Chinese Economic System (Modell) vs. the Laissez-Faire Anglo-Saxon Economic Modell 中国的经济体系(莫代尔)与放任的盎格鲁 – 撒克逊经济潜行

Nouriel Roubini stated the failure of the Laissez-Faire Anglo-Saxon economic modell in his article: The Instability of Inequality. He was also questioning if an asian, if a Chinese Economic System exists.
If there would be one, it probably would be based on the Chinese Sciences. A very good introduction to the Chinese science concepts can be found in Joseph Needham:  Science and Civilisation in China: Volume 7, The Social Background; Part 1, Language and Logic in Traditional China

The first concept of this Chinese Sciences one will encounter is usally the Ying and Yang principal forces. These forces will bring forth the five Elements. These two concepts are the foundation of all ancient Chinese science. It will be mainly known to the western world in the form of the traditional Chineses Medicine or Feng Shui. And now even Morgan Stanley is using the Yin-Yang Concept: “Why we have yin-yang world economy

Chinese “Cybernetic System” – The Five Elements (Please click on graphic to enlarge)

It is in principal a cybernetic system. In this five elements system there are three key relations between the elements. Mainly a nurturing relation (blue color) which is the dominant relation. In this system there is water nurturing wood, wood to nurture the fire, fire to nurture the earth element and so on. Additionally there is a control relation (red color). Metall is controlling the wood, the wood is controlling the earth, the earth the water, etc. And as we know already from cybernetics there is also a feedback relation (black color). So Wood is giving feedback to the controller metall and so on. To summarize each element has four connections: it nurtures, it controls, it gets controlled, it gives feedback.

If these principals are applied to a potential Chinese Macroeconomic Modell it could look as follows:

Chinese Macroeconomic Modell.

Additonally to the western macroeconomic modells it would contain a fifth element which is described by Markets. These are not the consumer markets, but would represent all the markets that build the foundation of an economy, such as the currency markets, the money markets and the markets for all the commodities and resources (oil, copper, etc.).

Each element also has a Yin-Yang component. Yin could be seen as the framework, the structural logic or variable, whereas Yang is the dynamic variable. If this concept is added to the five elements the following system would emerge:

The Chinese Economic System extended by the Yin and Yang components.

In the case of the household the structural variable is the income, which derives from different sources (earning, interest, etc.) , but mainly from companies.  And the household spends on consumption, on taxes and on savings, which would be considered in this modell as deferred spend.

In the case of the state, the Legislative (Yin) sets the framework and it depends on the Executive (Yang) to ensure the implementation of the legislative framework. This might vary from state (country) to state and can depend for example on how corrupt the system is.

In the market element the available resources (Yin)  determin the price (Yang). States can to a certain extend influence prices of certain resources such as for example the currency, the price for oil, etc. .  The interest rates (yang component) are regulated via the capital made available in the financial institutes system. They can turn quickly to the upside if financial institutions start to mistrust each other as we have seen in the past. And finally there is the company element where the supply represents the Yin variable and the demand the Yang component.

For those who like to play with and validate such as a “Chinese” macroecomic modell there are mathematical ways to described this potential Chinese cybernetic Macroeconomic systems and what the best interventions could be when imbalances in this economic modell occur. It is also a modell that would explain economic growth and economic crisis.

Related Posts:
Chinese Western Management Concept – how to bring two concepts together

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