NEW YORK -- China's historic economic boom holds an uncomfortable lesson for proponents of unfettered markets: tame them, and you shall succeed.
Lauded as a model for its relentless expansion, China largely flaunted the conventional formula for growth. It has been slow to open capital markets. It bucked the privatization trend by retaining state control over key industries. It has effectively subsidized exporters through its currency peg.
The country has embraced change, but slowly and on its own terms. Recent steps toward a more flexible currency, for instance, have been so gradual that Standard Chartered strategist Mike Moran has dubbed them "The Great Crawl of China."
Yet the results could not have been better. The economy is growing at a breakneck pace above 10 percent a year, and China's influence on the global stage has surged.
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Total economic output is still only about one-fifth of the United States in dollar terms, but its share of the global pie is growing. China's contribution to world production has nearly doubled since 1980.
"It achieved this under a set of economic policies strikingly different than the reforms implemented in the vast majority of low- and middle- income countries," says Mark Weisbrot, co-director for the Center for Economic Policy Research.
This distinction is especially important in the wake of the recent scandal-ridden departure of World Bank president Paul Wolfowitz, which has sparked soul-searching among free market economists trying to avoid the policy mistakes of the past.
They might do well to turn toward China, say some analysts, noting that its economic progress standard in sharp contrast with the experience of many developing countries that followed orthodox economic prescriptions .
Latin America is a textbook case. Over the last quarter century, nations throughout the region undertook reforms advocated by multilateral lenders like the World Bank and the International Monetary Fund.
Under overwhelming American influence, these institutions argued that the rapid liberalization of developing economies would maximize growth, allowing those countries to fight the endemic problems of poverty and inequality.
Instead, not only has the goal of helping the poor been delayed but, with few exceptions, free market policies have also failed to engender long-term economic expansion.
"Before the early 1960s, Latin America was on average twice as rich as Asia," notes Joydeep Mukherji, director of sovereign ratings at Standard & Poor's. "It's now about half as rich when looked at on a per-capita GDP basis."
Latin American economic growth has picked up to about 5 percent a year in the past three years, and many countries have taken advantage of falling interest rates globally to trim budget deficits and reduce foreign debt. But, in part because of greater improvements in education, Asia continues to outshine.
"These good rates are still modest compared with GDP growth in Asia," said the S&P director.
Mukherji argues that markets themselves are not to blame for this gap, with cultural and historical circumstances having an important role. Yet he does concede that, unlike the advice often given to emerging nations, the heavy hand of the state was ever present.
"The Chinese have been pragmatic and cautious about opening up to the world," he said.
ROAD LESS TRAVELED
Clearly, China did not invent the idea of making economic progress by protecting nascent industries. Both Japan and South Korea embarked on export-led growth spurts of their own, with considerable success.
"China's development seems to fit quite well with the model followed by a large number of other Asian economies," said Steven Dunaway, deputy director at the IMF's Asia-Pacifc Department.
In the West too, the United States and Europe insulated key sectors from outside competition through tariffs and subsidies until they were up to snuff.
They still do in fact. Analysts estimate Europe's agricultural policy amounts to a daily subsidy of $2 per cow — more than twice what the average human in sub-Saharan Africa takes home each day.
In this sense, China was simply emulating the ways of the early industrializers. "China did not liberalize its trade in most goods until it could compete in those areas in world markets," said Weisbrot.
The emulation has its dark side. Several prominent American newspapers have recently reported that slavery, which plagued the United States for hundreds of years, has been rearing its ugly head in various parts of China.
And to those who would depict China's ascendancy as a new, hip trend, Lakshman Achuthan at the Economic Cycle Research Institute has this reminder: "China has been the world's number one economy for 90 percent of the last 2000 years."
"In fact, 250 years ago China and India together accounted for more than half of the world's manufacturing output when Britain accounted for just 2 percent. So what we are seeing recently may simply be a return to normalcy."
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