The Epochal Showdown (8) — Dual-Track Economics
If Markets Are for All, Access Must Be Too.
One evening, in an Irish pub, a local proudly announced:
“Gentlemen, do you know where the world’s largest airport is?”
A British professor, never one to miss an opportunity to demonstrate his superior intellect, adjusted his glasses.
“Well, obviously. King Fahd International Airport in Saudi Arabia. Dammam, to be precise.”
The Irishman grinned.
“Professor, you might want to ask for a refund on that education of yours.”
“The world’s largest airport is Shannon Airport. Right here in Ireland.”
The professor raised an eyebrow.
“Oh, really? And how do you work that out?”
The Irishman took a leisurely sip of his Guinness.
“Simple. Because all of China took off from there.”
Silence.
A few puzzled looks.
Then someone finally asked:
“Hang on… China? From a little airport in Ireland?”
Well, that’s quite a claim, isn’t it?
But there’s a remarkable story behind that pint of Irish wisdom.
So, let’s turn back the clock and follow in the footsteps of Jiang Zemin, as he travelled the world in 1980 searching for ideas that might help transform China’s economy.
How did a small Irish airport become part of the story of one of history’s most extraordinary economic takeoffs?
Fasten your seatbelts, ladies and gentlemen.
We’re cleared for takeoff.
Jiang Zemin
Jiang Zemin (Chinese:江澤民, August 17, 1926–November 30, 2022) was born in Yangzhou, Jiangsu Province. In 1954, he went to Changchun to help establish the First Automobile Works, and later spent a year training in the Soviet Union. In 1970, he was transferred to the headquarters of the First Ministry of Machine Building. Not long afterward, he was sent to Romania to oversee Chinese government-assisted projects there. These experiences gave Jiang something that was still relatively rare among officials of his generation: substantial exposure to the world beyond China.
After the launch of reform and opening-up, Jiang became deputy director and secretary-general of the State Import and Export Administration Commission, where his responsibilities included policy formulation and preparations for the establishment of special economic zones.
In August 1980, Shenzhen and the other special economic zones had only just been established. China had virtually no domestic experience in running such zones, and urgently needed to learn how export-processing zones and free-trade zones operated elsewhere in the world.
So, in late October that year, Jiang led a delegation to Shannon, Ireland, to study its development model. The visit formed part of a much wider overseas study tour, undertaken in the early days of China’s special economic zones. It was a crucial effort to learn from international experience at a moment when China was beginning to experiment with new approaches to economic development.
The Entrepreneurial State
Shannon lies in County Clare in western Ireland, near the mouth of the River Shannon and the Atlantic Ocean. In the early days of transatlantic aviation, the distance between America and Europe was a formidable obstacle. Ordinary commercial flights often needed a refuelling stop along the way. On October 24, 1945, Shannon Airport received its first scheduled commercial flight: an American Overseas Airlines DC-4 arriving from the United States. Much as Singapore would later serve as a strategic link between the West and East Asia, Shannon became a vital stepping-stone on the transatlantic route — a kind of aviation Singapore between America and Europe.
But the good times would not last. By the late 1950s, jet aircraft were advancing rapidly. Planes were becoming faster and capable of flying farther without stopping. For Ireland — a relatively poor, predominantly agricultural country struggling with substantial emigration — the decline of Shannon Airport threatened to bring economic hardship and job losses to the entire region.
Whenever history seems to call for a great figure, someone may step forward to meet the challenge. If he survives the encounter, history may even produce a miracle.
Some can sense a change in the wind long before the storm appears on the horizon. As the first signs of crisis began to gather, Brendan O’Regan (1917–2008), the man running Shannon Airport’s catering and duty-free operations, already knew that a storm was coming.
True entrepreneurs — in the Austrian School’s understanding of entrepreneurship — are those fearless, sometimes seemingly mad individuals who dare to see what others cannot.
While the rest of the world is still admiring the flowers in a beautiful garden, they have already climbed beyond the mountains, gazing out upon horizons the others cannot yet imagine.
