The Key to China’s Future

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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. IsolatingChina could turn it into another North Korea or Cuba. Trade is aconstructive way to change China. But trade is a two-way street, and theWest must remove its restrictions as well.

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

In deciding on its future path -- whether liberal or illiberal -- Chinashould look back to its own heritage and grasp the principle ofnoninterference and recognize the importance of spontaneous order, if it isto achieve economic and social harmony.

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

Peace and prosperity follow naturally when the government safeguardsproperty rights, rules justly, and lets markets operate freely. The ideaof spontaneous order is central to Lao Tzu's way of thinking. He clearlyrecognized that overregulation can upset the spontaneous market order anddestroy the wealth of a nation: "The more restrictions and limitationsthere are, the more impoverished men will be." The wise ruler therefore knowsthat, "through my noninterfering, men spontaneously increase their wealth."If Lao Tzu had read The Wealth of Nations, he certainly would haveunderstood Smith's central argument that, if "all systems either ofpreference or of restraint" were "completely taken away," a "simple systemof natural liberty" would evolve "of its own accord."

The principle of noninterference applies to all government action -- in theprivate, social, economic, and cultural spheres. Limited government is thenorm 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 theenforcement of universal rules of just conduct, protecting a recognizableprivate domain of individuals, a spontaneous order of human activities ofmuch greater complexity will form itself than could ever be produced bydeliberate 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, noton force and protectionism -- free trade is the friend of peace andcivility.

A respect for the rule of law and a spirit of independence are importantby-products of commercial society. Adam Smith tells us how the developmentof 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 oneanother and gives them a high idea of their personal importance; it leadsthem to want to manage their own affairs and teaches them how to succeedtherein."

There is increasing evidence that greater reliance on markets leads togrowing pressure for political liberalization as a rising middle classdemands the right to participate in the political process in order toprotect newly acquired wealth. Harvard economist Robert Barro, forexample, found "that improvements in the standard of living . . . substantiallyraise the probability that political institutions will become more democraticover time."

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

As each nation moves toward the market and away from state planning andmercantilism, a liberal international order develops, increasing the chancefor 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.