Austrian-Style Entrepreneurship Explains Much Of China’s Growth

Zhang Weiying is a Chinese Professor of Economics who “came across” the Austrian School of Economics. In an article published in Economic Observer on September 4, 2017, he made these points:

· The Austrian School of Economics is the best market theory.

  • It studies the actual market.
  • It gives entrepreneurship central status.
  • It understands economic growth as a continuous process of innovation.

In contrast, neoclassical economics is not a good market theory.

  • It studies an imaginary market contained in the computers of economists.
  • It ignores entrepreneurship.
  • It cannot tell us the true cause of economic growth.

Professor Zhang has pursued an understanding of the true cause of economic growth in China for several years. In 2008, at a Chicago Conference on China’s Economic Transformation organized by Prof. Ronald Coase, he submitted a paper called "The Reallocation Of Entrepreneurial Talent and Economic Development in China." He presented data that indicated three waves of new entrepreneurship entering the Chinese economy in the 1980’s, 1990’s and 2000’s.

The first wave he called “the rise of the peasant-turned-entrepreneur.” Prior to China’s economic transition, the only channel for any individual with entrepreneurial talent was to work in government. Professor Zhang argues that talented people choose occupations that exhibit increasing returns to ability. That condition holds true in both government and entrepreneurship, so those channels compete for talent. In China before 1980, talent was misallocated to government, because it offered increasing returns to ability, including power, prestige and social status, and there was no private sector where that was the case.

But for many, the government channel was closed off. Specifically, under a strict urban citizenship control system (“Hukou zhidu”) the government and the state sector were closed to rural people. The best the talented people in rural areas could do was to become the leaders of their home villages. With some gradual liberalizing over time, many entrepreneurial village leaders started “township and village enterprises” (TVE’s). They boomed: the number of TVE’s reached 17.5 million in 1990, more than 10 times the number in 1984. Total employees of TVE’s reached 88 million. These enterprises were mainly engaged in manufacturing, transportation and commerce. Zhang says TVE’s “were the major driving force for economic growth” in China in the 1980’s, and helped with “marketization of the whole economy” since they were outside the planning regime.

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Hunter Hastings is a member of the Mises Institute, Business Consultant, and co-chair of the Rescue California Educational Foundation. He is also host of the  more

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