Don’t Count Out Free Markets Just Yet

Except for China, there hasn’t been an economic success story in history that wasn’t built on free markets.

As capitalism seems to come under persecution worldwide it is good to remember both the monumental accomplishments of free markets and the fallacies of state capitalism. Thomas Barnett writes “Don’t Count Out Free Markets Just Yet.”

The Chinese model of interventionist economic development is readily cherished by those disappointed with the supposed shortcomings of American capitalism as exposed by the recent crisis. Though no serious thinker still believes in the efficacy of command economies, “we are now encouraged to quake before state-directed economies,” sighs Barnett, “as if a bunch of power-fixated politicos sitting around a table will somehow manage to outsmart, out-predict, and outperform the ‘wisdom of crowds’ and the market’s ‘invisible hand’ — all while easily maintaining their dictatorship over just-emerging middle classes.”

“A bit of self-flagellation” in the wake of the recession “is certainly in order,” according to Barnett, but we must not so easily forget the past decades of immense prosperity, “driven overwhelmingly by a worldwide shift toward marketization.”

Just because China, with its 700 million rural poor, hasn’t met our expectations in terms of its timetable for political liberalization, that hardly disproves our own historical journey. For some perspective, imagine rapidly adding 700 million impoverished people to America, which is the same geographic size as China, and then consider whether we might become more state-directed in response to that fantastic burden.

Barnett has several points to make about China’s success, noting in the first place that the country’s rise — indeed, that of whole East Asia — is very much thanks to the United States’ willingness to play “regional security Leviathan.” Under the safe umbrella of American military might, “the continent now features — for the first time in human history — a strong, peaceful and integrating quartet of great powers in China, India, Japan and Korea.”

China’s “miracle” must further be understood as a consolidation of the rest of Asia’s trade surplus with America. China has been able to position itself as the “final assembler of note in that global production chain,” manufacturing cheap consumer goods for Western markets, but it’s hardly on par yet with Europe and the United States. It lacks the innovation capacity and both the demographic and democratic bases for future, modern growth. Its “inexhaustible” supply of cheap labor will run out while the pervasive presence of a sometimes corrupt state still frustrates private business initiatives. “In short,” notes Barnett, “the ‘genius’ of China’s model won’t outlast its first serious economic crisis.”

Without China, the globalization counternarrative “boils down to the rise and fall of the world’s resource-rich petrocracies, whose fortunes track with the global economy. Nobody can seriously swallow the notion,” he writes, “that the rulers of Venezuela, Iran, Saudi Arabia and Russia somehow represent an improvement on free-market systems — much less the future of global leadership.”

What should America do? Clearly, not ape China’s state-heavy economy, rather maintain, as much as possible, a free-market environment at home, “while continuing to champion that model’s utility in unleashing and leveraging human ingenuity in the decades ahead.”