The reason is simple—China's
government. The Chinese government and the Communist party have no intention of giving
up power. This is hardly surprising. Which political party would voluntarily give
up power? But political power is only a part of the problem. The real problem is
that the Communist party does not want to give up economic power. China is
still not a market economy. As long as the Communist party remains in power,
it will never be one, and that is why it will not fulfill its promise.
Let us start with something simple: information. The lack of
protected speech has not been seen as a major impediment to economic growth, but it is
a major issue. Markets are about choice. To make a good choice, whether it is
a car or an investment, one requires good information. In China, information
is restricted and tightly controlled. The government believes that it
understands the difference between important and dangerous information
and that it always has access to both. It doesn't.
Information has enormous value. It is not provided except for
consideration or because there is an enforced legal
requirement of disclosure. In societies with protected speech and free press,
it is often difficult to cover up fraud, corruption, misdeeds, and even
mistakes, because there is a market for their disclosure. In China and other
restrictive societies, the flow of information is
severely regulated, if not totally curbed. As a result, everyone from investors
to consumers and even bureaucrats do not have timely, accurate, and complete
information. The result is that investors make inefficient allocations of
capital. Consumers buy poor, sometimes even poisonous, products and government
officials make and execute ill-informed decisions. Over time, the result of
this information control can be disastrous.
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