Is China’s system of capitalism better than that of the United States? That depends — do pigs fly? While I have no question in my mind that the U.S. is still the paragon of success when it comes to the capitalist system, lately a strange coalition of think-tankers, investors and politicians have been advancing the idea that China is eating our lunch when it comes to deploying capitalism.
More specifically, this bunch claims that China’s unique brand of centrally planned capitalism is working better than the U.S.’s overregulated, bloated, inefficient and slow-growing economy. They say that our capitalism has been so bogged down by our developed-nation cost structure that we’ll never again be a competitive center of investment for the great global pools of money in search of a safe investment out of which to make a parking spot.
Baloney.
China has indeed grown by leaps and bounds over the past decade. That’s a huge credit to a country that has modernized and industrialized on a previously unseen scale. And because of its 1.3 billion citizens, China has quite a bit of growth (read: catching up) still to come. China’s style of governance leaves the country light on regulation. However, it’s also light on rule of law, transparency, freedom of speech and several other key features that make the U.S. economy go ’round. Just because the Chinese government can move a village and build a road without holding a single hearing doesn’t mean the free market has taken hold. Indeed, it shows the opposite: China’s economy is largely state-planned, state-owned and state-run. The government uses capitalism only as a tool to reach its ends, not as a true expression of a free market.
Worse, where the Chinese government compromises the free market, it does so to fulfill its own desires of effective control over the entire country. It’s capitalism of the state, by the state and for the state, where the state is the principal economic actor. That’s in marked contrast to where the U.S. compromises on “pure” capitalism, adding things like the social safety net, worker safety, product safety, health insurance and retirement planning.
While China has a lot more growth to go, there’s another problem with its unique system of capitalism: Its outputs are far more volatile, and far less predictable, than our own. Consider where the Chinese central bank chooses to park its own money — in U.S. Treasuries, perhaps the safest investment that can be made in large enough quantities. If the Chinese could find a better place for their cash reserves, they would surely try it, but they really can’t. And if other Asian countries thought China had it all figured out, why would they all — even the reclusive Myanmar — have warmly welcomed the U.S.’s recently announced plans to solidify its presence in the Asian sphere?
A recent study showed that over 50 percent of Chinese millionaires prefer to live in the United States. Now, let’s assume these millionaires are rational actors: Their desire for a stable living situation, improved economic opportunity and access to capital not controlled by the government brought them here. These are the lucky few who have profited most from China’s economic boom. So if they’re smart, they choose to live in the U.S., giving us a clear sign our country’s system is better. If they’re not that smart, then China’s most successful choose to live in the U.S., and we should question by what form of corruption or perverse reward system they managed to do so well in China!
One of the major problems China has had with its economic model is that at nearly any time, the majority owner of most of its economy — the state — can jump into an enterprise and distort it for its own purposes. It can cook the books, it can pull out profits, it can hide losses, it can launder money and it can even shut down a company altogether. While China does have tech companies that mimic the features of Google, Facebook and Twitter, note that those Western companies haven’t been able to operate in China. What China wants is not an environment where tech revolutionaries can flourish; it wants Chinese, state-run versions of these startups, which means it will never foster the entrepreneurial spirit that makes companies like these possible.
That desire — that seemingly irrepressible urge of the Chinese to copycat everything foreign, from cars to watches to iPhones to social networks, is ultimately why no matter how good the Chinese get at tweaking state capitalism, it will never match up to the promise of a truly free capitalist economy.
Here in the U.S., we don’t know what the next huge industry will be, and that’s great. Silicon Valley could invent another new gadget. Oil sands or fracking could benefit from more extraction breakthroughs. Electric cars or solar panels could jump an order of magnitude in a generation. One of our philanthropic billionaires — Bill Gates, say — could invest in some promising new technology tomorrow. Some other completely unknown idea could erupt from a university or government lab. But whatever the manifestation, our economy holds the promise of such discoveries. Those ideas are where real new pools of capital are created and how a country becomes wealthy. Cranking out iPhones might employ more people, but it’s not the foundation for a new kind of industry or economy we’ll need in the 21st century.
In short, it’s become fashionable to look at the rough stretch of the past few years and wonder if the industriousness and resilience of the American economy is at an end. But look around the world. While one could make a viable argument that some are doing capitalism better than us (look at our neighbors to the north), a state capitalist country like China doesn’t compare. Sure, we’re at a crossroads — but that’s a lot different from being at the end of the road.
America does creative destruction — that mystical economic force of continuous reinvention — as good as any country in the world. Our game-changing innovations go on to change the entire world, again and again. What China has found is that it can shoehorn a crude version of a beautiful financial system into its state-controlled economy and get some good results; it can bite off small pieces of capitalism and enrich itself. But ultimately state capitalism is just a pale imitation of the real thing, where there’s neither the ability nor desire to fall back on totalitarianism when the going gets tough. Like that knockoff iPhone, China’s form of capitalism might look the part, but that’s where the similarities to the world’s still-largest and preeminent capitalist economy — our own — end.
This column is based on Bremmer’s remarks in the recent Intelligence Squared Debate: “ChinaDoes Capitalism Better Than America,” held in New York on Mar. 13.
