Chapter 3 shifts from the financial to the political sphere and is based on trips made to Whitehall to speak with civil servants working on economic policy. The chapter first provides some context by indicating the importance of economic communication in the political sphere as well as the civil service’s role in economic policy and communication. It then draws on time visiting Whitehall to outline the pressure to present economic knowledge in the political sphere as objective – when it is anything but – and describes the type of myth that stems from this pressure. Finally, before concluding, the chapter provides a case study that looks at how the argument constructed plays out in practice, through the setting of an economic policy: the minimum wage.

This chapter delves into the internal logic and the impact on economic development of China’s strategy of prioritizing heavy industries and its planned economic system, characterized by direct government allocation of resources. It covers the period from 1949, marking the success of the socialist revolution, to the eve of the reform and opening up program, which commenced in 1978.

Chapter 5 gives the lie to the myth by dealing with some fundamentals of how our economy actually works. It shows what is wrong with the visions of the economy exposed in the previous four chapters, before concluding on a hopeful note, showing how it is possible to achieve a better future if we are able to dispel the paralysis of myth. It does this through first outlining the process of credit creation, to show that the economy is not a finite pot of money, but largely dependent on the creation of money by private banks. It then draws on some insights from modern monetary theory and other heterodox economic writers to show how the state could wrest control of the creation and allocation of credit away from the private sector and put it to use in order to create a greener and fairer economy.

This chapter begins by introducing the Needham Puzzle, which examines why and how China had ceded its leadership in science and technology to Western countries after the Industrial Revolution despite its flourishing civilization in her history. Then the author challenges three prevailing hypotheses (cultural determinism, national competition, and high-level equilibrium trap) which try (in vain) to explain the Needham Puzzle. Furthermore, the author highlights that in premodern times technological innovation mainly relied on experience-based trial and error, so the bigger the population, the greater the chance for inventions in those days. However, the civil service examination system’s neglect of the acquired ability in mathematics and experiment hindered China from having an indigenous scientific revolution. Consequently, China failed to transit from traditional experience-based innovation to an indiginous Industrial Revolution, featuring science-cum-experiment-based innovation, leading to a widening gap with the Western world.

The uneven distribution of income that emerged during China’s reform can be primarily attributed to gradual dual-track reform. Measures adopted during this period include suppressing interest rates and other factor prices to subsidize non-viable SOEs. In a market economy, adopting a comparative advantage-following (CAF) strategy can lead to fairness and efficiency in the primary distribution of income. Furthermore, through secondary distribution, the income inequality can be further reduced.

China’s reform and opening up program commenced in 1978 with the transition from the collective production team system to the household responsibility system. This reform aimed to enhance incentives for agricultural production, leading to rapid growth in agriculture and increased income for farmers. It also played a significant role in bridging the urban–rural income gap. However, starting from the 1990s, rural income growth began to lag behind that of urban areas, giving rise to a spate of challenges regarding the countryside, agriculture, and farmers, known as the Three Rural Issues (San Nong Wen Ti, in Mandarin). These issues are primarily rooted in the sluggish growth of rural income.

This chapter explores how enabling governments in historically successful economies played an active role in facilitating the development of industries with factor endowments-based comparative advantage. These governments also played a crucial role in helping firms to overcome market failure and turning latent comparative advantage into competitive advantage.

The neoclassical theories implicitly assume that all existing firms are viable. However, many firms in a transition economy are not viable and many distortions are endogenous to the needs for the survival of non-viable firms. The negligence of viability issue in the neoclassical theories led to the proposals of a comparative advantage-defying development strategy in development economics and shock therapy in the transition economics, causing the failures of development and transition in many developing countries. It is essential to introduce the viability concept into the neoclassical economics to improve the relevance of neoclassical theories in developing countries.

China’s urban reforms commenced with a focus on micro incentives for state-owned enterprises (SOEs). Over time the focus gradually shifted to the resource allocation and pricing mechanism from the single track of the planned economy, to a dual track, and ultimately to the single-track market economy. During the transition, non-state-owned businesses, including private businesses, joint ventures, and foreign-funded enterprises, were encouraged to enter the market. Their growth has facilitated the stability and rapid development of China’s economy in the course of the transition from a planned economy to a market economy. However, this transition has also brought about challenges such as corruption, widening regional disparities, and income gap, among others.