China: One Country, One (Free) System

It is possible that July 1, 1997, will be seen in future decades as one of those turning points in history that writer Stefan Zweig called “stellar moments of mankind.” The really meaningful event that day will not have been China’s regaining of its sovereignty over Hong Kong, but its swallowing of a powerful “freedom virus.” That beneficent germ will irresistibly spread inside its body, ultimately allowing one-quarter of the world’s people to enjoy the benefits of prosperity and greater freedom.

Powerful forces at work will likely lead toward “one country, one system” in which the prevailing system will be much closer to Hong Kong’s than to the current one in China.

First, there is the sheer force of freedom, now enhanced by the “turbo effect” of the technological revolution. Knowledge of liberal institutions and ideas is being spread by such advances as the Internet, television, cheaper telecoms, and inexpensive travel, that allow people to learn the causes of prosperity in other countries — not to mention in a city within their own country.

Second, China’s internal reforms have gone too far to be reversed. When you have hundreds of millions of farmers cultivating their land in a free-market environment and when the cities are beginning to witness an explosion of small and medium- sized private companies and joint ventures with large foreign investors, the genie is already out of the bottle. A new constellation of beneficiaries has emerged that favors the market system and will go to great lengths to defend it. Just before the Hong Kong transfer, during a Cato Institute conference in Shanghai, a high ranking Chinese government official expressed to me his keen interest in introducing in China a Chilean-style social security system of individual pension accounts managed by competing private enterprises. Indeed, Zhou Nan, the People’s Republic of China’s main representative in Hong Kong in 1995, opposed the former British governor’s proposal to introduce a pay-as-you-go system in Hong Kong, arguing that it would bring “costly Eurosocialist ideas” to the territory.

Third, according to John Naisbitt, the overseas Chinese community is one of the most important megatrends of the 21st century. The Chinese diaspora, which has the same gross domestic product as China, is a network of 60 million entrepreneurs throughout Asia. Their capital city is Hong Kong, and they are already by far the biggest investors in China. Those billions of dollars pouring into the country represent the decisions of well-informed Chinese who are willing to risk their own hard-won money in that economy. Their influence — which fosters a market economy and the adaptation of standard international accounting, legal and other business practices that are the guarantee of their success — will only continue to grow.

Fourth, the transfer of ideas will be greatly enhanced by the Chinese students now studying in the United States. An estimated 250,000 Chinese students entered American universities between 1978 and 1996 and some 40,000 are there now, making them the largest group of foreign students in the United States. Almost all the children of the powerful men of China have studied or are studying in the United States, including the son of President Jiang Zemin and that of Deng himself. Moreover, in China itself, as Alan Greenspan has noted, the economics curriculum tends to follow that of the University of Chicago. I can attest that it was the so-called Chicago Boys who were critical in transforming Chile from a socialist disaster into a prosperous economy and a free society in only two decades.

Finally, the strong desire of the Chinese authorities to get Taiwan back may play a beneficial role. China needs to win the confidence of the international community if it wants to regain Taiwan peacefully. As the “one system” that Hong Kong represents migrates to and pervades the rest of China, however gradually and unevenly, Taiwan’s peaceful return to China will be greatly facilitated. That is something that both modernizers and nationalists will understand.

We live in interesting times. Great walls against ideas are becoming impossible to maintain. In years to come, we will look back on July 1, 1997 as a milestone along the path toward a free system that delivered a long-suffering people from underdevelopment and oppression. Good for China and good for the entire world.

José Piñera is president of the International Center for Pension Reform and co-chair of the Cato’s Institute Project on Social Security Privatization. As former minister of labor and social security in Chile, he was the architect of that country’s private pension system.