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CHINA’S FUTURE: MARKET SOCIALISM OR MARKET TAOISM?

James A. Dorn

Though my heart be left of centre, I have always known that the only economic system that works is a market economy, in which everything belongs to someone—which means that someone is responsible for everything. It is a system in which complete indepen- dence and plurality of economic entities exist within a legal frame- work, and its workings are guided chiefly by the laws of the market- place. This is the only natural economy, the only kind that makes sense, the only one that can lead to prosperity, because it is the

only one that reflects the nature of life itself. ´

  • Vaclav Havel

Summer Meditations

China’s Grand Illusion

China’s goal of building a ‘‘socialist market economy’’ is a grand illusion. The market and its supporting institutions, notably private property and the rule of law, cannot be grafted onto socialism. Markets are based on voluntary exchange; socialism destroys the spontaneous nature of markets and substitutes government control for individual responsibility. Market socialism, even with ‘‘Chinese characteristics,’’ is an unnatural and artificial system which, like the Yugoslav experi- ment with workers’ management, is destined to fail.

Without widespread private property, economic decisions—espe- cially investment decisions—will continue to be political decisions and be subject to the corrupting influence of government power. The recent chaos in East Asian currency markets attests to the destructive nature of state-led development policy fueled by ‘‘crony capitalism.’’ Government-run banks in South Korea, for example, based their

Cato Journal, Vol. 18, No. 1 (Spring/Summer 1998). Copyright © Cato Institute. All rights reserved.

James A. Dorn is Vice President for Academic Affairs at the Cato Institute and Professor of Economics at Towson University.

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