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Safety Inc.

by Tucker Carlsonvia Policy Review
Thursday, June 1, 1995

Private Cops Are There When You Need Them

Caveat Emptor

by Richard Armeyvia Policy Review
Thursday, June 1, 1995

The Case Against the National Sales Tax

Pride and Prejudice

by Ward Connerlyvia Policy Review
Saturday, April 1, 1995

Black Business Leaders Ask: Is It Time to Set Quotas Aside?

The Unconstitutional Congress

by Stephen Moorevia Policy Review
Saturday, April 1, 1995

The GOP Misses the Best Argument for Limiting Government

A Farmer's Scarlet Letter

by Blake Hurstvia Policy Review
Saturday, April 1, 1995

Four Generations of Middle-Class Welfare Is Enough

Clinton's Cocaine Babies

by Charles Condon via Policy Review
Saturday, April 1, 1995

Why Won't the Administration Let Us Save Our Children?

China's Transition to Markets-Market Preserving Federalism, Chinese Style

by Barry R. Weingastvia Analysis
Wednesday, February 1, 1995

This essay studies the relationship between decentralization and the success of economic reform in China. It begins with a theory about the relationship between the types of decentralization and economic performance. We argue that a particular form of decentralization, called market-preserving federlism, Chinese style, provides a critical component of the political foundations for market success in China.

After discussing the evolution of federalism, Chinese style, during the first fifteen years of reform (1979-1993), we turn to the political foundation of economic reform. We argue that economic success hinges in part on an important aspect of decentralization, notably, that it provides for the political security of the reforms. By creating alternative centers of power at local levels, decentralization established forces that could help resist attempts by the central government to compromise the reforms.

China's form of decentralization has served the critical purpose of creating markets at time when political resistance to economic reform remained strong and when the durability of the reforms was important. Nonetheless, federalism, Chinese style, remains incomplete, accounting for some of the anomalies surrounding China's success. It lacks some national public goods such as enforcement of a common market and a unified monetary system, and the system needs to be institutionalized via a set of rules underpinning the market. We also observed that aspects of the problems facing modern China are not unique but have historical precedents in the economic development of the West. To this end, we highlight some important parallels between the economic and political problems facing the early United States under the Articles of Confederation (1781-1787) and those of modern China.

Pages

Economic Policy Working Group

 
The Working Group on Economic Policy brings together experts on economic and financial policy to study key developments in the U.S. and global economies, examine their interactions, and develop specific policy proposals.

Milton and Rose Friedman: An Uncommon Couple