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China Teaches the U.S. Lessons about Economic Freedom



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Oh, what a little freedom can do.

Government figures released over the weekend confirm that China now has the second-largest economy in the world, finally eclipsing a Japan now entering its third decade of stagnation. Much of the press coverage has been on what this means for geopolitical and geo-economic affairs, and on what it portends for the United States. Important topics all, but given the direction the U.S. is heading, there’s a more immediate, more important issue: what China learned — and the U.S. apparently forgot — about the power of freedom.

China remained a moribund, plodding, poor nation imprisoned behind a centralized, enervating brand of Communism until 1978, when Deng Xiao-Ping decided something had to change. The crafty head of the Chinese Communist party began to permit an increasing degree of economic freedom to seep into the nation. Insisting his vision constituted “Socialism with Chinese Characteristics,” Deng chose to marry a Chinese Communist political system with more of a Western, free-market economic system.

It worked. Over the course of the next two-plus decades, through the empowering forces of even modest amounts of economic freedom, China unleashed an economic boom that did more to alleviate world hunger than all the highbrow development programs ever devised. This economic freedom not only created an economic juggernaut but initially unleashed a process that led to markedly greater economic equality. Give the have-nots the opportunity, and many will successfully join the haves.

To be sure, on a per capita basis China remains a relatively poor country. Its economy, far smaller than the U.S.’s, largely reflects its massive population. And since 2003 the Chinese leadership has restrained economic freedoms rather than expanding them, so the powers of economic freedom are facing new internal headwinds. But so far, the economic freedom unleashed in 1978 has worked to overcome not only poverty and an enduring lack of political freedom but also the government’s efforts to take some of that freedom back.

While China has been economic freedom’s new, albeit imperfect laboratory, personal economic freedom in the United States is being slowly strangled by the state. More spending, more regulations, more rules, and, soon, the Obama tax hikes all contribute to a loss of individual freedoms and, collectively, to an economy bearing a much closer resemblance to floundering Japan than rising China.

Where economic freedom expands, growth follows. Where economic freedom is stifled, economies stagnate. Sadly, China’s former leaders understood this better than do its current leaders, or America’s.



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