By Michael Spence, Published The Straits Times, 21 Nov 2012
CHINA is at a crucial point today, as it was in 1978, when the market reforms launched by Deng Xiaoping opened its economy to the world - and as it was again in the early 1990s, when Deng's famous "southern tour" reaffirmed the country's development path.
Throughout this time, examples and lessons from other countries have been important. Deng was reportedly substantially influenced by an early visit to Singapore, where accelerated growth and prosperity had come decades earlier. Understanding other developing countries' successes and shortcomings has been - and remains - an important part of China's approach to formulating its growth strategy.
Like Singapore, Japan, South Korea and Taiwan in their first few decades of modern growth, China has been ruled by a single party. Singapore's People's Action Party (PAP) remains dominant, though that appears to be changing. The others evolved into multi-party democracies during the middle-income transition. China, too, has now reached this critical last leg of the long march to advanced-country status in terms of economic structure and income levels.
Singapore should continue to be a role model for China, despite its smaller size. The success of both countries reflects many contributing factors, including an educated and skilled group of policymakers supplied by a meritocratic selection system, and a pragmatic, disciplined, experimental and forward-looking approach to policy.
The other key lesson from Singapore is that single-party rule has retained popular legitimacy by delivering inclusive growth and equality of opportunity in a multi-ethnic society, and by eliminating corruption of all kinds, including cronyism and excessive influence for vested interests. What Singapore's founder, Mr Lee Kuan Yew, and his colleagues and successors understood is that the combination of single-party rule and corruption is toxic. If you want the benefits of the former, you cannot allow the latter.
Coherence, long-time horizons, appropriate incentives, strong "navigational" skills and decisiveness are desirable aspects of continuity in governance, especially in a meritocratic system managing complex structural shifts. To protect that and maintain public support for the investments and policies that sustain growth, Singapore needed to prevent corruption from gaining a foothold, and to establish consistency in the application of rules. Mr Lee did that, with the PAP supplying what a full formal system of public accountability would have provided.
China, too, most likely wants to retain, at least for a while, the benefits of single-party rule, and delay the transition to "messier" governance influenced by multiple voices. In fact, a pluralistic system is already evolving under the umbrella of the Chinese Communist Party - a process that may eventually lead to citizens gaining an institutionalised voice in public policy.
For now, however, those representative elements that have been added incrementally are not powerful enough to overcome the growing corruption and excessive influence of vested interests. To maintain single-party legitimacy - and thus the ability to govern - those narrower interests must be overridden in favour of the general interest. That is the challenge that China's new leadership faces.
If China's leaders succeed, they can then have a sensible and nuanced debate about the evolving role of the state in their economy, a debate on the merits. Many insiders and external advisers believe that the state's role must change (not necessarily decline) to create the dynamic innovative economy that is key to navigating the middle-income transition successfully. But there remain many areas in which further debate and choice are needed.
Mr Lee Kuan Yew in Singapore and Mao Zedong and Deng in China gained their peoples' trust as founders and initial reformers. But that trust dissipates; succeeding generations of leaders do not inherit it completely, and must earn it. That is all the more reason for them to heed the lessons of history.
China's new leaders should first reassert the party's role as defender of the general interest by creating an environment in which narrow interests, seeking to protect their growing influence and wealth, do not taint complex policy choices.
They must demonstrate that the party's power, legitimacy and substantial assets are held in trust for the benefit of all Chinese, above all by fostering a pattern of inclusive growth and a system of equal opportunity with a meritocratic foundation. And then they should return to the task of governing in a complex domestic and global environment.
There are times when muddling through - or, in the Chinese version, crossing the river by feeling the stones - is the right governing strategy, and there are times when a bold resetting of values and direction is required. Successful leaders know what time it is.
Feeling the stones may seem like the safest option for China's next president, Mr Xi Jinping, and the other new leaders; in fact, it is the most dangerous. The only safe option is a radical realignment of the party with the general interest.
The issue, then, is whether the reformers who carry the real spirit of the 1949 revolution will win the battle for equitable and inclusive growth. The optimistic (and I believe realistic) view is that the Chinese people, through a variety of channels, including social media, will weigh in, empowering reformers to push through a progressive agenda.
Time will tell. But it is hard to overstate the outcome's importance to the rest of the world. Virtually all developing countries - and, increasingly, the advanced countries as well - will be affected one way or another as they, too, struggle to achieve stable and sustainable growth and employment patterns.
The writer, a Nobel laureate in economics, is professor of economics at New York University's Stern School of Business and senior fellow at the Hoover Institution. His latest book is The Next Convergence - The Future Of Economic Growth In A Multispeed World.
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