but that, of all known economic systems, the market price system, with its automatic feedback mechanism, has performed the best:
In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government, and certainly the harm is likely to be counteracted faster [quoted in Nancy DeWolf Smith 1997: A14].
The idea that people have a natural tendency to make themselves better off if left alone to pursue their own interests, and the notion that a laissez-faire system will be harmonious if government safeguards persons and property, are the foundation of the West’s vision of a market-liberal order, but they are also inherent in the ancient Chinese Taoist vision of a self-regulating order—an order we might properly call ‘‘market Taoism’’ (Dorn 1997).
The Taoist system of natural liberty, like Smith’s, is both moral and practical: moral because it is based on virtue and practical because it leads to prosperity. The Chinese puzzle is to discard market socialism and institute ‘‘market Taoism’’ by shrinking the size of the state and expanding the size of the market—and, in the process, to give rebirth to China’s civil society.
Market Taoism and China’s Civil Society
China’s transition from central planning to a market-oriented system since 1978 has been bumpy, but China is moving ahead. Market liberalization has opened China to the outside world, increased oppor- tunities in the nonstate sector, generated new ideas, and energized civil society. That China’s civil society has benefited from the end of communal farming, the rise of TVEs, the expansion of foreign trade, and the increased competition from nonstate enterprises should be no surprise. The more economic activity occurs outside the state sector, the more freedom individuals have to pursue their own happi- ness and lead their own lives. The demand for economic freedom cannot long be separated from the demand for other freedoms.
The market and its supporting institutions follow both formal and informal rules. The informal rules of conduct that underlie the free market, however, are entirely different from the obedience-driven rules of behavior under central planning. Zhang Shuguang (1996: 5), an economist at the Unirule Institute in Beijing, one of China’s first private think tanks, writes,
Mandatory economy and market economy belong to entirely differ- ent ideologies and different ethics. . . . Planned economy is based upon some idea of ideal society and beautiful imagination, but