China's 'Capitalism:' A Rigged Game (Joe Rothstein's Commentary)

November 17, 2009

By Joe Rothstein
Editor, EINNEWS.com

It's an article of faith in the U.S. that once a country turns on the spigots of capitalism, freedom and democracy inevitably will flow.

That was an underlying presumption of the cold war. Capitalism vs. Communism. Capitalism=Democracy. Communism=Despotism. And Capitalism won!

Or did it?

President Obama's agenda as he visits China spans a wide range of issues, but rising above all of them is this: the U.S. is getting poorer while China is getting richer. And China---still pretty much a despotic country---is doing it while playing in the capitalist system.

In terms of overall GDP, the U.S. economy dwarfs China's, roughly $14 trillion a year to China's $4 trillion. But economists believe that by 2030 or so the aggregate of China's economy will surpass the U.S. That's a lot of growth in a remarkably short time.

Until the recession hit, there were barely enough merchant ships at sea to carry goods made in China for U.S. consumers to buy. Those ships would return to China with the empty packing crates and little else. That's why China's holding about a trillion dollars of U.S. debt. Call it profits. In effect, China is making a ton of money off of us, then loaning it back, with interest, so we can keep buying their goods.

And let's remember what we mean by their goods. Virtually every major U.S. company has manufacturing plants in China, employing millions of people in jobs that used to be performed in the U.S., stoking a Chinese economy so robust that it needs to put a new power plant online at the rate of about once a month to keep up. To paraphrase the old Pogo cartoons, "We have met the competition and they are us."

The cruel fact is that China is playing this capitalism game a lot better that any "capitalist" country is. In large measure, that's because the Chinese have rigged the game.

For one thing, if you want to do business in China you pretty much have to make a Chinese company your partner and turn over the keys of knowledge to your manufacturing methods and trade secrets. (Just last week GE partnered with a Chinese company to build what the new "partners" hope will be a major competitor to Boeing and Airbus).

The Chinese rig the game in a number of other ways, including manipulation of their currency, by keeping workers' wages low and by crushing workers' efforts to organize for better pay and working conditions.

The Chinese version of capitalism is really "state capitalism." The government owns a lot of business turf. If it decides to go green, as it has, the government can simply allocate billions for new solar, wind and geothermal projects and get them on line quickly. No environmental impact statements needed. No worrying about whether these projects will pay for themselves in 5 years, 10 years or ever. No haggling with a bunch of people in Congress who may not agree with the plan or the costs.

While China still clings firmly to its modern day communist roots, let's not leave out of this discussion a former communist country, Russia. When Russia shed the Soviet Union it also abruptly shut down 75 years or so of experimentation with communism and turned to full-throttle capitalism. Nearly a decade later, broke, bankrupt and on the verge of implosion, Putin came along and essentially imposed a form of state capitalism not too dissimilar to what the Chinese have. Except for the blip of the current recession, Russia has been on an economic roll ever since.

Of course, being one of the world's great oil and gas producers has a lot to do with current Russian success. But those resources are being managed by a very narrow group of government people using very tight controls. So tight, Russia more than once has cut off natural gas to Europe in mid-winter to politically beat down neighbors such as the Ukraine. So tight that many western oil companies have been all but evicted from fields they once leased---ceding control to state monopolies.

So what's the message here? Maybe there are a few messages. First and foremost is that on the big ticket items China and Russia---particularly China----compete as governments against the West's private companies. That's hardly capitalism and hardly a fair fight.

But the world seems to have accepted China and Russia on these terms, and have even tolerated their continued repression of free speech, free assembly, a free press, open elections and other basic pillars of democracy. Despite the happy faces we see on TV, repressions have been brutal. A few weeks ago China executed nine people involved in last July's Urumqi ethnic riots. Many who come to China's cities to protest local grievances wind up in what are called "black jails." In Russia, outspoken journalists and human rights activists seem to wind up dead in alarming numbers.

Just because China and Russia are in the G20 somethings and the WTO, let's not automatically assume that democratic institutions are just around the corner.

Nevertheless, China and Russia's economic systems (Capitalism=Despotism) could well be interpreted by emerging countries as a more successful model to emulate than the cumbersome western democracies.

For self-protection, and for the cause of human rights, the U.S. and the West must be a lot tougher in competing with China at the capitalist game. We can't continue to leak jobs, trade, intellectual know-how and other hard-earned assets by being starry eyed at the bargaining tables, on the assumption that we are nurturing incipient democracy.

In particular, it's time for a reset with China and with all the U.S. companies operating there, companies lured by profits and unconcerned by the devastating impact their decisions are having on U.S. trade, wealth, jobs, and economic future. If U.S. companies want to move factories and jobs to China they should pay a high price for it here at home. If China wants to sell into the world's largest consumer market, it has to provide better market conditions for U.S companies to sell there. If China wants the privileges of a full WTO member, it needs to let its currency move with supply and demand, the way other nations do.

In short, managing the playing field so that it's on the level for all competitors is capitalism 101. Democracy maybe (or maybe not) to follow.

(Joe Rothstein can be contacted at joe@einnews.com)









Note: China/US trade NAF 10-19-09
Zachary Karabell: Superfusion: How China and America Became One Economy and Why the World's prosperity Depends on it.

Us is over consumed and under saved/ china is oversaved and under consumed
One of causes of us crash: china had too much liquidity and no place to go
China really loaned us our own money…without us trade china's with the rest of the world was either flat or in deficit
Uncounted: the activity by us corps inside china
½ of global trade is between us and china
Us/china becoming a system---the us is 14 trillion of a 45 trillion global economy
But little antagonism in us politics
England vs. us in ww2 akin to US china? While we bled on wars we felt needed for our survival, china got rich and widely increased holdings and power world wide
China is 60% rural
By 2030 aggregate of china's economy will surpass us
China coming out a winner in the recovery
China's economy still fueled by state spending
Is china's growth sustainable—will it run out of resources (fuel) etc.
China's economy now services about 500 million Chinese.
4 billion people ww still don't participate in global trade
Climate questions
Iran a great impetus for us not at all for china
Expect a downward pressure on living standards
Big disadvantage for us v china in green developments: they make state decisions, have banks, etc.
The lessons: managed economies (with Russia) vs capitalism