Free market capitalism’s advocates are often dismissed nowadays with a one-word crusher: China.
China demonstrates that it’s not free-market capitalism that delivers the goods. Just look at the economic troubles of the free-market West – while China’s economy continues to grow by leaps and bounds – an economy of state capitalism, where government controls everything. Thus it’s really government, not private enterprise, that delivers.
Or so the argument goes.
Actually, it’s 100% backwards. China does, of course, have a repressive, authoritarian political system. But, according to The Economist (see its important March 12 editorial and article about China’s “bamboo capitalism”), 70% of its GDP is produced by enterprises that are not majority owned by the state, over 90% of its businesses are private, and very little of their financing appears to come from state-owned banks.
Moreover, all these businesses are subject to practically no governmental oversight or regulation. This was also the clear picture conveyed in Peter Hessler’s book, Country Driving, about his travels around China, with a close look at factories in Zhejiang, the same region profiled by The Economist. Both portray a veritable wild west of almost pure laissez-faire capitalism, far more of an “unfettered” market than even capitalism’s most zealous Western advocates (like me) would endorse.
In comparison, government oversight and interference in the workings of markets loom hugely larger in the supposedly free market Western countries like the U.S. Is it possible that the financial/economic difficulties we’ve experienced – unreplicated in China – are because our mixed (mixed-up?) system with a big governmental role just doesn’t work as well as a more purely free market like China’s?
But doesn’t such free-wheeling free enterprise make for problems, abuses, rip-offs, and human tragedies? Whoa, does it ever. Inequality? Yes, that too. But the impact of all these downsides is simply overwhelmed by the wealth creation effect. When you grow GDP by around 10% annually, thereby doubling national wealth about every seven years, as China has been doing, the positive effects on human well-being are so enormous that they surely more than compensate for the undeniable problems that unrestrained capitalism entails. That’s the real lesson from China.
It’s a testament to what human beings can accomplish if simply left free to get on with it. The Economist says that “Zhejiang’s greatest contribution to its citizens – and ultimately to China’s economic resurgence – was to provide them with nothing and to cut them off from outside help.”
The magazine concludes that “China has surged forward mainly where the state has stood back. ‘Capitalism with Chinese characteristics’ works because of the capitalism, not the characteristics.”