Bamboo Capitalism

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.

Photo by The Economist, 2011

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.”


5 Responses to “Bamboo Capitalism”

  1. Lee Says:

    There is a lot of good to say about prosperity through growth. Or at least there used to be. Rising energy prices are the latest indication that China is now consuming a large share of world resources. Climate change is the indication that the problem is more than simply finding more usable energy sources.

    Despite the recent rise in energy prices, solving climate change is not priced into current energy prices — it is an externality that current energy consumers are not paying for. We may need to tweak the free market in this domain. Whether such should be taxation or something else “state capitalism,” I do not know, but I fear that the current approach is insufficient.

    More generally, it sure is looking like our free markets (and their alternatives) are going to have to do something new for us; we are going to need them to provide prosperity with much less growth.

  2. A K Haart Says:

    “But the impact of all these downsides is simply overwhelmed by the wealth creation effect.”

    I strongly agree. How many hundreds of millions have been raised out of poverty? How can that not be a good thing? Imagine what you would think of Chinese capitalism if you were one of those hundreds of millions.

  3. david greenberg Says:

    words like capitalism and communism suck
    the beauty of the article is so simply that the financial success comes from the combination of TOP DOWN, BOTTOM us system. If you have ever been to China or more specifically Zhejiang Province and even more specifically Anji which is the Center of Bamboo for the Province and the Country you see the bottom up in little industries doing hundreds of different things with bamboo, From underwear to Soft Drinks. the secret to well systems very much depend on Top down, bottom up systems

  4. Nobama « The Rational Optimist Says:

    […] expansion, wealth and job creation, and enlarging the economic pie for everyone. (Just look here, at China.) The most effective regulatory regime is a free competitive market with no government […]

  5. Aung San Suu Kyi: “Freedom From Fear” « The Rational Optimist Says:

    […] again today focusing on China, supposedly showing authoritarianism good for economic growth. Yet (as I’ve written) China’s growth has been concentrated in the part of its economy totally unregulated by […]

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