1/17/2020

America dreams of Chinese state capitalism

"But state capitalism isn't working so well anymore. As The Economist recently noted, "There is evidence that China's heavy-handed intervention is becoming increasingly ineffective. Total factor productivity growth in China in recent years has been a third of what it was before the 2008 global financial crisis." Indeed, some analyses see no productivity growth at all. A recent article in the Harvard Business Review concludes that "absent a major pivot in thinking and approach, [Chinese firms] will be unable to deliver the productivity gains needed to offset the consequences of the steepening decline in the country's working-age population." And as Reuters recently reported, "Chinese productivity growth has gone into reverse for the first time since the Cultural Revolution tore the country apart in the 1970s, according to a new study, highlighting the failure of recent reforms to set China on a sustainable development path."

The bottom line here is that for China to succeed over the long-term, it must return to the pro-market path. It must become a lot more like America where companies rise and fall based on market forces, not the whims of politicians. And while America could surely use more science investment, that's far different than creating a massive new system of business interventions and subsidies directed from Washington and influenced by all manner of interest groups."