At the collapse of the USSR a theory emerged in the West arguing that we had reached the ‘end of history’. Liberal democracy, it claimed, had “won” the battle about which system of economic governance was best. Yet, right around the time Francis Fukuyama (the most famous of these ideologues) was penning his manifesto about a ‘resolved world order’, the biggest challenge to this new world orthodoxy about the ‘one right way’ of doing things was emerging: China.
The rise of China as a major global economic force has generated much debate about its economic model. To many of those who believe the ‘end of history’ thesis — that the collapse of the USSR signalled the defeat of communism — then the coming collapse of China™ is imminent (and they’ve been predicting this with stubborn regularity ever since the end of the first Cold War). To others, China’s success proves that its economy can’t be a communist one, so it must be capitalist.
What’s the answer? Is China’s economy a successful communist one or a successful capitalist one?
The answer is that it’s both. China uses multiple methods to manage its economy as shown in the Wardley Map above. The left hand side of this map is the ‘uncharted’ space — things here have never, or rarely been done before, so they’re full of uncertainty. But getting something right here can also be exceptionally valuable if you’re first with a new technology, or new way of doing things. Therefore the focus here is on exploration. But failure is also common here (as uncertainty means not knowing what we don’t know). So, instead of vainly trying to ‘pick winners’ the Chinese government makes multiple small capital investments in areas deemed strategically important, (creating special economic zones, providing infrastructure, lowering barriers to entry) to encourage private firms to take on the risk of innovating.
Once breakthroughs are made the forces of supply and demand competition kick in as there’s blood in the water and money to be made. Pioneers (who may have been motivated by the thrill of making their beautiful ideas work) get swamped by hordes of fast followers motivated by the thrill of making money from ideas that others have shown to work. The focus here is on learning how to make the new even better. Competition therefore is allowed to run free — perhaps too free as battles become free for alls (as described by Kai-Fu Lee in ‘AI Superpowers: China, Silicon Valley and the New World Order). As the market matures government steps in and starts to regulate more.
Eventually, the market shakes itself out and there’s a ‘last man standing’: a dominant industry player. Yet, instead of letting these new business titans leverage economic power into political influence (think Bezos and the Washington Post) the Chinese government exerts its political power over the economy by making large capital investments in a few, strategically-chosen areas. They focus on turning these widely-used products into platforms others can build on top of to create more value: Think of Tencent’s WeChat, which started life as a messaging app but is now used by over a billion people for everything from booking and paying for taxis, flights, groceries, used by businesses for product promotions and customer support, while government itself uses it for public service announcements and passport applications. WeChat played a key role in the digital transformation of the entire country and it’s unlikely this would have happened without government interference.
So what does the entrepreneur get? Well, the government doesn’t have to pick winners as the cut-throat domestic market has done that for them. They invest in their national champions by providing access to capital and government contracts and helping expand overseas so they can take on international players in their markets. The government plays a sophisticated long-term strategic game, using venture capital methods to explore the new, fast (in the uncharted space on the left of the map), letting market dynamics rip as domestic players learn how to do things better, fast (in the middle of the map) and central planning to drive greater efficiencies and the platforms new entrepreneurs build on top of (in the industrialised space on the eight of the map). If you thought Alibaba, Huawei and Haier were just one in a million type companies then don’t forget China is country of 1,4 billion people and there are hundreds of these players, backed by a smart government, and they’re coming to eat your lunch if you don’t adapt in time.
China avoided the pitfall of believing in one right method (communism or capitalism). Instead they make use of central planning AND the market, using both as tools to help build the first real 21st century high-tech/high-speed economy for the benefit of society. The question China resolved was not whether “this method” or “that method” is best, but how to use BOTH “this method” AND “that method” where appropriate. This is a lesson others must learn, but first they need to see it — and that’s why we use maps.
So, is your organisation going to be a Chinese lunch or are you taking Chinese lessons? Do you still believe that there is “one right way to do things” (maybe agile, a cultural transformation or strategic planning), or have you learned how to use multiple methods where they are most appropriate? If this is something you don’t do, or would like to do but don’t know how to get started then watch our short video ‘use appropriate methods’ https://powermaps.net/adapt#methods