US In The Red And Getting Redder
“It is not yet true, as it has long been of the United States, that if China were to sneeze, the world would catch pneumonia,” comments Times Literary Supplement reviewer Rosemary Righter. But “China's potential capacity to upset the international applecart already exercises financial analysts and other crystal ball gazers.”
It is certainly instructive to see how “the next superpower” responds to the dangers of inflation. While Ben Bernanke continues to cut interest rates to spur easy credit and artificial economic growth—and to make his political masters look good—China raised interest rates six times last year.
The late free market economist Milton Friedman, whose books are wildly popular in the Republic of China, would have probably sided with the actions of the People's Bank. If Chairman Ben were a friend of the American people, rather than pal (and chief counterfeiter) to politicians, he’d raise interest rates and tightens credit too.
China may be experiencing economic jitters, but it is still “running giant surpluses,” and, as a crop of new books confirms, is “on the brink of becoming the world’s leading trading nation.” The Chinese are ditching Mao for Milton, as Americans trust Oprah to pick their literature and leaders. Indeed China is changing. It is “out of the red” in more ways than one. The US is changing too: It’s in the red and getting redder.
American Sinophobes are fond of saying that the strength of the Chinese economy is derived from that government’s exploitation of its people. But this is to err on the side of social determinism—something Americans are increasingly prone to. It’s to imply that unless individuals enjoy a certain political system—ours—they’ll never transcend their circumstances. History teaches otherwise. People are driven toward self-actualization no matter what. The fact is that the current crop of Chinese commissars is weak; power is no longer concentrated in Beijing. Rather, the sheer volume of individual economic activity is overpowering state controls.
Hong Kong is the freest spot in the world. Mainland China, of course, is another matter. Still, China has undergone considerable economic restructuring and market reforms, the consequence of which is a 300 million strong Chinese middle class. Poverty levels have receded from “53 percent in 1981 to 8 percent in 2001. Only about a third of the economy is now directly state-controlled. As of 2005, 70 percent of China’s GDP was in the private sector.” The Chinese financial system is duly being liberalized—banking is diversifying and stock markets are developing. Protections for private property rights are being strengthened as well.
Equally misguided is it to suggest that the Chinese suffer for being a source of cheap labor. Corporations that decamp to China are either offering higher, the same, or lower wages than the wages Chinese workers garnered before their arrival. A franchise would struggle to attract Chinese workers if the case was that they were paying less or the same as local companies. It must be then that global corporations operating in China are benefactors, offering the kind of compensation hitherto unheard of there.
Since American society is increasingly silhouetted by the State, we’re in the unproductive business of graduating lawyers. Because the Chinese State is receding, they’re in the productive business of graduating engineers. However, although China graduates many more “engineers” than does the US, these are still in the business of churning out cheap and nasty products. The state of knowledge there is largely derivative. They learn from the best, copy us, often poorly, then, inadvertently, help our government and its corporate comrades displace us.
CNN's Lou Dobbs would do a great service to American innovators and middle class, if he waged his wordy war against their government, which has buried American business under a burdensome bureaucracy. To the costs of appeasing and paying off the assorted alphabet soup of regulatory agencies—EEOC, OSHA, DOL, EPA, SEC, IRS—add the burden borne by the American employer of exorbitant corporate taxes, workers compensation insurance, and Social Security. To say nothing of a work force kneecapped by an abysmal state and union-controlled education system, and endless affirmative action “obligations.”
The Sarbanes-Oxley Act of 2002, courtesy of the Republican Party, cost American companies upwards of $1.2 trillion. The capital flight it initiated caused the London Stock Exchange to become the new hub for capital markets. Given America’s habit of forcing its habits on others, SOX struck fear into quite a few Liberal Democratic hearts in the House of Lords. Lord Teverson worried about the “increasing danger of regulatory creep from American regulators that threatens [Britain’s] own light-touch approach to financial regulation.”
It’s time we came clean about our economic system. The Chinese are honest about theirs; they call it “socialism with Chinese characteristic.” We call ours free-market capitalism, when in fact it is a Third Way system too: “Socialism with American characteristics.”
The picture of China to emerge from behind those pretty Chinese screens is complex. The embodiment of feng shui it is not. The trend, however, is unmistakable: China is becoming freer, America less free. The devil is in this detail.
©2008 By Ilana Mercer