風蕭蕭_Frank
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Chinese and U.S. Economic Systems
As such, the U.S. (and Western) systems and China’s are fundamentally different. (see Table 1). Most Western nations’ comparative advantage is based on market forces. If the United States loses an industry, such as telecom equipment, it’s because we no longer have natural comparative advantage and have moved on to other, inherently superior, activities. Indeed, no loss of technologies and industries can be problematic, because, by definition, their loss is always ordained by market forces and replaced by something superior. In contrast, China, as noted, seeks to win the global war for advanced technology leadership by supporting key firms in key industries, while attempting to reduce the market share of foreign competitors.
For most Western nations, especially outside Asia, the goal is consumer and taxpayer welfare. For example, tariffs are decried because they raise prices for consumers—a cardinal sin. For China, closed markets are a key industrial policy tool. In the United States, because they might waste taxpayer dollars, subsidies are decried, unless they are for “green industries.” For China, they are just a cost of doing business. American experts favor a strong dollar because it is good for U.S. consumers (but bad for producers). The CCP favors a weak RMB because it’s good for their producers and bad for foreign producers. In China, large firms are supported because they can win the global battle, even if higher prices domestically might result. In the United States, competition, and now “antimonopoly” (a reflective anticorporate doctrine) is privileged because today’s consumers and workers might benefit.
Rather than reflectively dismiss the Chinese system as ineffective or even harmful, or to judge it on the basis of U.S. goals (allocation efficiency), the real question to ask is, “What system is superior when it comes to winning the global techno-economic war?”
Because most U.S. economists and pundits look at China through the American free market lens, they fail to see what China is actually doing. They look at China’s overcapacity (producing more than a short-term, profit-maximizing firm would produce) as a failure of Chinese economic policy, something Chinese policymakers would fix if only they better understood economics. As former director of President Biden’s National Economic Council, Brian Deese, wrote:
China confronts an economic dilemma of lagging growth, low consumption and an elevated savings rate. This is partly the result of its highly unequal economy, in which workers are paid a smaller share of what they produce than in most maturing economies. A shift toward policies that support domestic demand, such as expanding the social safety net or even direct payments to households alongside more progressive taxation, could reduce inequality, increase consumption and support more sustainable economic growth. But instead, Beijing announced at its National Party Congress last month that it would ramp up investment in advanced manufacturing to export products overseas.261
Deese, like so many, is judging China’s economic policies through a Western lens. China sees greater domestic demand and consumer spending as reducing needed investment. It sees increased exports as an important weapon for having its firms lead the world. Exported overcapacity is a weapon, equivalent to a cruise missile launched to destroy an enemy installation.
For the West, free trade is ideal and any deviation from it is a problem. It is ideal because it is only though market processes that optimal exchanges can take place, which by definition benefit buyer and seller. In contrast, China practices “power trade,” wherein it uses trade policy to strengthen its own producers and weaken foreign ones, and thereby create foreign dependencies on China.262
When it comes to advancing technological innovation, the West’s model is a linear one, in which the only appropriate role for government is investing in basic research that academics are interested in, an area economists argue the private sector will largely neglect. But this is the kind of research that has the most global spillovers, including to China. The Chinese model is to fund whatever research will help Chinese firms gain competitive advantage, especially applied R&D, which is more easily retained in China. As Yi Changliang noted, “[We must] guide scientific research institutions and universities to focus closely on the major scientific research tasks [prioritized by the government] and effectively integrate and optimize scientific research resources.”263
The West’s economic system is built around consumption, perhaps because of the almost permanent legacy of the trauma of the Great Depression and the imbedded, but faulty, Keynesian thinking that economies naturally gravitate to underconsumption. This is why almost all government spending and tax cuts are justified by claiming they will boost jobs (even when the economy is at full employment) and why automation is opposed by so many. U.S. policy is focused on jobs; Chinese policy is focused on creating globally powerful firms.
