Markets over Mao: The Rise of Private Business in China.

• Author: Dorn, James A.
• Position: Book review

Markets over Mao: The Rise of Private Business in China

Nicholas R. Lardy

Washington: Peterson Institute for International Economics, 2014, 185 pp.

China's rise as an economic powerhouse since 1978 has been characterized by an expanding scope for markets and prices, and a diminishing role for the state. That is the main message that Nicholas R. Lardy, one of the world's foremost scholars on the Chinese economy, conveys in Markets over Mao.

Lardy is the Anthony M. Solomon Senior Fellow at the Peterson Institute and former director of the Henry M. Jackson School of International Studies at the University of Washington. He is the author of numerous books including Sustaining China's Economic Growth after the Global Financial Crisis (2012), Integrating China into the Global Economy (2002), and China's Unfinished Economic Revolution (1998). His trademark is a detailed understanding of China's institutions along with a rigorous examination of a wide variety of data to substantiate his arguments. That trademark is firmly imbedded in his new book.

This is a relatively short book with only four chapters, in which Lardy explores state vs. market capitalism, reform of state-owned enterprises (SOEs), the rise of the private sector, and the reform agenda. Each chapter is packed with important facts regarding China's institutional development and economic reforms as the private sector evolved out of Mao's nightmarish state. Lardy makes a strong case that price liberalization and ownership reform, in which Beijing has given greater recognition to the private sector, have transformed the economic landscape so dramatically that China's economy can no longer be viewed as a form of state or authoritarian capitalism.

Of course, Lardy does not consider China a full-fledged market economy; he recognizes that parts of China's economy are still dominated by SOEs. However, he argues those flaws should not detract from the advances made over more than three decades. It is instructive that in 1978 China had virtually no market-determined prices, private firms were illegal, and foreign trade was restricted to a few state enterprises. Today, China is the world's largest trading nation, the second-largest economy, and SOEs account for only about one-third of GDP.

The private sector has been the main engine for economic development and job creation. Economic freedom has advanced giving individuals more choices and improving their living standards. China's real GDP has...