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China to Save Capitalism? They're kidding, aren't they?

The cartoon, in the tradition of all good political cartoons, gets right to the point:

My question is this: Is this offering from The Australian newspaper right? I mean, about the part where Communist China saves capitalism. We already know they are loving this. Leaving off the bits about human rights, tainted baby formula, lead paint on kid's toys and the undeniable link with that all American bugaboo, Wal-Mart, when it comes to supporting business, the Chinese seem to have seen the light.

Yep, after decades of a backward, appallingly inefficient centralized economy that turned things like food into luxury items, the Chinese seem to have discovered some things that Western capitalist societies have known about for years—money, trade, international relations and respect. I am not saying that they have completely given up on their communist ways, they may never give them up, but they have learned a thing or two about supporting business ventures that folks in the West appear to have forgotten; and with the global recession running roughshod through Western banks, financial markets, communities, etc. driving supposedly capitalist governments to lurch more and more to socialist models, the Chinese appear to be maintaining a course they set some time ago by moving in the exact opposite direction.

Honestly, why would they do this? One would imagine that as perhaps the oldest country in existence—China has been around in one form or another as a cohesive entity for over 5000 years—they would have learned a few things about maintaining a strong culture. Socialism weakens a culture, which is one of the primary reasons we now live in what is called the “post-communist” world. Russia figured it out, the other countries of the former Soviet Union figured it out, the Chinese have figured it out—that just leaves North Korea, Viet Nam and enclaves in New York, Illinois, Washington DC and California that haven't gotten the memo yet—and its not something that is too difficult to grasp: Socialism, while it looks good on paper, does not work. If it did, East Germany wouldn't have needed its wall.

In other words, comrades, Marx was wrong.

As capitalism was re-injected in Chinese society—after being purged shortly after Mao's takeover—the Chinese economy took off. According to the International Monetary Fund, while the Western World is busy trying to deal with a recession, China's economy is predicted to grow by more than 9% next year. If the American economy grows by more than 2% we throw a party, but they are predicted to grow by more than 9%?

Since only one person on our side of the Pacific wants to take any responsibility for this debacle, which has already been discussed in the article “Wrapping-up the Current Economic Crisis,” perhaps we need to examine the problem from a different angle, setting aside the whole communist Red China thing and asking a very important question: What are the Chinese doing right? Here are three ideas:

They specifically encourage competition between companies. In some ways, their anti-monopoly law is tighter than its Western counterparts, mergers can't be used to create a monopoly, for example, but in many ways it is much looser and more vague given the weak tradition of relying on case law precedents to make such decisions in China.

They have low corporate taxes. Imagine that, companies in Communist China don't have to pay an arm and a leg to do business there. Our companies pay 35% and that's before State and Local taxes. Why? They pay it because someone in Washington DC made the decision that they were greedy and not paying their “fair share.” The Chinese seem to recognize that these businesses perform a real and tangible public good—they put people to work! One would think that a capitalistic culture like, say, the United States, could have figured that one out.

China is out for China. This one may be a no-brainer to some, but consider that the focus of Chinese leaders is not whether the UN will be mad at them of violating the Kyoto accords, it is whether breaking or keeping those accords will keep people working in China. With that focus, is it any surprise that they do things to benefit their economic productivity, especially their manufacturing? After all, they are using all that oil for a reason, right?

The Bottom Line: Support Business

These are not the only things that the Chinese have done, and I am sure that there are still plenty of private business impediments in place (they are, after all, communists), but these three examples beg a question: What do we Americans do to specifically encourage business, to really push it upwards for the benefit of Americans? Precious little! Look at what has happened to our manufacturing sector? Most of it is not there any longer. I guess that's called a victory for the environment. How do we nurture small businesses? We allow small business to pay massively disproportionate costs for compliance with Federal regulations, 45% more per employee than their big-business counterparts. That is kind of strange, given the fact that small business creates most of the jobs we have. One would think that protecting the society's employment engine would be a high priority. Maybe I am naive. What we do that helps sometimes is play with the tax code. Deductions here, tax breaks there, and people feel lucky to get them. That is how favors and benefits are usually doled out in America. Government tries to do the same with regulation, but with rather mixed results. Unless we are actually improving regulations or eliminating them, they cause trouble. That was how we got into the whole financial mess we are in now. The Clinton Administration and a Democratic Congress pushed the banking industry—through regulations enforced by the Justice Department—to offer home loans to high-risk borrowers. How was that for regulation? When others sought to change the regulations to stop this nonsense, they were stonewalled by those with a stake in the social experiment of giving loans to people who couldn't afford them. They were called racists and “red-liners” and the Democrats wouldn't move on their proposal.

Now, as the intransigent politicians and the Wall Street CEOs they led down the garden path blink at each other across a ruined landscape of fallen financial houses, mounds of sub-prime mortgages blown on the air and forming piles like red-ink snow drifts, the CEOs are counting the strings on their golden parachutes while the politicians are howling about the need for regulation. Regulations that encourage businesses to do the right thing, keep people safe and protect their investment, no one has any problem with. Regulations that turn the entire financial sector into a socialist crap shoot for socialist reasons (translation: to buy votes from poor folks) lead to nothing but class warfare, the aforementioned golden parachutes and a lot of posturing and fast-talking from the very politicians who created the problem in the first place.

Socialist policies have brought us to this deplorable condition and, not surprisingly, the powers that be want to apply more socialism to get us out. At the same time, the Communist Chinese are enjoying unimagined prosperity and have been since they learned the lesson that socialism does not work.

I wish someone would tell Washington that!