The West has reached a fork in the road. Our current models of governance and economics aren’t working. The consensus is gathering strength — both in Europe and in the United States — that we must choose a different path. The Tea Party, Occupy Wall Street, the protests in Greece, and the increasingly frenetic debate over the future of Europe — all these are signs that people no longer believe in the system we’ve got and want a different one.
In a recent Wall Street Journal op-ed (“China’s Superior Economic Model”), former union leader Andy Stern tries to show us the way. He urges us not to “double down on an empirically failing free-market extremism.” Instead, he says, America should “study the ingredients of its competitors’ success.” China, he argues, is “on a clear trajectory to knock America off its perch by 2025,” because of its government’s success in setting strategic priorities and “arraying the forces of organization.”
This view is increasingly fashionable nowadays. Every bit of it is nonsense.
American society today is further away from “free-market extremism” (a fancy liberal way to describe economic freedom) than at almost any other point in its whole history. The federal government is spending a greater proportion of our GDP (nearly a quarter) than at any previous time, with the exception of World War II. Combine that with state and local government, and our public sector is now nearly large enough (40 percent–plus) to qualify the U.S. as a socialist country. The highest corporate-tax burden in the developed world and a mind-boggling array of pointlessly expensive regulations are driving U.S. companies offshore to the comparative freedom of socialist economies elsewhere.
It bears recalling how we got here. The Reagan Revolution coincided with a widespread consensus — in both the developed world and among east-Asian countries — that limited government, low taxes, and low regulations were necessary to unleash the economic potential of our societies. These principles were captured in the G-7’s Bonn Declaration of 1985.
In the 1990s, with the welfare state largely discredited, the New Left of Tony Blair and Bill Clinton pursued a kind a triangulation, by seeking liberal goals through conservative means. The ’80s and ’90s were a period of unprecedented sustained economic growth in the West, among the Asian Tigers, and in China, precisely because our societies took the road of free-market capitalism.
In the first decade of the 21st century, the Bush administration often defaulted to seeking conservative goals through liberal methods. Witness its big federal programs in health care, education, and the environment. This pattern was also generally followed in Europe. And now, in the Obama administration, we see an unabashed return to the Old Left philosophy of labor-union militancy, high taxes, high spending, and crushing regulation. That — not “free-market extremism” — is the model we have in the West today. That is the model that is failing us, and that is the model the Obama administration is asking us to double down on.
If we were to study the ingredients to China’s success, what would we discover? That Marxist-Leninism and Mao Zedong Thought were right after all? That the “capitalist road” should be vilified? That we should reprise the Great Leap Forward? (Hint: Between 20 and 40 million Chinese starved to death during that “government-led reform.”)
Of course not. Deng Xiaoping’s reforms have been successful only because he allowed the free market back into the Chinese economy — as he himself would be the first to explain. Deng’s “socialism with Chinese characteristics” set the goal of creating a society that was half free-market and half government-controlled — and guess which half has produced China’s success.
Recall, too, that the 1989 Tiananmen Square massacre occurred after ten years of spectacular economic growth in China. The tension between the Communist party’s political monopoly and its free-market reforms could not be controlled except through repression. That tension still exists today — along with problems of corruption, ineffective rule of law, waste, pollution, and profound market distortions. Don’t be fooled: China faces major problems on its path to the future, problems nobody in the West would want to be facing. China’s future is likely to play out the way its past has played out: When it chooses the path of big government, it fails; when it chooses the path of economic freedom, it succeeds.
The same will be true for us — as it has ever been. The tension between the collectivist impulse and the yearning for individual liberty has been at the heart of the West’s political economy since the beginnings of the Industrial Revolution. Which model benefits society more may be gleaned from studying the successes — and failures — of our competitors and, more important, of America itself. In this debate there is nothing new under the sun.
Collectivist programs that were meant to achieve social justice, or anything else, by transferring wealth away from the productive parts of the economy have usually failed — more often than not with frightening unintended consequences. In the decade after China’s Great Leap Forward, Lyndon Johnson created the Great Society’s “War on Poverty.” Needless to say, the effort didn’t eliminate poverty. Instead, it created a permanent underclass of families caught in a cycle of listless dependency on government. Today tens of millions of Americans live in households where no adult has a full-time job, households where the family unit has degenerated into little more than an assembly line for vagrants and criminals. That demographic didn’t even exist in 1960. Our own government created it. So much for “government-led reform.”
Millions of Americans have benefited from federal entitlement programs. Those programs also helped to create a society that consumes more than it produces, which led directly to the over-leveraging of the American household, and to the mortgage crisis. And by the way, though the current administration seems blissfully unaware of the fact, those entitlement programs are unsustainable and are bankrupting our country.
Europe faces similar challenges. Hence the protests in Greece: People like free stuff, and many people now feel entitled to it. The Greeks’ insistence on consuming far more than they produce — as if that were some sort of human right — is pushing the Eurozone to the brink of a catastrophic breakup. Notice that in all of this, very little of Greece’s bloated public sector has been laid off. “Free-market extremism”? You decide.
The West faces a fork in the road, true enough. But we’ve been here before. And though we sometimes seem to forget it, we Americans already know what the Chinese are only now learning: that the promise of the future lies in the creative ingenuity, hard work, and self-reliance of a free society.
So don’t go looking to China for a “superior economic model.” That model is right here at home, waiting to be unleashed.
— Mario Loyola is director of the Center for Tenth Amendment Studies, and an analyst at the Armstrong Center for Energy and Environment, at the Texas Public Policy Foundation.