The Chinese Communists have no choice but to move away from free enterprise. But we do.
Mmarket capitalism has passed the market test. It is a socio-economic system that propelled humanity to a standard of living unimaginable 200 years ago. Calling this transformation in human well-being a secular “miracle” is hardly an exaggeration. Amazing things have happened in any place that has allowed or allowed even a hint of economic freedom.
And that includes China. But now China has a problem. The success of its private sector poses a challenge to the supremacy of the state – or, to be more precise, of the Chinese Communist Party (CCP). And once you understand that the CCP’s continued supremacy is not negotiable, you understand why Xi Jinping “has been trying to roll back China’s decades-long evolution towards Western-style capitalism and put the country on the back burner.” a completely different path, ”according to a deeply reported report. article by Wall Street Journal reporter Lingling Wei.
These moves go far beyond simply mastering the Chinese version of Big Tech for competitive reasons. Again, from the article: “In Mr. Xi’s opinion, private capital has now been allowed to rampage, threatening the party’s legitimacy, say officials familiar with his priorities. “
In January, Xi said China was moving to a different stage of development, leaving state capitalism behind as it now prepares to become a “modern socialist power.” This means that market forces would be directed more directly by the CCP-led state to achieve the goals Xi and the CCP have set for themselves, such as being globally dominant in a range of emerging technologies and technologies. high-end manufacturing sectors.
In this context, for example, the recent crackdown on online video games in China goes far beyond helping Chinese parents worried that their children are neglecting their homework. As technology analyst Dan Wang recently told Bloomberg, “Video games, kids really shouldn’t be playing too much. Instead, they should work in semiconductor cleanrooms. I’m exaggerating a bit there, but I think that’s a bit more the theme that China wants to do. Better regulate the market, then prioritize the right types of technologies. “
The pursuit of “modern socialism” presents many risks for China. It could nullify or at least erode the entrepreneurial energy of the country, which has helped make China an economic superpower. There is also the long record of failure of central planners to try to create an economy that exists on the technological frontier rather than just catching up. As Chang-Tai Hsieh, an economist at the University of Chicago’s Booth School of Business, writes:
Or consider the United States’ obsession with the Chinese government’s’ Made in China 2025 ‘plan, which funnels grants to private companies in’ strategic ‘sectors such as semiconductors. The jury is still out on whether the billions of renminbi spent to support such industries will prove to be effective, but the evidence so far is not encouraging.The world’s leading semiconductor maker is Taiwan Semiconductor Manufacturing Company, not Chinese champion Shanghai Semiconductor. And so far, the huge sums that China has invested in this sector have resulted in spectacular failures like that of Hongxin Semiconductor, and the emergence of nearly 60,000 new companies that have no technological expertise but are looking to capitalize on subsidies.After all, who is held responsible when billions have been wasted and the officials who allocated the funds have shifted to other posts? “
But what choice do the Chinese Communists have? They cannot allow a socio-economic system that challenges their authority. And the private sector has now become large and powerful enough that such a situation is within reach. So they are reacting in the only way they can given this self-imposed compulsion – continued authoritarian control. Not that their response does not match their ideological priorities. Lingling Wei:
Xi’s actions are based on an ideological preference rooted in Mao’s development theories, which characterize state capitalism as a temporary phase that can help the Chinese economy catch up with the West before being replaced by socialism. A staunch follower of Mao, Xi preached to party members that the hybrid model has passed its expiration date. A 2018 article in the party’s main theoretical journal, Qiushi, or Seeking Truth, laid bare his conviction: “China’s practice shows that once socialist transformation is complete, the grassroots socialist system with public ownership as the main body is established. . . [and] state capitalism, as an economic form of transition, will complete its historic mission and withdraw from the historical scene.
Of course, America and its leaders have a choice of what to do next. They could take inspiration from China and involve the government much more in the US economy. There is no doubt that China’s efforts to subsidize critical industries and technologies have encouraged some U.S. policymakers to push for more federal R&D to be directed towards applied technologies rather than basic research, as well as to create a new tax credit for domestic investments in semiconductor manufacturing facilities. . But the best thing American policymakers can do is make sure they are supporting America’s path of free enterprise and entrepreneurial capitalism, with the government effectively delivering public goods, such as basic research. Oh, and drawbridge down, not drawbridge up as far as trade and immigration is concerned.
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Original author: James Pethokoukis
Original location: The Chinese Communists have no choice but to move away from free enterprise. But we do.