Certain Preconditions Are Necessary for Market Forces to Function Effectively
Eastern Europe missed a crucial opportunity for transformation in the late 1980s. Although market structures were introduced, they often possessed only the outward shell of a market economy while lacking the deeper cultural foundations needed to sustain it.
By contrast, Shenzhen experimented with market economics during the same period and achieved remarkable success. The lessons and implications of its experience are profound and worthy of serious reflection.
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）
In the previous article, the author mentioned that in the late 1980s, the world once faced a potentially historic turning point in global affairs and the future of peace. This moment could even be understood as a continuation of the “great Deal of the century” associated with John F. Kennedy.
Unfortunately, that opportunity was ultimately not fully seized. In the long run, the economic losses resulting from this missed opportunity may have been even greater than the political ones.
An Entrepreneurial Capitalist System Requires Cultural Foundations to Sustain It
The author says this because the environment at that time provided an exceptionally valuable and rare testing ground for understanding the true nature of the free market and how a free-market system should actually be built. It could have supported a wide-ranging exploration of different approaches and perhaps allowed humanity to understand and verify, on a much deeper level, what planned economies and market economies truly are.
Looking back, many policymakers of that era seemed — consciously or unconsciously — to accept a rather academic view: that simply implementing privatization would allow a country to transition to a market economy within a relatively short period of time.
However, as Alan Greenspan later pointed out, this way of thinking ignored a crucial reality: a genuinely entrepreneurial capitalist system is supported by an underlying culture, and the development of such a culture requires long periods of historical accumulation and evolution.
If this factor is overlooked, and societies attempt to transform too quickly in pursuit of rapid results, the outcome is often an awkward hybrid system — one that possesses only the outer shell and appearance of a market economy, but lacks its true spirit.
The oligarchic structures that later emerged in Russia, where a small group came to control major national resources, were clearly not what Adam Smith would have hoped to see. And even today, few Eastern European countries appear to have achieved truly outstanding economic performance.
Shenzhen’s Experiment Achieved Far Greater Success Than the Eastern European Countries
However, it is worth noting that during the same period, Shenzhen was also experimenting with a market economy. Although Shenzhen’s experiment began roughly a decade earlier than those in Eastern Europe, the city was almost starting from zero. Overall, by the late 1980s, Shenzhen’s conditions were not necessarily superior to those of the Eastern European countries.
Yet more than thirty years later, Shenzhen underwent a dramatic transformation, rapidly becoming one of China’s most dynamic cities and a major technology hub. Clearly, Shenzhen’s success in harnessing market forces far surpassed that of the Eastern European states. Why did this happen?
This is an extremely important question.
Many people assume that Adam Smith, the founder of economics, believed market forces were nearly perfect and therefore strongly advocated a purely market-based economic system. But as humanity’s understanding of economic systems deepened, people gradually realized that markets are not omnipotent and cannot solve every problem through self-adjustment alone. The Great Depression stands as clear evidence of this limitation.
The subsequent rise of John Maynard Keynes’s economic theories and the growing emphasis on the role of government in economic development reflected a new stage in humanity’s understanding of how economies function.
Later, the approach pioneered by Alan Greenspan — influencing the American and global economies by managing market expectations regarding U.S. interest rates and Federal Reserve policy — represented yet another stage in the evolution of the global economic system.
The Wisdom of Alan Greenspan
The interpretation above appears to reflect how most people understand these issues, and it is also broadly the message conveyed by many books and media discussions. We cannot say this understanding is entirely wrong, but the truth may be far more complex, and such interpretations may even create serious misunderstandings.
It is important to note that Adam Smith never claimed that markets are all-powerful or capable of solving every problem on their own. That impression may instead have emerged later as economists increasingly attempted to idealize, perfect, mathematize, and treat the market system as though it were a form of natural science.
A noteworthy fact is that in his later years, Smith served as a government customs commissioner largely out of personal interest, effectively becoming part of the “visible hand” managing the economy himself.
It is equally worth remembering that the title The Wealth of Nations is actually an abbreviation. The full title of the work is An Inquiry into the Nature and Causes of the Wealth of Nations, which suggests that the book was intended as an open-ended exploration rather than a rigid doctrine.
Clearly, over the past thirty years, Shenzhen has created astonishing wealth for both the city and the nation. Using the framework implied in Smith’s original title, perhaps we should ask: what are the nature and origins of the wealth Shenzhen created? What exactly did Shenzhen do right? And what lessons might this offer to other parts of the world — especially to Hong Kong today?
These are all profoundly difficult questions. But before attempting to answer them, perhaps an even more important question should first be considered: was Shenzhen’s success necessarily the result of doing something extraordinary?
If we accept the perspective attributed to Alan Greenspan at the beginning of this article, the answer may not necessarily be yes. The author will continue discussing this in the next article.