Tuesday, February 26, 2019

A Conversation with Chang-Tai Hsieh on Crony Capitalism with Chinese Characteristics. Lanxi He (Georgetown), Scott Knewitz (American), Impact Investing Analysts



On February 25th, The Becker Friedman Institute for Economics (BFI), the Chicago Economics Society (CES), and the Booth Alumni Club of Washington, DC, held a cocktails and a conversation event titled "Crony Capitalism with Chinese Characteristics."

The speaker was Chang-Tai Hsieh, Phyllis and Irwin Winkelried Professor of Economics, Chicago Booth School of Business. David Rank, former Deputy Chief of Mission and Charge' d'Affaires at the U.S. Embassy in China, moderated.

Professor Hsieh discussed China’s fast-paced growth over the past three decades, stating that China's economic growth has been unprecedented, defiying economic theory. One reason for this growth is the focus of the political apparatus - communist party leaders search for investments that earn high profits. 

According to the professor, China has developed crony capitalism at the local level that has promoted business development. This approach relies on the fundamental dependence of small firms on the discretion of local party officials. These firms need the approval of local party officials to start a business. This is a deterrent to other potential entrepreneurs who do not have political connections. This may be an issue for sustained growth.

In the professor's view, Communist party leaders are "in bed" with local companies. These firms do not want competition, so party leaders have a direct interest in keeping competition from threatening favored firms, since officials benefit financially from "special dealings" or special arrangements with select local companies. While these types of "special dealings" are common in Western society, they are not as prevalent as they are in China.

By the conclusion of the talk, Professor Hsieh gave us a better understanding of China’s fast-paced economic growth. One conclusion may have been that competitive markets created by local political leaders can drive economic growth.