China’s New Five-Year Plan Exposes the Wishful Thinking behind Socialist Regimes
On October 29, the nineteenth Central Committee of the Chinese Communist Party concluded its fifth plenum, a four-day meeting devoted primarily to laying the groundwork for China’s fourteenth five-year plan, which covers the period from 2021 to 2025. Most of what has been made publicly available about the planners’ thinking is hardly novel—no one would have been surprised to read that they plan to “hold high the banner of socialism with Chinese characteristics,” for example. But one thing in particular stands out—the hope that the country can become less dependent on the outside world, both for advanced technology and as a source of final demand.
Given China’s steadily deteriorating external relations, it is easy to see why moving toward autarky might seem desirable. But in the absence of a reduction in the state’s role in the economy (something that is clearly not under consideration), policies designed to stimulate innovation and household spending are unlikely to succeed.
Malincentives generated by the state sector have always been the obvious obstacle to socialist countries’ efforts to achieve technological breakthroughs. State-owned enterprises have only weak incentives to innovate, because they face almost no bankruptcy risk. At the same time, for both SOEs and private companies, competition under socialism manifests itself mainly “in the endeavors of people to court the favor of those in power,” as Mises wrote in 1940, rather than in attempts to build a better mousetrap. The system incentivizes rent seeking, not tech entrepreneurship.
Increasing research and development (R&D) budgets or encouraging the “reinnovation” or “co-innov
Article from Mises Wire