American Capitalism, Meet Chinese Socialism. Be Nice.

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By Chris Devonshire-Ellis

Oct. 15 – The inevitable has happened; a day or so after the United Kingdom and Europe partially nationalized their banking systems and injected trillions of dollars of taxpayer money in financial institutions, the United States has followed suit with a US$125 billion partial acquisition of nine major American banks. So much, at least for now, for the theory of free market economics.

It’s ironic, because just a little over ten years ago, the Hong Kong government was lambasted by the United States for injecting hundreds of millions of dollars into the Hang Seng index to preserve the US dollar-Hong Kong dollar peg during the Asian financial crisis. Hong Kong’s housing market also went into negative equity at that time. So the idea for government intervention in the face of crashing stock markets, and a declining dollar has already been visited by China during the Asian financial crisis of 1997.

With all due credit to the Chinese, they listened to Hong Kong’s advice and sanctioned the use of government money to shore up the stock market, bail out various large failing businesses, and set up a special equity fund that would sell off the shares it had acquired after the crisis.

No wonder China has been quiet about this particular crisis; they saw it coming. The United States has had to revert to government interference to rescue its seriously damaged capitalist model.

Although we may have seen a better standard of fiscal management in China than the United States, there are signs that China is moving towards America’s direction. In a little noticed, yet insightful CNN interview a couple of weeks ago, the Chinese Premier Wen Jiabao was asked about two key areas: the rule of law and democracy. The interviewer was Fareed Zakaria, and we reproduce this part of the dialogue here:

Zakaria: People say you’re studying the Japanese system because there’s democracy but there’s only one party that seems to win the elections. Is that the kind of model you see for China?

Wen Jiabao: I think there are multiple forms of democracy in the world. What is important is the substance of democracy, which means that at the end of the day, what is important about democracy is that whether such form of democracy can really represent the calling and interest of the people. Socialism as I understand it, is a system of democracy. Without democracy, there is no socialism. And such a democracy first and foremost should serve to ensure people’s right to democratic elections, oversight and decision making. Such a democracy should also help people to fully develop themselves in an all-around way in an environment featuring freedom and equality. And such a democracy should be based on a full-fledged legal system. Otherwise, there would be chaos. That’s why we need to run the country according to law and ensure that everyone is equal under the law.

Zakaria: Do you think in 25 years there will be national elections in which there will be a competition, there will be perhaps two parties, that will be running for a position such as your own?

Wen Jiabao: It’s hard for me to predict what will happen in 25 years time. This being said, I have this conviction: that China’s democracy will continue to grow. In 20 to 30 years time, the whole Chinese society will be more democratic and fairer, and the legal system in China will further be improved. The socialism as we see it will further mature and improve. I very much value morality, and I do believe that entrepreneurs, economists and statesmen alike should pay much more attention to morality and ethics. In my mind, the highest standard to measure the ethics and morality is justice.

This is from the second highest ranking politician in China, indicating that there will be more democracy in China and hinting at an independent judiciary that should improve the legal system. I find that quite remarkable and very encouraging.

One of the most interesting observations that can be made over the events of the last few weeks is the discovery that a totally free market economy doesn’t work. People naturally get greedy, and you need to have market regulators to monitor fair play and prevent the kind of crazy capitalism situation that has resulted in the recent financial system meltdown. China has known since 1987 that the old Communist ideals were invalid, and has since moved to a socialist model – with increasing market freedoms. The two political systems of the United States and China, when learning about their failings, are in fact moving closer intellectually together.

Kipling’s famous lines run as follows:

“East is East, and West is West, and never the twain shall meet”

however, not many people know the rest of the first stanza. It goes on:

“Till Earth and Sky stand presently at God’s great Judgment Seat;
But there is neither East nor West, Border, nor Breed, nor Birth,
When two strong men stand face to face, tho’ they come from the ends of the earth…”

We’ll leave the last words over the debate of a meeting of East and West, the United States and China, and capitalism and socialism to Wen Jiabao: “We have one important thought however in China today: that socialism can also practice market economics.”

Isn’t that, when reversed, exactly what the West has now embraced as a tool and entirely what has made the stock markets rebound? Welcome to new capitalism with socialist intervention tendencies.

6 thoughts on “American Capitalism, Meet Chinese Socialism. Be Nice.

    Alex Mann says:

    Very well put. At least someone knows what the hell they’re talking about when comparing US & China.

    Frank Chen says:

    Hahaha! Ni shi nige hen haode ren!!!

    Frank Delaney says:

    The point you raise is possibly the most interesting concerning what is happening politically at the moment. America and Europe have had to revert back to market intervention by the State, decades after “State Interference” was deemed a bad thing. However, in this case, it has been absolutely necessary. China also has been evolving for several years away from communism and into a blander (and more reasonable) socialist state. How many times do you hear first time travelers to China come back and say “They’re capitalists!” However the problems caused in the US and Europe I feel have been more to do with a lack of regulatory guidelines and may not necessarily be a move to a more socialist system. What you said about Hong Kong is interesting though. There has been commentary in the Press that the US government purchased US banks cheaply, I believe similar sentiments have been expressed in the UK and Europe. To prove we are not in fact moving into a more socialist world and aligning more with China we need to see that State owned stocks in banks are placed into a mechanism whereby later on they can be released back into the public domain – just as you pointed out, occurred in Hong Kong after the Asian Financial crisis.

    Kate says:

    It’s great to know that that someone actually remembers how loud and mean the U.S. was regarding govt. intervention during the Asia financial crisis in 1997.

    The only difference is that, back then, they were enjoying and watching fire from afar! To the U.S., who cares if people had to suffer and die, as long as they themselves are earning money!

    What they say is always different from what they do. The rest of the world can go rot and die as long as the U.S. interest is protected.

    They are Hypocrites!

    Steve Tsui says:

    When Hong Kong government intervened in the Asian Financial crisis there was a lot of American criticism at that time about a lack of free market, and that they should have let it run its natural course, that markets find their own level. So the US tells other people what to do but doesn’t follow its own advice quite often in fact. The HK Gvt took seven years to release the stocks they held back into the markets a bit at a time. Now they don’t hold any of those assets, and HK taxpayers got their money back over that time. I wonder though if the US and Europeans will actually be as open now as HK was and also sell their newly acquired bank stocks back to the market?

    Geoff Fluery says:

    There’s been a lot in the US weekend newspapers debating the end of “Kapitalism”. Most do not support that theory, however it seems inevitable there will be at least some shift given it looks now with Colin Powells endorsement we will get a new administration. The banks are still saying they will be giving bonuses this year end amounting to about USD70 billion, or 10% of the USD700 billion Congress gave to them, so whoever is in office is going to have to deal with this type of abuse as well as keep those whose pockets this lines potentially politically happy. The US I feel will become more socially conscious over the next 2-3 years.

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