60 second summary

  • As I covered in part 1 of this series, the Chinese Economy is Different.
  • Part 2 explained the specifics of how the Chinese government manage it differently.
  • Here, I will examine the question of whether the way China manages their economy is more effective than alternatives.
  • Based on GDP, the way China is managing things is far more effective than Capitalist alternatives.
  • It’s interesting to consider that this might be an improvement over the ‘Invisible Hand’ that has guided Capitalists for two and a half centuries, however.
  • And also to consider that the payoff to China could be ownership of the next generation of IT success.

This is a new model – and seems to be working for China as a nation

China’s approach to their mixed economy (covered in parts one and two of this article amounts to a centrally controlled plan, which favors Chinese technology companies over those from other countries but which also directs their private businesses to act in the long term interests of the state, not solely to deliver the short term growth requirements of individual companies.

It’s not hard to see why an authoritarian government like China’s would give technology companies this sort of focus.  They represent the intersection of military and economic interests and control of its population now and seem likely to in the future. What’s not to like? (from their point of view.)

Ultimately, one’s feelings on the subject might come down to the question of whether China’s approach is more effective than the ‘invisible hand’ described previously. No known system has done better than Adam Smith’s Capitalist system so far.

GDP (if you’re not in to economics, you can consider GDP to be ‘the amount of money around’) is often used to examine questions of ‘success’ in these scenarios. I think there is a fair case to be made that improving the amount of money around in the world, or, for that matter a region, improves the lives of those involved.

Comparing the performance of Invisible Hand or Invisible Hand ‘Plus’ on GDP Growth

China’s GDP Growth is roughly twice to three times that of the USA (see chart below) by some measures and they could soon overtake the USA’s GDP.

Of course, the usual questions over how that GDP is distributed and the number of people it has to be shared between remain.

Below : Chinese Economic Growth and National Output (GDP)

 

China’s economy is growing at roughly twice the speed of the US’
By some measures, China will soon overtake the USA as the world’s largest economy. Source: Bloomberg

But the improvement is shown in areas beyond GDP, too

GDP, as a point of difference does not alone explain the reason that China’s economy is growing faster than the rest of the world. Other data points are available.

  • China leads the world in AI related patents:
    In a nutshell, China has realized the importance of owning AI, to the future of their economy. Research papers related to AI and Venture Capital dollars invested in AI startups. My gut (based on those data points) says China is doing better in at least this critical area. In fact, I’ve written elsewhere about the varied ways in which China is winning the ‘AI War.’
  • Leading the world on 5G:
    In my view, 5G is to network technologies what the iPhone was to phones. It’s not just a new generation of transmission speeds, it’s a totally new world of capability and use case. The West is obsessed with keeping Huawei out of 5G networks but also acknowledges that, without Huawei, 5G networks are going to be hard to create. This is a stupidly interesting subject in itself and warrants it’s own blog post. In short, it seems likely that the US has identified Huawei as a new version of the encryption ruse it perpetrated on the rest of the world for 60 years. Incredibly, given the Capitalist views of the West, some senior members of the Federal government are talking about essentially nationalizing Nokia or Ericsson (perhaps inspired by China’s approach!)
  • Leading the world in Surveillance technology:
    Finally, from a technology perspective
    China leads the world in Surveillance technology which it uses, often to subjugate it’s people and maintain authoritarian control over them.

The meaning of life vs China’s approach

What’s happening in China is interesting and exciting. Finding a way to out perform Adam Smith’s Invisible Hand model is no small feat from either a theoretical and practical perspective.

To be clear, there are many factors in play here. China is growing fast not just because it has reorganized it’s economy in a unique way. Copying Intellectual Property is much easier than doing the Research and Development required to produce it.

It’s going to be hard for us (‘The West’)  to match the growth that China is achieving while they’re delivering on this strategy. In part, that’s because The West is filled with people like me, brainwashed in to instinctively choosing the path with less government involvement to maximize GDP growth. It literally never occurred to me that Smith’s Invisible Hand could be beaten.

And of course, there is more to quality of life than GDP growth. China is suffering a brain drain. The new form of mixed economy policy might work exceptionally well for the nation – but much like the guys who had to build the hospital in a week in Wuhan, it’s not much fun to live there.

There is more to life, it seems, than economic progress, GDP and being on the front foot for advances in technology like AI 5G and Surveillance products.