For China, the fact that consumer spending constitutes a much smaller share of its GDP is seen as a sacrifice that Chinese consumers make to ensure that the economy grows and becomes powerful.
But Macroeconomics 101 teaches that more spending does not create jobs unless the economy is in recession, which it usually is not. China doesn’t care about consumption. It cares about investment; spending that generates a larger economy a decade from when it is made. For China, the fact that consumer spending constitutes a much smaller share of its GDP is seen as a sacrifice that Chinese consumers must make to ensure that the economy grows and becomes powerful. In the United States, there is alarm and finger pointing if the share of GDP going to consumers drops even 1 percentage point, because all that matters is short-term individual welfare, not the greater good of the nation in the medium and long term.
Moreover, there is no direction for Western economies, with perhaps the exception of getting larger (or smaller if you listen to the growing number of climate activists who tout “degrowth”). The very idea that the state would have interest in moving the economy in a certain direction is scoffed at. What could a bunch of pointy-headed bureaucrats know about the economy compared with the tens of millions of consumers and businesses making decisions on a minute-by-minute basis on what to buy and sell? Whatever structure of the economy emerges from this almost magical and holy process is the optimal one, albeit nowadays with the one exception now of climate pollution. But even for this, their answer is carbon taxes so economic actors’ decisions take carbon pollution into account. In contrast, the CCP knows the direction it wants its economy to move in. It wants to be more innovative, and it wants a greater global share of advanced technology production in key industries (e.g., AI, aerospace, robotics, etc.) even if this is “inefficient.” Building aircraft carriers and fighter jets is also inefficient, but Western nations do it because they know they need to for national power.
This relates to the issue of industrial policy and “picking winners.” In the West, and especially in Anglo-American countries, it is verboten to argue that an industry is more important than any other, except perhaps nowadays with green tech industries and computer chips (the latter only because China might invade Taiwan).264 This is why the notion of “computers chips, potato chips—what’s the difference?” is still held by most economists. And this is why when the former head of a leading international trade think tank was asked how much manufacturing America could lose and still be OK, he said, “All of it.”265 No reason to have manufacturing. Services are fine. Yet, in China, power comes not only from the end of a gun but from the end of an assembly line. The last thing China would want is to evolve into a services economy, even if doing so somehow led to higher living standards.
China looks at investing in advanced technology industries the way the West looks at investing in military weapons systems. Economic returns are not the goal; power and security are.
The two systems also differ in their orientation to capital investment. The Western model is to not invest unless the net present value return of an investment equals or exceeds the cost of capital, especially in the short term. In this model, the risk of overinvestment is as serious as the risk of underinvestment.266 There are some exceptions to this, particularly spending for national defense. Yet, few, if any, judge military weapons spending on the basis of overall economic rate of return. Rather, policymakers invest in weapons based on the amount needed to keep the nation secure. China looks at investing in advanced technology industries the way the West looks at investing in military weapons systems. Economic returns are not the goal; power and security are.
Finally, politics. The U.S. political system has always been, since its founding, one in which various interests and factions press to advance their interests. But it has also always been a system in which factions, under determined and visionary leadership, can and do regularly coalesce around the national interest, suppressing at least to some extent and some degree parochial interests.
America did that most recently throughout the Cold War. Alas, those days appear to be long gone. With the threat of Soviet domination long in the rear-view mirror, replaced with a triumphalist “end of history” view, America now appears to be nothing more than warring factions and tribes, each one proclaiming their goodness and others’ villainy, and with neither side focused on international advanced industry competitiveness.
In the United States, individual interests vie for benefit. Unions want better jobs and more worker voice. Consumer groups want cheaper prices today. Small business wants lower taxes and fewer regulations. Wall Street wants a strong dollar and an even more financialized economy. Civil society groups want more followers and foundation money. The legal profession wants more litigation. Environmental groups want less pollution. Who wants a strong nation, especially if that requires giving up something? Can you imagine a president stating that U.S. trade policy will deemphasize industries not related to U.S. strategic interests, such as agriculture, financial services, low-wage manufacturing, and natural resources, and instead give priority to advanced industries? Hard to imagine. Not only would the economics pundits scream that potato chips are equal to computer chips, but Congress would immediately intervene to defend local industry interests.
