Opinion

Chrystia Freeland

The U.S. capitalist love affair with Communist China

By Chrystia Freeland
April 29, 2011

The American blogosphere lit up this week with discussion of a report from the International Monetary Fund that, by some measures, the Chinese economy will be bigger than the U.S. economy by 2016.

It makes a great headline, but that story was, of course, old news: Given China’s size, and the speed with which it is growing, simple arithmetic tells you that its economy will one day be bigger than that of the United States. The only question is when.

The bigger surprise is the huge affection U.S. capitalists have for Communist China.

“When I go to China, I find more people in government who are interested in learning about the things that private equity can do to help an economy and help companies than you often do in Washington,” David Rubenstein, co-founder and managing director of Carlyle Group, one of the world’s largest private equity firms, said in an interview this week.

“Washington, for a number of reasons, is not as focused on the joys of private equity,” Rubenstein explained. “So very often, you have to defend yourself when you’re talking to a member of Congress.”

In contrast, he said, he gets a warm reception in the People’s Republic: “What they really think is that private equity firms have shown in the West that they know how to make companies more efficient, that they know how to make workers more efficient and managers more efficient and how to make companies more productive. And that’s something they want.”

The content of his remarks is conventional wisdom among U.S. business people today: it is a truth universally acknowledged that China – with its censorship, central plan and one-party state – is a better place to do business than the United States.

This has become such a familiar refrain that it is easy to lose sight of what a radical assertion it is. We used to think that capitalism and democracy went together; that was the premise behind much of the U.S.-led global nation-building effort of the past two decades. But it has become commonplace to hear the most successful American business people assert that the world’s great power that most explicitly rejects democracy – China – is also the most business-friendly.

This embrace of Chinese Communism shouldn’t be entirely surprising. The best business people are pragmatists. Deng Xiaoping famously said it didn’t matter whether a cat was black or white so long as it caught mice. Smart business people are likewise pretty indifferent to a regime’s ideology (and indeed its treatment of dissidents, journalists and other such niceties) as long as their deals can get done and their tax rates are lenient.

So long as you have a skill or a technology that the comrades have decided China needs, its authoritarian system can be welcoming indeed, and free of many of the delays and frustrations that getting things done in a democracy can entail.

It is easy to equate that effectiveness of execution with good government. But fans of authoritarian regimes, including well-run ones such as China, should never forget the agency problem that is their big structural flaw: For their systems to work, dictators need not only be smart; they must also act in the interests of the state, not of themselves. It doesn’t always work out that way.

Legendary fund manager George Soros recently made the provocative argument that one of China’s most contentious policies – its undervalued currency – is a fraught issue because it is wrapped up in the self-interest of its mandarins. He argued that the undervalued currency is “a form of transferring purchasing power – wealth – from the citizens to the government without imposing taxation.” This made the central government powerful and attracted the best talents to government because it was a way to become wealthy.

The problem now, Soros said, is that the national interest would be served by allowing the currency to appreciate, but the officials whose job it is to make that call are loath to give up the personal benefits of an undervalued exchange rate.

As we prepare for a world in which China is the largest economy, we should be on the lookout for moments like this, when the interests of the state and of its mandarins don’t coincide. And it might be worth remembering that democracy, for all its quarrelsome inefficiencies, has the great virtue of making the conflicts of interest between the state’s servants and the state itself transparent, and making it easy to kick the bums out when those conflicts become acute.

Comments
6 comments so far | RSS Comments RSS

American businessmen would buy US flags from Adolf Hitler if they were cheap enough.

Posted by RickCain | Report as abusive
 

Private equity and graft go hand in hand, and it’s a Faustian bargain anyway. (Short term profit has no long-term thinking associated.)

Posted by GRRR | Report as abusive
 

I am not an expert on anything other than being a Middleclass American who has raised two kids by myself, and struggled financially for the last 25 years.

I have seen my standard of living declining for almost three decades and despite my education, which I paid for myself, I am unable to work in my profession or see any hope for my children in the future even if they do get an advanced education.

However, it seems obvious to me that when we talk about “capitalism”, democracy and communism we must distinguish between “individual” capitalism and “corporate” capitalism.

This is the difference between what we see in China NOW and what we used to see in America until the 1980′s when Reagan was selected to be the figurehead in the White House, despite the fact that he had already been diagnosed with the dementia of Alzheimers.

The Reagan Administration waved the flag of “smaller government” in order to infect our economy and government with policies of “privatization” and “deregulation” in the name of “capitalism”. The real agenda was not individual capitalism but rather the corporatization of capitalism and of government, and the destruction of our strong majority middle class.

Under true individual capitalization and democracy, the middle class, which was made up of individuals, families and small businesses, was able reap the benefits of “capitalism” as one of the “blessings of liberty” which were intended to be secured by our now disregarded and defunct Constitution.

What we have now, both in America and China is NOT “capitalism”. It is “corporatism” whose goal to make a lot of money for a few wealthy people. And the Chinese people are NOT coming from a place where they have had democracy or individual freedom, but are thrilled to see the “corporatization” aka corporate capitalism, of their dictatorial communist government because they are now experiencing some of the “blessings” of liberty, which they never had before, without the requirement of those rights being secured.

So, for now at least, it is a WinWinWin situation for Communism, Corporations and the Chinese people.

So, what is the solution for America and its barely breathing “middle class” and almost destroyed Constitution? I do not know.

But what I DO know is that as long as we look to the “faux capitalists” who are really just a corporate monarchy to provide jobs or new industry or the leaders in our government who will reinstate TRUE individual capitalism necessary for a democracy to thrive, we will be waiting forever.

Posted by EileenMacEnery | Report as abusive
 

Radical assertion? Reactionary more like.

What this article tells us is that the rich and powerful global elite do not like freedom for the masses.

Moreover, if you are already rich it is easy to make money in a country that oppresses its people.

You call this news?

Posted by Dafydd | Report as abusive
 

I agree with your article and it is well written, except for your last sentence. Although we have a republic based on democracy, it is no longer easy to “kick the bums out”. Politicians of both parties discovered that the voters can be controlled by doling out taxpayer money to buy votes, and now over half the country gets some sort of governmnet benefits.

Posted by zotdoc | Report as abusive
 

American businessmen like China b/c it is a place of financial opportunity for themselves. Once the opportunity dries up they will have a different opinion. China welcomes the investment and b/c the businessmen are teaching the Chinese how to do what we used to do for ourselves. In shor the Chinese are being taught how to be more competitive and thus make more money for themselves as well. Have a big company come to my town with plans for big investments here – I guarantee that my town will roll out the red carpet – just like China. china’s behavior and that of the businessmen are not surprising. Go to a car dealer and see if the salesman isn’t glad to meet you and help you buy a car.

Meanwhile us American employees tread water and hope our jobs don’t dry up and away to China. I have to wonder why America hasn’t started putting tariffs on imported Chinese goods yet so there is motivation for American business to do business in America.

Oh yeah – just remembered the US gov’t serves the big money makers first, it’s worker bee citizens second. The tariffs will appear when our economy is about wrecked.

Posted by Joeaverager | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •