January 22, 2011
Ronald Coase, the Clifton R. Musser Professor Emeritus of Economics and 1991 winner of the Nobel Prize in Economics, was recently interviewed by Wang Ning. The two collaborated on a new book entitled How China Became Capitalist. Following is an excerpt from their interview published at Unirule.
WN: You have said many times that the Chinese economic reform was extraordinary and unexpected. The third question is what you think was mainly responsible for this unexpected transformation?
RC: We explain this in our book (How China Became Capitalist). The events were unexpected and could not be stated in advance. It must have something to do with certain personalities. If Deng never existed, the story would be quite different. Those developments, or what we called marginal revolutions in the book, such as the household responsibility system and the Special Economic Zones, might be expected. But when they happened, we were surprised.
WN: Indeed, the Chinese were also surprised themselves.
WN: Here comes the fourth question. You have high hopes that the future of economics is in China. What makes you think so?
RC: It is obvious. It is the size of Chinese population. A new idea is always accepted only by a small proportion of the population. But a small proportion of the Chinese is a big number.
It also has to do with the fact that China is now open for new ideas. The old way of thinking has been discredited. But new ways have not been developed yet. Both new good economics and new bad economics have a great chance in China. We want to see that good economics prevails.
China has another advantage. As we have argued in our book, there is still too much to learn from the Chinese experience of market transformation. There is a lot more to learn from how the market economy with Chinese characteristics operates and evolves over time. If the Chinese economists rise up to the challenge, they will contribute to the development of economics.
Here is a letter to Sheng Hong I wrote in 1988. There I said that I had a "firm believe that an understanding of what is happening, and has happened, in China will greatly help us to improve and enrich our analysis of the influence of the institutional structure on the working of the economic system". I still hold the belief. Indeed, the belief has become even stronger over time.
In the past, economics was once mainly a British subject. Now it is a subject dominated by the Americans. It will be a Chinese subject if the Chinese economists adopt the right attitude.
WN: I am deeply moved by what you just said. That will give Chinese economists a strong motivation and confidence to develop their own way of thinking.
RC: That's exactly what they ought to do. That's another reason that I do not like the term Coasean economics. If the right kind of economics that I have in mind is first developed in China, it will be rightly called the Chinese school of economics by future historians.
WN: This I believe is a very, very important point. You are saying that Coasean economics or what you call the right economics is not developed yet. It is an open subject. And you believe that the Chinese economists have a great chance to develop the subject.
RC: Exactly. I think deference to authority is a bad trait of the Chinese. What Chinese economists should do is to develop their own thinking based on a careful and systematic investigation of the working of the Chinese market economy. My work, "The Nature of the Firm" or "The Problem of Social Cost", does not provide an answer to questions that the Chinese economists should tackle. The most my work or the work of anyone else can do is to suggest possible directions to tackle the problems.