This week, Folha, one of the largest Brazilian newspapers, published my first (of 15) op-ed on China. The main takeaway is that if emerging markets are to copy but one feature of the Chinese economy, it has to be how it is open to competition.
For all the crony capitalism in China, the local, regional and national levels are structured around intense competition; for resources, capital, and political clout. Politicians need to meet stringent targets to climb the bureaucratic hierarchy. Families fight for survival, given the absence of a social safety net. Students pore over books for 100 hours a week, as only those with the highest grades get into the top universities; Annually, dozens of millions take the main national exam, the gaokao. Small companies struggle to get bigger. Large companies need to fend off hungry competitors. Inefficient banks lose market share to nimble fintechs. Consumers have little brand loyalty, which increases the race for new products. Cities invest to displace other places – Shanghai increased the capacity of its ports to steal business from Ningbo, a city on the other side of the Hangzhou Bay.
Today, many economists worry about the future of the American economy, beset by monopolies and oligopolies while the number of new companies continue to decline. Things are no different in Europe, and even worse in emerging markets. Brazil ranks 123 out of 190 in the easiness of doing business. Almost two-thirds of African citizens live in a country in which safety and rule of law deteriorated in the last ten years.
Competition breeds innovation (but also inequality). One of the most overlooked reasons for the Chinese success is that the market reforms of the late 1970s allowed for the buildup of intense competitive pressures throughout the economy. Cronyism was and is an important headwind against further growth, but competition helped China leave extreme poverty behind, and is the necessary condition for the country to escape the middle income trap. If the Chinese growth can provide only one lesson for other emerging countries, that is it. Let competition flourish, and economic growth, and maybe true development, will follow.