In 1982 six Americans met with Chinese officials and Bank of China executives in Guangzhou to discuss the future of business between the two countries.

One of the Americans was Rand McGreal from Seattle, WA., a student of Market Economics. He spent many hours talking to Chinese leadership about the advantages of Market Economics. The Chinese officials found the principles of Market Economics Rand spoke about more akin to their way of thinking than the supply and demand system of Keynesian economics. Rand also, pointed out that supply and demand occurs after a business is created, not before, so supply and demand does not work for initiating economic growth. Rand described other advantages with Market Economics versus Keynesian Economics. As the Chinese investigated western business processes, they found a parallel between their business sage, Tao Zhugong, and the description of Market Economics that Rand referenced. The communist saw economics as the structure that set the processes of business in place. They did not need a justification for government’s role in the economy. They found the supply and demand system less than compelling. What they sought was a system of rules that propelled business growth. Western Supply and Demand theories did not convince them of that relationship.

Rand McGreal

Rand McGreal was a member of one of the first teams of financial experts invited to China in the 1980s to answer how China could advance its economy to compete in the world economy. As a real estate, banking and construction leader he was asked about asset building and bank lending for capital assets. He first arrived in Guangzhou in 1983. Rand worked with Chinese bankers and officials to create economic incentives to encourage the right kind of business development necessary to restructure the economy of southern China.

Many of the principles employed in China form the foundation of New Market Economics.

Can the economic miracle China achieved over the past 40 years be duplicated in other countries?

The Chinese government demonstrated it can be done by following the principles of New Market Economics. This change of perspective gave a monetary value to new ideas and business plans. Previously, development ideas had no monetary value since they were the sole property of the communist state. It also freed banks to lend to a new class of people, the entrepreneur. The Market Economics’ process allowed wealth to be created on the balance sheet of banks and therefore, the country, creating new wealth beyond the dreams of politicians. Think of this change like air and water. The state allows air to be available to everyone for free. Water costs so much per 100 gallons. An entire industry develops around the providing of clean, fresh, filtered water, but no industry, and most importantly, no wealth is derived from providing free water. This is an example of what Rand meant by New Market Economics is about creating wealth.

Seeing the financial miracle of Market Economics made converts of the Chinese officials. They expanded the system across the country. Shenzhen is a great example. Today, the city is the business hub of China with major facilities by Tencent, the social media expert of China, DGT, the drone maker, Huawei, the telecom systems engineer, and ZTE, the telephone manufacturer. The transition began by government creating a field where business can flourish. Next, the entrepreneurs need to be activated and given funding sources sufficient to build private enterprises. This is where banking entered the equation.

It worked in China and it can succeed across the world.

One caution, government can’t lead. Government lacks the proper mindset and motivation to build private companies. But government can enable the private sector to find their own path and clear any roadblocks. Government must stand aside. That is what the Chinese government did in the 1980s.

This step is what makes the Chinese success so amazing. There are few other examples where government relinquished power to the private sector. Government is a business cost and it benefits a country to keep this cost as low as possible. This necessity is what makes the New Market Economics principle of small government an essential component of economic growth.