Jeffrey Sachs‘ book The End of Poverty is as much autobiography as pop-economics. Last time, we looked over the sections where he discusses his work advising Bolivia, Poland and Russia on the management of their economies, and their transition towards various types of socialism to liberalised markets. Next, he turns his attention to the world’s biggest developing countries, India and China.

The China section is more of an academic discussion than a memoir, because, unlike Russia, India and the rest, China’s government has never asked Sachs for advice. It hasn’t needed to. Since 1978, China’s economy has grown at an average of 8% per year – adjusted for its growing population – making it, as Sachs puts it, “the world’s most successful economy” (p155).

China's post-1978 economic miracle

The average Chinese person’s income has increased eightfold since 1978. Sachs’ primary concern is to ask: why did it take so long for Chinese growth to take off, why has it been so fast, and what lessons can we learn for other countries?

To answer the first question, Sachs paints a picture of a China cut off for centuries from trade with the world around it. Historian’s estimates suggest average income in China in the first few hundred years of the last millennium was on a par with that of Europe. But in 1434, the emperor dismantled China’s trade fleet and cut it off from international trade. As Europe colonised the New World and flourished, China’s growth stagnated. The isolation wasn’t broken till 1839, and then by force: the British attacked China to force it to open up to British opium imports (yes, you heard right: we attacked them to force them into buying our smack). European powers then controlled the beginning of China’s industrialisation, later joined by Japanese investors. But the benefits flowed outwards. Political turmoil worsened the situation and, instead of growing, China’s economy actually shrank.

Then in 1949 out of the turmoil rose the Communist regime that – in name at least – still governs today. The next few decades saw further economic stagnation, worsened by the two great disasters of the rule of Mao Zedong, the Great Leap Forward (a botched scheme of forced mass industrialisation that caused mass starvation) and the Cultural Revolution (a period of political purges and suppression of the arts and learning that cost over a million lives and helped further damage the economy). Only Mao’s death in 1976 heralded the beginning of change.

But Sachs is careful to pay due to one great achievement of the Mao era: a revolution in public health. Campaigns to eliminate widespread diseases like malaria and smallpox were accompanied by the development of a network of “barefoot doctors”, basically-trained community health workers for rural areas. Along with improved irrigation and agriculture, these changes meant massive improvements in child mortality and life expectancy. Of all Mao’s legacies, this – a healthier, stronger workforce – counted for most once China began economic reforms in 1978.

Reforms began with the simple freedom to buy and sell agricultural goods, and developed to include Special Economic Zones, liberalised areas designed to attract foreign investment. China’s tremendous growth began almost immediately. Over 500 years after the emperor dismantled the fleet, China was again engaging with the world on its own terms. Sach’s message is clear: only trade can pull countries out of poverty – and it must be controlled by the countries themselves, not primarily by foreign governments or businesses.
But China’s reforms have been more successful and less painful than Russia’s. Why? The traditional view, Sachs argues, states that China’s gradual approach is preferable to Russia’s “shock therapy” approach of rapid reform; and that China’s one-party state is more suited to successful reform than democracy. Both sides of this view, Sachs argues, are wrong. Russia’s rapid reform only came after years of gradualism failed to improve the economy, and China’s supposed gradualism had moved very rapidly in some areas, such as agricultural reform. In fact, Sachs argues, “China’s meteoric rise is more the result of China’s very different geography, geopolitics and demography than a different set of policy choices.” (p147)

  • China in 1978 was far more agricultural than Russia. Liberalising agriculture is far easier than liberalising state-run industry: you simply let farmers organise themselves. In fact, decollectivisation was led from below, by farmers themselves, prompting a huge increase in productivity – and freeing up thousands of people to work in new private enterprises. By contrast, Russia was the employer and wage-payer of thousands of industrial workers, and liberalising the sector involved the risks and challenges of mass unemployment. In fact, China didn’t privatise its state industries until the 1990s, and unemployment rose there too.
  • This also meant that China could move into industrialisation almost from scratch in ways which were compatible with western technology, easing import and export. Russia, on the other hand, had incompatible industrial infrastructure that had to be abandoned.
  • China’s growth benefited from its thousands of miles of coast, spurring exports, unlike Russia (which, OK, has a coast, but which leads to the Arctic).
  • Unlike China, Russia was saddled with massive foreign debt.
  • Russia was suffering declining oil production, China was not.

Let’s think a little about the implications of this for Africa. Africa now is a lot like China in 1980: its jobs are 80% agricultural. Theoretically, therefore, there is scope for a China-style growth spurt and rapid, organic industrialisation. But think about one of those other points: the long coastline. Many of Africa’s poorest countries are landlocked, and even in those countries with coasts, transport costs are prohibitively high. African countries, like Russia in the early 1990’s, are saddled with unpayable debt. And while China had a healthy agricultural population after those years of public-health improvements, Africa’s is malnourished and struggling with Malaria, Tuberculosis, and AIDS.

What’s more, Sachs notes, China faces its own severe challenges still. One is to spread growth more geographically: the Tibetan plateau in the West is growing far more slowly than the coastal East. Migration from Western China to Eastern, Sachs observes, is currently humanity’s biggest single migration flow. There’s a North-South divide too, primarily owing to water shortages in the North. These problems are reminiscent of problems both in individual countries in Africa such as Ethiopia, where some areas enjoy relative plenty while others starve; and of Africa as a whole. Also, China has dismantled that worldbeating public health system, with SARS, Avian Flu and a growing AIDS problem all the result. Third, China has to deal with the environmental devastation industrialisation is bringing. And fourth, China’s undemocratic and highly centralised state will almost certainly have to change for growth not to be stifled (though how it changes, and whether democracy results, is not yet clear). Nevertheless, Sachs believes, “China is likely to be the first of the great poverty-stricken countries of the twentieth century to end poverty in the twenty-first century.”*
Next stop, India.

* Sachs typically uses “end poverty” to mean “end extreme poverty, using the generally accepted definition of incomes of less than $1/day.