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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.

COURAGE UNDER FIRE: Testing Epictetus's Doctrines in a Laboratory of Human Behavior

by James Bond Stockdalevia Analysis
Saturday, March 13, 1993

Vice-Admiral Stockdale was on active duty in the regular navy for thirty-seven years. As a fighter pilot aboard an aircraft carrier, Stockdale was shot down on his second combat tour over North Vietnam. As the senior naval prisoner of war officer in Hanoi for eight years, he was tortured fifteen times, put in leg irons for two years, and put in solitary confinement for four years.

During his naval career, his shore duty consisted of three years as a test pilot and test pilot instructor at Patuxent River, Maryland; two years as a graduate student at Stanford University; one year in the Pentagon; and, finally, two years as president of the Naval War College in Newport, Rhode Island.

When physical disability from combat wounds brought about Jim Stockdale’s early retirement from military life, he had the distinction of being the only three-star officer in the history of the navy to wear both aviator wings and the Congressional Medal of Honor (CMH). Besides the CMH, his twenty-six combat decorations include two Distinguished Flying Crosses, three Distinguished Service Medals, four Silver Star Medals, and two Purple Hearts.

As a civilian, Jim Stockdale was a college professor, a college president, and a senior research fellow at the Hoover Institution. His writings have been many and varied, but all converge on the central theme of how man can rise with dignity to prevail in the face of adversity.

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