As the rest of the world sinks into the worst recession since the 1930s, China has maintained a phenomenal 8% annual growth rate....How can China’s stimulus plan be working so well, when ours is barely working at all? The answer may be simple: China has not let its banking system run roughshod over its productive economy. Chinese banks work for the people rather than the reverse....In China, unlike in the U.S., credit has been flowing freely, not just to the financial sector but to industry and local government. State-owned banks have massively increased lending, with local governments and state enterprises borrowing on a huge scale. The People’s Bank of China estimates that total loans for the first half of 2009 were $1.08 trillion, 50% more than the amount of loans Chinese banks issued in all of 2008. The U.S. Federal Reserve has also engaged in record levels of lending, but its loans have gone chiefly to bail out the financial sector itself, leaving Main Street high and dry.
For the time being, at least, China’s stimulus plan is clearly working better than those of the U.S. and the U.K.; and a chief reason it is working better is that the government has a grip on its banking sector. The government can operate the banks’ credit mechanisms in a way that serves public enterprise and trade, because it actually owns the banks, or most of them. Ironically, that feature of China’s economy may have allowed it to get closer to the original American capitalist ideal than the United States itself. China is often referred to as communist, but it has never really been communist as defined in the textbooks, and it is far less so now than formerly. Communist Party leader Deng Xiaoping, who opened China to foreign investment after 1978, famously said that it doesn’t matter what color the cat is, so long as it catches mice. Whatever the Chinese economy is called, today it provides a framework that effectively encourages entrepreneurs.
Meanwhile, the U.S. has sunk into what Jim Rogers calls “socialism for the rich.” When ordinary U.S. businesses go bankrupt, they are left to deal with the asphalt jungle on their own; but when banks considered “too big to fail” go bankrupt, we the taxpayers pay the losses while the banks’ owners keep the profits and are allowed to continue speculating with them. The bailout of Wall Street with taxpayer money represents a radical departure from capitalist principles, one that has changed the face of the American economy. The capitalism we were taught in school involved Mom and Pop stores, single-family farms, and small entrepreneurs competing on a level playing field. The government’s role was to set the rules and make sure everyone played fair. But that is not the sort of capitalism we have today. The Mom and Pop stores have been squeezed out by giant chain stores and mega-industries; the small private farms have been bought up by multinational agribusinesses; and Wall Street banks have gotten so powerful that Congressmen are complaining that the banks now own Congress. Giant banks and corporations have rewritten the rules for their own ends. Healthy competition has been replaced by a form of predator capitalism in which small fish are systematically swallowed up by sharks. The result has been an ever-widening gap between rich and poor that represents the greatest transfer of wealth in history.
