised its capital market in the late 80s it ended in a massive market crash and a decade of stagnation.
"What China needs to do is design world-class companies out of its SOEs. These would be companies which could take on the likes of BASF," he says.
"There is a danger of assuming that this can only be achieved by some market-led approach. This is very much a Western mindset. It could be achieved through the existing structures."
Clearly the ideology of neoliberalism is alive and well at the World Bank. China is not the Soviet Union in the 1980s - it already has a thriving market economy, but it is a mixed economy with the state holding the commanding heights (as Leninists used to call them). This has served China very well for decades. Why would they abandon that now? Britain sold off its major industries in the 1980s and 1990s - and closed a lot of it down, putting millions on the dole. This was supposed to lead to a new era of enterprise and wealth. Instead we lost our industries and suffered an unsustainable banking and housing boom and a massive rise in social inequality. China would be wise not to follow this path - if it follows World Bank advice it will hand its economy over to asset strippers.
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