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Zhang Weiying: absolute advocate

Of the most well-known Chinese economists, few have advocated laissez-faire market economics so strongly, and so unstintingly, as Zhang Weiying. Zhang is one of an academic minority in China who subscribe to non-Keynesian principles, and has thus been labeled by the media as “spokesperson for vested interest groups,” and even, on more than one occasion, “an enemy of the people.”

In the context of yet another round of reforms more focused than ever on giving the market, not the State, the decisive role in China’s economy, Zhang has gained more support, both among the public and in academia, than ever before. His contribution to making the Guanghua School of Management at Peking University one of the most prominent business schools in China was widely recognized during his tenure as principal of the school between 2006 and 2010.

In 1983, an article by 24-year-old Zhang was published in State newspaper the China Youth Daily. The article declared to a society raised from birth to see money and profit as anathema that “making money was a contribution to society.”

In 1984, Zhang’s notion of giving the market full power to price goods and services became one of the most hotly debated proposals submitted to an historic academic meeting analyzing the potential direction of China’s economic reform. In the early 1990s, Zhang’s studies at Oxford University, from which he emerged with a PhD, further strengthened his belief in a self-regulated free market. He became an admirer of Ludwig Mises, a prominent proponent of the so-called Austrian School of economics emphasizing individual choice and price signals controlling the marketplace with minimal government intervention.

After returning to China and taking up a post as assistant to the president of Peking University, Zhang’s efforts in 2003 to introduce more competitive pressure into academic assessment and to break up alumni monopolies over faculty recruitment encountered strong resistance among his colleagues, and ultimately failed.

This began a series of altercations between Zhang and mainstream Chinese thinking. The next blow came in 2004, when Zhang stood up to defend the private acquisition of State-owned enterprises (SOEs), though the public embraced Hong Kong economist Lang Xianping’s sharp criticism of placing State-owned assets in private hands.

In 2006, when China’s economic reform program stalled amidst government inertia and public resentment towards corruption and a widening income gap and, Zhang argued in an essay appearing in journal Money China, that government officials had lost more from reform than any other group, and claimed they should receive one-off compensation in order to inoculate reformist leaders against an anti-liberalization force.

In his essay, Zhang cited the example of buying out SOE workers in order to liquidate their jobs during privatization in the 1990s, a move strongly resented by those laid off. Zhang’s pragmatic solutions, and his position that such short-term pain could prevent long-term agony, drew considerable fire from the Chinese public.

Economic forums in which Zhang participated always saw debates erupt that would make headlines the following day. The most recent example was an encounter between Zhang and his Peking University colleague Professor Justin Yifu Lin, former chief economist with the World Bank. At a July forum held at Shanghai’s Fudan University, Zhang insisted on a complete withdrawal of the government from economic management, while Lin took a stance that saw the government as having a positive role in economy.

In an exclusive interview with NewsChina, Zhang explains why he has chosen to stand apart from most of his colleagues in espousing his vision of China’s economic future.


NewsChina: Why do you describe the past 10 years as a “lost decade?”

Zhang Weiying: Major reforms, like SOE reform, came to a standstill after 2004. The State-owned Assets Supervision and Administration Commission was supposed to be a reformer when it was set up in 2003, but turned into both referee and competitor. Even the direction of reform itself has become inclined in favor of making SOEs bigger and stronger. Some media sources and academics used the new problems arising from the process of SOE management and ownership restructuring to refute the principle of more private investment in SOEs. All of these factors resulted in the stagnation of SOE reform.


NC: Does the media have that much power?

ZW: Egalitarianism has a long tradition in human history, with the desire for fairness and equality embedded in human nature. People have a weakness — envying others their success and blaming others for their own failure.

Unfortunately, there is a deep-rooted mentality in Chinese society of hating the rich. However, the boundary between “proper” and “improper” wealth acquisition sometimes gets blurred.

The biggest problem in realizing SOE reform before 2004 was ideological. Privatization was not regarded as appropriate and so it was done in secret. At the time I called for transparent oversight of the privatization process [but was ignored]. The media was an overwhelming voice opposing the selling off of SOEs, with only a few rational sources supporting it. When competition got fierce in the media market, all sides resorted to currying favor with public opinion.


NC: Do you think that egalitarianism has lost some of its appeal after more than 30 years of reform?

