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The World Is Losing Faith in American-Style Capitalism vs. China. But Maybe Not For Long
The U.S. is still regarded as the top economic power, even more so than last year, but most people around the world continue to believe that China either will eventually replace or already has replaced the U.S. as the world’s leading superpower. A median of half across the countries surveyed say that the U.S. is the world’s leading economic power, while only 27% say that of China. While a median of only 14% say China has already replaced the U.S. as the top superpower, majorities or pluralities in 27 of 40 countries say China will eventually become or has already replaced the U.S. as the top superpower.
The economic dynamism generated by democratic capitalism is a key element of the American Project’s persuasive power. But there are other models, such as China’s state-directed capitalism conjoined with an authoritarian state. Years of very fast Chinese growth and relative US stagnation have made China look like the strong horse to many — especially those not-so-interested in democracy. “I have seen the future, and it’s capitalism with Chinese characteristics!” The Beijing Consensus. As the Economist put it back in 2011:
Too many people—not just third-world dictators but Western business tycoons—have fallen for the Beijing consensus, the idea that state-directed capitalism and tight political control are the elixir of growth. In fact China has surged forward mainly where the state has stood back. “Capitalism with Chinese characteristics” works because of the capitalism, not the characteristics.
But now China is slowing, perhaps sharply. And while the US path to dynamism means rediscovering and returning to its strengths, China must do what it has never done before. AEI’s Derek Scissors on the challenge:
In 1978, China began to grant limited private property rights and to permit limited competition. These steps helped create an economic miracle, among other things lifting 850 million people out of poverty over a generation. But for more than a decade now, the Communist Party has chosen not to move forward on private property rights and competition, instead emphasizing an unprecedented amount of state-directed spending. The result is a severely damaged environment, an unbalanced economy, and a painful debt burden.
This is not hindsight. The stagnation path was visible six years ago, when China chose to massively expand credit in response to the financial crisis. Weaknesses in the economy can be traced back to policies initiated six years before that, in 2003. Because the fault lines have been developing for some time, they will require years of difficult reform to address. The current government has pledged such reform but largely lacked the nerve to initiate it, much less sustain it. The single most likely result is that China will share the fate of many other economies and fall far short of being wealthy.
So the good news about “bamboo capitalism” is that if it does transform China into a dynamic, innovative economy with a high degree of competitive intensity, it means China itself has probably adopted a lot more of the economic freedoms that American prosperity is built upon. We’ll see what those surveys say five or 10 years from now.
Published in Economics
Very interesting.
My view is that China will not eclipse the US for several reasons:
I think people think China is stronger because they don’t see it floundering around playing wack-a-mole with ISIS. I think had we leveled all of Syria to burn out ISIS in a massive herendous show of force people would think differently. Maybe they wouldn’t like us more but they certainly think we were stronger.
The reality is of course that it doesn’t really matter what foreigners think about our strength, what matter is how much we actually have which is largely determined by our own opinion and motivation.
As to economics I don’t think China will ever surpass the US. I think they will get bogged down by their internal divisions and a need to distribute the economic gains more broadly between the urban and rural populations. China may have a lot of emerging middle class urbanites but it still has vast numbers of rural peasants. That is why their per capita GDP is still so much lower than any Western Country. I don’t think that is sustainable.
China’s economy isn’t just hobbled by a horrific debt problem that they are trying hard to hide. When I visited China way back in 2005, there was building going on everywhere. When I asked about where the demand was coming for all of the truly unbelievable amount of construction and development I was seeing, people’s eyes seemed to glaze over with confusion. “What do you mean demand?” they seemed to be thinking. You just build things and everyone gets rich. Even at that time I saw and heard about completely empty buildings and ghost towns with no prospects of ever being used. It’s only gotten orders of magnitude worse in the decade that’s followed.
Also, the Chinese are not a consumerist culture, most people moving to the cities to build skyscrapers and condo buildings and working in the factories are working too much to spend the money they are making, and even if they weren’t, they stick the money in their mattresses and save. That is not a model for economic growth, especially as the Chinese export economy wanes. People are increasingly leery of the quality of Chinese made imports, not to mention that pegging the yuan to the dollar is proving to be a drag on selling Chinese made goods now that the dollar has strengthened so much.
Short of a revolution, there will be no reforming the economic system enough to make it a long term success.
As usual, Rob is probably ambivalent.
China, like the Asian tigers before it could select products already proven to be commercially viable, improve on them or make them cheaper and sell them to the industrial world’s markets. To surpass the US it must create and prove it’s own commercially successful goods and consume most of them at home or in the region. And the US will have to continue to lose its creativity and entrepreneurial spirit. It may be easier for China to switch to a domestic and regional demand led economy with creative new products than it is for the United States to shed its creativity destroying regulations and the dead hand of government. But it’ll be a hell of a race.
The Chinese have managed to do in 25 years what it took the Japanese 40 years to do. That’s what I call a revolution in efficiency.
When a Chinese company looks like it’s going to fail, the Party stuffs money in to keep it alive. They have massively dishonest books. There is an advantage to not letting expired companies admit their death; it creates the appearance of economic growth.
That’s not to say that there hasn’t been massive actual growth. No one who has spent any time in China could deny that. It is to say that you can’t stop a recession from happening, but you can put it off at the cost of making it bigger. China has been doing that for decades.
Unless you believe that China has discovered a cure for the universal vagaries of the market, it would seem that a recession must come, and that when it does the companies with “ghost cities” and similar assets on the books will collapse. Because the way that the Party removes individual risk is by systematizing it, they’ll take down a lot with them.
China is held together these days by money. There’s a lot of groups with grievances that are being bought off. It seems likely that a recession will have enormous consequences for them when it comes. We ought not to be happy about this, since many of their domestic enemies are also our enemies, and because it will bring tremendous suffering for humanity, and because it will be terrible for our economy, too.
People who study such things more than I do seem to think China has some vulnerabilities that will cause an ugly crash. Soon.
If that happens, I wonder whether the authoritarians will be ousted or instead seize upon a crisis too big to waste in order to expand the power of the old communist party.
Which way will the Chinese people move? It is hard for many people not to fear freedom. A lot of East Germans missed the certainties of their old life after reunification. A lot of Americans would trade freedoms and opportunities for modest financial security in a heartbeat.
We worry about the indoctrination of our youth on campus when the most powerful reason for supporting totalitarian government is probably the realization that their education makes them less than useless in a value-driven economy. Studying genderless socialist mime street theatre may not make you into a socialist but it will make you need the state to take resources from actual producers to provide for you–and you would know that. Bad, overtly left-wing education is self-reinforcing precisely because it is useless.