How Will Adam Smith Play in China?

LATELY, China has been waffling on its economic reforms, hedging its bets by pursuing change slowly. Will the People's Republic of China ever embrace Adam Smith's capitalism? Though the Chinese seem enthused over the potential rewards, there is reason to doubt whether Adam Smith will travel well to China. Central to the Smithian message are the virtues of individualism, freedom, and liberty as the foundation of Western-style capitalism. The individual, free from government intervention, is best able to maximize his wealth. Collectively, the nation will - in turn - aggregate that wealth most efficiently if the state's role in economic affairs is minimized.

The free marketeers' buzzwords - free trade, decontrol, deregulation, and decentralization - exhort the Chinese to rid themselves of the heavy hand of excessive government and allow entrepreneurs to pursue their self-interests. Thus freed and liberated to be individuals, the Chinese are encouraged to think they, too, can achieve the sort of success enjoyed by the US, Western Europe, Japan, and some of China's smaller neighbors.

These analogies appear convincing, but do not stand close scrutiny. It is doubtful that the purist form of capitalism advocated by free marketeers who affect Adam Smith neckties ever has, or ever will, prove persuasive to East Asians - be they Chinese, Japanese, or Koreans. Those Americans who believe Japan, Taiwan, or South Korea are bastions of Adam Smith disciples are deceiving themselves.

Even Singapore and Hong Kong, which make a somewhat more plausible case in that regard, do not stand up to scrutiny. All of those societies - plus China, North Korea, and Vietnam - share a common Confucian tradition. Though each has evolved a different variant of that tradition, and adheres to it today in equally differing respects, the cultural similarities are sufficient to make each of them inhospitable to the purist dogma of Adam Smith's disciples.

None of these societies views Western concepts of individualism, freedom, and liberty as virtues. All of them esteem a group-oriented ethic. To be a me-first, greed-oriented, individualist is to display anti-social, aberrant behavior.

None of this means that these societies cannot be ``capitalist'' of a sort. Instead of becoming true believers ready to decontrol, deregulate, and decentralize their economies enroute to some kind of free market nirvana, they are likely to persist in creating a different kind of mixed capitalism.

The Japanese government has been a friend of the private sector, not an adversary. Japan is organized around the principle of what is good for the small and medium-sized group will benefit the nation. Japan has prospered under its group-oriented ``capitalism.'' South Korea and Taiwan adopted somewhat similar policies in pursuit of their own statist forms of capitalism. All three display pronounced tendencies toward mercantilism and protectionism, hardly hallmarks of the free market.

Hong Kong and Singapore come closer to the ``pure'' capitalist model, but not necessarily by choice. These city states are not free of sizeable bureaucracies and do not want to be. If they had an agricultural or industrial sector comparable to the larger states of East Asia, their economic policies probably would not be such artificial examples of free-market capitalism.

The forms of capitalism devised by Japan, South Korea, and Taiwan are far from being ``pure'' in the libertarian sense. In each case the government is an active and helpful partner in ways that would cause Adam Smith to spin in his grave. Though profit is important and greedy individuals are numerous, they are constrained by the societies' Confucian principles from making a virtue of such actions and goals. The models of capitalism that thrive in Japan, Korea, and Taiwan mix one part of Adam Smith with several parts of indigenous cultural values to achieve an idiosyncratic hybrid that works for local conditions.

In all likelihood, China - like its neighbors - must devise its own hybrid answer to suit its own traditions as influenced by its communist ambitions.

This seems to be what the Chinese have in mind when they speak of ``socialism with Chinese characteristics.'' Such a mixed system, created in a gradual trial and error fashion, like China's neighbors did, appears much more promising for China than any attempt to incorporate the dogma of Adam Smith which is not that widely accepted even in the West where it could be.

The Chinese would be better advised to heed what Americans do, not what capitalisms' purists among us say. Deng Xiaoping's axiom about the irrelevancy of the cat's color so long as it catches mice might lead some Chinese economic reformers astray in pursuit of theoretical extremes, but it should also allow them to see the virtues of a mixed system Chinese-style.