The spectacular choreography in the opening and closing ceremonies at the Beijing Olympics leaves the impression that China can accomplish anything, including becoming the world's largest economy. But organising a sports contest and achieving sustainable development - in the liberal sense of widening the range of individual choice - are different: the first depends on planning, the second on freedom.
In a sports contest there is a winner and a loser; it's what economists call a 'zero-sum game'. Politicians often view economic competition in a like manner, so that China's rise implies lost opportunities for other countries. That is why members of the US Congress often perceive an American trade deficit with China as bad but a surplus as good. Such mercantilist thinking is dangerous because it can lead to trade wars and, thus, to economic nationalism.
Unlike the policy of engagement and dialogue, which has worked well to promote peaceful development, protectionism would limit alternatives open to people, reduce the wealth of nations and increase the chance of conflict. Fortunately, a recent poll by the Chicago Council on Global Affairs shows that a majority (64 per cent) of Americans favour 'friendly co-operation and engagement' as the appropriate response to China's rise.
The win-win nature of free trade, and its reliance on a system of private property and the rule of law, is in stark contrast to a planned economy with state ownership and no economic freedom. Under central planning and autarky, there is no room for expanding individual choice.
When Beijing chose to embark on the path of economic liberalisation 30 years ago, no one could have foreseen the spectacular transformation that was to occur. Now, in the aftermath of an 'exceptional' Olympics, the entire world recognises the progress China has made.
What is less visible is the conflict between power and freedom. Behind the planned harmony of the Beijing Games stands the vast power of the state. The challenge facing China is how to balance and limit that power so that it allows the spontaneous order of the market to create new opportunities and wealth.
In a planned order, there is certainty and apparent order, but no freedom. In a liberal market order, there is uncertainty of results - but the rules of the game are well defined and the process of development consensual. People become rich by creating new goods and services that make people, including the poor, better off. Internal and external trade is instrumental in that process, as are institutions that protect private property rights.