ZW: The situation has changed a lot over the years. A planned economy produces a society entirely based on an official hierarchy. Reform and Opening-up gave legitimacy to the private possession of wealth, and material capital began to gain social power.

The shift of power from the bureaucracy to capital is a form of progress. There is no such thing as a perfect system for a society. In a “capital centered” society, you can enjoy anything you can afford, while in an “official centered” society you have to hold a bureaucratic position to access anything at all. I agree with [economist] Friedrich August Hayek, who argued that a society in which wealth is the way to social status is better than a society in which social status is the way to wealth. Wealth should not be created either in the process of attaining power, or once one has obtained power. But this is what happens in China.


NC: What do you think of the ongoing SOE reform which promotes the mix of private and State ownership in SOEs?

ZW: Who will mix with whom? Who has the final say in corporate management? Which industries could benefit from this mixed ownership, and which could not? Will the merger process cause corruption? These questions have yet to be answered.

The transfer to joint ownership, if not handled properly, exposes State assets to private manipulation in some cases, and corruption by officials in others. Given the different motivations of private companies and the government, it is imperative to prevent interested parties from cashing in on investiture of power.


NC: You mean that this mixed ownership lacks stability?

ZW: I think it is just a transitional plan, not a long-term, stable solution. But there are voices claiming that it can be a long-term mechanism. As with many economic issues, people misunderstand it.


NC: Liu Chuanzhi, founder of PC giant Lenovo, has said that family-run enterprises perform the best. Do you agree?

ZW: No one can pass judgment on which form of corporate structure is the “best.” In the end the market will choose for itself. With private property rights, people seek efficient ways to engage in transaction and incorporation. Joint-stock limited companies are preferred by big manufacturers, for example, while traditional partnerships still dominate accountancies and law firms. Conglomerates choose to benefit from the economy of scale though internal corruption becomes almost unavoidable in mega-companies.


NC: Then why do you insist that SOEs are not as efficient as private enterprises?

ZW: The de facto absence of owners in SOEs means decision-makers hold power disproportionate to their responsibilities. Private enterprises are actually a way of bonding people together with private property rights together. This doesn’t apply to SOEs. Copying the practice of separating ownership from management in private companies does not make sense for State companies. Therefore, efficiency fails to improve because incompatible mechanisms fail beneath a veneer of entrepreneurialism.


NC: There are outstanding managers in SOEs. They are entrepreneurs, aren’t they?

ZW: As I said before, some SOE managers have good entrepreneurial qualities. However, a real entrepreneur has to bear the consequences of his or her decisions. In SOEs, even if you are successful, you rarely have the chance to realize your own ambitions as an entrepreneur because you will most likely be promoted out of your business. It is misguided to think that entrepreneurs just want a bigger paycheck. A real entrepreneur puts the health of their business ahead of their personal earnings. The inventor of the Gillette safety razor was likely motivated to make a decent razor before he was concerned with money. The success of an entrepreneur is reflected by the success of their enterprise.


NC: What do you think of those business people who have faced criminal charges because of their close connection to corrupt officials?

ZW: Entrepreneurs are involved in nearly every corruption case that has emerged during the recent anti-corruption campaign. This is the evidence that a good business environment based on the rule of law does not exist.

Entrepreneurs are the group creating wealth. However, in the existing system, the government holds too much power, which motivates some entrepreneurs to give up their job of creating wealth and instead pursue monopolies over resource distribution by accessing and manipulating power.


NC: You and your colleague Professor Lin expressed different views on a government’s role in the economy at the Fudan forum. Is that a fundamental division of opinion?

ZW: Yes we are split over the relationship between the government and the market. This division is nothing new in human history, and has lasted for thousands of years. Right ideas do not always prevail. For example, the debate on whether the government is the cause, or the solution, to economic problems continues to rage.


NC: However, classical economics promoting free markets also recognizes that government is a necessary evil.

ZW: 99.9 percent of people would agree. But the question is how to define the role of the government in economics. If government is necessary, then why? A government protects justice and the integrity of a society. However, without a proper property ownership arrangement, neither justice nor integrity is possible. I firmly believe what David Hume believed, that justice does not exist in a society where people believe that the public interest justifies the infringement of individual liberties.



Reported by: Zhou Zhenghua

Source: NewsChina Magazine

Edited by: Arthars