The Key to China’s Future

December 16, 1999 • Commentary

Commercial diplomacy, not gunboat diplomacy, is the key to China’s future as a constructive partner rather than an emerging threat. Trade is a necessary but not a sufficient condition for global stability and peace.

Human rights in China are best secured by openness to the West. Isolating China could turn it into another North Korea or Cuba. Trade is a constructive way to change China. But trade is a two‐​way street, and the West must remove its restrictions as well.

The sufficient condition for peace is that China change its political regime to one based on the rule of law and limited government, so that liberty prevails rather than a system that spawns corruption. Whether that change occurs will ultimately depend on the Chinese people, but the probability that it will occur can be increased by strengthening commercial ties, spreading the use of information technology, and allowing China to enter the World Trade Organization on mutually beneficial terms.

In deciding on its future path — whether liberal or illiberal — China should look back to its own heritage and grasp the principle of noninterference and recognize the importance of spontaneous order, if it is to achieve economic and social harmony.

Writing more than 2,000 years before Adam Smith, the great Chinese philosopher Lao Tzu, in the Tao Te Ching, advocated the principle of noninterference (wu wei) as the basis for good government and a harmonious social order. Although he did not provide a detailed theory of the “invisible hand” of the free market, he did recognize that there is a natural tendency for mutually beneficial trade if people are left alone.

Peace and prosperity follow naturally when the government safeguards property rights, rules justly, and lets markets operate freely. The idea of spontaneous order is central to Lao Tzu’s way of thinking. He clearly recognized that overregulation can upset the spontaneous market order and destroy the wealth of a nation: “The more restrictions and limitations there are, the more impoverished men will be.” The wise ruler therefore knows that, “through my noninterfering, men spontaneously increase their wealth.” If Lao Tzu had read The Wealth of Nations, he certainly would have understood Smith’s central argument that, if “all systems either of preference or of restraint” were “completely taken away,” a “simple system of natural liberty” would evolve “of its own accord.”

The principle of noninterference applies to all government action — in the private, social, economic, and cultural spheres. Limited government is the norm for natural order, unlimited government the norm for disorder.

In his essay “The Principles of a Liberal Social Order,” the late F. A. Hayek wrote, “The central concept of liberalism is that under the enforcement of universal rules of just conduct, protecting a recognizable private domain of individuals, a spontaneous order of human activities of much greater complexity will form itself than could ever be produced by deliberate arrangement.” He warned against trying to plan the market, which is a complex system dependent on the decisions of millions of individuals, each of whom has unique information.

By its very nature, the market order is based on consent and openness, not on force and protectionism — free trade is the friend of peace and civility.

A respect for the rule of law and a spirit of independence are important by‐​products of commercial society. Adam Smith tells us how the development of commercial life in Europe “gradually introduced order and good government, and with them, the liberty and security of individuals.” And, in his classic book Democracy in America, Alexis de Tocqueville wrote, “Trade makes men independent of one another and gives them a high idea of their personal importance; it leads them to want to manage their own affairs and teaches them how to succeed therein.”

There is increasing evidence that greater reliance on markets leads to growing pressure for political liberalization as a rising middle class demands the right to participate in the political process in order to protect newly acquired wealth. Harvard economist Robert Barro, for example, found “that improvements in the standard of living … substantially raise the probability that political institutions will become more democratic over time.”

The dynamic gains from international trade — in the form of new ideas, new technology, the expansion of consumer choice, the spread of culture, the development of a commercial code, the strengthening of property rights, and the growth of civil society — should not be lost sight of.

As each nation moves toward the market and away from state planning and mercantilism, a liberal international order develops, increasing the chance for peace and prosperity. That was true in the 18th and 19th centuries, and it is true today. The sooner this lesson is learned, the brighter will be China’s — and the world’s — future.

About the Author
James A. Dorn

Vice President for Monetary Studies, Senior Fellow, and Editor of Cato Journal