These are humbling times for champions of the free market and
American-style capitalism. The CEOs of the Big Three car companies are
kneeling before Uncle Sam like Henry in the snows of Canossa. The stock
market volatility these days is looking more and more like a death
rattle. No one wants to check their 401(k) for fear of their face
melting like that Gestapo guy in "Raiders of the Lost Ark" when he
peeked inside the Ark of the Covenant.
But while we cheerleaders for economic liberty need to take our lumps
and spend some time thinking about where things went wrong, it would be
nice if the Chicken Littles spent a wee bit of time doing likewise.
Exhibit A: China. You can't pick up a copy of Newsweek without reading
something by Fareed Zakaria about how China will only get larger and
larger in our rearview mirror. Five years ago, Goldman Sachs predicted
that China's GDP would overtake America's by 2041. Now it thinks that
China will reach us in 2027. (Of course, with a much bigger population,
China's per-capita wealth would be much lower than ours.) The National
Intelligence Council's new report, "Global Trends 2025: A Transformed
World," echoes these concerns.
Heck, maybe they're all right. Maybe not. The simple fact is that no one knows.
But I'd bet against it.
First of all, there's a long record of very smart people making very
bad predictions. Just Google "bad predictions" and you'll see what I
mean. In 1943, the chairman of IBM said, "I think there is a world
market for maybe five computers." Legend has it the head of the U.S.
Patent Office said in 1899, "Everything that can be invented has been
invented." Neville Chamberlain prophesied "peace in our time."
And roughly two decades ago, the best and brightest were telling us that "Japan Inc." was going to overtake America any day now.
"Future historians," warned Harvard's Ezra Vogel in 1986, "may well
mark the mid-1980s as the time when Japan surpassed the United States
to become the world's dominant economic power." Yale's Paul Kennedy
wrote a blockbuster of a book concluding that American policies should
be designed to manage our decline "so that the relative erosion of the
United States' position takes place slowly and smoothly." When Jacques
Attali was head of the European Bank for Reconstruction and Development
in 1991, he observed that America was becoming akin to "Japan's
granary, like Poland was for Flanders in the seventeenth century."
Journalist James Fallows, political scientist Chalmers Johnson and
economist Lester Thurow were fawned over for their supposedly
incontrovertible conclusion that Japan was the future. "The Cold War is
over," Johnson wrote, "and Japan won."
Then, as you may have heard, the Japanese economy went kablooey.
The Japan example not only demonstrates that smart people can be wrong
and that the elite chattering classes are prone to groupthink, but it
helps illuminate why they are so prone to this sort of thing.
For more than a century, countless American intellectuals and business
leaders have looked enviously at how foreign countries "planned" and
"managed" their economies. Woodrow Wilson and the Progressives drooled
over Otto von Bismarck, and today every self-proclaimed "global
strategist" gazes at China's managed capitalism like a kid with his
nose pressed against a candy-store window.
Of course, China has made enormous progress since it decided that
markets are a more desirable means of improving the lot of its citizens
than organized mass murder. But China's fans still have an enormous
blind spot.
Ask yourself this: Why are we in this financial crisis?
Any short list of reasons would include a lack of transparency in
markets and regulatory rule-making; collusion between business and
government; the politicization of lending practices (including the
socialization of risk and the privatization of profit through giant
governmental entities like Fannie Mae); and, of course, simple greed.
Does anyone honestly think China doesn't have these problems 10 times
over? It has no free press, no democratic accountability and no truly
independent regulators.
After every Chinese earthquake, we discover that safety inspectors
couldn't be trusted to oversee the construction of schools and
hospitals. And we're supposed to believe that China's corrupt model
produces toxic baby formula but spic-and-span finances?
There's an honest debate about how much blame institutions like Fannie
Mae and laws like the Community Reinvestment Act deserve for the
financial crisis, but few honest observers dispute that they played
some kind of deleterious role. Well, China's entire economy is one big
Fannie Mae, its laws one big Community Reinvestment Act.
I'm willing to bet that the bill for that comes due long, long, long before China catches up with the United States of America.
