The USA Should Shun, Not Embrace China’s Crony Capitalist Economic Policies

How can America compete with China’s subsidized industries in the 21st Century? Surely we will be left behind and the Red Dragon will come back to swallow us into its state-capitalism fed belly.

Managed economies are the way forward! State capitalism is the way forward! China has got it together. We, with antiquated notions of “freedom” and “free enterprise,” will soon find ourselves in the waste bin of history (though it has gotten pretty full over the last century). Free market America will never be able to compete.

This is the refrain we seem to be hearing more and more from folks who would like to see the economy even more regimented than it already is. This is the case Richard A. D’Aveni, a widely respected and very influential professor makes in this month’s Atlantic.  He is no sociology professor either. He is a management professor at Dartmouth. He is none-the-less wrong.

Given that the man lectures at Davos and “was named to the Thinkers 50 by The Times, CNN, Forbes, and The Times of India, a ranking of the 50 most influential living management thinkers in the world,” where do I come off challenging him?

Well if his argument wasn’t patently absurd especially the way he argues it (at least in the attached article), and if the article wasn’t such an obvious attempt to sell a book which from the sounds of it is at least a year behind the curve, I wouldn’t. But let’s look at what he has to say.

He starts from a position which is just simply incorrect.

“Over the last decade, free-market policies have lost their punch in creating jobs, new industries, wealth, and a bright future for the United States. Chinese state capitalism, on the other hand, has won round after economic round by violating free-market principles.”

What free market is the good professor referring to? If he’s talking about the United States, I haven’t seen anything close to a free market in almost anything in the last decade. Prices are manipulated (especially the most important prices, interest rates, which in no way reflect a “free market”). Subsidies are handed out to all sorts of industries-farming, cars, aerospace, defense contractors, energy, green tech, and most of all—finance. We have no free market. We haven’t had a free market in any real way in this country for decades. It is incorrect to call the economic system we have in the United States “free enterprise.” At best we have a mixed system, and that is being kind.

If anything has failed over the last decade it has been massive state intervention in the economy. Ponzi economics propped by the state has failed, not the market.

As for China, its growth has been amazing. Shenzhen 3 decades ago was a mud flat. Now it is one of the great cities of the world. It is impressive.

But much of the growth in China is suspect. There are entire cities (not Shenzhen), newly built, which have no one in them.

The Chinese have even built ghost cities in Angola Africa in an effort to keep the economic lie going.

Unthinkable a  few years ago, Chinese economists now openly question whether their country’s economic data is just flat out fraudulent. Take a moment to look at this report. In it one economist says that the economy is not growing at 7% as is reported, but more like 1% or even negative. He calls the Chinese economy a “mess.”

I was talking with an American business woman recently who was back in the states after years in China. She said that at night she would look out the window of her apartment and the skyline in parts of her city was dark. There were huge, shiny, apartment buildings with no one in them. This in a city where people almost literally crawl over one another. Because the economy is so tightly managed capital is misallocated.

This system of economic fiat is collapsing. At least in parts.

Additionally, the rivers in China are cesspools (cessrivers?). Because the state and industry collude and there is no real civil society check on dumping, rivers sometimes flow red with chemicals.

The air in Bejing is unfit to breathe.

There is also widespread unrest in the countryside. One China watcher (who is Chinese) argued that things may get so bad that China will see a “second Cultural Revolution.”

Chinese leaders, the “princelings” have warped the economy to their benefit accumulating massive wealth through fraud. The general population is becoming more aware of this, which is not good for the planners.

This does not sound like an economy which is sound. This does not sound like an economy the United States should emulate.

Sadly we and China have too much in common already. Our “princelings” (Al Gore comes to mind) also amass wealth of breathtaking immensity largely because of connections within a managed economy.

As the co-founder of this site, Hunter Lewis wrote last week, “The two countries (China and the United States) imitate and learn from each other, and we are not talking about science and technology.”

We should run from China’s economic model, not embrace it. We should reject crony capitalism and it’s siren song of short term growth.

Click here for Richard D’Aveni’s article in The Atlantic.