Chinese Reaganomics

Reaganomics provided a good example of how government could kick-start an economy just by reducing its role in it (source: dpa)
Reaganomics provided a good example of how government could kick-start an economy just by reducing its role in it (source: dpa)

As G20 countries pile on bureaucracy, China is taking lessons from Ronald Reagan's economic policy

When Ronald Reagan was elected president of the United States in 1980, the country was living through a difficult economic downturn marked by high inflation. Its reputation had taken a big hit, writes Prince Michael of Liechtenstein.

The Reagan administration energetically got to work addressing the problems. They simplified taxes, cut subsidies and reigned in bureaucracy. The economy took off, employment stabilized and inflation was brought back under control. Reaganomics worked, and is a good example of how government can kick-start an economy simply by reducing its role in it.

The American recovery brought economic growth to the whole Western world. The U.S. became the uncontested global leader.

While not everything about Reaganomics was perfect, it is surprising that, as they face today’s crises, governments in the old industrial world do not follow this example, but do just the opposite. In a cynical way, one could even consider it amusing that the G20 sets growth targets for the global economy and simultaneously introduces more growth-stifling bureaucracy.

China, first a growth champion and now often considered a country with a sick economy, appears to have taken a different tack. The government there has admitted its economic challenges and is addressing them. Indeed, recent declarations from Chinese leadership indicate that they intend to adopt economic policies similar to Reaganomics.

A country that calls itself “communist” may address its economic, environmental and social problems by applying free-market solutions. The Chinese government is proposing tax cuts, deregulation and a reduction of state spending. It also wants to restructure inefficient industries – especially coal and steel, with their associated environmental and profitability issues.

The pessimists on China may yet be proven wrong.

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