We’ve come to China to check on our investments. Not that we have many. But the fewer you have, the more each one is important to you.
Of all the world’s major stock markets, only two are reasonably priced. China is one. Russia is the other.
It is raining, here in Beijing. Out on the street, the roads are clogged with slowly-moving traffic. The scene appears normal for a big city. It could be New York, London or Paris.
But what is remarkable about the view from our window is that it came about so fast. Never before had so many people moved so quickly into the modern world.
Paris looked much like it does today after Baron Haussmann completed his makeover of the city in the 1860s. The London skyline has changed significantly over the last few decades – with the addition of many new landmarks, such as the Millennium wheel, the Gherkin building and the Shard.
But the basics of the city were put together over hundreds of years and remain relatively unchanged. New York, too, was largely completed 60 years ago.
But modern Beijing is new. A few years ago, it barely existed. When Deng Xiaoping announced that henceforth it was OK to make money in 1979, there were few decent roads, few decent cars, and few decent bars in Beijing. Now, they are all over the place.
And now China, not the US, offers a beacon of hope and a model for development to the rest of the world. At least, that is the premise of Stefan Halper’s new book, The Beijing Consensus.
The former White House staffer says China’s state capitalism is more appealing than America’s market-driven version: “Twenty years ago… globalization was driven by American capitalism and its two founding ideas – that markets, not governments, drive progress, and that democracy is the optimal way to organize society… Today, in the world beyond the West, these certainties are eroding.”
China’s success is widely misunderstood. Then again, so is American capitalism. Come to China and you will be impressed, as we are, with the amazing material progress made over the last 30 years. But this progress was not made because of the genius of China’s central planners; it was made in spite of them.
What does it take to produce prosperity? Property rights – you have to believe that you can control and enjoy what you produce. Stable money – you have to be able to count on the medium of exchange. Freedom of action – you have to be able to go on with your business without too much state intrusion. China provided those minimal conditions. Its businessmen, entrepreneurs and hustlers went to work.
The planners continued to plan. But their plans interfered far less with the economy than they had in the Mao years.
Meanwhile, in America, the planners, regulators, controllers, meddlers and zombies – all those who prevent real prosperity – grew bolder. And more numerous.
A quarter of all personal income in the US is now paid out by the government – either in salaries or benefits. That’s up from just 21% in 2000. Every penny of that money results from a political deal of some sort, not a free-market transaction.
America is a ‘democracy’. But democracy really has little to do with material success. Business people and investors are indifferent to the form of government itself. What they care about are the things we mentioned above – their ability to hold onto their property, the integrity of their money, and their freedom to do business without too much interference.
While China ‘state capitalism’ reduced its role in the economy, America’s Democrats and Republicans wrote new laws and regulations. It was soon faster, easier and cheaper to set up a factory in Guangdong Province than it was in California. And, once in business, the Californian found his taxes higher than the Chinese and his regulatory costs far higher still.
Today, both the US and China have versions of ‘state capitalism’. But capitalism works best when the state keeps its proper place. When it tries to dominate and control the economy, the cronies take over. Then, costs rise, growth slows, the rich get richer and everything goes to hell. That is the real reason American capitalism no longer looks so appealing.