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.