In China, parochial interests are relegated to the CCP’s overall goal of advancing technologically and winning the techno-economic war. The July 2024 “Resolution of the Central Committee of the Communist Party of China on Further Deepening of Reform to Comprehensively Advanced Chinese Modernization” states that it will establish mechanisms for major industrial investment funds to be “challenged to our country’s strategic needs” (emphasis added).267
With the threat of Soviet domination long in the rear-view mirror, replaced with a triumphalist “end of history” view, America now appears to be nothing more than warring factions and tribes ... with neither side focused on growth and competitiveness.
Imagine during WWII if the United States had put consumer interests first and not imposed gas or tire rationing because consumers complained. Or if Ford and GM lobbied successfully to not convert to weapons production. Or if unions were told they could engage in unlimited strikes. America’s leaders did not do that, and most interests accepted that because they understood that the national interest to defeat the Axis powers trumped self-interest. That is the spirit we need to have today in America to win the techno-economic war with China.
Business used to be able to speak with one voice in the 1960s and 1970s, with groups such as the Business Roundtable and business statesmen such as Irving Shapiro of Dupont and Reg Jones of GE speaking not only for their own companies but for the U.S. capitalist system and the overall nation. We seldom see that anymore. In his book Doing Capitalism in the Innovation Economy, Bill Janeway discussed how America had national missions from its founding: the Hamiltonian mission of building the country to be independent of England; the mission from Lincoln to FDR to become a great world power and ty the country together; and the post-World War II Soviet containment mission.268 But today, America no longer has a unifying national mission that interests can rally around other than freedom for the Right, equity and redistribution for the Left (and the so-called “new Right”), and fighting climate change for many. Self-interest not only runs amok, but has become the new civic religion.
China has a national mission: to make China the most powerful country in the world. The CCP works to align most activities to make that happen. And that gives China an advantage in catching up. Before we hear the cries that ITIF wants to turn the United States into an authoritarian dictatorship: No, we do not. But we do believe that there is a middle ground between the CCP’s authoritarianism and the every-person-for-themself principle that now characterizes U.S. politics and society. We used to be able to attain that balance, but we have lost it. Table 4 compares the Chinese and U.S. systems.
Table 4: U.S. and Chinese economic systems
| U.S. System | Chinese System | |
| Overarching goal | Enable comparative advantage based on market forces | Win the global war for advanced technology leadership |
| Immediate goal | Consumer welfare (or worker welfare for the Left) | National power |
| Process | Allocation efficiency | Dynamic and productive efficiency |
| Types of trade | Free trade (or protectionism for the Left and new Republicans) | Power trade |
| Tool for tech progress | Fund basic science | Fund indigenous technology advancement |
| Rationale for investment | Invest for rate of return | Invest for market share |
| Means | Consumption (to keep full employment) | Investment |
| Technology | No direction | To lead in advanced technology |
| Focus on industry | Sectoral indifference | Strategic interests |
| Politics | Aggregation of competing private interests | National interests |
There is a middle ground between CCP’s authoritarianism and the every-person-for-themself principle that now characterizes U.S. politics and society. We used to be able to attain that balance, but we have lost it.
To be sure, the U.S. government has moved somewhat in this direction, particularly with the passage of the CHIPS Act. But that is best seen as a one-off effort, largely justified on national security grounds. It does not appear that this is a precursor to a more robust national industrial strategy to ensure continued U.S. global power, given both the unwillingness to cut spending and raise taxes to support true investment and because of the failure of U.S. leadership to embrace a new, “producerist” economic policy doctrine.
