Capitalism and Dead Capital in China's Economy: Achieving Economic Prosperity

Introduction

When it comes to success, many believe the way to becoming successful is to mimic the same techniques used by those who have already achieved their desired level of success. For many nations, the definition of success is for them to attain wealth and prosperity. Countries that have reached a high level of economic success are models of success for third world countries. However, even after applying their system of capitalism, these third world countries have not yet met the level of success they wish to attain. The main question is posed and answered by economist Hernando de Soto in his book, The Mystery of Capital, explaining why third world countries, despite their attempt to instill a capitalist system, continue to fail in overall advancement because of another problem that exists within their countries. In addition to these discoveries, Financial Times writer Richard McGregor elaborates in his book, The Party: The Secret World of China’s Communist Rulers, how Communist China has reached economic success while utilizing capitalism to the fullest through its dictatorship.

Section 1

For whatever length of time that countries will embrace its ways, capitalism has brought along prosperity. Nonetheless, basically instilling a capitalist economy into a nation is insufficient to bring along the monstrous success that exists in Western countries. This is due to the fact that there is an absence of a functioning legal system in most underdeveloped nations. According to DeSoto, “these countries’ principal problem is not the lack of entrepreneurship: The poor have accumulated trillions of dollars of real estate during the past forty years”, implying that the problem that exists within these countries is dead capital. The ability to grant one’s ownership over what is theirs through lawful property rights is one of the primary necessities for a capitalist economy to create wealth. Since they do not have a legitimate title over their belongings, the people of third world nations are unable to transform their assets into liquid capital. Moreover, De Soto states how this has functioned with the United States, where they granted property through informal means to early pioneers before the United States had a formal legal framework. De Soto uses French historian Fernand Braudel’s Bell Jar as an example to why capitalism is greatly selective and will remain like this until “we all come to terms with the critical flaw in many countries’ legal and political systems that prevents the majority from entering the formal property system”. All in all, De Soto believes that in addition to copying the capitalist economies of developed countries, underdeveloped nations should likewise mirror their legal frameworks, so they may relieve themselves of poverty.

Section 2

Communist China shows both the qualities of a capitalist economy and a non-capitalist economy. McGregor elaborates how the Party “has adapted remarkably to the growth of the private sector, learning how to keep enough of a distance from entrepreneurs to allow them to thrive, while ensuring they do not have the chance to organize into a rival center of power”. Despite the fact that China does not allow entrepreneurs enough power to organize into potential rivals, they are still given enough space to flourish and eventually create capital. As said by McGregor, in a short measure of time, “China crammed into thirty years the kind of brutish, uplifting makeover that took as long as a century in the industrial revolutions in the UK and the US. The economy has doubled in size every eight years”, which is proof that China has surpassed many developed countries while still remaining Communist, since they do allow private ownership, which in turn allows the development of capital for individuals as well as their nation. This capitalist strategy has helped their economy blossom into significance over a short period of time.

In any case, the economy of Communist China still shows attributes that are a long way from being capitalist. McGregor states, “Chinese companies still come in all manner of guises and trade under an array of different business registrations to accommodate prevailing political pressures. They can be fully state-owned, collectively owned or co-operatives; or limited liability companies, with diversified share registers split between both public and private owners”. By not permitting business and organizations full ownership of their own property, they are unable to rise to their highest potential in providing capital to the economy. Another example of this occurred after the Party came to control in 1949, where they “closed private businesses and confiscated their assets”. Removing assets eventually creates dead capital, and it is crucial that their citizens attain their assets to help their economy develop.

The non-capitalist methodologies of Communist China are often more forceful as they tend to generally illustrate. China does grant property rights; however, it is to a degree that does not risk their authority to the country. One example of this is where McGregor states that the Party has “reined (private companies) in when they have grown too big; invited entrepreneurs to join the Party, while intimidating and jailing business leaders who fall foul of it; and supported more secure property rights, while muddying the rules surrounding ownership of companies, assets and land”. Communist China is more than eager to boost their economy, as they are willing to permit individual property rights, however, they are against granting property to where there would be a threat to the dictatorship. This is one of the main reasons why China’s Communist Party is still in full effect to this day. They are able to adjust to different circumstances while still being cautious that their dictatorship is far from any dangers of being overthrown. The Party allows the presence of capitalism to help the economy of their nation to develop, yet they do not give it enough power to topple their dictatorship.

Section 3

In my opinion, the dictators in Communist China will be successful in utilizing a capitalism to produce prosperity while denying Milton Friedman’s thesis that prosperity will lead to individual freedom and the end to dictatorship. The reasoning behind this is stated by McGregor, where he elaborates how “China has long known something that many in developed countries are only now beginning to grasp, that the Chinese Communist Party and its leaders have never wanted to be the west when they grow up. For the foreseeable future, it looks as though their wish, to bestride the world as a colossus on their own implacable terms, will come true”. McGregor trusts that for years to come, China will continue flourishing with its very own terms. China has constantly adjusted by changing occasions while still making sure its Communist party remains in power. Even when the Soviet Union separated after the Russian Party crumbled apart, China’s power still stayed untouched. McGregor clarifies that this is due to the way that the Russian party did not try to enhance the lives of its people and when they attempted to fix it, it was already too late, yet China figured out how to modify its authority to suit its people while still remaining to its Communist roots.

China has always figured out how to pull itself up when it appears to be close to collapse. As soon as prosperity manages to plant thoughts of individual freedom amongst its citizens, China finds a way to suppress them and still remain a dictatorship. Milton Friedman’s thesis has its evidence of being solid, however, so far, Communist China has been fruitful in utilizing a capitalist economy to produce wealth, therefore contradicting Freidman’s thesis. They have even risen high enough in economic terms to surpass the United States as the world’s biggest economy, while still remaining a Communist nation.

Conclusion

With the end goal to attain an effective economy, numerous countries will copy the technique utilized by the nations who have achieved that success. Innumerable third world nations have attempted to do so by incorporating capitalism into their economies. They wish to accomplish the same economic prosperity achieved by countries such as the United States. However, the main reason they stay unsuccessful is that their nations do not have a legitimate legal structure set up to avoid dead capital. Since people do not have a title to their property, this leads to their failure to make any progressions to the economy. De Soto explains this issue in his book, “The Mystery of Capital.” Richard McGregor additionally portrays the insider secrets behind the accomplishment of Communist China and their thriving economy in his book, “The Party: The Secret World of China’s Communist Rulers.” Though China has a strict Communist Party, it has still figured out how to flourish by integrating capitalism into its ways of governing. Despite allowing capitalism into their country, they only apply it to a certain degree, as to prevent individuals from gaining enough power or even thinking about pursuing individual independence.

References

• Soto, Hernando de. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books, 2006.
• McGregor, Richard. The Party: The Secret World of China’s Communist Rulers. Harper Perennial, 2012.