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Tuesday, December 6, 2011

Is The Chinese Economic Model The Way Of The Future?

  Ralph Benko
Ralph Benko, Forbes Contributor


Economic growth policy, especially the gold standard; and populism.

This writer’s standard stump speech, on the conservative lecture circuit, used to begin “I love Barack Obama.”  (Dramatic pause.  Confusion mounts.)  “Not since the days of the Soviet Union, which I enjoyed a minor but not quite trivial role in helping to bring down, have I had an adversary worthy of my powers.”

In the event, Mr. Obama turned into a disappointment.  He combines a smug, supercilious hectoring with a record of accomplishment somewhere between pathetic and perverse. Not a worthy adversary after all.

Therefore, imagine the excitement of finding, published on the op-ed page of The Wall Street Journal, no less, Andy Stern extolling something very like … well, communism.  Stern, together with its international Vice President Eliseo Medina, grew the SEIU into a behemoth of organized labor, even splitting the AFL-CIO, leaders of the historic stature of Reuther, Lewis and Meany.  Finally, a worthy adversary!



Stern begins with a quotation from former Intel CEO Andy (“Only the Paranoid Survive”) Grove:

Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best of all economic systems – the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.
Referencing a recent trip to China, and extolling its rapid growth, Stern delivers his indictment:

The conservative-preferred, free-market fundamentalist, shareholder-only model-so successful in the 20th century-is being thrown onto the trash heap of history in the 21st century.  In an era when countries need to become economic teams, Team USA’s results – a jobless decade, 30 years of flat median wages, a trade deficit, a shrinking middle class and phenomenal gains in wealth but only for the top 1% – are pathetic.

This should motivate leaders to rethink, rather than double down on an empirically failing free-market extremism. As painful and humbling as it may be, America needs to do what a once-dominant business or sports team would do when the tide turns: study the ingredients of its competitors’ success.

This indictment understandably threw a number of my co-fundamentalists into rage.   The irrepressible Rush Limbaugh:

Folks, just like with the communists in the Soviet Union or the ChiComs, the ultimate goal of the Democrat Party is to discourage anyone from getting anything unless it comes from The Party … Let me sum this up for you: Andy Stern says capitalism and free markets have been shown not to work, they are a fraud; that what we need to do is to become China.  China is communist.  That’s what we need to do.
NRO’s Reihan Salam on Andy Stern’s Peculiar Idea:

To really learn from the Chinese, and to enjoy such staggering growth rates, we should go about things differently: let’s have a Maoist insurrection followed by a civil war that lasts for several years. Then let’s destroy most of the wealth in the country, and drive out millions of our most enterprising and educated citizens by launching systematic terror campaigns during which millions of others will die in violence or of starvation. Next, let’s have a modest economic opening in coastal regions: impoverished citizens will be allowed to launch small-scale township and village enterprises and components will be assembled in a handful of cities by our stunted descendants. Then let’s severely curb those township and village enterprises because they represent a potential political threat and invite large foreign multinationals and state-owned enterprises [let's not forget those!] to work our population to the bone at artificially suppressed wage rates, threatening those who complain with serious reprisals up to and including death. Let us also initiate a population control policy designed to improve our dependency ratio for a few decades.
Jeffrey Folks in American Thinker: A Stern Vision of America:

State planning has led to inefficient steel mills that have collapsed under the weight of their unsustainable cost structures, oversupply of housing (including those 700,000 units going up in Chongqing annually), high-speed rail networks that have had to be shut down, and state-sponsored banks with opaque balance sheets masking undisclosed losses.  It is not state control and planning that have resulted in economic growth.  That growth has taken place in spite of the state’s efforts to plan and control the economy.
Nor is China the edenic land of income equality that Stern wishes to foster in the U.S.  Under revised guidelines, China has just quadrupled its estimate of the number of its citizens living in poverty.  Political corruption is rampant throughout the party apparatus that governs the economy ….
The American Spectator’s Ross Kaminsky writes, in “Stern Idiocy”:

Stern is at his most aggressively Marxist when he says that the “free-market fundamentalist” economic system “is being thrown onto the trash heap of history in the 21st century.” He says that capitalism is “empirically failing” simply because China and other rapidly developing nations have a higher growth rate than the U.S. does. But there are plenty of poor nations on earth to compare and the real empirical evidence is the incredible correlation between economic liberty and national prosperity.  As Professor Jacques Garello explained in an excellent 2004 speech, “freer countries are always more developed” because more freedom brings more private (especially foreign) investment, more knowledge, more entrepreneurial spirit, and the development of human capital.
Well, it is one of the paradoxes of our epoch that the same hand engineered the policies that led to vibrant economic growth both in America and in China.  Shake the hand of Robert Mundell, a Nobel Laureate in economics who, as prime author of “the Mundell-Laffer Hypothesis” was the chief architect of the Supply Side economics pioneered by Jack Kemp and implemented by Ronald Reagan. It led to the creation of 40 million jobs under Reagan and Clinton. Mundell is so esteemed by the Chinese that he has been made an honorary professor at 30 universities there.  According to Ahead of His Time by Laura Wallace, a profile for the IMF’s F&D:

Bob (says his former student Michael Mussa) has always been an enormously stimulating and unorthodox thinker. So there has been a consistency. His contributions were related partly to his willingness to think outside the box.’ Actually, Mundell doesn’t see himself as a maverick economist, insisting that his work has stayed steadfastly in the tradition of the great economists from Adam Smith through the founders of the IMF, including Keynes, who believed in fixed exchange rates based either on gold or on a world currency.
Stern, whom this writer views as an authentic humanitarian (with whom he has some principled disagreements), now is a senior fellow at Columbia University’s Richman Center.  Columbia is Mundell’s home base.  Of course it is pleasant to gaze at the cranes in the skyline of Chongqing and dream about how it must have been the “streamlined government” of “aggressive and popular Communist Party leader Bo Xilai” that brought this about.

But Andy?  Since Mundell’s your neighbor, now, you might just want to go right to the policy taproot for those skyscrapers and share a glass of wine with the economist whom this writer has elsewhere called the “greatest living humanitarian.” Find out what the grand architect of the present world economy himself thinks is the solution to “a jobless decade, 30 years of flat median wages, a trade deficit, a shrinking middle class and phenomenal gains in wealth but only for the top 1%.”  You might even ask him what Ms. Wallace meant when she summarized his prescription:
[I]f Mundell could have his way, the entire world would be one big optimum currency area, sharing a global currency. But he admits that political rivalries make it difficult for this to happen because a necessary condition for the creation of a monetary union—global or otherwise—is the creation of a security area. He believes that, in a world where war is a possibility, an international monetary system based on a fiat world currency wouldn’t work unless it were backed by one or more of the precious metals.
Stern tells us to “study the ingredients of our competitor’s success.”  Andy?  Yes indeed, please do! You may well find the haute chef of world prosperity-with-equity residing very nearby and generous in sharing with you those ingredients.

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