China Pursues Peace and Prosperity, Not Profit

(c) by Mark Dempsey

Isabelle M. Weber's book How China Avoided Shock Therapy describes how China industrialized a poor, largely agricultural society and lifted hundreds of millions of people out of poverty in a few generations. It also describes the way the Chinese did economics to avoid the meltdown that often accompanied socialist economies' "shock therapy" transition to industrialization and markets in Eastern Europe and the USSR. One of the oddities of the Chinese transition was that pursuing profit in business did not get state support, while free markets and competition ultimately did after a slow (non-shocking) period of adjustment. 

 

Weber notes that Chinese governments intervened in markets as early as 200 BCE, doing such intervention when agricultural goods were plentiful after the harvest was in. That abundance put downward pressure on prices, impoverishing farmers, and encouraging speculators to buy so they can sell when the harvest was not so plentiful. The government intervened to prevent that. China has a millennia-long tradition of government managing markets.

 

Such price supports also exist in the US. Agricultural subsidies reportedly supply 40% of farmers' income. Michael Pollan (in The Omnivore's Dilemma) quotes one farmer calling such subsidies "Laundering money for Cargill and ADM" - large, profitable agribusinesses. Like China, the US government managed the markets' transition to and from wartime footing in WWII. During that war, the US government took over 50% of the economy. The "Green New Deal" would only take 5% of the current US economy, but the political establishment now rejects that as unprecedented.

 

In contrast to China, profit is what neoliberal Western economies pursue, and that pursuit guides how Western economies develop and build. In the energy arena, Brett Christophers' The Price is Wrong: Why Capitalism Won't Save the Planet notes bankers tend to deny loans to renewable energy sources because their profits take longer to arrive than conventional energy sources. 

 

Drilling for petroleum profits more quickly, so loans are more readily available. Renewables often have up-front costs like expanding the grid to access the power generated remotely so the electricity produced can actually reach its consumers, in addition to the up-front cost of the renewables' equipment. So while loans for such projects are necessary, bankers are reluctant.

 

Christophers makes the case that government subsidies or loan guarantees are not optional if we want to build the kinds of energy projects that favor sustainability. Meanwhile, China has pursued renewables aggressively enough that their carbon emissions are have been in decline.

 

This Chinese experience also explains the extraordinary efforts made by the petroleum industry to influence public policy in the West. Oil companies are indifferent to whether the planet burns up as long as they make a profit now, and they know government support can create eco-friendly competitors, so they spend millions to dominate government. In 2016, the oil-refinery-building Kochs spent $889 million on politics. Pseudo-lefty George Soros spent less than one thirtieth as much opposing them.

 

 

 

That said, the video above describes how Chinese public policy thwarts savers and investors whenever they try to speculate for profit. Chinese real estate, stock market, or bank accounts do not have the returns investors expect in the West. Ironically, while many Western investors appear eager to cash in on the rise of China's economy, its own population's wealthy try to circumvent China's capital controls so they can export their savings to take advantage of Western economies' pursuit of higher returns in their stock markets and bank accounts. 

Classical economics describes the "law of declining profits." In markets that are perfectly competitive with low barriers to entry, firms often compete for customers by reducing prices, which, in turn, reduces their profitability. 

Western firm managers know this and engage in many strategies to make sure markets are not free--including lobbying for barrier-to-entry regulations, buying out competitors, dumping products at below production costs to bankrupt less-well-capitalized competitors, and engaging in unproductive, but profitable activities. Typical within that last pursuit are military cost plus contracts. In such contracts, the cost to produce a weapon determines its profitability--the "plus" is the profit, and is a percentage of the cost. 

This is one reason American weapons are costly, and finicky. The F-35 fighter jet spends a significant amount of time in maintenance, even though it's a very expensive plane. Profit, not durability or military readiness, is what drives the design. (See William Proxmire's Report from Wasteland for an earlier account of just how costly US weapons are.)

So...does profit-pursuing capitalism require expensive weapons and the warfare that uses them? One editorial describing the dynamics at work in the Ukraine war seems to believe so. That editorial concludes that the war will continue indefinitely because it's so profitable. 

Meanwhile, the Chinese government understands the law of declining profits and does not permit Chinese companies to abandon productive, competitive enterprises to pursue profits at the expense of society's benefit. Chinese public policy places its bets on productive enterprise, which is a significant reason the cars they manufacture are roughly half as expensive as US equivalents. 

Making housing into a speculative investment, as the US currently does, rather than a necessity of life is the epitome of what's unproductive. House price inflation doesn't produce more house. It just enriches speculators and homeowners at the expense of those who want affordable housing.

That dynamic is one reason the US now has the biggest homeless population since the Great Depression. Successive federal administrations have stopped the public sector contributions to house affordability. Nixon stopped the US building affordable housing and Reagan cut subsidies to low-income renters. Clinton signed legislation with the "Faircloth Amendment" limiting federal low-income housing relief, so the attack on the homeless has been bipartisan.

When it was a poor country, Chinese from the countryside would come to cities to beg for food, so China had a homelessness problem too. But, rather than open homeless shelters, the Chinese offered the beggars work in their hometowns. It wasn't necessarily profitable, but that work meant China doesn't have a massive homeless population, despite its poverty compared to the US. 

Profit also is the source of billionaires. As the video discloses, China made many real estate investors unhappy with public policy that keeps house prices low, and they've even imprisoned a billionaire who encouraged real estate speculation (See: China Evergrande founder sentenced to life in prison). The US, on the other hand, leads the world in billionaire production and actively encourages building homes as investments rather than necessities, continuing the US' commitment to a dog-eat-dog economy some call "Disaster Capitalism."