Brendan O’Regan was not originally a government official or an economist. He was a businessman with experience in hotel management, catering, and tourism. At Shannon Airport, he was responsible for catering operations. As the airport’s fortunes came under threat, he was among the first to recognise the danger — much as a duck senses the warming of the spring river before anyone else.
More importantly, even during Shannon’s prosperous years, O’Regan had begun to see beyond the airport itself. While officials might have seen a transport facility, he saw something larger: a hub for international passengers and trade. That difference in perspective would prove consequential.
O’Regan helped pioneer airport duty-free shopping at Shannon. The first duty-free shop opened there in 1951–52, making Shannon a trailblazer in what would become a worldwide travel-retail industry. He also founded the Shannon College of Hotel Management in 1951. Before the jet age had fully begun to undermine the airport’s traditional role, he was already working to expand its economic function — to turn an airport into a much broader platform for regional development.
In 1957, as jet aircraft began to cross the Atlantic without stopping in Ireland, the Irish government started to worry seriously about Shannon Airport’s future. It established the Shannon Airport Development Authority (SADA), authorising Brendan O’Regan and his team to investigate a pressing question: How could they attract more passenger and freight traffic to Shannon? The government’s immediate objective was clear: save the airport.
But a true entrepreneur sees beyond the government’s immediate brief. O’Regan was not content merely to manage the rise and fall of an airport. He saw the larger question: how could an entire region be put on a path to prosperity?
In the spring of 1958, he travelled to study the Colón Free Zone in Panama and Puerto Rico’s export-processing arrangements. When he returned to Ireland, he advanced a bold idea: if planes could no longer be persuaded to land in Shannon, then goods, businesses, capital, factories, and tourists might be persuaded to land there instead.
O’Regan was a businessman, not a politician. Yet he possessed both tenacity and a gift for persuasion. He won the support of Seán Lemass, then Ireland’s Minister for Industry and Commerce, whose backing helped turn the proposal into a serious government initiative.
With Seán Lemass’s support, the Irish government passed the necessary legislation in 1958. In 1959, the Shannon Free Zone, conceived by Brendan O’Regan, came into being. O’Regan became its first chairman.
The Shannon Free Zone was not a conventional state agency run entirely from the government’s offices. It was a semi-autonomous commercial zone, operating under a government mandate. The government set the objectives, provided funding, and established the legal framework. Within those boundaries, the zone was expected to find its own way: attracting investment, testing ideas, and managing its operations.
In this sense, Shannon resembled an entrepreneurial state: the government drew the boundaries, while a commercially minded organization was given room to experiment and get things done.
Paul Quigley, who later chaired the organization, summed up its approach in three words: “experiment, improvise, trial and error.”
In retrospect, economists have distilled the model into a simple formula:
A developmental state + a flexible implementing agency + entrepreneurial government.
I do not know whether Justin Yifu Lin (林毅夫, born October 15, 1952) drew inspiration from Shannon when he developed the idea of “an effective market and a capable government” as part of New Structural Economics. The resemblance is certainly intriguing. But resemblance alone does not establish intellectual influence; that would require evidence of a direct connection.
Reform’s Experimental Zones
As the world’s first modern free trade zone — or export-processing zone — Shannon pioneered the use of low tax rates, customs-duty exemptions, and grants for land and factory facilities to attract multinational investment. It drew in internationally renowned companies, including General Electric (GE), De Beers’ Element Six, Intel, and Lufthansa Technik. By 1966, only a few years after its establishment, the Shannon Free Zone was said to account for 32 per cent of Ireland’s total industrial exports.
Today, the zone still generates around €3 billion in annual trade, approximately 90 per cent of it destined for export. It has also moved up the industrial ladder, evolving from a labour-intensive manufacturing base into a high-tech and aerospace hub. It is now widely recognized as a centre of excellence for aviation and aerospace services, with leading positions in aircraft leasing, maintenance, repair and overhaul (MRO), and aviation finance.
From the 1970s onward, the wider Shannon development area began shifting towards higher-technology activities, including software, telecommunications, and financial services. The National Technology Park, adjacent to the University of Limerick, became part of this transformation. In time, these developments would contribute to Ireland’s emergence as what came to be known as the “software capital of Europe.”
