Saturday, April 23, 2005

China, capitalism, and democracy

Henry Blodget actually makes some interesting observations about the coexistence of democracy and capitalism in China. China's growth miracle is an uncomfortable rhynoceros in the living room for those people who argue that strong competition and capitalism can only exist in the context of a democratic state. Indeed I know a few people who would welcome a collapse in the Chinese economy as vindication of their belief that only unfettered capitalism could possibly allocate resources in an efficient way. Overinvestment and unproductive investment, they argue, must be the product of state controls on the economy and on the system of credit allocation.

I am somewhat agnostic on this issue. I wouldn't be surprised in China were to experience an economic "crisis" in the near-term, but I would be very surprised if its effects were to linger for longer than a few years. I would expect that a Chinese crisis would simply be a period of writing off some of the excess of the investment bubble, but that once the dust settles China would find itself endowed with a world-class manufacturing and technology profile. China's economic path, in other words, will not likely be a straight line, but dotted with accidents along the way, much like the history of any other capitalist economic miracle. Much like the US.

China's Biggest Gamble - Can it have capitalism without democracy? A prediction. By Henry Blodget

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