By late 2016, the world economy appeared to be at a crossroads, in the sense that economists were celebrating the fact that for nearly thirty years the amount of people living in extreme poverty kept falling — but the world economy was overall moving sideways [1].
The case of China represents this dilemma. The scale of China’s economic achievements over the last 30 years has been a miracle — since 800 million Chinese people have been lifted from poverty since the early 1980s, but the economy has begun to show signs of stagnation.
China is no longer averaging 10% growth rates per year, it only grew 6.9% in 2015, proving that many countries in the world economy are in fact moving sideways.
The Washington Consensus postulates that under-development is due to the domestic failings of under-developed countries. For instance, China is feeling pressure from global financial institutions such as the IMF to embrace economic reforms; since China is reliant on state capitalism.
The dilemma is that state owned companies employ half the county’s work force — which is costly for local governments. The IMF solution to this problem would be to minimize state ownership of the economy and nourish the non-public sector.
Amartya Sen presciently emphasizes the importance of free markets and interchange and how they paved the way for new freedoms in China [2]. As Sen postulates, development is freedom; and China’s state-owned companies shrinking from being 80% of the gross domestic product in 1978 to just 18% in 2012 perfectly proves this thesis.
The rise of free markets creates conversations between people that yield innovations and reduce poverty substantially.