Prerequisites for Market Forces to Take Effect
Eastern Europe missed a crucial opportunity for transformation in the late 1980s and now possesses only a superficial market structure, lacking the necessary cultural support. In contrast, Shenzhen’s market economy experiment during the same period achieved remarkable success and offers profound insights worth reflecting upon.
Author: GUDORDI | 2025-01-13
「流了很多額汗，但最後什麼都沒有做……」
“Sweat a lot, but do nothing……”
──格林斯潘（Alan Greenspan）
在上回，筆者提到上世紀80年代末，全球局勢和世界和平的前途曾經出現過一次潛在的大變局，並可理解為甘迺迪當年「世紀大刁」的延續。可惜的是，有關的機遇最後沒有得到把握，長遠來說，在經濟方面帶來的損失可能比政治上的更大。
An Entrepreneurial Capitalist System Must Have Cultural Support
The reason I emphasize this point is that the environment at the time provided a unique and invaluable opportunity to study the nature of the free market and how such a system should be established. This setting could have fostered a meaningful exploration, allowing us to gain deeper insights into both planned and market economies.
Looking back, it seems that many decision-makers at the time—consciously or unconsciously—adopted a rather academic perspective, believing that a “transition to a market economy in a few days” could be achieved simply through privatization. However, as Alan Greenspan later pointed out, this approach overlooked a crucial factor: a genuinely entrepreneurial capitalist system requires cultural support, and the development of such a culture takes years to cultivate. Ignoring this reality and attempting rapid, superficial reforms often results in systems that resemble a market economy on the surface but lack its core essence.
A clear example of this can be seen in Russia, where oligarchs gained control over key national resources. This was certainly not the kind of economic system Adam Smith would have envisioned. To this day, no Eastern European country has demonstrated truly outstanding economic performance following its transition.
Shenzhen’s Success vs. Eastern Europe’s Struggles
At the same time, Shenzhen was also undergoing an economic transformation. While its market-driven reforms began nearly a decade earlier than those in Eastern Europe, Shenzhen started from a much lower economic base. By the late 1980s, its conditions were not necessarily better than those of post-Soviet states. Yet, over 30 years later, Shenzhen has undergone a revolutionary transformation, emerging as China’s most dynamic city and a global technology hub. Clearly, Shenzhen has integrated market forces far more effectively than Eastern European countries. But why?
The Limits of the Free Market
This is a critical question. Many people assume that Adam Smith, the father of modern economics, viewed the market as an almost perfect mechanism and therefore advocated for a pure market-driven system. However, as our understanding of economic systems has evolved, it has become clear that the market is not all-powerful and cannot resolve every issue on its own.
The Great Depression of 1929 was a stark reminder of this limitation. The rise of Keynesian economics, which emphasized the role of government intervention, marked a significant shift in economic thought. Later, Alan Greenspan’s innovative approach—using Federal Reserve policies to shape market expectations—reflected yet another stage in economic management. These developments highlight a growing recognition that economic stability and growth require a balance between market forces and strategic intervention.
The Misinterpretation of Adam Smith
The widely accepted view—that economies thrive through a combination of market mechanisms and government intervention—is not entirely wrong. However, oversimplifications have led to serious misconceptions.
Notably, Adam Smith never claimed that markets were infallible or capable of solving all economic problems independently. The perception of Smith as an advocate of unrestricted markets may stem from later economists who sought to deify, perfect, and mathematize his ideas. In fact, Smith himself later took on a government role as a tax officer, essentially acting as the “visible hand” that modern free-market purists often reject.
It is also worth noting that the full title of his seminal work is “An Inquiry into the Nature and Causes of the Wealth of Nations.” The phrase “inquiry into the nature and causes” suggests that Smith’s original intent was open-ended and exploratory, rather than rigid and dogmatic.
What Shenzhen Did Right
Over the past 30 years, Shenzhen has generated remarkable wealth for itself and for China as a whole. Using Smith’s original framework, we might ask:
- What are the origins and nature of Shenzhen’s wealth?
- What did Shenzhen do right?
- What lessons can Shenzhen offer the rest of the world, including Hong Kong?
These are profound and meaningful questions. But before answering them, perhaps the first question to consider is: Did Shenzhen take any unique or deliberate steps to achieve its success?
If we accept Greenspan’s observations at the beginning of this discussion, the answer may not be as straightforward as it seems. We’ll explore this further next time.
