Wednesday, June 11, 2008

What the World Should (and Won't) Learn From China About Capitalism

China's embrace of free international trade and mostly un-hindered capitalism since 1978 has led to the greatest economic boom seen since we began recording such things. China has averaged a titanic 9% GDP growth over the past 30 years--last year, it hauled 10.1%. The Chinese love it, and all that I have talked have no shame about embracing capitalism (even though they do not care about the individualistic moral arguments, only the gritty practical ones). They often wonder why more countries haven't adopted a similar thing.

I spoke to a lot of folks--coworkers, random street-goers, laborers and white-collars alike, talking about the doubts of other countries against Chinese adoration of the free market. These are their responses and my research:

Trade Gap: Countries like the US worry about a large trade gap between China and the US, and therefore shy away from free trade with countries like China, whose economy is hot. Trade restrictions can slow a trade gap by forcing, with law, a country's citizens to not be allowed to acquire certain goods or services, but this is clearly not a great way to do things--the government forces denial, forces scarcity. The Chinese bring up 2 points in response to this problem for the US: 1) If the US did not regulate its economy so much, more business would emerge, and would be able to lower operating costs, therefore lowering the prices of exported goods, making them more competitive on the open market. US Regulation, not a failure of the market, is to blame for the US' lackluster exports. 2) Even if the US is too afraid to let its economy fly free, great restrictions on exports to China have existed since the 1989 crackdown in Tiananmen--not just weapons, but manufacturing equipment, precision machinery, computing technology--China wants to buy from us, certainly, but we are denying ourselves the ability to sell our most competitive products. We have nobody to blame but ourselves for the deficit, and trade restrictions will not fix the problem, only change our problems from one of trade deficit to one of scarcity. The US government must make its economy more friendly to business if it wishes to compete--it cannot both crush its own businesses with excessive regulation and expect Americans or foreigners to buy from said businesses. Westerners believe some myth that one must protect its own industries--but China has neither been crushed from above by Japan or the US, nor had its industry stolen from below by Vietnam, Indonesia, Philippines. Some Chinese industries are certainly moving to Southeast Asia, but that is good for China, as it would be for the US--these industries run more efficiently elsewhere, and Chinese consumers and businesses can access these goods at cheaper prices, where China's open capitalist market means that the job market can respond extremely quickly to a factory closing or outsourcing, and create new jobs. China has managed to create this growth and lower its unemployment by opening as it did--why most Americans think the opposite would happen here baffles me.

China is still impoverished. Sure, it's got a long way to go. But in the last 30 years, the number of people under the UN's poverty line has gone up from 1.2 billion to 1.3 billion. The number of people under that line in China has reduced by 500 million. China is the only country in the past 30 years to reduce poverty by nearly that extent--and the only other countries reducing it at all are other Asian countries that are jumping on China's free trade bandwagon. We westerners believe a myth that free trade causes poverty, hurts the poor the most, but all of our noble efforts of foreign aid, of the IMF, the World Bank, they have done nothing to reduce poverty elsewhere, where China's cold capitalism has spread money, extremely quickly, to its most impoverished areas. Xinjiang and Tibet, China's two most impoverished regions, have seen a 26-fold increase in their local GDPs in the last 30 years. China is solving its poverty problem in a rather obvious way; Deng Xiaoping realized in 1978 that one cannot solve poverty by redistributing wealth that barely exists... the best way was to create new wealth, and that all would have a share.

China has a large income gap. It's imperfect, sure. But both the poor and the rich are getting richer, quicker than anywhere else. Trying to stop the gap from growing could only slow the whole economy down. Of course investors and managers are going to benefit more than laborers during a growth boom. But could you look a poorer man in the eye and say "we're going to make you less wealthy than you could be, so that we can make the rich even less wealthy than they could be, because we elites don't like this thing called an 'income gap?'" Nobody's saying capitalism is going to, on its own, solve the world's problems. The Chinese claim only that it is significantly better than the alternative, and a bunch of wealthy people with a large income gap is certainly better than poor with a small one.

China is hurting the environment. Yup. But it can clean it up with the wealth it is creating. Environmentalists have come up with a new scheme called the "Green GDP," which subtracts the economic cost of the environmental impact of a country's growth. China's "Green GDP" is still over 7%/year over the past 30 years, giving it the by-far highest Green GDP growth of any country on earth. So economically, it still makes sense to go full tilt, and pay for the mess. The environment is certainly an important issue, don't get me wrong. But environmental concerns and human concerns conflict, and I believe China has its priorities right--first, establish wealth in the country, bring the poor out of poverty, give the Chinese a standard of living that is acceptable to them, then allow the economy to be slowed down by economic growth. Pristine lands mean nothing if your people are too hungry and diseased to enjoy them--they are not a good in and of themselves, only a good in so far as humans can use them and appreciate them.

China is Neocolonialist
. Sortof, but this is also a good thing. It's starting to move much of its own very dirty industry overseas, in part because its workers' salaries are getting too high for such industry to be efficient in China (one of the lessons we westerners most persistently refuse to learn), and because China does not want to deal with the environmental impact. Is China just moving the problem elsewhere? Sure. But two points: 1) When we create technology that means we don't have to go through the messy process of mining, casting, smelting, etc, then we can avoid it. Until then, these are necessary industries, and the cost must be paid elsewhere. 2) More importantly, China's trade agreements with SE Asia and especially East Africa have led to investments that these countries would not have otherwise had, because Western countries are too righteous to allow their own people and companies to open sweatshops or dirty factories in these countries. But in a country where people are starving and dying of diseases like malaria and aids, they are desperate for a beachhead of industry, and western states condemn them to die of malnutrition or disease by feeling too morally superior to be the ones to establish that beachhead. China has, out of purely selfish desires, been the frontier force in many of these countries, and has given them a hope they have never had--jobs, industry, infrastructure. It's not something that aid can create, it's something that investment can. When a company drops a sweatshop, it has an interest in the sweatshop's success. It will pay for roads, for electricity, for ports--as long as the profits are good enough. If we make it too hard for those first dirty, heartless, inhuman industries to get a foothold in countries like Africa because we reduce profit margins (with tariffs, overseas working restrictions, etc), then industry will still stagnate. China's neocolonialism is improving the lives of the people in these countries, and because of that, China's conscience can ignore the shrill screams of Westerners that tell them to leave these people to die unmolested.
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