• Thursday, March 28, 2024
businessday logo

BusinessDay

Capitalism: East or West? (5)

Capitalism: East or West? (5)

Chart your course

Any form of capitalism can be dimensioned along the politics determine the rules and ownership of production lines: politics, production, and profits. How the surplus from production is shared determines the incentives for either efficient or innovative production or both. Efficiency could almost certainly be assured in a totalitarian state. Innovation, however, thrives better in free societies where risks are appropriately rewarded and the gains not expropriated by the state.

Thus, what is ideal is to have an efficient and innovative production sphere. And as our exposition shows thus far, the eastern and western variants of capitalism have their pros and cons. The key then is not to be entrenched with either. Instead, an aspiring African country should look to take the pros from each type and do its utmost to avoid the cons.

Read Also: Capitalism: East or West? (2)

Many African countries desire to follow in China’s footsteps. Unfortunately, they would only be able to do so to a limited extent. And as the increasing success of “copycat” Asian countries like Vietnam, the Philippines and Bangladesh show, even such small feats can still be transformational. However, even those countries may be approaching a premature climax. This is because the expectation that as labour costs rise in China, global supply chains would migrate to lower-cost jurisdictions, may not materialise as much as hoped.

Many African countries desire to follow in China’s footsteps. Unfortunately, they would only be able to do so to a limited extent

The “mastery of a new generation of automated production processes may enable China to retain its low-cost advantage (Orlik, 2020).” Still, “China’s technological gains won’t end the migration of labour-intensive employment to Southeast Asia. But it could significantly reduce its scope (Orlik, 2020).”

More importantly, and certainly more relevant for African policymakers, is how the Chinese have approached development. In other words, what they have done is not really as important as how they have gone about doing it. Chinese policymakers’ success with bringing their 2015-16 financial market troubles under control did not happen by chance.

According to Orlik (2020), an elite team from the central bank and think-tanks “delved into the history of the Great Depression of the 1930s and the great financial crisis of 2008, aiming to discover the underlying patterns at work (Orlik, 2020).” And even as they drew lessons from these experiences, they still charted an independent and clearly informed middle way that continues to be vindicated.

For instance, when faced with the risk-reward tradeoff of opening its capital account, “China’s policymakers found a middle path – opening the capital account to long-term, patient investors while keeping it closed to the destabilizing influence of short-term speculators (Orlik, 2020).”

Quite frankly, China was not expected to make the transition from an investment-driven economy to a consumption-based one easily. “Ghost towns of empty property, local government debt, and shadow banking were all identified as triggers for a system-shaking crisis (Orlik, 2020).”

Well, the pessimists have been proven wrong thus far. This is not entirely surprising. “China – for all its dysfunctions – can, when it needs to, move with the unity of purpose (Orlik, 2020).” That is not something easily achievable in the West. In carte blanche competitive Western economies, “cooperative outcomes [are] harder to achieve (Orlik, 2020).”