It was against this background that the United Nations Industrial Development Organization (UNIDO), seeking to help a China that was inexperienced but eager to modernize, recommended the Shannon model. UNIDO organized a study tour for a Chinese delegation to examine export-processing and free-trade facilities in twelve countries. Led by Jiang Zemin, the delegation studied the legal frameworks, tax incentives, customs exemptions, foreign-exchange arrangements, one-stop approval procedures, and methods of attracting multinational investment. Jiang’s questions came in a rapid-fire barrage.
After returning to China, the delegation, under Jiang’s leadership, submitted a detailed report to the central authorities entitled Report on the Study of Overseas Free Trade Zones and Export Processing Zones. Shannon became one of the important points of reference for the Special Economic Zones, including Shenzhen.
The Shannon archives and The Guardian, looking back on this history, have described it with no small measure of pride — and perhaps a touch of exaggeration: in 1980, a small Irish town trained a future leader of China, and the spark kindled at Shannon would eventually help set off one of the most extraordinary economic transformations in human history.
Fleece Global Capitalism
The Shannon Free Zone offered important lessons for China’s Special Economic Zones. But to treat the Shannon experience as simply interchangeable with China’s would be a fatal mistake.
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Shannon was established in a country whose economy was already organized primarily around markets. Its strategy was to create a magnet for global investment by cutting taxes, offering attractive terms for land and labour, and relying on an efficient, entrepreneurially minded public agency. The objective was straightforward: to bring a bigger slice of the economic pie into its own bowl.
The Shannon Free Zone’s most powerful weapon was taxation. For a period of up to 25 years, eligible companies enjoyed tax relief on profits from exports. The regime was later replaced by an exceptionally competitive corporate tax rate of 10 per cent, before Ireland moved to a 12.5 per cent rate. These concessions left multinational companies with considerably more room to retain their profits.
To make Shannon an efficient transatlantic distribution hub, the zone also allowed companies to import raw materials, components, and machinery without customs duties. Goods exported from the zone were likewise exempt from such duties.
And that was not all. To attract major international companies, the zone offered capital grants towards equipment purchases and factory construction, as well as substantial subsidies for employee training. These measures reduced both the upfront risks of setting up operations and the cost of employing and training workers.
Put bluntly, Shannon’s secret weapon was a three-part promise: exempt, exempt, exempt. It invited companies that had already been made to surrender a pound of flesh elsewhere to leave just a little wool behind in Shannon.
In that sense, the Shannon Free Zone was, at its core, a way of clipping a few coupons from global capitalism. It was a model built around attracting mobile investment by offering a particularly favourable location in which to do business.
But a strategy of this kind cannot become a universal template for the entire world. Still less can it serve as a one-size-fits-all route by which less-developed countries make the transition to development.
Dual-Track Economics
China’s Special Economic Zones did initially borrow elements of the Shannon experience. But to assume that the two models were essentially the same would be to miss a fundamental difference.
Shannon operated within an economy already organized primarily around markets. Its strategy was to create an investment magnet by offering tax concessions and favourable terms for land, labour, and other inputs, backed by an efficient, entrepreneurially minded public agency. In effect, it sought to persuade global businesses to bring a larger share of their economic activity — and profits — within its own borders.
China’s Special Economic Zones, by contrast, were established from the outset with a much broader task: to explore a path from a command economy towards a market economy. The challenge was not simply how to attract foreign capital, but how to make the transition in a gradual and stable way, spread its benefits more widely, and keep the costs of reform as low as possible.
That is why the Chinese zones placed greater emphasis on beginning with policy experiments and, over time, building the foundations of an effective market governed by law. This was the crucial difference between China’s approach and that of many free zones around the world, whose central attraction was the creation of a low-tax haven for investment.
China, too, initially benefited from low taxes and relatively inexpensive labour. But it soon began moving beyond that formula. Through successive rounds of legislation and institutional reform — and by building out increasingly complete industrial supply chains — it fostered the economic benefits of agglomeration. Firms could then be attracted not merely by low costs, but by the prospect of higher productivity, stronger supplier networks, and greater output.
China did not stop at “letting things run” and “giving things a try” within the zones. It sought to turn lessons learned through practice into a broader national development path built around the rule of law and the market.
