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Eliminate State Interference To Compete With China

Issued: 2018-03-12

Image Credits: Andreas Habich / Wikimedia Commons.

As things stand, China holds around 20 percent, or $ 1.2 trillion, of outstanding US credit market debt.

This is the result of decades of “symbiotic interaction”, if one follows the hidden message that is embedded in the neologism “Chinamerica”: Americans consume more goods from China than they export to China, and the Chinese are willingly financing the US trade deficit with their “over-savings” by holding dollars and US dollar-denominated debt. In 2017 alone, it amounted to $ 375 billion.

For about 25 years, the narrative has been that China – with 1.4 billion people the largest and by GDP the second largest country in the world – will increasingly integrate itself into the global division of labor, democratize itself, and adopt the Western world’s rule book.

This may explain why the West, on more than one occasion, has been turning a blind eye when the rulers in Beijing trampled on human and property rights. But such an accommodation won’t pay off. Especially so because “Chinamerica” is a delusion.

China is not about to adopt the West’s brand of social-democratic socialism.

It adheres to an autocratic, totalitarian system. In March 2018, the Communist Party is likely to abolish a constitutional clause designed to prevent the rise of a new Mao Zedong enabling President Xi Jinping to stay in office for as long as he pleases.

Since he seized the reins of the Communist Party five years ago and “purged” the apparatus, repression and state control have intensified in China, and so has China’s self-assertion on the international scene.

With an Orwellian “point system”, China’s rulers want to force every citizen to socialist-virtuous obedience. Criticizing the government becomes life-threatening. Such a system of total surveillance is what China’s “state capitalism” actually requires.

Under state capitalism, the state, or more accurately, its ruling class, formally preserves the private ownership of the means of production. In fact, however, it is the state that effectively determines who is allowed to do what, how, and when with their property.

How powerful is state capitalism?

We know from sound economics that socialism – or in other words, public ownership of the means of production – cannot function: economic calculation to the attempted degree is impossible, and chaos and poverty are the inevitable results.

Under state capitalism that has access to international markets, however, things are somewhat different.

This scheme may well go on for quite a while and even reach some high-flying planned goals. China’s stunning growth performance in the last decades bears witness to this theoretical assessment.

This success doesn’t come about naturally, though. China keeps domestic wages and its exchange rate artificially low. It improves its competitiveness in international markets at the expense of the standard of living of its people.

China also attracts foreign capital, giving firms from all over the world access to its huge domestic market. This, however, comes at a price: foreign firms are obliged to operate through joint ventures with Chinese companies, thereby having to hand over expertise and knowledge to them.

The international corporate world has – voluntarily, perhaps with teeth gnashing – agreed to this deal, and has moved production and employment to China.

Now we are facing the backlash coming.

In the US, people increasingly consider these trade practices to be “unfair”. It is a case in point that US President Donald J. Trump calls for imposing import tariffs on steel and aluminum.

There are even voices talking about China “engaging in ‘economic warfare'” against the US, doing heavy damage to the American working population.

In this increasingly heated debate, it is essential to come up with a sober diagnosis of the causes of the conflict.

From a sound economic viewpoint, it is quite obvious: The states and their interference with free market forces are to blame. China does so quite ’blatantly: China’s state capitalism is, without doubt, a full-blown assault on its own people’s and entrepreneurs’ freedom to choose and produce, and it also corrupts the international allocation of capital and labor.

The US is also to be critiqued.

High corporate taxes, heavy regulation, bad trade deals, an ever-rising amount of government debt, an unsound monetary system – just to name a few factors – increase the incentives for productive capital to move out of the US and into other regions of the world – as firms attempt to secure higher returns on capital and diversify risk.

The consequences of these US policies have been, as people increasingly realize, to the disadvantage of the US’ very own economic prosperity.


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