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Lessons from the Largest Capitalist Country in the World

George Gilder

Posted February 08, 2021

George Gilder

Would the world be better off if the USA were poor?

We don’t mean about our military power, our contributions to maintaining global order. If we were poor, we could not afford to do that. Which might actually be better for us, though probably not for the world.

We mean in a strictly economic sense, would the rest of the people in the world — on average — be better off, more prosperous, eat better, live better if the US were comparable to, say, the Congo, or China in 1975, the year before Mao died?

It’s a serious question, or at least it ought to be given our national hysteria about China. The clear implication of the China hawks is that we and everyone else would be better off if Deng Xiaoping had been a faithful Maoist, and China had remained the most communist and one of the poorest countries on earth.

Would the world be better off if China’s total international trade were reduced from some $5 trillion in exports and imports to the same level as the Congo’s, about $18 billion a year?

By the logic of the hawks — transfixed by our trade deficit with China — the answer would have to be yes. Our $300 billion trade deficit, in this view, is a net subtraction from American wealth. The average American would be just under $1,000 richer per annum if China were more like Somalia, or Mozambique.

This is never actually said. The looming reductio ad absurdum does its job. But if the US is not $300 billion poorer by virtue of its trade with China, then what is the number? As long as the answer is some positive number, which the hawks clearly believe, it must be the case that we would be better off not trading with China at all.

Spurring Growth Opportunities

In the 1950s, we ran a trade surplus with the entire world, which mostly meant devastated, still largely poor, post-war Europe. The US, by itself, made 40% of the entire world’s manufactured goods.

Imagine if we still did that. To whom would we sell and at what prices? Do shops flock to impoverished neighborhoods?

Much of Europe’s buying was supported by post-war US aid via the Marshall Plan. Should we send China $300 billion a year so it can buy more from us?

The Chinese economy powers Asia. Would we be richer if Asia were poorer?

Japan has experienced a severe relative economic decline since the time, a few decades back, when the Japanese were the hawks’ favorite target. Is the US richer as a result of Japan’s decline?

For decades the hawks complained that poor countries had an unfair advantage in trade because they could pay their workers five or ten cents on the dollar compared to the US. Those tricky poor nations were taking advantage of us. If only we could be poor too, we’d show them! America would be on top again!

Today the hawks complain that China is too rich. Good point. If we are not careful, China will get so rich that it buys more from us than it sells to us. China will run a trade deficit with the U.S.! Then where will we be?

The inconsistencies are too obvious for the hawks not to notice. So why is the feeling against China so powerful?

At least part of it, we think, is that the hawks have a sinking feeling that China’s growth is not like America’s growth, that the Chinese have found a new way to compete, and we are not up to the challenge. That we would have to give up too much of what makes America beautiful to keep pace with China.

The hawks’ real fear is that China made socialism, or at least “state capitalism” work. They fear (or hope?) state direction of the economy, applied with a subtlety of which Mao, or Stalin, were incapable, really is superior to truly free enterprise.

The Chinese, in this view may have learned how to use markets and incentives spur production at the microeconomic level. Their ultimate competitive advantage, however, comes from the government’s occupation of what US liberals used to call “the commanding heights” of the economy.

To compete we must do the same.

Today’s Prophecy

It’s a myth. The truth is closer to the opposite. China is succeeding because the Chinese have been more capitalist, more pro-enterprise, than the US for some time. This is true not only as regards government policy, but culturally. More Chinese than Americans believe more fervently and practice more vigorously the spirit of enterprise.

At the level of government and throughout the culture the Chinese are much further along than Americans in grasping the information theory of the economy. Though he never used the term, Deng Xiaoping clearly grasped the truth that growth is learning and that falsifiable experiments with surprising outcomes are the way we learn.

Maybe an even bigger surprise, crucial to China’s growth has been some of the great wisdom of the US Constitution. Wisdom we have left behind.

Over the next several weeks, several of these prophecies will be devoted to what the US can learn from the largest capitalist country in the world.

To be continued…


George Gilder
Editor, Gilder's Daily Prophecy

Richard Vigilante
Senior Analyst, Gilder's Daily Prophecy

Steve Waite
Senior Analyst, Gilder's Daily Prophecy

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