China's Trapped Transition_ The Limits of Developmental Autocracy - Minxin Pei [124]
However, a developmental autocracy’s overriding goal of self-perpetuation is ultimately imperiled by the self-destructive dynamics found in nearly all autocracies: low political accountability, unresponsiveness, collusion, and corruption. In most cases, an autocratic regime’s collective interests are grossly misaligned with the individual interests of its agents. Acting rationally, self-interested agents seek to maximize their own gains, especially during a transitional period when changes in the rules of the game create abundant opportunities for self-enrichment. The economic and political costs incurred by these agents in their self-dealing arc inevitably borne by both the autocratic regime—which suffers, as a result, from low legitimacy, weak authority, and organizational corruption—and society—which pays in the form of deteriorating governance and economic performance. Thus, it is inconceivable that a developmental autocracy can retain its vigor for long. On the contrary, the self-destructive dynamics embedded in a developmental autocracy will most likely lead to a gradual buildup of systemic risks within the autocratic regime and progressively sap its strength. That is why, except in a very small number of cases, most self-styled developmental autocracies eventually fail.
Given China’s impressive growth performance, one may question the pessimistic logic behind the main thesis of this study. If the Chinese political system is so dysfunctional, why has the country maintained such rapid economic growth since the late 1970s? There are several explanations for this apparent paradox of bad governance and good growth. First, the pathologies of a trapped transition became more serious and visible in the 1990s, after the neoauthoritarian development strategy had gained dominance within the CCP and the liberal forces, both within the party and in society, were marginalized after Tiananmen. To the extent that deterioration in governance has a lagging effect on economic performance (for example, the deleterious effects of underinvestment in human capital and public health usually do not become visible until one or two generations later), it is possible that the pathologies of a trapped transition will have a material impact on macroeconomic performance in future years.
Second, in the short term, the growth rate can be pumped up by high savings and, hence, investment rates and massive shifts of population from agriculture to industry, the two major factors behind China’s rapid growth in recent years. In the Chinese case, with a national savings rate of 40 percent and an annual flow of $40 billion to $50 billion in foreign direct investment since the late 1990s (about 3-4 percent of GDP), high investment rates can propel growth even though the economic system remains relatively inefficient.
Third, it is important to look at the quality of growth because the focus on growth rate alone tends to ignore the hidden costs and the low quality of growth. In other words, growth rates may inaccurately reflect or, indeed, can seriously misrepresent a society’s welfare gains. For example, if high growth is achieved at the expense of rising inequality, underinvestment in human capital, damage to the environment, and pervasive official corruption, such growth must be considered low quality. In China’s case, high growth rates have been accompanied by all these symptoms of low-quality growth. The massive accumulation of bad loans in the Chinese banking system due to government-directed credit must also be considered another symptom of low-quality growth, or a cause of artificially high growth because such wasted investments have been counted as economic output.
Finally, the effects of bad governance on China’s economic performance may already be visible. By international comparison, China is growing too slowly, as Martin Wolf argued. Given its size, its low