Compared with the disruptions associated with shock-therapy reforms in a number of developing and transition economies, China pursued a more gradual route, attempting to widen the reach of development while managing the costs of transition. In that sense, its experience offers a distinctive case of development economics oriented towards broad-based growth.
Zhang Weiying (Chinese: 张维迎, born October 1, 1959) has also argued that reform must take account of the bargaining among different interest groups — and that those who benefit from the existing system must, where possible, be turned into agents of change. As he put it:
Where does the resistance to the changes we want to make come from? The common view is that vested interests will obstruct reform. But I’ve been thinking about a different question over the past couple of years. If you look through history, many great transformations were led by people with vested interests. If those who have a stake in the existing order cannot become reformers, then reform has no hope.
Marx himself did not come from the working class. His father-in-law was a member of the nobility, and his brother-in-law was a minister. Nor did Marx live like a proletarian. While he was in Britain, the average annual income of the richest 10 per cent was around £72; Marx’s own annual living expenses, however, exceeded £400. And Engels? He was a capitalist himself.
These examples show that people’s interests do not determine everything. What makes us human is that we have ideas and convictions — what we believe in and what we do not. Those things matter enormously.
— Zhang Weiying
If development economics were to distil the lessons of China’s reform and opening-up into a set of principles, the third would surely be inclusiveness.
If the market is meant to be open to everyone, then the road towards a market economy should be open to everyone, too. Dual-track reform was an approach to development that sought to proceed cautiously while taking the interests of those already embedded in the existing system into account. It was about much more than simply “letting things run” or “giving things a try.” Its ambition was to bring people’s interests along with the process of growth — to put society as a whole on the road to prosperity.
That, I would argue, is not only a central concern of development economics. It lies at the heart of the market economy itself.
For now, we can bring our discussion of development economics to a close. But one fundamental question remains unresolved: the question at the heart of the debate Hayek envisaged — does the market really deliver the greatest efficiency?
Human societies have long wrestled with a central tension. As independent individuals, we are inclined to regard the protection of rights as a first principle. Yet as realists, we know that efficiency can determine whether competitors survive or perish.
States may be founded on force, but they cannot secure lasting public support through force alone. They also need recognized and protected rights, along with institutions and a shared sense of legitimacy. As the book Why Nations Succeed puts it, states may arise through violence, but their continued existence depends on cultural consensus and institutions that protect rights.
And in the competition among states, efficiency can shape the difference between prosperity and decline.
So which should come first: rights or efficiency? Can the market reconcile the two? Or might there be a better institutional arrangement?
That is where our next chapter begins.
Arno Will, September 8, 2026
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Liberty is Not ‘Negative’, Only ‘Exist’ and ‘None’
Redistribution? Why is the Government Spying on My Wallet
Immoral Property Taxes Infringe on Personal Liberty
The Epochal Showdown
The Epochal Showdown (1) — Kindergarten Macroeconomics meets Daimyo Capitalism Bookkeeping
The Epochal Showdown (2) — Of Myths, Monks, and Markets
The Epochal Showdown (3) — The Road to Prosperity
The Epochal Showdown (4) — Free Markets or Free Falls?
The Epochal Showdown (5) — The Dinosaurs’ Last Dance
The Epochal Showdown (6) — LET IT RUN: The Politics of Letting Go
The Epochal Showdown (7) — LET IT WORK: The Experiment Called Shenzhen
The Epochal Showdown (8) — Dual-Track Economics
The Epochal Showdown (9) — Rights vs. Efficiency? — The Bomb That Coase Dropped
The Eye, The World We “See” [1] — Allegory of the Cave
The Eye, The World We “See” [2] — Misplaced Love
The Eye, The World We “See” [3] — From Data to Information
The Eye, The World We “See” [4] — How We See the World: From Knowledge to Wisdom
The Redundancy We “SEEe”[1] — I Really Did See Ghosts
The Redundancy We “SEEe”[2] — Descartes’ Evil Genius
The Redundancy We “SEEe” [3] — A Superfluous self?
The Redundancy We “SEEe” [4] — The Enemy Is “ME”
