Will America or China dominate the 21st Century?

Will America or China dominate the 21st Century?

China’s per capita GDP today is close to $4,000, about 20 times more than in the 1970s, moving that country’s overall GDP directly behind America’s.[i] Teng Hsiaop’ing, Mao’s pragmatic successor, pushed wide open the spout of market forces flooding economic growth across China. Will China’s economy inevitably surpass America’s?

Teng Hsiaoping’s motto, “Socialism, with Chinese characteristics”[ii], granted a market economy to China, providing ordinary Chinese incentive to become wealthy. If you check the encyclopedia to see what the typical entrepreneurial risk-taker looks like, you see the picture of a regular Chinese citizen. But will economic freedom, without meaningful political freedom, be enough to sustain China in the future?

Milton Friedman states that “economic freedom [is a] necessary condition for political freedom” and that the relationship is “not unilateral”.[iii] Friedman insists on a bilateral relationship between economic freedom and political freedom. Therefore, until China provides its citizens political freedom, the seemingly boundless Chinese economic growth will someday screech to a halt, a prediction Gordon Chang made years ago.[iv]

Political freedom means government does at least these three things:

1) holds regular free elections,

2) enforces a reasonable rule-of-law, and

3) protects individual rights, including property rights.

Yet contrary to nurturing political freedom, the government of China has not seriously enforced trademarks and copyrights[v] and regularly turns political dissenters into political prisoners.[vi] Chinese governmental actions today are not expanding political freedom among Chinese citizens, nor are free elections an option yet.

Does the current authoritarian regime in Beijing represent the natural state of government Chinese citizens prefer? Ancient, influential Chinese philosophers like Laozi and Mencius both advised that the best government stays distant and doesn’t micromanage, definitely NOT the current nanny-state approach.[vii]

The bloody “Arab Spring” in progress substantiates George W. Bush’s once decried declaration that every human heart desires freedom and liberty[viii], as authoritarian and totalitarian regimes across the Middle East are challenged by ordinary citizens. Is China different?

The short answer is … no. Recently, Walter Russell Mead opined that the 21st

Century will belong to America. “… Pundits keep telling us it is … a time of America decline. … Crippled by debt at home, hammered by the aftermath of a financial crisis, bloodied by long wars in the Middle East, the American Atlas can no longer hold up the sky. … Geopolitically, the doomsayers tell us China will challenge America’s leadership throughout the world.” [ix]

Tellingly, Mead proclaims that America, NOT China, is best positioned to respond to the unpredictable, fast-paced technological challenges facing the world during the 21st century. As Milton Friedman might argue, the virtuous cycle of economic freedom begetting political freedom will allow Americans to prosper mightily in the future.

Contributing to China’s boom are infrastructure and construction projects presently underway. Less obvious, but accompanying, is the existing process of capital allocation in China. In America, private markets allocate capital based on the marketplace evaluating feasible projects, whereas the autocrats in Beijing, employing the best principles of crony capitalism, usually make that decision.

Plus, 30 years of unintentional technology transfers[x] and a recurring reluctance by China to enforce intellectual copyrights and trade secrets[xi], has unwittingly caused the West to contribute significantly to China’s macroeconomic growth the last three decades. Yet China’s booming economy has not produced greater political freedom for the Chinese citizen, once a hoped-for consequence of economic growth.[xii] Moreover, in 2010, America imported $365 billion of goods from China, about 8% of China’s GDP, and 2011 imports are running 15% ahead of 2010’s.[xiii]

Today finds many billions of dollars of uncollectable state-owned enterprise debt on Chinese banks’ balance sheets.[xiv] Instead of “creative destruction”[xv] going on in China, we have speculative buildings built, torn down, then different buildings built on the same property, one sure way to boost GDP figures.[xvi]

Milton Friedman points out “economic growth has become [an] … excuse for widening government intervention in economic affairs.”[xvii] History tells us government picking marketplace winners and losers causes economic stagnation over time, not robust economic growth.

Americans for 235 years have risen to meet all the challenges that have come our way.  As long as both political and economic freedoms remain honored here, America will stay on top.

 Footnotes:

1 http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29

2 http://en.wikipedia.org/wiki/Deng_Xiaoping

3 Capitalism and Freedom by Milton Friedman, 1962, p4 & p10.

4 The Coming Collapse of China by Gordon Chang, 2001.

5 Fraud Magazine, January/February 2011, Volume 26, p32, “Countering Corruption in Intellectual Property Cases.

6 See Liu Xiaobo and Ai Weiwei, adfinitum. Wall Street Journal, June 23, 2011, “The House Prisons of Beijing.”

7 Wall Street Journal, July, 6, 2011 The Ancient Roots of Chinese Liberalism http://professional.wsj.com/article/SB10001424052702304760604576427931129537282.html?mod=WSJ_newsreel_opinion&mg=reno-wsj

8 http://www.memorable-quotes.com/george+w++bush,a1934.html

9 http://pienpolitics.com/?m=20110702

10 http://www.creditwritedowns.com/2011/07/local-chinese-government-property-speculation.html; http://www.telegraph.co.uk/finance/china-business/7972070/Chinas-rising-bank-debt-could-leave-nation-exposed.html

11 http://www.investopedia.com/terms/c/creativedestruction.asp

12 Talk by Clark Dewaal given c. 2007 in Mesa, AZ. Dewaal was a former BYU Professor who spoke fluent Mandarin and served as a banker in China during the 1980s and 1990s.

13 http://www.sciencedirect.com/science/article/pii/S0305750X04000208

14 Fraud Magazine, January/February 2011, Volume 26, p32, “Countering Corruption in Intellectual Property Cases.

15 UOP ECO 360 Lecture 1 by Paul Updike, 2001.

16 http://www.census.gov/foreign-trade/balance/c5700.html

17 Capitalism and Freedom by Milton Friedman, 1962, p37

Milton Friedman Freedom Essay July, 15, 2011, by Paul J. Updike

 

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